International Trade Committee on May 31st, 2012

[Ed Holder, Conservative, London West, ON]

Thanks, Chair. I would like to thank our guests for attending today.

Mr. Loo, you are a great storyteller. You remind me of my Cape Breton mother in more ways than you want to know.

I would like to direct my questions to Mr. Nantais. I'm sorry for my limited time.

Mr. Nantais, are the Japanese companies members of your association today?

[Mark Nantais]

No. We have a looser relationship with the actual vehicle manufacturers—Toyota and Honda—which are different from Toyota and Honda Canada. They are separate entities.

[Ed Holder, Conservative, London West, ON]

Okay. Is there any move to make them more formally a part of your membership?

[Mark Nantais]

How do I answer that question?

There is not at this time.

[Ed Holder, Conservative, London West, ON]

Do you want them in your membership?

[Mark Nantais]

I think the discussions we have around the table now about manufacturing issues in Canada are such that I don't know if they need to be a member. We come to agreement on a lot of issues, and we agree on actions to take to solve a lot of issues.

[Ed Holder, Conservative, London West, ON]

See, here's what's interesting. We are at the front end of a potential agreement with Japan.

I think, gentlemen, you have a very unique opportunity being here today, because we haven't signed anything yet. The input that you give us can actually be very helpful. I would even say, particularly Mr. Nantais, if there is anything specific that you think should be considered on a non-tariff basis—because you said tariffs aren't the issue, and we don't have any tariffs exporting to Japan, and have small, if I might say 6%-odd is small, tariffs to import from Japan—now would be the time. Through your association, you could forward that to our clerk to give us some specific ideas. This really is a unique opportunity.

I hope you will embrace this as an opportunity. It's critical for the sake of the industry. It's part of the reason our federal government made some significant investments in the Detroit Three. Certainly, two of the three took advantage of it in the worldwide recession so we could have a manufacturing industry in this country. I think you would agree there was a significant investment from the Canadian taxpayer in those particular auto manufacturers.

[Mark Nantais]

Absolutely.

[Ed Holder, Conservative, London West, ON]

With that, my question comes back to this. Knowing that Toyota and Honda have made significant expansions and growth in southern Ontario—you have already indicated that they seem to match, and whatever they produce here, they sell here—it's not so much what they export from Japan into Canada, but what goes beyond that.

Here's my question. European manufacturers seem to have some success in Japan at having products that the Japanese want to buy. Can you please tell me then why Canada isn't doing that? Why aren't our Canadian manufacturers developing the kinds of products that the Japanese might want to buy, if you think that's the issue?

[Mark Nantais]

I think it's all a matter of what you deem to be success. I think you will find when you speak to the European manufacturers who have been able to sell some vehicles into Japan, that it's still at volumes much lower than those for any other OECD country. I'm not sure we would be deemed to be successful, but they have sold a greater number of vehicles. Those vehicles, however, generally tend to be the premium vehicles with much higher margins, and there is a tolerance, if you will, in terms of their consumers paying more for those vehicles. As a result of that, they have a greater ability to absorb the significant cost related to, for instance, the earlier question about certification of vehicles. It could be millions of dollars per vehicle. They are in a little bit of a unique situation.

In terms of the traditional North American automobile manufacturers, they have been putting vehicles into that market for many years; however, only in very small volumes. I don't think you can say the Japanese don't necessarily want those vehicles, nor could you say there's not a commitment to selling to that market. When I will look at it from the other end of the telescope, then, if they are committed and still send in small volumes, they must be committed. Otherwise, they would just move out of that market, which Hyundai recently did. There was an article this week that said that they were pulling out of that market.

Under the old policy environment that prevails, people are basically saying you must work within that environment. It's very difficult to raise any numbers of any vehicles unless you are a premium manufacturer. And even for those there are far fewer than for any other OECD country.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Easter, the floor is yours.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you.

Thank you to both witnesses.

Raymond, congratulations on being stubborn. Otherwise you wouldn't be in that Japan market. That's for sure.

There are a couple issues coming out of your remarks that could make a difference. You talked about how the Americans have equivalency on organic standards, and we don't. That would make a fairly substantial difference, whether it's an organic producer in Prince Edward Island or in Ontario. What has to be done there to do that?

[Raymond Loo]

Well, the Canadian government has equivalency with the national organic program in the States now. Also, we have equivalency in Europe, in the EU, but we don't have it with Japan. I'm not sure at what stage it is; it seems to be taking longer. Of course, the first one that was looked at was the United States, and the second was EU, but Japan is a significant market for us. It is definitely working in the favour of the Americans to have equivalency, and we don't. The faster we can possibly get that through, the better.

I don't think there are a lot of roadblocks, in terms of us using something that's not allowed. It's really a matter of government-to-government work to push this through.

[Wayne Easter, Liberal, Malpeque, PE]

Is that equivalency through Agriculture and Agri-Food Canada, or is it through Trade, or what? Do you know?

[Raymond Loo]

It's through the Canadian organic regime regulatory standards. Agriculture Canada, I guess, is looking after it, but it is a government-to-government paper that has to be done.

Even though I have national organic certification on my farm and the United States has national organic equivalency with JAS, I can't go that route. It goes country of origin, so it's government to government that has to make the agreement. It is a significant restrictor for us.

[Wayne Easter, Liberal, Malpeque, PE]

Mr. Chair, I wonder whether research could look into that a little, through the Library of Parliament. We need to know what we should recommend in that area. Or, I can write a letter to the Library.

The second area you talked about that would make a difference is residue testing. I understand it's being done in Japan. If we did it here, how complicated is it? Secondly, if we were to do the residue testing in say, Canada, at any lab, would it be recognized in Japan, in your opinion?

[Raymond Loo]

The GMO testing that we do is done in the United States. There are labs in the United States that are recognized in Japan. We have to send the sample. It goes, I think, to Alabama, or somewhere there, to get that tested.

With the other, it would depend. What they would do, I think, would be to ask what process is being used. They would want to make sure our process is the same as their process.

It's the same thing with protein testing. Our protein test is almost always 2% higher than the protein testing system they use in Japan. Once we know that, then we can always know that if ours is 44%, they're going to say it's 42%.

As long as it is done with some kind of standard, and they can follow the whole system, I think we could do it.

It seems that Canada isn't doing nearly as much pesticide residue testing as they are in Japan. I made a bunch of inquiries, and people say there's not enough demand so nobody's going to bother setting it up.

I don't know. I think if we're going to expand the market in Japan, the demand will increase as well.

[Wayne Easter, Liberal, Malpeque, PE]

Thanks.

I've heard first-hand on the embassy issue and the booth at the trade expo, and I would say to committee members that embassy staff do a good job. But I can tell you, if you have a couple of Japanese buyers with you, the Canadian pavilion, with its Canadian flag, being empty.... You've had a booth for four years in a row. If you take your buyers to an empty table and you get kicked out, it isn't great for sales.

All I'm saying, Gerald, is that a little common sense goes a long way. On the other hand, the embassy staff do good work. That's all I'm saying.

On the automotive side, Mark, you talked about Japan having quite a number of what you called “active public policy tools”, which hamper the ability of us to move vehicles to Japan.

Is there anything that can be done? If there's a trade agreement, an EPA with Japan, it may not be a huge advantage to the Canadian auto industry in the way it is at the moment, but is there anything that can be done to accommodate that concern, from your perspective?

What would we have to see in an agreement with Japan to get around these active public policy tools that they're using to keep us out of the market?

[Mark Nantais]

These active public policy tools are a broad range of things. It's not just vehicle standards. It's also zoning laws and things like that, so it's difficult to establish your dealer network and your parts network. We have a situation in Japan where they're not even willing to acknowledge that they have a problem. In fact, they're countering these suggestions that they have a policy problem that really distorts the automotive market. That in itself suggests that you would have a very difficult time trying to bring about change.

What we need is major change in a short period of time, but also the political will to make sure tat the change is effected. This is the problem, whether it's Japan, or Korea, or even the EU. Standards in the EU, for instance, are less stringent than ours, so is the certification regime. There has to be an acknowledgment, first, that there is a problem. Second, they have to make major changes in a short period of time to demonstrate their willingness to open up their market. This is going to be the biggest challenge associated with this discussion.

The United States, through the 1980s and 1990s, made four different attempts through agreements with Japan to remove this policy environment, which has tended to distort the automotive market. They put the agreements in place, but nothing really happened. We have a long-standing history of no action here. So I'm not sure I'd have a recommendation for you, Mr. Easter.

[The Chair, Conservative, Rob Merrifield]

Thank you.

Mr. Cannan, the floor is yours.

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

Thank you, Mr. Chair and witnesses. I'll share my time with Mr. Hiebert.

I wanted to compliment you, Mr. Loo, for your patience and perseverance. A lot of people wouldn't have continued. That's a true entrepreneurial spirit and a fighting farmer. Do you have any other association members you've been able to collaborate with to strengthen your movement as you continue to grow your connection with Japan?

[Raymond Loo]

We have about 10 farmers who are growing black currants. There are 11 or 12 farmers growing canola. There are another six farmers growing buckwheat, and we have a couple of farmers growing soybeans, different farmers. So there are a whole bunch of different farmers working.

We have a guy at the provincial department of agriculture who's working with the different farmers to facilitate communication back and forth to Japan. I have a partner in Japan who's sending e-mails and phone calls back and forth constantly. We don't have a formal co-operative. We're working cooperatively without a co-op name. Each individual farmer sells a portion of his crop, or whatever, to us.

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

I think it's important to share the learning pains that you've gone through, so that others don't have to go through them. That's important in P.E.I. and across Canada. So you're concentrating on the island.

[Raymond Loo]

We're primarily on the island. I was not expecting a whole bunch of farmers to come wanting me to sell stuff. I was hoping they'd come to find out how they could start doing things. What ended up happening was people phoned up and asked if I could sell some of their stuff. It's difficult, but it's also an interesting challenge. I think a lot of people could do a lot more individual marketing.

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

Thank you again for your entrepreneurial spirit. You're keeping Canada's name alive and well across the world, especially in Japan.

With respect to the auto industry, I agree that when we enter into these EPAs and trade agreements we have to have growth opportunities for all sectors. Mr. Fast has been clear that he won't sign any trade agreement that isn't in the best interests of all Canadians. We want to make sure it's a level playing field. If the agreement removes the cost of the approval process and shows a commitment to open the market for Japan, would that be something your association would be amenable to? What would that look like from your perspective?