International Trade Committee on Feb. 28th, 2012

[Peter Clark]

Instead of the usual four years, give them six. That's possible; some countries do that. It's a question of having enough of them to move them around. You can have somebody in Guangdong and then move them to Beijing, or you have somebody in the north of China and then move them to Shanghai. You might do them in double terms or rotate them around a little bit.

You're absolutely right in saying that the key to dealing in Asia is relationships, and patience, patience, patience, because things don't happen quickly. If you look at the difference in their perception of Canada and the United States, a lot of these countries are concerned about investor-state dispute settlement or investor states such as we have in chapter 11 of NAFTA. It's because they don't want to have that kind of agreement with the United States, because it's so litigious. With Canada, it doesn't seem to matter to them as much, and we wouldn't push for it as much. We need to build on that, and it's something they really have to look at in TCS in terms of their career development. It wouldn't hurt.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. MacAulay is next.

[Lawrence MacAulay, Liberal, Cardigan, PE]

Thank you very much, Mr. Chair.

Welcome to the committee, Mr. Poloz.

I just want to get a little better understanding. You tell me there were 937 loans last year, approximately. That's not all in this country; that's to companies in foreign countries too. When you deal with a foreign country with a loan, what kinds of requirements are upon them in order to make sure that they deal with Canadian countries? There must be restrictions there, or rules they must meet.

[Stephen Poloz]

Absolutely, there are rules they must meet. For every transaction that EDC does, it must pass through our Canadian benefits gate, so it must measure up in terms of the benefits it will deliver to Canada. To give you a quick summary, last year we estimate—I use that term carefully, because we don't know to the decimal point—conservatively that over five cents out of every dollar earned in Canada was generated by transactions of companies using EDC services. We're very careful about why we are engaged in a transaction.

In the simplest case, there's a Canadian export and a foreign buyer needing financing in order to pay for that export. Then it's very direct. It's what we would call a direct bilateral loan, and we lend the money to the foreign buyer. In effect, we hold the mortgage on the thing that they've bought from Canada, and the Canadian benefit is very clear.

At the other end of the spectrum, where I was talking about creating trade, you will see us facilitate some trade. When someone wants to sell something and someone wants to buy something, we can fill the gap and put the financing in place to facilitate that transaction. At the other end, which I mentioned in my remarks, we're creating trade. What we've done there is build a relationship up with a major foreign buyer. It could be something like Tata Communications, for example, in India. We could have a financial relationship with them before the exports actually occur, but they have signed a promise to develop their Canadian procurement. They would already have Canadian companies who regularly supply them, so we already have the evidence that they're able to do this and that they are in the right space for Canadian companies. Then we would put our efforts, along with our trade commissioner colleagues, into finding the right Canadian companies; they are often small ones that really need this kind of assistance. We introduce them and build off that procurement list.

I remember that when we first started talking to Codelco in Chile, there were half a dozen Canadian companies that they routinely bought from; now there are more than 100. That's the kind of creating new trade that we think is very worthwhile, and that's where your trade commissioner is really doing most of the heavy lifting.

[Lawrence MacAulay, Liberal, Cardigan, PE]

Thank you.

You also explain that you insure small and medium-sized business with a deal. Being from Prince Edward Island and in the potato industry myself, I know that there were sometimes difficulties. Lloyd's of London was used—or whatever—to guarantee the boat shipments and that type of thing. Is that the type of business you would be in? You tell me you would insure 90% of the deal. Would that be cheaper than dealing with insurance companies?

It's something I was used to, and since I'm new on this committee, it's interesting for me to understand just why exporters wouldn't use you all the time instead of other insurance companies. Correct me where I'm wrong.

[Stephen Poloz]

Certainly. There are two different things that may be insured there. You may be insuring your shipment against the kind of loss that happens when the ship goes down or is delayed in port so that the goods spoil or something like that. Well, the EDC insurance is not about that. It's about credit.

[Lawrence MacAulay, Liberal, Cardigan, PE]

It's about paying up.

[Stephen Poloz]

It's about getting paid, yes. There's a distinction. We're very careful to ensure that when we do a transaction like that, we are pricing just as a private company would, so that we're not crowding out the private sector. That's what I meant about our partnership-preferred philosophy. The extension is that we don't want to be accused of undercutting the marketplace in any way, so we don't make it cheaper; we make it easier, perhaps.

[Lawrence MacAulay, Liberal, Cardigan, PE]

Are you involved in the potato industry at all? I know that they need guarantee of payment for Venezuela, although we seem to have lost some of our export to Venezuela. Mr. Clark might be able to expand on that and what happened. Is somebody else eating up our market? Likely someone is.

[Stephen Poloz]

I'll be very brief. We insure the receivables for billions; we insured over $80 billion worth of Canadian exports last year, and a lot of that was in the food business, including business related to potatoes, certainly.

[Peter Clark]

Exporting to Venezuela is a bit risky because of the degree of state control, or presidential control. They do things for political reasons. They sell oil cheaply into the United States to certain customers for political reasons, and they'll do deals with their friends in South America without regard to the tariffs.

[Lawrence MacAulay, Liberal, Cardigan, PE]

You mean in Cuba.

[Peter Clark]

Yes. Well, it's not quite South America, but yes. They do special deals.

[Lawrence MacAulay, Liberal, Cardigan, PE]

Am I done, Mr. Chair?

[The Chair, Conservative, Rob Merrifield]

You have time for a very tight question and a very tight answer.

[Lawrence MacAulay, Liberal, Cardigan, PE]

I'm just concerned about the EU stopping the seal exports into the European community. Do you see any way that can be aided, or...?

It's a big problem for the sealing industry.

[The Chair, Conservative, Rob Merrifield]

Now you've opened up a can of worms.

[Voices]

Oh, oh!

[Peter Clark]

Well, my feeling is this: it won't happen unless you get rid of the European Parliament.

[The Chair, Conservative, Rob Merrifield]

There we go.

Go ahead, Mr. Hiebert.

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

Thank you both for being here.

I have a general question, but I'm looking for more of a specific answer. We know there are tremendous opportunities for Canadian companies in India and China. You name the country, we know the opportunities are there. Our government wants to encourage those Canadian companies to expand and grow, to export more, to make foreign direct investment and all that.

Apart from the big players who are already in this game and have representatives in these foreign countries, how do we, as a committee or as a government, get more of these small and medium-sized enterprises to be aware of the opportunity and to act on the opportunity? What is it? Is it advertising? What do we need to do?

We do have objectives. For example, with India we're negotiating a CEPA agreement, which we want to conclude by next year. Both prime ministers have made a commitment to treble our trade from $4 billion to $15 billion by 2015. I know that the trade commissioners there, as everywhere, want Canadian companies to come. How do we actually make that happen?

[Peter Clark]

Having been through some of these things in my career, I would say that the first thing you mentioned—advertising—is quite clearly the highest priority. You have to let people know that the service exists before they can use it.

I'd back that up, as the government did a few years ago, I think, during the Mulroney period, by sending people around to trade associations to meet with business in various areas and explain to them what is available.

It's a shame that the Trade Commissioner Service is one of Canada's best-kept secrets. It shouldn't be a secret. In the United States, where I go from time to time because winter is no longer that attractive to me, in between the attack ads you can see advertising from the government saying USAJOBS can help you to export.

That's how you get people involved. They have to realize that it's there to help them. It's amazing, once they do get in touch and start working with somebody on the ground, how things come together. It's not 100% successful, but it has a pretty good ratio.

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

Go ahead, Mr. Poloz.

[Stephen Poloz]

Thank you. I don't disagree with my colleague; I would just add a couple of things.

First, I'm cautious about discounting the United States as a destination for our trade. It may have its problems of late, but it's still home to the most globalized and most dynamic companies in the world. Often the Canadian value may be going somewhere into a U.S. company's supply chain, and it ends up being exported from the United States into a global supply chain. In that sense, we are still globalizing, but through what looks like U.S. trade, so I'd caution against being anti-U.S. trade. That will be a very important platform for us forever, I'm sure.

Second, I think advertising is important. Most of the small companies I run into are very aware that there are big opportunities in places like India. What they perceive as barriers to going there could be that they think they don't know enough about whom they should see or how much it would cost to go there. Our role is to take as many barriers out of the way as we can.

EDC focuses on two. One is the risk that you may face, the risk that you may lose out or get in with the wrong people. The second is the capital needs. We're in a position to work with their banks so that they can grow their international business and put more EDC capacity on the table.

Five years ago I could go to India and have dinner with all 60 Canadian companies operating there. Today you would need to rent a really big facility, because there are over 300 Canadian companies with operations in India. There are five times as many as there were five years ago. The vast majority of that increase is made up of small or medium-sized companies. There are a lot of great case studies in there.

So it is happening. It just doesn't look like a huge number when the trade is done, because they're small companies. It's not billions; it's measured in much smaller numbers. It is happening very nicely, and it's because the tools are there and companies are gradually taking them up.