International Trade Committee on Dec. 6th, 2012

[The Chair, Conservative, Rob Merrifield]

I call the meeting to order.

I want to thank our witnesses for coming forward. We are dealing with a study on the comprehensive economic partnership agreement with India. We want to thank them for their interventions.

We have with us, in the first hour, from the Forest Products Association of Canada, David Lindsay and Isabelle Des Chênes. Thank you for being here. From Canadian Manufacturers and Exporters, we have Jean-Michel Laurin. You're no stranger to this committee.

Actually, Mr. Lindsay is new. Welcome. We look forward to your intervention. The floor is yours, sir.

[Wayne Easter, Liberal, Malpeque, PE]

Is he the only one welcome here, Mr. Chair?

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

The rest are all welcome. Actually, you're welcome too.

[David Lindsay, President and Chief Executive Officer, Forest Products Association of Canada]

I get the impression that the welcome wears off relatively quickly.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

That's okay. We're two swords' length and a couple of tables away, so we're okay.

[David Lindsay]

Thank you very much, Mr. Chair.

Thank you very much, members of the committee, for the opportunity to present to you for the first time. I have been pleased to be the president of the Forest Products Association of Canada for 92 days, not that I'm counting. It's a great experience and a great organization.

The work that you're doing at this committee is quite important to us. It's a pleasure for me to be here to make a few comments and engage in a dialogue with you about trade and the forest products sector and India, in particular. I will begin with an overview of the forest sector in Canada.

Coast to coast, it's a very large employer. We have some 230,000 direct employees and spinoffs in excess of 600,000 well-paid jobs in rural and northern communities across this country. Some 200 communities depend on the forest sector for their major source of income. It's a major source of local taxes and a large economic driver in a lot of communities, in a lot of your ridings across the country.

As you would also know, the forest sector did face a number of very difficult years prior to the 2008 economic meltdown, the Lehman Brothers issue and the challenges that were faced in the financial sector. The housing market in the U.S. was dropping for a number of years before that. The forest sector was feeling a reduction in product demand in the United States on the lumber side. Of course all of you who now read your morning news on the Internet, or your iPad or follow it on Twitter can appreciate that the newsprint sector was dropping quite significantly in North America. We were taking a lot of hits as a sector. In the meantime, the Canadian dollar was continuing to appreciate, so our products that were going to the United States were becoming more expensive.

The industry and the members of the Forest Products Association realized we needed to have a really deep think on where we were going and create a transformational agenda and a renewal agenda for the forest sector. I'm pleased to quickly highlight that earlier in the summer we launched Vision 2020, as we're referring to it. It is available on our website. It has three ambitious goals to help us transform the forest sector into a productive, continuing to be job-creating opportunity in the next decade and beyond.

Vision 2020 has set three ambitious goals of increasing our products, the markets we sell to—and we'll speak specifically about India today—and the types of products we make, the value-added products we want to produce in the forest sector, to the tune of some $20 billion of additional economic activity on a base of about $54 billion to $55 billion today. That's ambitious, almost twice the growth of GDP between now and 2020.

In order to do that, we will need some 60,000 additional employees. We will need 40,000 because of demographics, to replace the aging baby boomers, and there will be another 20,000 employment opportunities across the forest sector. I'm not even speaking to the indirect employment. That's the direct employment we estimate by 2020. Skilled workers in the forest right through to the sales force in our international markets will be required.

The third leg of our stool to continue to advance the forest sector as a key economic driver and employer in the Canadian economy is to make sure we continue to have a good social licence so we can continue to sell our products internationally. Europe and other markets want to know that we're green and we're a clean renewable resource. In our Vision 2020 we are committed to continue to improve our environmental metrics: our NOx, our SOx, our greenhouse gas emissions, our water and our effluent, and our forest management practices by an additional 35% by the year 2020.

Those are the three legs of the stool: improve our products, improve our processes, and add to our people. To do that, we're going to need new customers. India is an important potential opportunity for us in the forest products sector.

For example, we've already done quite well in China. In 2001, we were selling $32 million of product to China. One decade later we're selling $1.5 billion of product to China. I can't do the math off the top of my head, but it's in excess of a forty-fold increase. There is huge growth potential in China yet to be realized. While we've had exponential growth for this last decade, there's still much more opportunity there.

We're at the beginning stages in India of what I will present to you as a similar growth trajectory and a similar opportunity.

The government has been a very important strategic partner to us over the last decade. It will have to continue to be an important partner to us into the future, not just for free trade agreements, but because we need people to help open doors in those domestic markets. The trade officials, the trade offices, and the embassies in China and elsewhere around the world have already been incredibly helpful to us. As we discuss free trade and trade opportunities, we should also not forget the importance of the infrastructure on the ground to help us relate to those markets and connect with the customers we need to connect with.

We can talk more about those details in the Q and A, I'm sure, but let me take a few minutes to speak specifically about India as my time is running by quickly here.

In 2011 the forest products sector exported about $400 million of pulp, paper, and wood products to India. That's actually our fifth largest global market already so we're quite involved in India right now, but as I suggest, there's much more potential going forward.

We believe the pulp, paper, and wood products are about the second largest export, by dollars, we send to India. We're a big part of the trade story with India already, but there are lots of possibilities. For example, a study we commissioned about a year and a half ago, and we'd be glad to make copies of this study available to your staff as they prepare your report, estimated that newsprint demand in India, unlike in North America, is expected to increase by a rate of about 8% a year over the next couple of years. There's great potential there, but there are tariffs on newsprint right now. A free trade deal would help unleash that opportunity.

On the paper side other than for newsprint, in 2009 India passed a piece of legislation, the right to education act. I don't have the exact numbers, but there will be roughly 200 million young people in India who are going to be getting an education as a result of this piece of legislation.

Not all of those communities, not all of those schools have electricity, or reliable electricity, so iPads and the Internet are not necessarily going to be their first source of learning tools. Books, which some of you around this table might have learned from, will be an important commodity for the education system in India. Some of our members are keen to get into that market in India as well.

I could speak about lumber, but maybe we can save that one for Q and A, because it doesn't have as great a potential in India right now. There are some issues with it that we have to work our way through.

One that is quite interesting is dissolving pulp. For those of you who are not familiar with it—after my vast 90-day experience I cannot pretend to tell you the details either—it is an important input into rayon and the production of fabric. Those of you who remember your history will remember Gandhi weaving cotton. The textile industry is an important industry in India.

Indian innovators and entrepreneurs are trying to figure out how to use textiles and their textile technology and knowledge to create flexible tubing. So much more than just clothing, they are making industrial products through their textile production.

The use of dissolving pulp to create rayons and other fabric material stronger than steel is a growth opportunity in terms of innovative new forest products that we can use to help the growth of the Indian economy.

As I said, the Indian market faces a number of barriers. Tariffs range from about 5% to 12% on various value-added products. We have details if you want them. A free trade agreement would be incredibly important to help us break down some of those barriers.

To access those markets, we need the help of people on the ground and government-to-government dialogue. There are lots of issues at the state level and at the local level we need to address, and not just for a trade deal. We actually need staff on the ground to help navigate our way through some of those barriers.

Conscious of the time, Mr. Chairman, I'll just finalize my comments. I can't let the opportunity go by without pointing out that you cannot actually sell a product into China or into India if you can't get it off the loading dock at your mill. I understand that the government has committed to bring forward some legislation to deal with some issues we have with the railway service agreements. Although that's not the subject of discussion today, my employers would not want me to let an opportunity go by without at least mentioning that.

I will conclude with that. I look forward to a dialogue.

[The Chair, Conservative, Rob Merrifield]

Very good.

If you have been watching question period, you will know that you will see that legislation before December 21.

You said that a 7.5% to 12% tariff is being applied to Canadian forest products. Is that the same for Australia, New Zealand, and other countries?

[David Lindsay]

Yes. I don't think it's country specific. I think it's for all forest products coming in.

[The Chair, Conservative, Rob Merrifield]

That's just the way it is. Fair enough. If you could get that report to our clerk, that would be great.

[David Lindsay]

Yes. I'd be glad to share it.

[The Chair, Conservative, Rob Merrifield]

Jean-Michel, the floor is yours.

[Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers and Exporters]

Thank you very much, Mr. Chair. Good afternoon, everybody.

Thank you for inviting our association to appear before your committee once again. This time, we are here to take part in your consultations on the Comprehensive Economic Partnership Agreement with India.

I believe you are familiar with the association that I represent. Canadian Manufacturers and Exporters has been Canada's largest industry and trade association since 1871, so we've been around for some time now.

Thanks to our various initiatives, in particular the Canadian Manufacturing Coalition, CME represents more than 10,000 manufacturing and export companies in the country, and a number of businesses in the services sector that support manufacturing, innovation and international trade.

More than 85% of our members are small and medium enterprises. On the whole, they represent each industry sector in Canada.

The manufacturing sector is the largest industry sector in the Canadian economy. Last year, it generated $571 billion, 13% of GDP and over 1.7 million direct jobs.

Our members export most of their production. Manufacturers alone are responsible for nearly two-thirds of all goods exported from Canada. Our members compete with Canadian and foreign businesses, both on domestic and foreign markets.

The more our members become specialized, the more they can distinguish themselves by being agile and able to innovate in niche markets. This makes it more important for them to develop networks of clients, factories, suppliers and business partners around the world, in countries like India.

As our annual management issues survey conducted a few months ago indicates, more and more companies are looking at India as a place to grow business. In fact, 16% of our members responded that they expect to source from India in the next three years, up from 9% currently. The proportion of companies looking to export to India should also almost double in the next three years. Currently it's about 7% of respondents who sell to India, but in three years 13% expect to have customers in that market.

Our survey also indicates there is support for the comprehensive economic partnership agreement with India. A quarter of the companies expect it will have a positive impact on their business. The survey also shows there are 30% of companies that are not quite sure of the impact this agreement may have on their business, so I think we need to make some education efforts there.

CME is therefore supportive of the negotiations, to the extent that Canadian negotiators can deliver an agreement that will deliver a net benefit to Canadian manufacturers and exporters.

We have been having regular meetings with our chief negotiator and members of his team to ensure the needs and expectations of our members are being met in these negotiations. With regard to some of the issues we have raised with them, I think David mentioned some of them earlier in his remarks. Tariffs are frequently quoted as a significant barrier to growing Canadian exports to India.

In the case of our membership, market access for goods, especially for industrial goods, is a priority for us. India has generally applied what could be labelled as relatively high tariff rates. Most industrial tariff lines are currently around 10%, but in some sectors, such as the automotive or aerospace sectors, tariffs can be as high as 19%, and even higher if we're talking about processed food products.

Dealing with tariffs is important, but dealing with regulatory and non-tariff barriers to trade is also important. India is a rapidly growing market, and it's critical for companies doing business over there that there be more transparency, better predictability, and alignment on things, such as product standards, regulations affecting products, and following best regulatory practices. This includes pre-publishing new regulations, for example, such as is the standard here in Canada.

Another major issue for us is around government procurement. We have been told that India has not yet been willing to discuss government procurement in the context of these negotiations. Given Canadian business expertise in infrastructure projects, in engineering, manufacturing, construction and services, all those aspects of what you would call an infrastructure project, ensuring that Canadian businesses have guaranteed open access to government procurement contracts and ensuring more transparency in India's tendering process are also very important for our members.

Investment is also important. Canada has been engaged in separate discussions on a foreign investment protection and promotion agreement with India, and we hope those negotiations can conclude as soon as possible. It's somewhat separate from the CEPA, but it's also an important aspect of our trading relationship with India.

Finally, labour mobility, which our negotiators refer to as temporary entry, is another important chapter in these negotiations, and I understand it is one of India's main offensive interests. We support having this issue included as part of what would be a comprehensive agreement.

India has many suitors, and Canada is one of several countries trying to negotiate a trade deal with that country. While the CEPA could potentially eliminate barriers to trade, investment, and labour mobility, we support the government continuing to seek closer and deeper political and economic ties with India beyond the conclusion of this agreement.

The Prime Minister was visiting India recently with a group of CEOs, and our president and CEO, Jay Myers, was on this delegation. This is exactly the kind of forward-looking economic diplomacy that many of our members are looking for the government to provide. We hope these high-level meetings will continue to happen on a regular basis. We're willing to provide whatever support is needed to make those happen.

As for the pace of the negotiations, we support the objective of concluding the CEPA by the end of next year, although this probably means that the pace at which these negotiations are going will have to increase in the coming months. There is strong support from both Indian and Canadian business, as far as I am aware, for this agreement, so we hope that both governments will show the same level of political commitment and conclude negotiations sooner rather than later.

l'II end my comments on that note and will be pleased to answer any of your questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll start with questions.

Mr. Davies, seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Thank you to both organizations for being with us and giving us the benefit of your expertise.

It's an axiom in Canada trade history that we're trying to move from being hewers of wood and drawers of water, and here we have the Forest Products Association, so we've got an opportunity to pick your brain about how we move to that value-added chain. As you're a member of the Forest Products Association, I take it that's one of the main objectives of your members.

I think all members of the House want to see an increase in our value-added exports. I don't think anybody wants to be just exporting raw materials or barely processed materials as a foundation of a modern economy. We want to be increasing value.

First you, Mr. Lindsay, and then Monsieur Laurin, do you have any suggestions about how we can improve our performance and improve our exports of value-added goods?

[David Lindsay]

It's an excellent question. It's not unique to the Indian market, obviously. At the risk of sounding like I'm repeating myself, the whole premise behind the Vision 2020 exercise of our members in the Forest Products Association of Canada is to move to that next level of value-added products.

The fibre in a tree can be used for many more things than just logs and timber. None of our members exports raw logs. That's not something we do. We have value-added as simple as two-by-fours, but as complex as the nanocrystalline technology, going right down to the cell level in a tree. Those complex carbon molecules that are in oil which are used to make polymers and plastics can also be extracted from trees to make door mouldings for auto parts. That sheen you see on hummingbird wings, and in lipstick as used in cosmetics, that comes from the forest fibre. On flat screen TVs, the nanocrystalline shimmer and sheen that you see, can come out of that nanocrystalline product of the tree.

Pulp mills are becoming chemical refineries and are further refining the raw material coming out of the tree to make many products. It's only the limits of our investment in innovation and our imagination that would impede us from going even further.

[Don Davies, NDP, Vancouver Kingsway, BC]

Could you give me one suggestion for what the federal government could do that might assist in the development of that process?

[David Lindsay]

The government has been very helpful in the past number of years already and we're on a journey. Not to get too technical, but in IFIT, the investments in forest industry transformation program, the first $100 million went out to the marketplace and companies were encouraged to apply to invest in going to the commercialized level with new products and new technologies. The Department of Natural Resources received, I believe, about 35 proposals that would be what you and I might refer to as world firsts, new ideas, new technologies that have never been tried or used anywhere else in the world. That was in the first round. We have asked the government to continue this for the next couple of years—

[Don Davies, NDP, Vancouver Kingsway, BC]

Have you got an answer yet about whether they're going to continue that?

[David Lindsay]

We actually have made this request as part of our budget submission to the Minister of Finance in his round of budget consultations right now. The first $100 million has not been fully announced yet. We understand there are very exciting projects in there, but because of commercial sensitivities they're not ready to release those yet.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm going to go to Mr. Laurin just quickly, because I'm running out of time. Thank you for that. That was very helpful.

Mr. Laurin.

[Jean-Michel Laurin]

I would say two things. On the one hand, as David was saying, you might just be seeing wood products being exported. Whether it's processed natural resource products or any other manufacturing product, increasingly what we're seeing is you're delivering value through that tangible good, but a lot of the value that's embedded in that product is the design work, the engineering work, the logistics management work that sort of gets embedded in that product. We're moving up the value chain in many ways, in the way we do business, in the way we process our natural resources, in the way that we're manufacturing things. Countries like India are not only interested in resources, but also in getting that technology because they're trying to move up the value chain as well.

I would add that the fact that countries like India have a huge appetite for natural resources and the fact that we have a rich natural resource endowment gives us leverage to negotiate free trade agreements. We can show that we can be a trusted, reliable source of natural resources for their market, and at the same time negotiate an agreement that deals with some of the market access barriers, so that manufacturers in other sectors, which you might call higher value-added, also enjoy greater market access as a result of our capacity to show that we're a trusted and secure source of natural resources.

[Don Davies, NDP, Vancouver Kingsway, BC]

I want to get into really quickly, and you touched on this earlier, the fact that getting our goods to port is critical. We can talk all we want about trade, but if we can't get our goods to port, then that's not going to help much.

A statistic came out recently that 80% of rail customers have service complaints. I think we've heard something about legislation, but I'd like to know how long this has been a problem for your members. As well, what exactly do we need to do to fix this problem?

[David Lindsay]

It has been a problem for a long time. By the very nature of the forest product industry, as you can imagine, the trees are not close to urban centres. Like grain and mining materials, they tend to be at the end of railway lines, or far out in remote areas.

The phrase we use is that we are captive customers. If you want to get resources like lumber and pulp out of a community, there may be a highway close to town, but the volume we're talking would take hundreds and hundreds and hundreds of trucks.