International Trade Committee on May 8th, 2012

[The Vice-Chair, NDP, Don Davies]

You have 30 seconds.

[Gerald Keddy, Conservative, South Shore—St. Margaret's, NS]

To Mr. Phillips, when you were discussing grains you kind of trailed off about there being room to improve our market for quality wheat. I'm assuming it's outside of durum and other wheats, but just good hard wheat.

Can you expand on that a little?

[Richard Phillips]

Sure.

We have a very long history of exporting wheat to Japan, but they're very, very specific with their quality parameters. If you can meet those, then there's a premium price attached to that.

In Canada we're very good at that, whether it was through the Wheat Board or whether the private sector was selling via the Wheat Board. We've always met the specs they're looking for. We will continue to do that.

Canada has a grain-handling system that makes it easy for us to segregate our grains virtually by field in western Canada. That's what they're looking for. So when we were over there they were looking for assurances that we will continue to manage our systems such that they will get access to those—providing, of course, they're prepared to pay the price. So they were looking for that assurance.

I can tell you that some of our competitors have been over there spreading stories that we will not be able to provide them with quality wheat, and that they therefore should be buying from the United States or Australia. We went over there directly to meet with the flour millers to reassure them that Canada is here to do business.

[The Vice-Chair, NDP, Don Davies]

Thank you, Mr. Phillips.

From the Liberal Party, Mr. Easter, for seven minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

Welcome, folks. Thank you for the presentations.

Mr. Laurin, you talked about an area that I think is extremely worrisome in this country as a whole: the deficit on the manufacturing side and the surplus on the natural resources and commodities side.

In this country, it's great to see the oil, natural gas, and commodities industries doing well, but that masks to a great extent what's happening in the rest of the economy. The economy's here because of how well the oil industry is doing. The manufacturing sector is extremely important to wealth generation and jobs.

You mentioned that barriers to trade and investment are structural in nature. How do you see this potential agreement overcoming that, and what needs to be done to overcome it in a way that will benefit the manufacturing sector?

[Jean-Michel Laurin]

Thank you, Mr. Easter. That's a very good question.

I think one thing that has been keeping our economy out of recession and actually probably positioning Canada as one of the leading economies in the developed world is our natural resources sector. I know there has been some talk about that driving up the value of the dollar and affecting manufacturers in a negative way. I don't share that view. I think the resource sector has been supporting growth in the manufacturing sector, because as I indicated earlier, a significant proportion of these sectors purchase goods from the manufacturing sector in Canada.

That being said, I think increasingly our members are looking at diversifying their export markets. Our existing customers, and especially the United States, are not buying, and will not be buying in the foreseeable future, as much as they used to. If our companies want to grow, they need to look outside of North America for additional customers and for more business.

To that extent we're very supportive of the government's trade agenda in terms of dealing with trade barriers that Canadian companies are encountering in foreign markets.

For some of those markets, especially in the Asia-Pacific region, we have to be very strategic in how we look at this. We're certainly supportive of the negotiations with Japan moving forward. There's no shortage of trade barriers, as I mentioned earlier. Can we actually effectively address them in trade negotiations? I think it's interesting to note that Japan seems to be coming to this in good faith and they realize that their world has changed as well and they need to open up their market.

I think your question was about what needs to be done if we want this FTA to benefit our manufacturing sector. I think the good news is that there is some complementarity between our two economies and even in the manufacturing sector. As I said earlier, it's a mature market. There should be demand there for the kinds of goods we can produce.

In terms of the agreement, we certainly support an ambitious agreement that looks at tariffs, deals with non-tariff barriers, the movement of capital, and the movement of people, and looks at strengthening our dispute-settlement and dispute-resolution mechanisms. I think an ambitious agreement certainly holds potential.

When we talk to our members, I think there is some skepticism about Japan's ability to actually address some of those trade barriers, but then, not all of my members were on the delegation that Peter participated in, and it seemed, from what he was sharing, that it was an eye-opening visit.

So to that extent, I think we have a window of opportunity. I understand the government wanting to seize it. But at the same time, we have to be mindful that this is a market that for historical reasons our manufacturing sector has had a hard time with. It's not because we haven't tried. I think we've had persistent barriers, and to the extent that we can actually get rid of them, I think that would be great for our manufacturing sector, because it's a large industrial market.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you.

I think, Peter, you had mentioned that you need to address—and I quote—“doing business” in Japan. You also mentioned double taxation. What do you mean in the double taxation area? Is that about people who are doing CEO work or management work in Japan and who are taxed double? Would you expand on that?

On the insurance business in total, you indicated that Japan Post Insurance is 30% owned by the government. What are the implications of that in terms of our insurance and investment community doing business in Japan versus them being able to do business here? How does it affect us on a competitive basis? I expect that 30% is not going to be reduced as a result of a trade agreement.

[Peter Wilkinson]

Mr. Easter, let me take the first one, and then I will say one or two words about Japan Post. I will then ask Janice if I have missed anything.

On the double taxation social security issue, it's not a completely uncommon issue, when you are trying to move your executives around the world that, if tax treaties are not exactly straightened out the right way and stuff like that, people end having to pay tax in both jurisdictions, and it's not accounted for in the other one. Our people end up having to pay a lot of tax. It becomes difficult for us as a global company, which we are. We are in 11 different territories in Japan, we are here in Canada, and we're big in the United States. It becomes very hard to move our people, not just Canadians but also if we want someone else to come here on a temporary assignment. We just need that sort of cleared up.

On the Japan Post issue and on the insurance, the simplest way to explain why we are concerned about Japan Post Insurance is that if Manulife wants to bring out a new product in Japan, we have to go to the regulators. We have to explain what it is. We have to show what its benefit is, how it's going to operate, and whether we have enough capital reserves to put that product out. Therefore, if we sell something, people know they will get paid out no matter what. Japan Post Insurance doesn't have to do that. They just sort of walk in and announce by press release that they have a new product and it's going out; regulators have never looked at it.

So it's a bit unfair to us. And it's not only unfair to us; it's unfair to the private sector companies in Japan who are domestics in there. That's the simplest and easiest way to explain it.

Janice, is there anything else you want to add to that on Japan Post Insurance?

[The Vice-Chair, NDP, Don Davies]

Give a brief answer, please.

[Janice Hilchie]

Okay.

There's also the aspect of distribution. Japan Post is actually four different corporations, which includes insurance, banking, and the postal services. Under the new legislation, Japan Post Insurance has almost exclusive access to distribution through the Japan Post network, which also creates an uneven competition with other private insurers.

[The Vice-Chair, NDP, Don Davies]

Thank you.

We now have Mr. Holder from the government Conservative Party for seven minutes.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

I'd like to thank our guests for being here today. It has been very interesting so far.

I happen to think we have a very unique opportunity in terms of our discussions right now because we are at the very earliest stages of our dialogue with Japan. In fact, for those who don't know, it was back just on March 7 of this year that both Canada and Japan released a report which they called the “Report of the Joint Study on the Possibility of a Canada-Japan Economic Partnership Agreement”. I think the testimony that you provide today is helpful, I think, in shaping some of this as it goes on.

It's interesting, Mr. Laurin; I have heard you make presentations to our committee before, and you seem to be more tentative today, more careful with the words you use in terms of your support for this.

I have heard you say...and I frankly took a little more confidence as you were talking, in some of your testimony since. But it just seemed to me that you were being more mindful and tentative with that support. Why is that?

Maybe my perception is wrong, by the way.

[Jean-Michel Laurin]

No, I think your perception is right. I don't know if “tentative” is the right word. I think we're just a little bit tentative; “cautious” would be a good way to characterize it.

As I said, they are a large, mature, industrial market. They have companies that are leading companies in different sectors around the world. Many of them are actually present in the Canadian market. From a manufacturing perspective, we have had a persistent trade deficit in manufacturing with Japan for a long time, but some Japanese companies have invested in Canada, and we have benefited from those investments. As I said, our members can compete around the world on a level playing field. There's no question about that. We achieved record export sales levels to China, South America, and Europe last year.

[Ed Holder, Conservative, London West, ON]

So you would say you're optimistic, then?

[Jean-Michel Laurin]

Companies are investing in growing business in other markets. The issue with Japan is that those trade barriers are tough to deal with.

Can Japan effectively deal with them through a trade negotiation? I don't know. I haven't seen them do it before. I understand they are pursuing a trade agenda that includes Canada and other countries. Now, to what extent can we actually address those trade barriers, especially the non-tariff barriers? I mean, there are certification issues, product entry issues—

[Ed Holder, Conservative, London West, ON]

So is it fair to say—I'm short, because I want to direct a number of my comments to the folks from the insurance side—that hence your stronger support for a TPP, but having said that, who knows, quite frankly, whether that's going to happen, so...?

[Jean-Michel Laurin]

Exactly.

[Ed Holder, Conservative, London West, ON]

So at least as a general comment, your support of Japan is TPP, yes, and if not TPP, certainly at least Japan....

Is that a fair comment?

[Jean-Michel Laurin]

Yes. That's a fair comment.

[Ed Holder, Conservative, London West, ON]

I'm going to have to leave it there.

I apologize to Mr. Phillips, as well, because I think there would be others that do that.

I'm going to use my old 30-plus years' insurance background—which just means that I'm old. I'd like to ask you to focus more on Japan Post and Manulife, as well.

Manulife, Mr. Wilkinson, regardless of Japan Post, seems to have had some dramatic success versus other Canadian insurers in Japan. I would like to know, quickly, why that is. And to what extent do you believe Japan Post is truly an impediment to your doing business there?

[Peter Wilkinson]

We've had success in Japan, since we went back in the 1990s, because we purchased a company to get back into Japan. It had a fairly good share of the market and an interesting product. Our management of it has gone well. We've had good management and good partnerships there.

On the Japan Post issue, I'll put it in a different way. Why are they a problem, not only for us but for all foreign and domestic insurance providers in Japan? It's like you're playing a hockey game, and one side has sticks, and we have half-sticks with no blades on them. They can start to do stuff before we can. They don't have to go through the regulator. It's an unfair thing. We've talked about it, as Janice has said. The Americans have said it. A bunch of people have. That would be the big issue for us.

Japan Post is the largest life insurance company in the world, and they're basically owned by the Government of Japan. They have access to everybody through the post office.

I mean, think about that in a Canadian context, if we had to compete with Canada Post every day and they could send someone to someone's house.

[Ed Holder, Conservative, London West, ON]

It's a good thing the government side doesn't believe in socialism, or else we might have those concerns. The good news is that we don't.

If I can, I'll come back to Ms. Hilchie on this. By way of background, how long has it been in existence, to the extent you know, as Japan Post Insurance? I think this is an important point, and that's why I'm dwelling on the Japan Post piece a little bit more than I might otherwise. It was interesting to hear Mr. Wilkinson say that it's the largest insurance company, for life products primarily, I presume, Mr. Wilkinson. Is that right?

[Peter Wilkinson]

Yes.

[Ed Holder, Conservative, London West, ON]

They're the largest life carrier in the world. When did the Government of Japan choose to take a 30% interest, or is that how its history evolved? Do you know offhand?

[Janice Hilchie]

Back in the mid-2000s, in 2005, there was a bill passed in the Japanese diet to privatize Japan Post. In 2007—