International Trade Committee on Feb. 28th, 2012

[Murad Al-Katib]

I'm always in favour of having a mechanism that allows us to at least influence the agenda. The free trade agreements at least give us the opportunity to examine tariff and non-tariff trade barriers and market access issues and to establish a dispute resolution mechanism. Without a bilateral agreement, we have no chance. To me as a private business person, taking control of our own agenda gives me an advantage over not having anything. We think that's a positive thing.

The other side is that the Trade Commissioner Service allows us to know what the rules are in these countries. They're very complex. When the disputes involve customs and regulations, the service can give us access to government officials whom we, as SMEs in Canada, would otherwise have no chance of reaching. In my Algerian example, the embassy was able to reach the head of the health authority and get him to recognize that there was no problem with this shipment, and the shipment was let in. We could not get that access as an SME.

[Lawrence MacAulay, Liberal, Cardigan, PE]

I agree that you have to have dispute settlement mechanisms. I was just wondering if there was some way that they could be speeded up, because I know we have some trouble with perishable products like tulips.

Anyhow, thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Hiebert.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

Thanks to both of you for being here.

I want to follow up on a couple of comments that were made. I'll start with Mr. Hodgson.

You talk about incenting the trade commissioners and the work they do, and evaluating negotiating skills and interpersonal skills. The challenge that I've seen in this—and I've had years, even before this committee, in international trade—is that the trade commissioners themselves have a two- to three-year term in a given location before they're moved on to their next assignment. They develop relationships during that period of time; then they transition to a new place, and it starts all over again. Perhaps it takes them a year just to get settled, and then, in the last six months of their term, they're already looking ahead to making transitions for their families, so they're really there, fully present and connected, for about a year and a half.

If you're going to incent these individuals to build the kinds of relationships you're talking about and develop these interpersonal skills and that sort of thing, how do we transfer that knowledge? How do you transfer the value of a relationship from one trade commissioner to the next when it's very, very personal?

[Glen Hodgson]

That's a great question. I think DFAIT struggles with those exact issues almost every day, the issues of how long the term should be and how to ensure that the relationships are passed from one to the other.

One of the ways, for example, is more and more.... It's quite obvious that Canada-based staff are much more expensive than locally engaged staff, so can you hire a cadre of very well qualified local staff who become a bit of a store of knowledge in the location, knowing that they may not have the same absolute loyalty to Canada but that they're pretty good resources?

My wife actually worked as a locally engaged person for a foreign embassy in Washington when we were there, and she served them very well. It's an example of how, if you find the right individuals, they can be a bit of the continuity.

However, that's the ongoing challenge. At a time when budgets are being cut as well, having Canada-based staff abroad is very expensive. We're talking about a quarter of a million to a half a million dollars a head to have people out there.

You're right that there's something to be said for having maybe one more year added to the stay, but the real challenge is the one you pointed out, which is how to actually share all their contacts and relationships. I would hope that perhaps the locally engaged staff might provide a bit of continuity. I've seen some very good local people operate that way.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Yes, and it's true that they do have some potential, but the challenge for locally engaged staff is that unless they're of a rank of significance, they won't have access to the same people that the trade commissioners have access to, because the trade commissioners represent Canada. They have those ties to the government, and that's an attraction to foreign ministers, whether provincial, state, or federal.

[Glen Hodgson]

You're absolutely right. I see that when I engage embassies here in Ottawa. The rotational staff have more influence and more clout. They have a better title. They're actually wedded to the foreign ministry of the government. They have a way to influence files that the local staff just can't touch, frankly, but there is at least a continuity of the knowledge base there.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Yes.

Mr. Al-Katib, I'd be interested in your comments on that same question, but I'd also throw this into the mix: which countries?

You've named a number of countries that you're involved in and you've identified a few that you see as emerging markets, but for the benefit of the trade committee here, I'd like to get your sense as to where we should be present and where we should have a greater presence. You're in 108 countries. You probably have a pretty good idea.

[Murad Al-Katib]

On the first point, I echo Glen's comments. Locally engaged staff are becoming more and more important in our interactions with our embassies abroad. Effective, locally engaged staff utilize the Canadian officer to get that access, and it continues to give, no matter who the officer is. I see that recognition from the Canada-based staff too, the recognition that their time is short and that they need to leverage local relationships to make sure that they get the access and the impact that they want. I see that as being a key strategy.

When I look at where we need to be, I see India and China as two countries that continue to need more focus. When we look at those particular opportunities, we already see the footprint expanding dramatically in both countries for our Trade Commissioner Service.

We also see, as Glen mentioned earlier, that we have regions of China that are considered C-list regions in terms of size, yet they are still larger than the population of Canada. There's an opportunity there that everybody isn't focusing on, and that's where we create niches for SMEs. We like that type of regional approach, going to the second-tier cities to ensure that we have more access in those particular regions, because we are competing for opportunities in Beijing and Shanghai with every other country in the world. We are competing for access for the government and for the other private opportunities that exist there, but when we go to a second-tier city, we don't have that same type of thing.

I mentioned as well Latin American focuses. We need to follow our regional trade agreements whereby we have Colombia, Peru, and that region. Of course, we can't ignore Brazil and Russia. I look at all of this.

We talk about the emerging markets, but let's also not slight the opportunities that exist in comprehensive economic partnership agreements like the European agreement that is being negotiated. That is a very significant agreement for this country.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move to Mr. Côté, then we'll have one more questioner, who will be Mr. Shipley.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

Mr. Al-Katib, I don't want to forget something before I move on to another question.

You are the chair of the small and medium enterprises advisory committee. I was surprised to learn that the list of members is not public. I wanted to ask you who decided that and if it was possible to provide our committee with that list.

[Murad Al-Katib]

Certainly; there is no problem there— [Technical difficulty—Editor]

[The Chair, Conservative, Rob Merrifield]

We lost the sound on this end, for whatever reason.

We can hear you now. Go ahead.

[Murad Al-Katib]

The board members are a matter of public record, so we can have that list provided to the committee by the Department of Foreign Affairs and International Trade. There are 15 business people from across the country with a broad representation from coast to coast, and there is a sector focus to ensure that there is a balance between manufactured goods sectors, physical goods, and professional services. We also have representatives from women-owned businesses and others. In addition, we have advisers or observers, such as the Canadian Manufacturers and Exporters, CFIB, and others.

It is a very effective committee. We have a big transition in membership going on now with, I think, eight new members to be appointed by the minister. I will be chair until May 2013.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Okay.

Can the list be made public or does it have to remain confidential?

[Murad Al-Katib]

Absolutely. There is no problem with the list being public. We will have that list provided to the members of the committee. This is not a confidential issue.

[Raymond Côté, NDP, Beauport—Limoilou, QC]

Thank you very much, Mr. Al-Katib.

Mr. Hodgson, I would like to come back to the issue of marketing and our competitive position. We have had a negative trade balance for a very long time. It's actually a strong trend, which is also fairly worrisome.

I would like to make a link with tourism. You know that Canada has an excellent brand image when it comes to tourism. Unfortunately, probably because of marketing inadequacies and some negligence, the clientele is in strong decline.

We can ask ourselves whether NAFTA might have encouraged that trend and conclude that we were monkeying around by signing this type of agreement without ensuring how we would deal with the challenges it presents.

Do you think we are doing enough to support the marketing of our entrepreneurs under free-trade agreements? Should we be doing more?

[Glen Hodgson]

The trade balance has changed for Canada principally, I would say, because the exchange rate has moved so significantly over the last five or six years.

Our exporters were benefiting from having the dollar at around 70¢ until about 2005. At that point, the Chinese entry into the world economy began to impact commodity prices, and the dollar soared. We're now at par, so adapting to the exchange rate is one of the critical challenges for our export community, and it's something that the TCS is well aware of. That's one factor in changing the trade balance.

Of course, the U.S. has gone through a financial crisis and has had a very slow recovery over the last three years. That has meant much weaker export demand in the United States, so that's another factor. I also think that we were probably slow to seize the opportunity of diversification of our trade over the last decade or so, although we're now catching up. There are a variety of factors, a lot of them external to Canada.

The strong dollar.... We've had the benefit of strong commodity prices, so in those sectors the trade balance is in very nice shape. You're seeing strong export potential out of the resource sectors, but for a lot of the rest of the economy, the combination of the U.S. financial meltdown and slow recovery and the dollar effect have contributed.

I think the NAFTA has actually preserved our market share or our presence in the U.S. It was really a critical piece to ensure we were still a player. It would have been very hard for us to push back in Buy America, for example, if we didn't have a free trade agreement with the United States.

Our challenge with the Americans is actually to go deeper, so we're quite pleased that the government is working with the Obama administration in looking at expanding the security perimeter, dealing with regulation, and going beyond NAFTA, which was very much a tariff-based agreement, and getting into the quite hard issues of non-tariff barriers. I think that's actually preserved our market presence rather than hurt us.

[The Chair, Conservative, Rob Merrifield]

Okay. Thank you very much.

Go ahead, Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

Mr. Hodgson, one of the things has always been how to sell Canada to the rest of the world. If only they knew, we provide quality products, we're reliable, and we have a stable government. All those things are important to many countries. I think of broadening our vision and our objective as a country to help businesses, mainly the small and medium-sized businesses in this country that make it work. I'd appreciate your comments on that idea.

Mr. Al-Katib, you talked about growth in your company, and sometimes keeping the management up with the amount of growth. You indicated later having a product held in Algeria. Who helped you determine the value-added for your company when you were growing? Could you tell us how small businesses might look at it? If you've got a bare product, a primary product, you needed to see lots of opportunities. How did that happen?

[Murad Al-Katib]

Glen, do you want to go first, or do you want me to go first?

[Glen Hodgson]

You've done a superb job so far.

[Murad Al-Katib]

Okay.

Ultimately, the advice I give to SMEs always is that there needs to be a focus to your business. You can't be in 108 countries at the same time. We were benefiting from a program that was focused on export at first, and then we identified assets and customers that we actually went out and acquired. The growth of our company was a bit of what I call a distribution-push strategy, where we looked at building global distribution for our finished products, and that drove the growth of our overall volume.

We're not a usual circumstance, but we are certainly a model to show that in little old Saskatchewan we became a globally successful company by paying attention to, as Glen mentioned earlier, the value chain. It was all about quality product, branding, taking advantage of the Canadian image, using the Trade Commissioner Service to help us to identify barriers, and then using our customers around the world to push our product into markets. Once you deliver the product into markets, you deliver value to your customer. It grows if you do it right.

Part of it is also risk management. I think that a big part of what the Trade Commissioner Service does for SMEs is provide them with the information to manage their risks and understand them. I think that's a critical element of success.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

How do you get communication out from the advisory board to small businesses? The majority of the businesses in our country are small and medium-sized. How do you transfer that information to them? You mentioned that with your situation in Algeria, it was knowing who to go to and how to get the job done. How do you let small businesses know about the TCS?

[Murad Al-Katib]

As I said to you, in our push to the department, the regional offices are the critical link to the SMEs. We can't expect every embassy in the world to communicate directly with every region in Canada, but we can expect the regional offices to know their region and to develop communication technologies and outreach programs. It's also about the Trade Commissioner Service linking with other associations and industry groups that already exist.

We're pushing very strongly about having no duplication, no replication. Industry associations that are active need to be engaged to spread the message. We need to partner more to ensure we get that message out.

Again, in my business, if we generate a sales opportunity but my guys don't follow up and make it into a sale that we make money on, it's all for naught.

It's the same thing when it comes to signing bilateral agreements or having international offices abroad: if we don't deliver and bring home the value, we're actually spending money for nothing.