International Trade Committee on Feb. 28th, 2012

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

Mr. Poloz, you mentioned that you're in the matchmaking business and that you combine market intelligence and relationships to do that matchmaking. How do you manage your relationships? How do you keep track of your relationships? Are there individuals in EDC who have corporate memory and have built these contacts over time? Is it a newsletter you send out to contacts you've established? How do you sustain those relationships?

[Stephen Poloz]

The answer is that it is most of those things, but the main thing is that it is about the relationships. We have more than 200 people in the front of our business, so about one-fifth of EDC are people in the relationship business. We call them our business development group, which sounds kind of commercial.

The point is that they have strategic accounts in the international sphere, and there are some strong relationships developed over time with those foreign companies. Usually they're larger companies, because we want to develop trade relationships across lots of Canadian companies with those big buyers, but there are also small companies. We have equity investments in Indian or Chinese or Turkish or Brazilian equity funds, which gives us a channel into developing small and medium-sized companies in these countries. Across those fronts, those relationships are just people to people, and they're maintained year after year by the same people.

For us, that is managed all the way up to the top of the house, my executive team. I could pick one at random, and each one has eight or ten international or domestic strategic accounts that they're responsible for visiting a couple of times per year, making sure everything's going the way they like it to go. What else could we be doing for you? What's missing? Whom would you like to meet? Here are some candidates.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We're through the first round of questioning. We have three more questioners and we'll have time for them.

I want to use the chair's prerogative to cue on something that was said in testimony and give the witnesses an opportunity to inform the committee a little more.

You made a comment, Mr. Clark, with regard to the United States and trade with the United States—I think it was something about their eating our lunch—concerning restricted expansion of trade with the United States. If my math is right, I think they are our largest trading partner, with about $649 billion last year, but we are theirs as well in 35 of the 50 states.

I want you to expand a little bit on where you're going with that thought, just so that the committee has a better handle on where you're coming from.

[Peter Clark]

I was discussing basically two issues. One is what your position is if you're inside a preferential trade agreement, as we are with the Americans. We're in the inside of the tent looking out with them; we're partners and we have duty-free access. That works. We did one of those with Colombia; we got there before the Americans, and we gained considerably.

However, with Korea, where an agreement sat on hold for years because we were concerned about automotive trade, many agricultural exporters found themselves in a very difficult position. For example, the pork tariff on stuff that we are good at selling will go down by 9% for the Americans on March 15. In an industry where your margins are generally 5% or lower, that means that if you want to keep shipping, you lose on every pound you ship, so if we're not in there first, not only do we not gain from duty-free trade, but what we've built up is at a disadvantage.

Mr. MacAulay is gone, but there were some problems with french fries going into the Caribbean for the same reason. That's what happens.

If we don't get into the trans-Pacific partnership at the table in the first round and have to buy our way in later, while the Japanese do sit at the table, all the trade we've built up in the Japanese market is going to be at a disadvantage, because instead of having a level playing field in terms of tariffs with the United States, we'll be at a disadvantage.

I was very happy to see Mr. Manley's group and their counterparts in Japan come out with a press release, yesterday or this morning, that encouraged a Canada-Japan free trade agreement in parallel with the TPP.

Being there last is really a serious problem.

[The Chair, Conservative, Rob Merrifield]

That explains a lot. You're not talking about trade between Canada and the United States. You're talking about—

[Peter Clark]

No, not at all. I'm talking about the rest of the world.

[The Chair, Conservative, Rob Merrifield]

—what's happening internationally and who's going to capitalize on that market.

[Peter Clark]

I agree with Mr. Poloz in terms of the United States. They're going to be our biggest market forever. It's just a question of where we go in the future.

[The Chair, Conservative, Rob Merrifield]

Very good. It just wasn't clear to me in your testimony where you were going with it.

Go ahead, Mr. Côté.

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

Thank you, Mr. Chair.

Mr. Clark, I very much appreciated how frank you were on many points. Given that I am my party's critic on small enterprises and tourism, I have seen that there seem to be a number of obstacles for small enterprises preventing stronger entrepreneurship. You mentioned the problem of competition with the United States, including the fact that the Obama administration had a very ambitious plan for increasing exports. We may also think about the BRIC countries and focus, strictly speaking, on China, a country that steps in a great deal to support both its domestic market and entrepreneurship.

We are studying the trade commissioner service instrument. Actually, I would like to thank Mr. Poloz of Export Development Canada for being here.

You spoke about being present by first signing a free-trade agreement. I'm wondering what it may mean since, in my opinion, Canada does little to support its domestic market. I'm not just talking about supporting businesses, but also developing and maintaining infrastructures. We see that China, Brazil and the US invest heavily in infrastructures. With respect to China, we could also mention that China's loans to businesses are practically donations.

I'm wondering why we should necessarily sign a free-trade agreement if, coupled with the trade commissioner service, Canada does not have an intervention plan to support this foreign trade from a strong domestic market.

[Peter Clark]

It is my impression that the government has an export plan that covers a lot of major markets, and they're trying to integrate help from the Trade Commissioner Service with EDC and with other elements of the government.

The Chinese people own everything in China, if you want to put it that way. That's the way the Chinese government puts it: it is not the government, but the people. Nearly everything is publicly owned, except for areas in which they permit foreign investment. It's a fact of life.

However, people are doing business there. The Chinese import a lot as well as export a lot. They are looking for expertise. Their relationship with Canada is getting better.

I go to China a lot. One year I was there seven times. I wish I hadn't been, but I was. That's a lot of travel. I'm probably going to China next week.

There is a lot of investment in China in which we can have an advantage. We have high tech, we have systems for construction, we have systems that relate to agriculture that they need very badly. It's a massive market. It's growing fast. We really can't afford to be on the outside looking in.

What do we do in terms of what we do here? I have to tell you that any time we try to intervene to help business and people export to the United States, we're running the risk of a countervailing duty action or an anti-dumping action that can freeze or chill trade for more than a year before we get out. We usually get out because we're not hurting anybody.

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

Mr. Clark, since we aren't on equal footing, wouldn't a free-trade agreement be a trap? It could clearly put us at a disadvantage. I remember the warnings about it. We have certain instruments that operate without a free-trade agreement. Mr. Poloz spoke to us about Canadian entrepreneurs in India.

Could we foolishly set ourselves up? I could mention chapter 11 of the free-trade agreement with the United States and Mexico, which we want to include in other agreements. It concerns the protection of investors.

[Peter Clark]

Well, if your point is that Canada is smaller and the U.S. is stronger, I don't see what difference it makes. We have to be on equal terms.

[The Chair, Conservative, Rob Merrifield]

Very good.

Go ahead, Mr. Shipley.

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

Thank you, Mr. Chair.

This question is perhaps for Mr. Clark. I come from an agricultural area, and when we talk about trade agreements, it seems that we sometimes have regulatory challenges in front of us. In some kinds of procurement, I think sometimes we get political regulatory issues; in other words, they aren't really regulatory but just political barriers in front.

What are those challenges, and how do we deal with them?

[Peter Clark]

Generally what we have tried to do is to write very strong sanitary and phytosanitary provisions into the trade agreements and then try to get them enforced.

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

Have they been pretty much successful?

[Peter Clark]

The use of sanitary and phytosanitary regulations is only limited by the imagination of the invoker.

It's not easy. It's a very grey area. When you get into sanitary and phytosanitary, you end up getting risk assessments from experts, and if you get two experts, you'll get two diametrically opposed opinions.

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

Do you often see that our regulatory regime is fairly restrictive in Canada? Is that an issue?

[Peter Clark]

No, not at all. I wouldn't say that.

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

One comment you made was that you were concerned that in some of these countries we have a baby boomer group. I think you were talking about the TCS.

[Peter Clark]

Yes, I was referring to the Trade Commissioner Service.

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

How do we develop a succession plan of transition so that we don't end up with people with life experiences on the ground leaving and educated people with no life experiences coming in?

[Peter Clark]

There are three separate problems that I see there. First, the people who've stayed in and made it a career are close to retirement. Second, in the middle the people are much less inclined to stay in for a career. They are getting very good experience and they go out to the private sector.

There were hiring shortages at DFAIT; they have tried to overcome those, but you have to make the career more attractive. What they get paid to do that job in the government is nowhere near what a private corporation will pay them, and they lure these people out.

The other problem is that when you put the departments of trade, commerce, and external affairs together, the pot of gold at the end of the rainbow is the ambassador's chair. Trade is a stepping stone, so you get people who want to do a little bit of trade and then shift over to the diplomatic side because they figure it's an easier track to becoming an ambassador.

That doesn't mean trade people can't become ambassadors; they can and do, and in the important posts.

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

Mr. Chair, I'll leave that for now. If anybody else wants to follow up....