International Trade Committee on Oct. 16th, 2012

[The Chair, Conservative, Rob Merrifield]

It's the end of your questioning. We'll allow a quick answer from either one.

[Ray Price]

I think that each individual plant has responsibility for its food safety, and no one cares more about food safety than the owners and operators of the plants. We do everything. Millions and millions of dollars have been spent on food safety.

Barry said that the shelf life for pork is 55 days. I would say that's probably 15 days longer than anybody thought was possible 10 years ago. I think we've made tremendous improvements on that whole side.

[The Chair, Conservative, Rob Merrifield]

Very good.

Go ahead, Mr. Keddy.

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

Thank you, Mr. Chairman.

Welcome to our witnesses.

I'm going to take a kick at the CFIA can as well, but from a little different angle. My opposition colleagues have a real problem with the system working. When the system works, the system works. That's the reason the outbreak of E. coli was caught. It's unfortunate that it ever got out of the plant, but the system not only worked to detect it to prevent an increase in exports, but also to recall what was put out in Canada.

What I want to make clear is that hundreds of thousands of cuts of beef were not contaminated. They found 10 or 11 incidents of E. coli affecting consumers. Although there's no question that does take a hit on the industry, let's not make that something worse than it is.

I'll give you the comparison. A couple of years ago we started the negotiations with the European Union. We were told in no uncertain terms that we were going to have to come up to the European standards. I've been through slaughterhouses in Europe and endless fish plants. I can tell you that the European standards are good, but they are not any better than our standards. As a matter of fact, in many instances they're not as good as our standards.

I think it needs to be said that we have the best food safety standards in the world. We put out a very good product that can compete with those anywhere in the world. Anything that impugns that hurts industry. You folks have to live with that. There is a lot of peer pressure from individual companies. There's a lot of pressure on government to maintain the CFIA, and we've done that as a government. We've got more inspectors on the ground.

For your individual companies, I appreciate the fact that, in your own words, Mr. Price, we have both ends of the spectrum here. At the end of the day, you can look your Japanese buyers in the eye and say to them that we had a problem in the industry in Canada, the problem was contained, and the system is working as it should.

[Ray Price]

From my perspective in the meat industry, we feed probably 34 million people a day in Canada and probably that number outside of Canada. From that perspective, we try to make it so that every level of food safety can be handled, because the only way we can sleep at night is if we believe we've done everything we possibly can. If we don't do that, then that's not where we are. Anything we can be doing to improve that is better.

I agree with you. I've been to facilities all over the planet, and I'm sure Barry has too. I just don't see any better than the ones that are here in Canada. I think it's important for us to do that because we're an exporting nation. We have to be the best in order to export to everywhere. That's what we have to do. If we were just a market that consumed everything, then the standards could effectively be lower. Certainly we see that in other areas of our economy where we'll import things from anywhere in the world without inspection or whatever—I'm not talking about food—because they are less expensive, and we trust them. In our case, we have to prove that the other way to our customers both at home and away.

[Barry Sutton]

I would say that, yes, your reputation is everything to you in a market like Japan. So ensuring outside and above the protection that the CFIA gives us, we have to work very, very hard every single day to understand, and deliver, and make sure that we're meeting what the Japanese are expecting.

I sleep well at night knowing that we've worked very hard within my company to put standards in place that would go beyond what the CFIA requires. A lot of that came after 2008.

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

Quite frankly, there's a dividend for that. You've got these long-term relationships built up with Japanese customers. You know they want quality. You know they're willing to pay a premium price for that, but they're extremely fussy. With that, there is an opportunity, and that opportunity is in maintaining that sales relationship not just today but into the future.

[Barry Sutton]

I would add that Canada has a tremendous reputation in Japan.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. We appreciate your being here and contributing to our study.

We will now suspend for a minute or two while we bring our next panellists forward. This will be soap and wine. We've had beef, and now we're going to clean it up and enjoy it. There you go.

[The Chair, Conservative, Rob Merrifield]

I would ask members to take their seats. We have our witnesses at the end of the table. I'd like to introduce them.

We have from Soak Wash Inc., Jacqueline Sava, director of possibilities and founder. I like that. We have Chris Wilkinson, director of sales and operations. We have from Savia Wine Agency, Pablo Garrido.

Thank you for being here. We look forward to your intervention and we will start with Jacqueline. The floor is yours.

[Jacqueline Sava, Director of Possibilites and Founder, Soak Wash Inc.]

We're going to start from the perspective of being a younger company that's gone through the last few years beginning our exporting into the Japanese market. What we've learned primarily is that the standards we meet and often exceed here in the Canadian and U.S. markets don't resonate or meet the standards in the Japanese market. Our perspective comes from educational resources put in place for new exporters who don't have offices in Tokyo since 1980, as an example.

I've outlined some of the challenges we've faced. We are pretty strong in terms of our company and our branding, the quality of our product and our position in the marketplace. Our Japanese distributor, whom we've worked with for three years, has shed light on details of our business that we didn't necessarily know existed. The primary challenge has been our legal requirements when we are asked questions.

We make, as I'm sure you know, a gentle detergent for lingerie and knitwear. We sell in department stores in Canada, the U.S., the U.K., and a little bit in Australia. The standards we meet in our market are very different.

An example is that our product, Soak, is what we call in Canada “readily biodegradable”. In the Japanese market, they need to know the percentage of biodegradability, but our raw material suppliers in the North American market aren't required to provide information to us beyond readily biodegradable. I use this as an example because I spent six months doing nothing else but trying to find out the percentage of biodegradability of our product, to something like 10 decimal places per millilitre.

What we're looking for as small businesses, or businesses that are beginning to export, are resources available for helping navigate these channels. There are certainly issues of communication and semantics, and your customer always providing a translator and your not being able to have your own translator. They do come around to where one would go to find out this information. There are other examples.

For example, we refer to our product as skin care for clothing. That's marketing terminology. When that was translated in Japan, our product was put through a big stack of skin care related tests as to whether the product was safe for the skin, but it's not used on the skin. It's used on clothing, on sweaters or whatever. When we refer to things like skin care for clothing, which is marketing speak in North America, being able to translate that in a way that doesn't result in another six months of testing and studying of our product is challenging.

Being a member of many organizations, we went to the Organization of Women in International Trade, the Canadian Association of Importers and Exporters, Export Development Canada, JETRO, DFAIT to try to find local Japanese organizations. However, their primary focus was on bringing Japanese products into Canada, not helping to export Canadian products. We do have lots of really good connections.

What was a little alarming was the lack of availability of resources of people who had actually made products here, packaged them, put labels on them and sold them into the Japanese market. We do ask all of our distributors to do their own regulatory work, so from that perspective, they were putting secondary labelling on the product. They were incorporating duties and tariffs and such into their pricing structure and creating their own price because they were our Japanese distributor.

There was certainly a list of things that we had to resolve, but we weren't able to ask the questions. If I can't ask my manufacturers what the percentage of biodegradability is, and they can't ask their suppliers of raw materials what their percentage of biodegradability is, then I have to use every secret card and favour that I have to try to get an answer to one question. There are no comparable standards from one product to the next.

Those are the main concerns. Those and making sure that the resources are put in place to help new companies that are just starting out on exporting with Japan, to give them the opportunity.

It was really interesting to listen to the conversation about beef and pork and to learn that a company that has a plant with tens of millions of dollars of manufacturing is experiencing similar problems. For example, our customers here trust us, but our Japanese customers want proof.

How do I prove that there's no residue left? Sears Canada has not asked me to prove there's no residue left. We've displaced a product that was in their store for 25 years, and it sells. We get orders every week.

Those kinds of questions come up, and there's no one out there who can answer them with us. It's nice to see that we have similarities, or that we'll still be answering the same questions 20 years from now.

That's the kind of thing we do. We are reformulating our product and are really hesitant to present our new formula to our Japanese distributor, because we know that we have to amass something like six months' worth of research and data. When we go to suppliers we say to them that if they want to use a certain ingredient, they have to assure us that they'll be able to get certain information from from their raw material suppliers. They are not legally required to supply us, and don't want to supply us, with that because it's competitive, and they've probably never had to answer that question, so they don't want to supply the information either, and so on and so forth.

We are looking at going to them with new formulas and new products that we've just developed, but it's a little terrifying, because we know that we're just at the beginning of another full year of this kind of research and planning. As was said previously, our Japanese distributor was our largest distributor worldwide. They took our business very seriously. They took our relationship very seriously. We see the potential as being really strong, if we can maintain it.

Thank you for having us here.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Garrido.

[Pablo Garrido, Owner, Savia Wine Agency]

Good afternoon, honourable members of Parliament, committee staff, and fellow participants. Let me say how much I appreciate the opportunity to address you this afternoon. The topic of a potential agreement between Canada and Japan touches areas very close to my heart.

My name is Pablo Garrido. I am the owner of Savia Wine Agency, an agency that specializes in importing Japanese wine to Ontario. If you are not familiar with Japanese wine, don't worry; you are not alone. While the more famous Japanese beverages of sake and beer have admirers the world over, Japanese winemakers are working diligently, with ever-evolving passion, to produce wines which I believe will one day come to rival wines produced in better-known regions. For context, I believe that Japanese winemakers stand where Ontario winemakers were approximately 15 years ago, producing wonderful product yet still working hard to convince consumers that the content in the bottle is worth the price.

I started Savia Wine Agency as a means of marrying my passion for wine with my love of Japan and my exceptional good fortune of being Canadian. With a list of contacts and a plane ticket to Tokyo as my starting point, I have learned quite a bit about myself, the adventures of starting a business, and the intriguing world of tariffs and duties as they apply to alcoholic beverages.

My first lesson came early on, during my initial trip to visit my supplier and wineries. I was returning to Canada with eight bottles of Koshu wine that I planned to use as samples. The combination of duties, excise tax, and provincial liquor markup equalled over $114.00, or 70% over and above the purchase price of the bottles in Japan. While I cannot pretend to be familiar with the duties paid by other industries entering Canada with trade samples, I have to believe that the duties wine agents pay reside somewhere close to the top.

To provide a window into the finances of my business, I charge a commission on a bottle of Koshu wine from Japan of about 10%, or $4 per bottle, totalling $24 per case. Given the aforementioned cost of providing samples to my customers, I need to sell more than four cases simply to recover my sample bottle costs. What these figures demonstrate is that my agency is a labour of love, but one that I cannot afford in the long term.

In addition, as a means of ensuring that we maintain a sense of social responsibility in regard to alcoholic beverages, many liquor boards across Canada maintain a floor on prices to ensure that pricing does not encourage the growth of damaging habits. These pricing practices, while laudable, do present challenges. For example, Ontario levies a markup of 39.6% on wine. I believe that a more fluid duty and tariff policy could help minimize the impact of provincial markups, ultimately helping businesses such as mine bring Canadians greater access to wines they have never experienced before.

With this experience in mind, you can imagine how my interest was piqued when earlier this year the House of Commons unanimously passed Bill C-311. This legislation, presented by Conservative MP Dan Albas, meant the removal of restrictions which, until now, had shackled the interprovincial trade of wine in this country. It brings to mind the type of access Canadian winemakers need in every market.

I recall staying up late into the evening to watch the vote, realizing that a House that appears divided will readily unify under the common goal of greater access to wine.

Using the new legislation governing interprovincial trade as the springboard, I believe that Canada has taken a progressive and significant step forward, signalling a new future-focused era in the trading of wine. With Prime Minister Harper demonstrating through words and action that Canada will no longer stand idly by as the wheels of international trade turn, Canadians can show that as a nation and as a valuable trading partner, we are forward thinking when it comes to the application of duties and tariffs on alcohol-based products.

For our federal government, there stands a unique opportunity to show the average Canadian that trade agreements do not just apply to and satisfy the traditional industries of nations. By addressing the trade barriers for less traditional products and services, such as wine and soap, governments can show the electorate that free trade does indeed greatly benefit small- and medium-sized companies alike.

A perfect example of the benefits of progressive trade was brought into focus for me by the honourable Mr. Keddy who, during a presentation to the Toronto chapter of the Japan Society, told the story that when free trade with the United States was announced, Canadian wineries feared that an influx of American wine would eat away at their market share. Over time, that isn’t exactly what has happened. In fact, in 2011, BMO Nesbitt Burns published a report showing that the United States is now the largest export market for Canadian wine, taking over 40% of total exports. By comparison, according to an Agriculture Canada report on the Canadian wine industry in 2007, the United States only accounted for 13.6% of all wine imported into Canada.

In the same report, a key passage supports the honourable Mr. Keddy’s assertions by stating:

The wine industry responded to the challenge of trade liberalization by focusing on premium wines and introducing new products such as Icewine, for which Canada is recognized as a world leader. At the same time, wineries introduced new high-quality grapes and products that reflect changing consumer taste profiles.

Taking into account the fears that Canadian wine producers had expressed with free trade with the United States, consider this contrast for free trade with Japan. The largest winery I represent produces wine with grapes grown on approximately 14 acres. Henry of Pelham winery in Niagara produces wine from grapes grown on 170 acres. By sheer volume potential, Canadian winemakers can only stand to gain from easier, lower cost access to the world's third largest economy, representing over 127 million consumers, where Canadian wine exports have seen a drop of nearly 17% since 2006, according to an Agriculture Canada report tabled in May of this year. Thus, in Japan I believe Canada has found an exceptional partner and opportunity, the ideal nation to begin building a new legacy of successful international trade in wine.

For Japanese winemakers, such as those I represent, lower market entry costs for their products brings the potential not only for increased sales but for greater exposure, a key goal, especially for Koshu wine, a white wine that is grown using the indigenous Koshu grape of Japan. In fact, this export recognition is so important that in 2009 a group of wineries from the Yamanashi prefecture, Japan's main wine-growing region, created a trade association called Koshu of Japan.

On their website, the wineries state their main goals as overseas promotion, new product development, and publicity. In search of this exposure the group has held annual tasting events in London. One of my personal goals is to convince the trade association to include Canada in their next trade mission. An economic agreement between our two nations, with attention paid to expanding trade in alcoholic beverages would certainly demonstrate in tangible terms Canada's desire to delve into all sectors of trade markets the world over.

Canadian restaurants would also benefit from having access to unique wines at a price point that could more easily win over Canadian consumers. During a fundraising event after the horrendous earthquake and tsunami of March 2011, I recall meeting a senior representative of a major Canadian importer of Japanese goods. During the discussion he mentioned that he had indeed looked into importing Japanese wine into Canada, but the overall costs were an impediment to both sides producing a desired result. A move toward an economic agreement between Canada and Japan would effectively address current challenges to market expansion.

In addition, I believe that in Japan we are currently seeing a nation where traditional industry powerhouses are facing immense pressures. For example, Sharp Electronics as part of its recent restructuring is considering selling its LCD production facilities in Mexico and Taiwan and cutting 5,000 jobs for the first time in 60 years.

Indeed, I see changing and challenging times for Japan. We could very well be witnessing the redefinition of what Japan will be best known for in the future. A strategic, well-designed economic partnership with Canada could prove to be an exceptional catalyst for both nations in realizing their full future trade potential.

Thank you for your time and attention, and for the invitation to be here today.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Before we go to questioning, I'll correct one little thing.

You gave Mr. Dan Albas the credit for punching this over the line. That's absolutely accurate. But equally, and perhaps even more, Mr. Ron Cannan, who is a member of the committee, actually brought it down the field.

[Voices]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

There we go.

With that, we will start our questioning with Monsieur Morin.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

I'm totally in favour of trade with Japan because it's the best possible partner we can have. Both economies are complementary and so is our agriculture. It's a win-win situation in every sense.

Ms. Sava, you deal in a very technical environment. You must know that Japanese people are very cautious and very meticulous about standards. They don't leave stuff out. They probably believe that a good sanitary system doesn't make headlines.

The beef producers will probably find out that it will be hard to sign an agreement with Japan right now because you don't want to be in the media with the stories we've heard about in the last couple of weeks. I don't think it's useful to discuss how it happened, who is responsible, or the timeline of the events. We have to keep in mind that somebody has a responsibility somewhere.

The way our country is managed has an influence on this. It would be very useful to you to be able to get the technical information you need to give to your Japanese partners. We hear the expression “red tape”, but in Japan it's not called “red tape”; it's precautions you need in order to run your country from a responsible perspective. If we cut red tape forever, we'll end up in a dead end because the government has a responsibility. Even though Maple Leaf is doing a very good job at maintaining the best production standards for their plants, they're not supposed to be the people responsible for that. Our government is responsible.

Do you think you have all the support from your government in order to trade with Japan? Do you think that closing consular services without notice in Tokyo is a good idea? Do you think it might help you in your work?

[The Chair, Conservative, Rob Merrifield]

There were some questions there. We'll stop there and allow an opportunity for answers.

[Jacqueline Sava]

In terms of starting to build the relationship with Japan, we need resources that are closer than a Canadian consulate on the other side of the world. Our suppliers, our manufacturers, our local regulatory people, our Japanese representatives, and our government representatives here don't have enough information on what the standards are there. It's as though it is their responsibility as distributors for the red tape and the standards, except if I want to do business with them and then it becomes my responsibility as the owner of the product and as the representative of Canada around the world as an exporter. Whether it is my responsibility or not, it's my problem and it's my opportunity as well. I think the government resources that I need have to be closer and more easy to access, with extensive regulatory knowledge in the Japanese markets in all sectors that we want to export.

Skin care beauty detergent is a massive global market, so I definitely think that's a place where the resources should be in place. I need someone here who I can call, someone who wants me to be a successful exporter, who will help me find the actual regulatory standards related to my product in the Japanese market.

I had a meeting with the fourth generation president of Olympus Japan, which is one of the largest manufacturers, exporters and importers, in Japan. He very politely told me that I should have been more cognizant of Japanese regulatory standards when I made my product. I could only reply that if I thought three years ago that I would have a distributor in Japan, if it had ever crossed my mind that I would be able to make the proper preparations for exporting to Japan—because I'm smart enough to know that I'm not, that I don't know the answers to those questions—then I would have taken into consideration Japanese regulatory standards.

We have distributors in Australia, the U.K., Portugal, and Germany, all countries that are interested in our products. I don't have access to the information about what the regulatory standards are. I don't have the resources that a really large company has to deploy people to find out the answers to those questions. With all the local government resources that I have, and we're fairly well connected, I can't find the answers that I need.

[Pablo Garrido]

For me, the government support has been adequate. In the case of wine and alcoholic beverages, the support comes more in how the product is treated once it's arrived on our shores and the duties, tariffs, and the markups that are applied.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Cannan.

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

Thank you to our witnesses, first of all.

Thank you, Mr. Chair, for your kind words. It's the philosophy I like to promote. It's incredible what can be accomplished if we all work together. It was a good team victory, so everybody worked—

[The Chair, Conservative, Rob Merrifield]

How many bottles did you smuggle over?

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

There you go.

I appreciate the fact that we're working on this joint study for a possible economic partnership agreement.

I'm looking at trade liberalization. There were some pre-studies done which looked at an increase in growth from 0.24% up to 0.57% in Canada's GDP, or an increase of 0.09% in Japan's GDP. I thought it was interesting that 0.08% is an intoxicating number in that respect. I'm looking at $3.8 billion to $9 billion in Canada's growth, or $4.4 billion to $4.9 billion in Japan. There are great opportunities.

Thank you to both witnesses for your perseverance. Your entrepreneurial spirit and enthusiasm is very exciting and infectious.

My first question would be for you, Pablo.

I just wanted to clarify this. Are you only importing Japanese wine at this time?

[Pablo Garrido]

That's correct, yes.