International Trade Committee on Nov. 20th, 2012

[The Chair, Conservative, Rob Merrifield]

If members would take their seats, we have our witnesses here. We have our committee. Let's get started.

We are continuing our study on a comprehensive economic partnership agreement with India.

We have three witnesses in the first hour and two in the second hour. We have some committee business to look after at the end of the second hour.

We want to welcome our witnesses. From Bombardier Inc., we have Pierre Seïn Pyun.

Thank you for being here. We'll give you the floor, and we will introduce the rest as we give them the floor.

The floor is yours, sir.

[Pierre Seïn Pyun, Vice-President, Government Affairs, Bombardier Inc.]

Mr. Chair and members of the Standing Committee on International Trade, it's a pleasure for me to be here with you today and to have this opportunity to share with you Bombardier's perspectives on a comprehensive economic partnership agreement with India. I have a prepared statement that I'm going to read, and I certainly look forward to the discussion and questions later.

Thank you for taking the time to come and meet with us today.

First, let me briefly talk about Bombardier in general. I'll cover our presence in India and where India fits in our broader strategy for Bombardier.

As a reminder probably for most of you, Bombardier is a Montreal-headquartered company. It is multinational now, with around 70,000 employees around the world, including 23,000 employees here in Canada. We have two main business units, as you probably know: aerospace and rail manufacturing. Bombardier is now actually the number one rail manufacturer in the world and the number three civilian aircraft manufacturer in the world.

On the rail side, the company has a very solid and wide-ranging product, service, and technology portfolio, going from mass transit technologies to locomotives, very high-speed trains, and signalling systems.

In aerospace, we are actually number one for business aircraft. We also supply regional aircraft.

With the CSeries program, our new aircraft, we're going beyond the regional aircraft space with an aircraft optimized for a 100- to 150-seat range. We have sites across the country with a concentration of production plants and engineering centres in the provinces of Quebec and Ontario: Montreal, Saint-Laurent, Dorval, Mirabel, Saint-Bruno, La Pocatière, Kingston, Downsview, Mississauga, Thunder Bay, and North Bay. We also have a presence in Saskatchewan and Alberta, where we provide military pilot training in Moose Jaw and Cold Lake.

We are going through a very intensive research and development phase—actually, an unprecedented R and D period—in both aerospace and rail. We have a number of aircraft development programs under way. I mentioned the CSeries program, but we have new Global aircraft programs, the Global 7000 and Global 8000, including new Learjet aircraft as well: the Learjet 70, Learjet 75, and Learjet 85.

On the rail side, just by way of example, we are developing a very high-speed train, which we call the ZEFIRO, for the Chinese market and the Italian market, and monorail systems for Brazil and Saudi Arabia in a range of environmentally friendly technologies, which we call ECO4 technologies, to reduce greenhouse gas emissions and increase energy efficiency.

As you can imagine, these are very capital-intensive endeavours with very significant cash outlays in the last years. The economic downturn is affecting us, but we believe that these investments will make us very well positioned for the future when the market recovers. We have spent, over the last five years—and that excludes 2012—$2.7 billion in our Canadian operations, rail and aerospace combined.

Yet the Canadian market represents only 7% of our total revenues, so we are a very export-oriented company. From our strong base in Canada and North America, Europe and the U.S. will remain very important markets for us. For instance, we generate 65% of our revenues on the rail side from the European market, but we are increasing the focus on emerging markets, which includes India. Over the last five years, our revenues from the so-called BRIC countries—Brazil, Russia, India, and China—have gone from $500 million to around $2 billion. The Asia-Pacific region represents 15% of total revenues for Bombardier now.

I'm going to talk more specifically about India. It is important for us for both in aerospace and rail. We have a presence there. We have developed local roots in India. We see India as a market and a partner for the long term, so that's the view that we take: a long-term view of the market. If we include the people who we have on contracts, we employ close to 1,200 people in India, in addition to the various partnerships that we have in place in both the rail and the aerospace sites of our operations.

One of our most important investments in the Asia-Pacific region is located in India, with our production site in Savli in the state of Gujarat. That site builds railcars. We recently delivered our 600th vehicle for the Delhi Metro in India. We have commercial and business aircraft in operation around the country, with around 40 business aircraft and 25 regional jets. Among our customers in India, we count SpiceJet, Jet Airways, and Air India Regional.

Let me turn to what we see as opportunities in India going forward. There are sizeable rail infrastructure projects on the horizon in India that are of strong interest to us. Subway systems will be developed or expanded in a number of cities in India, such as New Delhi, Kolkata, Chennai, Bangalore, and others. There are opportunities to supply and service propulsion systems, signalling systems, and locomotives for the Indian railways.

The demand for business aircraft and commercial aircraft is very significant in the country. According to various forecasts, there's a demand for more than a thousand business aircraft in the next 20 years in the Indian market. We see a demand for around 1,700 commercial aircraft with a seat range of between 20 and 150 seats—the space in which Bombardier is supplying products in the region, including India—in the next 20 years.

As well, India has considerable engineering resources that we're tapping into. We have engineering centres in Hyderabad and Bangalore: Hyderabad for rail and Bangalore for aerospace. We also intend to use India as an export base for the region, particularly for southeast Asia. We've had a breakthrough this year with a contract to supply trains in southern Australia. The bogies, the moving parts of the trains, will be supplied from one of our sites in India, the Savli site in the state of Gujarat, which I was referring to.

I would like to talk about some of the challenges we face in India, challenges related to doing business in that country.

The free trade agreement with India could potentially help us to overcome several of these challenges. However, in some cases, the challenges may go beyond what a free trade agreement could dispel.

We talked about business opportunities in regional aviation and business aviation. However, the infrastructures and the regulatory framework must continue to evolve to keep up with demand and the rate of growth in these sectors. We see an enormous potential for aviation to link the so-called secondary and tertiary cities in India. However, for the sake of comparison, let me say that India has two times fewer airports than China. There are currently about 80 airports in use in India. It would thus be crucial for us to develop a good client support network, and we have already begun to do that. We have a support centre in Mumbai. We also have partnerships, for instance with Air Works, who do maintenance work on our planes in Mumbai and New Delhi.

India is a vast bureaucracy that is difficult to navigate. Predictability, schedules and transparency for public infrastructure supply projects can constitute considerable challenges for foreign companies such as Bombardier.

Moreover, India is an extremely competitive market. The entire world is turned toward India. Americans, Europeans, Chinese, Koreans, Russians and Japanese are all active in the areas in which we work. And so we are facing very fierce competition in the Indian market.

This concludes my comments.

I look forward to the discussion and questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for that.

We now have with us, from NOVO Plastics Inc., Mr. Sierra.

The floor is yours, sir.

[Baljit Sierra, President and Chief Executive Officer, NOVO Plastics Inc.]

Thank you, Mr. Chair and members of the committee. I'm very happy to be here today to share a little bit about my company and our experiences in India.

NOVO Plastics is a Canadian manufacturer of engineered plastic components and assemblies, primarily for the auto sector, but for some consumer commercial markets as well. We have a very strong foundation in engineering, innovation, and R and D. As part of that mandate, we have developed quite a few proprietary products.

The Indian market is very appealing to us because it gives us global diversification. Just to give you some figures for India in the auto sector, India currently has the largest three-wheeler volume in the world in terms of manufacturing. They are the second-largest two-wheeler manufacturer in the world, and they're the third-largest commercial vehicle manufacturer in the world. The volumes are tremendous there. For any Canadian manufacturing company, it's very important to have a global strategy, and I firmly believe that India has to be a part of that global strategy.

That said, we entered the Indian market two years ago with a proprietary product, the plastic muffler. Our plastic muffler replaces steel mufflers on vehicles. It reduces emissions, it's lighter, and it has the same durability as a steel muffler. We went to all the large OEMs in India to introduce our product, and we're in the final stages of testing, just before we reach commercialization. It's a tremendous opportunity for our company, and we see a great market in India.

In India, from my perspective, we have been working with a variety of government agencies and some representatives in that country. We've worked with the trade commissioner's office successfully. We've worked with the High Commission office. The EDC has been a big help to us in India. We have had great support, and they've really helped us enter that market. That's an important facet: that beyond the CEPA agreement, those things are very important for Canadian companies looking at that market. I think the focus on those things has to continue.

I think the recent visit by the Prime Minister, along with a delegation, really went far in raising the Canadian profile in India. I think that's also a very important thing that we have to focus on going forward as the CEPA negotiations continue. I think there has to be a continued push by both business and government in that regard.

Moving on to some of the challenges we're facing as a Canadian company entering that market, first and foremost, I mentioned that we do quite a bit of R and D innovation. India has a great hunger for technology. If you look at that country and all the auto manufacturers or two-wheeler manufacturers, you see that they have quite a few joint ventures with companies from other countries, where the companies supply technology. That said, when we export our technology, our products, into India, we are facing tariffs, and in a country that itself really thrives on low-cost manufacturing, the model is not in sync with our export into that country. I think the elimination of trade barriers is a very key point as we move forward in these CEPA negotiations.

The second point is the legal framework in India, the legal infrastructure, so to speak, and the associated intellectual property protection laws. Also, as a Canadian company, we've encountered some issues, first in negotiating very straightforward NDAs or confidentiality agreements, or manufacturing agreements. But when you get to a dispute arbitration clause, we often have to pick a third party neutral country as the jurisdiction, because, to be quite honest with you, we want to stay out of the Indian court system. It tends to get bogged down and it's not conducive to expedited business in that country. I think that's very important.

As a company who has customers in India throughout the country, the third thing is that the infrastructure in India is quite complex and it doesn't lend itself to ease of distribution. I think that is a long-term project, and it really has to be focused on by our counterparts in India.

The fourth thing with the CEPA negotiations is the facilitation of business professionals back and forth between India and Canada. As we set up our business in India, we're going to be sending some people from our company to India, and vice versa; I will bring some engineers and skilled people here to be trained in our country. The facilitation of those exchanges, whether that be visas or ease of access, is very important as well.

It is our hope that the CEPA negotiations will continue at a rapid pace. I know that everyone has set a pretty aggressive timeline. It's a very important market in the world, and we look forward to the continued success of these negotiations.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. We do as well. Hopefully, the timelines will be short. It has yet to be seen exactly how fast they will move along. We appreciate the opportunity to hear from you on that.

From Prudential Consulting Inc., we have Mr. Khurana.

Thank you for being here. The floor is yours.

[Vikram Khurana, Founder and Chief Executive Officer, Prudential Consulting Inc.]

Thank you, Mr. Chairman.

Distinguished members of the committee and ladies and gentlemen, thank you for this opportunity to share my views on the trade negotiations with India.

Let me give you some background on Prudential Consulting and its group of companies. Prudential Consulting is an early pioneer in advising large and small clients who wish to make investments in India and engage with Indian public and private companies to export their products and services. In the past 17 years, PCI has advised a number of small and large businesses wishing to enter the Indian market and/or that are interested in procuring from India and/or importing skilled human resources for projects in Canada.

On the trade negotiations, firstly, we can draw a number of parallels between these negotiations and the Indian trade negotiations with Australia and the United States. For the purpose of size and context, I will focus on some of the common factors between Canada's negotiations with India and the Australian negotiations with India.

Firstly, the Australians see the same opportunity that we do in a significant and young population: purchasing parity, affluence, growing demand, and a very large middle class that is growing at a very rapid pace. Similar to Canada, Australia has identified the same or similar priority sectors—ICT, energy, mining and infrastructure, food processing and agribusiness, and education services—as the low-hanging fruit on where best to engage. Engagement between the organizations similar to those in the Canadian realm—civil society groups, business associations, public and private agencies—are pushing policy-makers on both sides to create a trade framework.

In the Canadian context, it's my view, based on the surveys I've read, including the national opinion poll conducted by the Asia Pacific Foundation of Canada, which I would recommend to everyone, that more Canadians than ever before are in tune with Asia and attribute their longer-term prosperity to increased trade links with Asia. However, the warm feelings toward Asia remain well below those for western democracies, with Australia and Japan being the exceptions.

The point I'm making is that policy-makers will have to be cognizant that only four out of ten Canadians are supportive of free trade agreements with Asian countries such as India, because two-thirds of Canadians oppose the idea. This gap between what policy-makers may seek to do with free trade agreements and the engagement of Canadians needs to be bridged through better communication and education.

I would like to talk about the export readiness of Canadian companies. Even amongst seasoned Canadian exporters that are used to exporting to the U.S. and Latin America, there's a great disparity in the knowledge and experience in exporting to India. This disparity has further resonance from province to province. As policy-makers, it'll be important to use tools at our disposal to bridge these gaps and make our companies export ready.

I would like to take the specific example of Atlantic Canada and the Atlantic Canada Opportunities Agency. This federal agency can play a very important role in ensuring that Atlantic Canadian companies and organizations reach their full potential in exporting to India. Further, in evaluating opportunities, our collective assets such as the BDC, the Export Development Corporation, the Canadian Commercial Corporation, and the Trade Commissioner Service must learn to function as a unit wherever possible.

In talking briefly about the procurement policy of both governments, which will be a topic of trade negotiations in allowing access to government-related business, I urge policy-makers to look beyond the negative connotations associated with offshoring and foreign ownership to opportunities in sensitive and non-traditional areas such as defence and aerospace. Beyond bullets and bombs, Canada has a number of defence technologies that have great potential in the $80-billion defence market in India. Further, as Canada builds its own defence infrastructure—such as naval vessels—Indian investment and manufacturing prowess can have a positive impact in places such as Halifax and Vancouver, amongst others.

Moving on to the topic of negotiations, Indians themselves have to deal with a lot of red tape, archaic and obstructive administrative and bureaucratic policies, and, lastly, corruption. It would be naive for Canada to think that in doing business with India our values somehow will be readily adopted. As we proceed through negotiations and make the first engagements, Canadians will have to be patient and mentally ready to take on those challenges lest they be demoralized due to short-term challenges.

In summary, if two-way trade between Australia and India can grow from $3.3 billion in 2000 to over $20 billion in 2011, there's great potential for Canada to grow its trade manyfold by: addressing tariff barriers and behind-the-border restrictions on trade in goods; entering into a free trade agreement that could facilitate growth in services trade; and increasing regulatory transparency and facilitating and encouraging investment by reducing barriers faced by Canadian suppliers and enhancing investment protections.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now go to questions and answers. We'll start with Mr. Davies.

You have seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you very much to all three of you for being with us today and sharing your experience and knowledge with us.

This summer I had a chance to sit down with the chief negotiator for the Canada-India trade talks. I think they've conducted four negotiations and are on their fifth.

Among some of the facts and figures they gave me is the fact that India has a population of 1.2 billion right now that is slated to go to 1.5 billion in 2050. The population is actually getting younger, bucking the worldwide trend, so they have a growing younger population, which bodes well for growth. They told me that India anticipates spending $1 trillion in public infrastructure spending over the next five years. That includes building an industrial corridor between Mumbai and New Delhi. They told me that they are growing at the rate of 8% GDP per year, and lately that's about 5%, so it's a very dynamic economy.

The chief negotiator also told me that the Indian negotiators are more interested in—and what they really require from Canada—is investment in technology, more so than the actual export of goods, although they do need those as well. We know that lately Canada's investment in research and development and innovation has been lagging. I think the OECD has ranked fifteenth out of 37 countries in gross domestic expenditures in R and D. How important for your businesses is Canadian investment in promoting growth and trade in the technology sector?

[Pierre Seïn Pyun]

I will make some comments on that. In my introduction, I referred to an unprecedented period of research and development for Bombardier on both the rail and the aerospace sides. The bulk of the design and engineering work in all our new aircraft programs that I was referring to is being undertaken here in our operations in Canada. Of course, input and contributions are being made at our other sites and by our partners around the world, including those in India—we have engineering centres in India—but the lead for these projects is in our Canadian operations.

This is critical for us. If there's any concern among the investment community partners and financial analysts when they're looking at the company's performance this year, it's the rate at which we are spending cash in research and development. But as I mentioned, we're confident that this is the right approach to position the company very well for the future, in both rail and aerospace. India does play a role. Our partnerships in India and our own engineering centres are providing input into the engineering and design work being done in Canada.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Sierra, did you want to answer that question too?

[Baljit Sierra]

Yes. For the most part, I just want to mirror my colleague's comments. You mentioned that Indian companies are hungry for technology. From my experience, they absolutely are. We're finding that we're introducing one form of technology to them and they're coming back to us asking if we can work on this or look at that different area. I think that's key.

As a Canadian manufacturer, I think that focus and government support for things like innovation, SR and ED.... I know that program is undergoing some changes, but I think those are very crucial to success, because I think technology export is going to be a tremendous factor in the success of Canada-India relations.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Sierra.

You mentioned that you've run into some tariff issues in India. What are those tariff issues? Can you describe them to us?

[Baljit Sierra]

There are tariffs on raw material. Our business is injection moulding. When you import resin, whether it's nylon or polypropylene, it's a proprietary resin that's engineered for certain applications. That has to come from Canada or from Europe or other countries. About 10% is the minimum tariff on raw material, and it goes up from there; there are other customs levies. There is also a lack of transparency in the whole tariff and levy situation in India.

But as I mentioned earlier, India is a low-cost manufacturing country. If you're exporting technology, it's very, very important, in order to compete in that country, to have some kind of tariff elimination strategy.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Pyun, what are the biggest challenges that your business faces in terms of doing business with India? If you could give instructions to the Canadian trade negotiators that would assist Bombardier, what would those be?

[Pierre Seïn Pyun]

There are two areas.

More particularly for aerospace, my colleague mentioned the issue with tariffs and other duties, and we're faced with a similar situation with respect to our exportation of business aircraft into the Indian market. There's a number of charges being applied to the acquisition of business aircraft, including tariffs, duties, and value-added taxes, and excise taxes as well, and all these charges combined amount to a surcharge of 23% on our business aircraft.

We are of the view that this is stifling the business aviation market in India. There's no local manufacturer, so we don't present a competitive threat, if I may express myself in this fashion, for the Indian market, but there's still some distance to go in India to see business aviation as a tool for economic development and productivity.

On the rail side, I would say the lack of transparency and fairness issues as well with respect to public tenders.... There are some very sizeable procurement projects coming up for rail equipment. There are some projects that we've been working on for some time, but because of red tape, because of some political issues as well, and because of slowness in the bureaucracy, some of these projects have been delayed on a number of occasions. It's difficult for foreign suppliers to adjust our plans accordingly when we don't have any sense of predictability as to when these projects will be going forward.

But recently we've seen some indications that reforms are being pushed through in India by the Indian government: more openness to foreign companies, to foreign suppliers, in some specific areas, like retail. I'm sure you've heard about that. On aviation as well, they're encouraging foreign investment into Indian airlines, and also in the insurance business, but that doesn't really affect us directly. There's also talk about forming a committee that would be comprised of a number of ministers to fast-track some of the large-scale infrastructure and industrial projects in India. I think that bodes well for companies such as ours.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Shory, you have seven minutes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chair.

Thank you, witnesses, for coming in and sharing with the committee members your views on this Canada-India free trade agreement.

I'll throw the questions out to all of you. I'd like each of you to give your own perspective on how you view this agreement because each of you has a presence in India.

From Bombardier, for example, I want to know two or three things. How long have you been present in India? What were the obstacles in the beginning when you broke the ice, basically? How has your business experience been and what potential do you see? How important is the FTA between Canada and India? If we do not sign this, or if we are not successful in this FTA, what could be the potential loss? Or is there no loss?

Mr. Khurana used some tough lines, I guess, and maybe they are true. One of the comments he made about the Trade Commissioner Service, EDC, and BDC is that they need to learn the market where they want to work. I'm looking for your experience with the trade commission office and EDC, etc.

Let's start with that.

[The Chair, Conservative, Rob Merrifield]

Let's start with that...?

[Voices]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

That's a lot of questions. I usually have a hard time squeezing out one question in a couple of minutes. You broke the record here.

Go ahead.

[Pierre Seïn Pyun]

I will try to be concise. We have been in India for 35 years, but of course our presence has expanded over time. Also, I should note that on the rail side Bombardier grew a lot by acquisitions. Some of our operations date back from the companies we acquired in Europe, but with operations in India like Adtranz on the rail side.

I think of some of the initial challenges when we were looking at investing in India in connection with the Delhi Metro project. That's a fairly recent investment dating back a few years. Our investment was tied to the project in New Delhi. There were local content requirements. We had to comply with some requirements to localize production, including doing the final assembly of the railcars in India. We had to choose a location for the investment as well. That was part of the initial challenges. We also needed a good pipeline of projects going forward: some level of reassurance that there would be projects coming on stream to justify our investment, not only for one project but for a number of projects in India going forward.

So that would be the challenge on the rail side, but all in all, I think finding the right partners in India was certainly very key for us in our initial stages in the Indian market.

[The Chair, Conservative, Rob Merrifield]

We'll hear from the other two witnesses now.

[Baljit Sierra]

Mr. Shory, to answer your first question, NOVO Plastics Inc. has been in India for about three years now. As Pierre mentioned, our initial obstacle was finding the right partner in that country. There are many tier 1 suppliers to the automotive industry there.

Vikram mentioned some comments about the EDC, BDC, and the trade commissioner's office. We actually had a very positive experience with them. Our first visit to India was through the EDC. We also met with the trade commissioner's office several times. They played a key role in introducing us to the right partners in that country. That gave us a soft landing in the country, so that was very key.

Your third question was about the trade agreement and what would happen of what would be the effect if the trade agreement wasn't signed. I think that, for a variety of reasons, it would result in our being less competitive in the Indian market with respect to both price points and technology. It would add time to our growth in that country. On those two fronts, I think CEPA is very important. We must all keep to an aggressive path to get this agreement finalized.

[Vikram Khurana]

We've been in India for the last 17 years. We have been taking clients to India who have been unsuccessful in marketing to India in the past and reintroducing them to India in a slightly different fashion, which has made them successful.

How important is the agreement? The agreement is important from an administrative point of view. A good example would be the seafood industry. The Trade Commissioner Service negotiated a six-month exemption from the Indian food authorities for the import of Atlantic Canadian seafood products, which gave an immediate impetus to seafood producers from the east coast. A single wedding in India can take about three container loads of lobster. That's a good example.

[Voices]

Oh, oh!