International Trade Committee on Oct. 4th, 2011

[The Chair, Conservative, Rob Merrifield]

I'll call the meeting to order.

I want to thank our witnesses for coming forward. We have with us today the Department of Foreign Affairs and International Trade to talk about the trade commissioner service. We have the chief trade commissioner, Mr. Peter McGovern; and Peter MacArthur, acting assistant deputy minister of international business development, investment and innovation. It's good to have both of you here.

Mr. McGovern, the floor is yours, and we look forward to your briefing and information.

[Peter McGovern, Assistant Deputy Minister, Asia and Chief Trade Commissioner, Department of Foreign Affairs and International Trade]

Thank you, Mr. Chairman.

Mr. Chairman, members of the committee, I am Peter McGovern, assistant deputy minister for Asia-Pacific in the Department of Foreign Affairs and International Trade. I'm also chief trade commissioner of the Canadian Trade Commissioner Service. I am proud to represent the service and explain how it helps Canadian firms of all sizes create and sustain jobs for workers in all regions of the country by engaging successfully in international business.

I shall begin with our operating context since it continues to evolve rapidly and shape everything we do. Trade is now shorthand for a whole range of international business transactions: exporting and importing final and intermediate goods and services, attracting investment or making strategic investments abroad, licensing technology, partnering for research, recruiting skilled workers and internationally savvy managers, and more. All these links co-exist as businesses increasingly diffuse their operations around the world in global value chains to leverage local advantages.

More and more, trade takes place in the context of relationships with other links in the chain rather than one-off sales through a broker or distributor, and a firm's success depends on the strength of these relationships.

The small and medium-sized enterprises that dominate Canada's economy have huge new opportunities if they know how to find their way in this world. But it's a very complex one.

The big battleground is firm-level knowledge—knowledge of where to go, who is buying, who to trust, how to build relationships in different cultures, how to improve your ability to innovate, how to produce efficiently, and how to find new buyers in new markets. If your competitors are better supported and can find the opportunities faster and manage risk better than you, your firm has a problem.

Canadian SMEs don't need a handout, but many of them do need a leg-up to succeed in this environment.

This is why the government's global commerce strategy makes trade promotion one of its key thrusts. We bring real value to companies by constantly redeploying our trade commissioner service resources and focusing our services, pursuant to the strategy, to support our firms wherever and however they most need us, and to make sure they're not at a disadvantage.

Though we work with all sizes of companies, we are particularly sensitive to the barriers faced by small and medium size enterprises as they seek to grow through international business. The costs of acquiring market intelligence and investing in relationship-building are relatively higher for SMEs, but they are the principal motors of job creation in Canada, and we want to help them grow. Firms that enter export markets show 4% higher annual productivity growth than non-exporters. There's more. Research demonstrates that every dollar spent on the trade commissioner service generates $27 in increased exports and that firms that access our services export 18% more than comparable firms that don't. In short, higher productivity strengthens firms, international business stimulates productivity gains, and the trade commissioner service supports international business.

So there are sound reasons for this trade promotion thrust. But it's not just about getting Canadian firms to succeed abroad; it's also about bringing the benefits of the global economy to Canadian workers, businesses and communities, whether it's through new or expanded foreign direct investments, venture capital for technology start-ups, firm-to-firm management or R & D exchanges, successful competition with imports, or any of the other still developing ways that contribute to our standard of living.

We do not operate alone. Our trade commissioner service works hand in glove with federal services such as Export Development Canada, the Canadian Commercial Corporation, the Agri-Food Trade Service, Business Development Canada, and many others to foster business success. We have excellent partnerships with municipalities, provinces, and territories that allow us to move further and faster on their priorities, especially on promoting our many advantages as an investment location. Business is a partner as well as a client. Trade commissioners work inside priority sector associations, and business people freely contribute their expertise on Canadian sectors' needs, capacities, and specific operating environments to improve our strategies and services.

The beneficiary of all of this is the trade commissioner service's client, a firm or an organization with a demonstrated capacity for and commitment to internationalization. There are great rewards but also real risks in international business, and you must be up to the challenge. Our client must also have meaningful economic ties to Canada and demonstrate the potential to contribute significantly to Canada's economic growth.

The beneficiary of all this is the TCS client, who is a firm or organization with a demonstrated capacity for and commitment to internationalization.

There are great rewards but also real risks in international business, and you must be up to the challenge.

Our client must also have meaningful economic ties to Canada and demonstrate the potential to contribute significantly to Canada's economic growth.

We attract clients in two ways. Many come to us first to make a specific request, usually at one of our over 150 trade offices abroad, but also through our network of 18 regional offices across Canada and our web and telephone portals. The virtual trade commissioner, for example, is an online service that pushes market information and business leads to clients interested in specific sectors and markets. Last year we served over 13,000 Canadian firms, mostly SMEs, a 10% increase over the year before. Many become repeat customers as they see our services save them time, money, or risk.

We also seek out clients. We want all current exporters to be aware of our services. We can give them strategic advice on where and how to find opportunities or bring them critical intelligence that will allow them to land sales or acquire strategic technology in the face of foreign competition or protectionist, or even hostile, foreign governments. We want to work with business associations and through our regional offices to reach out to Canadian firms that are ready and need to grow internationally to succeed, firms for which the Canadian market alone is too small or crowded to sustain growth, so that we can help them build and execute their strategies.

Of course, global markets are constantly changing, and we must continually reallocate our resources to ensure that trade commissioners are in the places where clients need us most.

I'll give you one example. In December 2009, during his trip to China, the Prime Minister announced the expansion of our footprint in that market with the opening of six new trade offices.

This was clearly in line with government priorities and client demand.

How are we doing? Two measures that really count are these: is the client satisfied, and is the client actively pursuing a business opportunity thanks to our help? We survey our clients directly, and 78.2% of our respondents are currently satisfied or very satisfied. As for outcomes, over 50% of our clients are actively pursuing business in markets where they obtained a TCS service.

Mr. Chairman, before I close, I'd like to end with this final note. As the Minister of International Trade has said time and again, trade is a kitchen-table issue, one that concerns jobs and how people put food on the table and provide for their families. As we help companies succeed abroad, they create new jobs and prosperity for Canadian workers, businesses, and families in every region of our country.

Mr. Chairman, I would be delighted to respond to any questions that you or the members might have about Canada's trade commissioner service and its work to take Canada from a trading nation to a nation of traders.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

I understand Mr. MacArthur is here to answer some questions as well, and we thank him for that assistance.

We'll now move to questions and answers.

We'll start with Mr. Chisholm. You have seven minutes.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Thank you very much, Mr. Chairman.

My apologies for being a bit late for your presentation, Mr. McGovern. I am just beginning to learn how strict our chair is with time. He is very respectful of time, and I appreciate that. Let me tell you, I will conduct myself in the future accordingly.

I want to say a couple of things. One, there is increasing pressure on you and your colleagues to be out there and doing the work. I haven't had a chance to look at the budget implications of this extra demand, but could you give me some indication of how your service has changed over the past two or three years in terms of size and budget?

[Peter McGovern]

Thank you very much, Mr. Chair.

The most recent change to our budget occurred in the context of the global commerce strategy, wherein we were allocated additional resources providing us with a certain amount of flexibility. Our opening of new offices in China was one of the results of having this little bit more flexibility.

An element of how we work in the trade commissioner service is that we are very much a results-based organization. Each post and trade section around the world in our regional offices actually measures results. We can tell you, to the individual, what kinds of services are being performed in support of Canadian exporters. On the basis of that, we're continually reassessing and recalibrating where we are to ensure that we are not falling behind in the context of major emerging markets.

To be very frank, the way in which this works is that countries compete against countries, so we're always seeing what Austrade is doing, what UKTI is doing, what the U.S. Commercial Service is doing so that we can ensure that, if a Canadian exporter from any one of your ridings wants to be present, for instance, in a secondary city in China, we have somebody on the ground who can help and assist. That's an ongoing part of it.

In terms of exact numbers, we have a little over 1,200 people in the field in terms of our trade commissioners. It breaks down to about one Canada-based trade commissioner for every two locally engaged trade commissioners.

I hope that addresses your question.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Has that budget been reduced at all this year?

[Peter McGovern]

At this point, no, our budget hasn't been reduced, but the trade department, like all departments of government, is very much concerned with making a contribution to deficit reduction and measures will be taken in terms of the 5% and 10% scenarios in line with the strategic operating review. Where that goes, I don't know.

[Robert Chisholm, NDP, Dartmouth—Cole Harbour, NS]

Good.

Thank you, Mr. McGovern.

[The Chair, Conservative, Rob Merrifield]

Mr. Ravignat.

[Mathieu Ravignat, NDP, Pontiac, QC]

Thank you for being here and for sharing this information with us. It’s much appreciated.

Of course, not all Canadians are convinced that the way we invest in these programs is beneficial to Canadian communities. That’s what my questions are about.

In your presentation, you say that “it's also about bringing the benefits of the global economy to Canadian workers, businesses and communities”. You list a number of advantages, and at the end of the paragraph, you say “or any of the other still developing ways that contribute to our standard of living”.

Could you explain to us how your work contributes to Canadian communities? Also, how do you measure that contribution?

[Peter McGovern]

As for measuring our work, we do that as I just explained. There’s a way to measure all the services provided, whether by exporters or people we work with in the provinces and communities. Currently, many Canadian communities are very active in terms of economic development.

We work in either our regional offices or our missions abroad on promoting industries present across Canada. For instance, the Premier of Quebec recently visited China and mentioned the Plan Nord, a project aimed at prioritizing communities in northern Quebec. Trade is first and foremost a partnership, be it with our provincial partners or with communities and companies.

As a consequence, we're always ready to work with local firms to help them find market opportunities. If you're a small company in the Pontiac and you have a product that you would like to be able to market, we would first suggest you meet with our regional office. We would see if the company were export-ready, then if the company was export-ready we would assist it in finding market opportunities. We would work with that firm through the services we provide to see if we could find a créneau for the company to export its goods to. We're fully aware that in this country where 56% of our GDP is exported, for firms to be profitable, for firms to grow, they have to be thinking about exporting.

One of the very interesting challenges that my minister and my colleagues face is how to sell a free service. We will provide service to anybody who meets the basic criteria, from anywhere in Canada. As you saw in my presentation, a firm that works with us is much more successful than a firm that doesn't.

That's the context, and I hope that addresses the question.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll move to Mr. Keddy.

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

Thank you, Mr. Chairman.

Welcome, Peter, to committee. It's a pleasure to have you here today.

I'd like to drill down a little deeper into a couple of points you made. One of them was that international trade stimulates productivity. I've always thought that to be an extremely relevant statement. There are different levels of sophistication within companies. I'm always absolutely amazed at how many small companies export in my riding; in fact, the majority of them export. When you use the term “export-ready”, what do you do to actually help promote export-readiness or that level of sophistication within small and medium size enterprises?

[Peter MacArthur, Acting Assistant Deputy Minister, International Business Development, Investment and Innovation, Department of Foreign Affairs and International Trade]

Mr. Chairman, we are working constantly at a regional office level. The 18 regional offices have an important role to play in preparing clients to get into the international arena, working closely with provincial and territorial governments and, in some cases, local industrial cluster organizations such as OCRI here in Ottawa, or Communitech in the Waterloo area, for example.

We also like to mentor them by showing them that other similar-sized companies—who have given us permission to release their names—in similar industries have succeeded in complex markets beyond the United States. That's one of the roles that we play there.

They describe themselves as 5/95 companies--5% of their business is in Canada, and 95% abroad. The example that I would give you in terms of productivity is that of a particular company in the Ottawa area that got involved in Italy. The Italians bought some technology from this ICT company, and vice-versa. Over time, this small company, a niche player, was able to access the European market through the Italian partner. They sold technology to each other and they developed confidence together in the international marketplace.

Also in terms of multinational enterprises, the value chains are increasingly very important. Surprisingly, some of these smaller companies, with our assistance, are being successful with large multinational enterprises. An example of this is a large American defence company, an aerospace company actually. We spent a day with them down in the United States on Canada Day, when some small companies presented in-house within that multinational corporation. Some of those companies have therefore been able to break into that value chain. It makes them more productive.

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

The global commerce strategy that we've put in place as a government was touched on earlier, the fact that we've opened new trade offices and trade commissioner offices in targeted markets, including six new offices in China, and I think four in India, and two in Brazil. These offices are important to make sure that we can take advantage of different regions and areas in specific countries.

To capitalize on that, how do we reach out to the companies that are already exporting into those areas and don't use the trade commissioner service, so that we can actually increase and enhance the quantity of trade they do? How do you find that group? Again, I'm always amazed at how many exporters there are that have simply been doing it for years, who are out there by themselves. When you talk to them and say that we have people who can help them, they're not aware of it. How do we do that?

It's a tough question, I know.

[Peter MacArthur]

Mr. Chairman, we use our normal communications products, copies of which we've brought to the committee and which I think the clerk has, to try to market the service better via both the web and more traditional communications products.

This is a very important point that you raise. There's a whole new generation of road warriors, as they're called, who may not know our services. People in the eighties and nineties knew us better. The way we're trying to connect with this new generation is through a reform we made in the past two years, which is to co-locate trade commissioners inside industry associations across Canada. Examples would be the Canadian Venture Capital and Private Equity Association in Toronto. We try to link venture capital with small exporters who need such capital, especially in ICT, life sciences, and cleantech. We have somebody in the Petroleum Services Association in Calgary, who is embedded inside the association, helping guide that association and its hundreds, and sometimes thousands, of members to navigate our rather complex global system around the world—but also to reflect into the department better the needs, expectations, and capabilities of that industry. We have somebody in ocean technology in St. John's, Newfoundland; somebody in Montreal in advanced forest industries – the bio-refineries of the future, and similar others. We could give you a list of those if you're interested.

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

That's a great idea. That makes a world of sense.

The other issue that certainly comes across my desk, and I'm sure across the desk of all of the members of committee, is a trade-related issue that's not in your bailiwick, but it might be an area that you could look at assisting with. We often get requests from individual companies operating around the world, whether in Pakistan, China, or Brazil, that are trying to bring in someone. I can give you an example. A company operating in China wanted to bring in Chinese workers or employees to train them on equipment here, and they had difficulty getting the visas to bring those people here. I realize it's a separate issue, but it's one of the issues that we need help with and they need help with so that they can actually bring that individual in, guarantee their stay in Canada and, obviously, make sure they return. It's not a simple process.

I don't know if there's a way the trade commissioner's service can help, but certainly background checks within China or the country the person is coming from would help. It's a loophole that we've not plugged, and it's a problem for companies that have international business.

[Peter McGovern]

Mr. Keddy, it's a very important point. I know it's one that the minister responsible for immigration is addressing. There are working groups right now, which we participate in, where we're trying to identify these kinds of systemic problems. What's interesting is that they've become very complicated recently, in part because you now have non-traditional investors.

Peter and I both joined the trade commissioner's service the same day 30 years ago. When we joined then, you never would have thought about investment coming from India or China. With that kind of investment flow, you have issues with the temporary entrance of professionals. You have to manage their investment and the kinds of hurdles that are there. We're trying to find a way that will meet the ongoing concerns that we have, on the one hand, but that will also allow greater flexibility and, effectively, increase the likelihood of other investments, with that great flexibility.

Nothing is more discouraging for somebody than making a big investment and suddenly the man who's going to manage it, who's coming from Mumbai, takes four months to get a visa, or an issue like that.

We're working through those and we're trying to streamline it. We've had some success, but we're systematically working through the kinds of issues that arise like that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Easter.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr.Chair.

Mr. McGovern, I could just see the chairman's eyes light up when you said that every dollar spent on TCS generates $27 in increased export goods. I think he was thinking that if he invested $2 billion he could get rid of the government's debt in a year.

I say that offhandedly but--

[The Chair, Conservative, Rob Merrifield]

You're almost out of order.

[Wayne Easter, Liberal, Malpeque, PE]

Not really.

But, Peter, I really do believe that is a good statistic and the trade secretariat, I think, does really valuable work.

On Gerald's question, I really don't believe it is well enough known out there. I've had the opportunity to work with EDC especially, but I went to the annual meeting of Canadian Commercial Corporation and was absolutely astounded at the amount of investment they make around the world, including the airport work they're doing in Ecuador. I really do believe a lot of businesses out there still don't know you exist, and they should.

My experience in the trade area has been with difficulties in markets once they are established, especially in perishable crops, mainly potatoes. What I find happens is that you have a boatload of potatoes sitting on a wharf in the Dominican Republic or a Caribbean country in the heat, and political activity is blocking the potatoes, and Canada is much too slow to respond. I think there needs to be a quick response team. CFIA officials on the ground need to respond with authority on the ground and not have to call back to Ottawa and dilly-dally for days while crops rot on the boats.

Is there anything happening in that area for a quicker response on trade issues when they occur on the ground in some countries? I ask because they occur every day....

[Peter McGovern]

Thanks, Mr. Chair.

I have another statistic that I'll provide to Mr. Easter, as well, because we like to blow our own horn here. Our chief economist has actually shown that for every dollar spent on the trade commissioner service, it leads to $2.8 of additional federal government revenue. In the context of reducing deficits, I'd like everyone to take note of that one. That's a good one.

In response to Mr. Easter's question, the whole issue of market access is ongoing. We see it around the world. We actually have a pretty good record in dealing with it. The challenge, of course, is that invariably the problem is not created by Canadians. Generally the people who deal with market access issues are locally engaged trade commissioners who know the ins and outs of a sector.

And you're quite right, it almost has to work like a SWAT operation. You get the call, and we've had instances of potatoes.... We've also had instances of live lobsters in a container on a pier in the heat, perishable products like that. You have to be able to deal with something. You need somebody who can navigate that system, as you quite rightly point out, and not have to go back to Ottawa. Our colleagues don't. They know who they have to go to. But it's often these kinds of non-tariff situations where you have a phytosanitary thing and they try to hold it up.

We can always do better, Mr. Easter, and we're seized of that; it's what we try to do all the time. It is a defeat for us if somebody's export opportunity of a perishable agricultural product is lost because of something that transpired once the product arrived where it was supposed to be and the guy who wants it isn't able to take possession of it for some reason. That's always a challenge for us.

[Peter MacArthur]

One of our four key services is exactly that: troubleshooting or solving problems. Working with CFIA in Asia in particular we have now established CFIA positions in places like Japan and China. The one in Japan was set up to fight the BSE problems. That person is a veterinarian and a plant specialist who is helping not just in Japan but also in Korea and Taiwan.

So in working more closely with CFIA, we are trying to better address that problem.

[Wayne Easter, Liberal, Malpeque, PE]

How much time is there, Mr. Chair?