International Trade Committee on Feb. 27th, 2013

[The Chair, Conservative, Rob Merrifield]

I'd like to call the meeting to order.

I want to thank our witnesses for coming forward for our continuing study of a comprehensive economic partnership agreement with India.

Mr. Pinto, can you hear us okay?

[Mervyn Pinto, President and Chief Executive Officer, Minaean International Corporation]

I hear you fine and loud and clear, sir.

[The Chair, Conservative, Rob Merrifield]

Very good.

Mr. Pinto is with us from Minaean International Corporation.

Before we hear from him, we have with us Gordon Bacon, chief executive officer from Pulse Canada. He's no stranger to the committee.

The floor is yours, Mr. Bacon. Go ahead.

[Gordon Bacon, Chief Executive Officer, Pulse Canada]

Thank you, Mr. Chairman and members of the committee.

Thank you for the opportunity to speak to you today on your discussions around the comprehensive economic partnership agreement between Canada and India.

Pulse Canada is the national industry association representing pulse growers as well as the processors and exporters of pulse crops that are exported to 160 countries around the world.

Pulse Canada has, for more than 15 years, been focused on market access as one of the members' top priorities. Access to markets in a predictable and stable trading environment is a prerequisite to building an export-oriented resource economy for Canada. For this reason it may be that no market in the world is more appropriate than is India when Pulse Canada speaks about the issue of market access and the importance of pursuing more formal agreements.

It will come as a surprise to some Canadians and to some citizens of India that Canada's biggest export to India is pulses. In 2011 Canadian pulse exports to India were valued at $633 million, or 24% of the value of Canada's total commodity exports to India. In 2012, pulse exports from Canada to India were valued at $504 million, or 21.5% of Canada's export trade.

India is Canada's single largest market for pulses, and the single largest crop that Canada sells to India is yellow peas. The range of pulse crops grown and consumed in India is wide and diverse. Yellow peas from Canada compete with peas originating in Australia, France, and the United States, but more importantly, they compete with other pulse crops like desi chickpeas, which may be grown in India or imported from Australia, or pigeon peas, which may be grown in India or imported from countries in Africa.

India is a very complex market. Some of the market demand for pulses reflects religious beliefs of the citizens who consume only vegetarian food. But a great deal of demand is economically driven. Plant protein, like that from a range of pulse crops grown and imported into India, is more affordable than is higher-priced protein from dairy and meat. Canada became the biggest supplier of pulses to India primarily because yellow peas offer the most economical source of plant protein. Price is key. One of the reasons for a drop in exports of pulses from Canada to India in 2012 was that the Australians had a big chickpea crop and moved a large quantity of the crop right after harvest, at the end of 2012.

India is also predicting a big winter season crop of pulses, perhaps as much as a million tonnes more than last year, all of which combines to mean a change in demand for Canadian peas. But while tonnage may change from year to year, what we cannot change is our focus on competitiveness, which means we must ensure that Canadian farmers and Canadian companies are in a position to be competitive. The role of government can be to assist industry to be competitive by creating an enabling environment.

The Canadian pulse industry is very supportive of the development of comprehensive economic partnership agreements at the government-to-government level, because they provide the opportunity to create a more permanent and lasting trade policy framework that puts Canada on a level playing field with other exporting nations. They also ensure that yearly fluctuations in domestic production are not met with yearly fluctuations in import or access policy.

India would like to be self-sufficient in pulse production and has recently increased support to Indian farmers to grow more pulses. But India also needs to import pulses to meet demands. Even with a rise in Indian imports in recent years, the per capita consumption of pulses has dropped significantly in the past 40 years. Malnutrition is a problem in India, and food imports are part of how India will provide adequate and balanced nutrition. Predictable trade policy is a vital component of food security, and equally important, a vital component of affordable food.

Here is a list of things that the Canadian pulse industry has faced in trade with India that would be on our list to be discussed and resolved in an agreement between Canada and India.

While India has not applied an import duty to pulses in many years, an agreement between Canada and India should remove that existing policy option from the table. Partnerships need predictability. Food security needs predictability. A permanently open market would remove that potential restriction from ever re-emerging.

Canada's largest pulse trade challenge with India over the last nine years has been related to a sanitary and phytosanitary issue. This issue, at times, has stopped the loading and unloading of Canadian vessels. It has cost Canadian exporters hundreds of thousands of dollars on single shipments that had to be diverted after leaving Canada to be fumigated in third countries.

For many years Canada has been the beneficiary of a succession of derogations of Indian policy on fumigation as it applies to Canada. But some of these derogations have come at the last moment for a business that has a six-to-eight week lead time to get peas moved from farms in western Canada to Vancouver, and ultimately to ports in India.

The market access issue is not over. Pulse Canada recognizes that an economic partnership can't anticipate and address this level of detail but an agreement can address the timeliness and process that will be used bilaterally when issues emerge. That we are nine years and counting speaks to the challenges that have been faced with SPS issues. Partnerships need predictability, and processes with timelines to address SPS issues need to be part of that partnership agreement.

A bilateral comprehensive economic partnership also allows us the opportunity to sit down with India to discuss solutions to challenges that arise from underperforming third-party processes. India defers to Codex Alimentarius to establish tolerances for levels of chemical residues that, through extensive testing and with high safety margins, establish acceptable levels that are indicative of proper use of crop protection products and at levels that are proven to be safe.

Yet because Codex is chronically underfunded and mired in a process that ensures it is always behind in providing approvals, we're left with a situation where Canada's PMRA will approve crop protection products for use in Canada, but both Canada and India are reliant upon an international body to provide timely responses in order to make that partnership work well. There are alternatives that we need to address and perhaps consider including in the CEPA.

The precedent already exists with another UN body, the World Food Programme, where residue tolerances established in the country from which they purchase a commodity could be the guideline. This could be suggested to India: recognition that a standard developed in Canada for Canadians be acceptable to the Indian government when an international standard does not exist. Perhaps India will ask Canada to consider a reciprocal agreement, where Canada would be asked to accept tolerances established by an Indian regulatory authority for a product like tea.

Partnerships need predictability, and while it may be challenging for Canada and India to address food safety tolerance issues, it's even more challenging to think that this can be left to Codex, which has shown us that it is simply not up to the task of fixing multilateral trade issues on a timely basis.

I want to be clear to all committee members who may not be familiar with the policy and processes around the establishment of crop protection product tolerance levels. Canada is among the toughest regulators in the world when it comes to establishing safety margins. Canada currently works closely with other regulators, such as the EPA, in the United States, and the European Food Safety Authority.

Asking India to consider accepting Canadian standards is not asking India to compromise food safety—far from it. In fact, a recent Codex decision, which followed a decision by the European Food Safety Authority, set a tolerance level for a product used in Canada at two and a half times higher than what had been set by Canadian regulators. This is an issue of regulatory harmonization and not about deciding what is safe. The safety margins are in place, and this is about harmonizing the timing and methodology of policies used to establish tolerances.

Mr. Chairman, it is important for me to note that trade agreements are only the starting point to being a competitive exporting nation. Everything that impacts our ability to be competitive at destination while still providing a high rate of return to the Canadian manufacturer or farmer has to be part of the holistic approach to ensuring competitiveness.

We need trade agreements that eliminate tariffs and quota restrictions. We need a logistics system that is performing at a level that is the envy of the world and not held out as an example of one of the things that limits our ability to get products to market. We need to proactively address market access issues that arise from an asynchrony in approaches and timelines to establish maximum residue limits. The key point I'm trying to make is that addressing one essential element without this holistic approach to tackling all of the impediments to trade is akin to building an eight-lane highway that is served by a single-lane on-ramp.

Yesterday a coalition of rail shippers representing lumber, mining, agriculture, and more—products that account for 80% of rail traffic—presented a united position on amendments to Bill C-52. Trade agreements that provide market access and an efficient logistics system in Canada are all essential elements of building a competitive Canadian economy. Access and transportation are the building blocks for growing a strong Canadian export sector.

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we have, from Minaean International Corporation, Mr. Mervyn Pinto.

Mr. Pinto, the floor is yours, sir.

[Mervyn Pinto]

My background, just for a minute, has been in shipping and trading since the year 1985. I moved to Canada in 1994. In terms of past exports, I did some trading in commodities, exporting yellow peas to India from here, tying in with the farmers and exporters out of Saskatchewan. I had two successful years until, of course, we could not match the pricing because of the increase in exports out of Australia. We opted out of pulse trading and got into the construction sector.

Having said that, I am very much experienced in doing business with India, having moved to Dubai in 1990. Our offices in India were functioning then. We even have offices in Bombay today, but are more involved in construction systems and the export of our construction business into India. Having established in India in 2001 after the earthquake in Gujarat, we joined the Canadian delegation to introduce light gauge steel construction systems, which were earthquake resistant. The country had a shortfall of in excess of 26 million homes and was in dire need of such a system.

From 2001 to today, we have had sort of an uphill battle there to establish ourselves the way we want to. It's been quite tough, but at the same time, the market is so huge and inviting, we know that one day or another, and sooner rather than later, we will be able to make a breakthrough. Of course the experience that we've carried with us for the last 10 years will play a major role in doing so.

I am ready to answer questions, but when it comes to the CEPA, yes, we definitely are of the opinion that this is a very important trade agreement that primarily Canada would like to benefit from, and so would India. But of course India has an advantage, being such a hugely populated country. As one of the largest growing economies in the world, it has many nations fighting to take a primary step forward in tying in with the country.

Having said that, I think the latest efforts from our Prime Minister Harper and of course Prime Minister Manmohan Singh to negotiate a trade agreement is primarily to the benefit of Canadian companies and also the Indian companies that want to trade with Canada—primarily in the mining sector, as I've been told.

Coming back to our primary business, yes, it's the export of construction systems. We are exporting light gauge steel systems, modular buildings, and prefabricated systems.

India comes with a background of bricks and mortar. For centuries the population has only experienced living in systems of bricks and mortar, which is nothing but bricks and concrete. In rural India there are more mud houses than even brick houses.

Having said that, the country had a shortfall of about 20 million homes when we entered the Indian market in 2001. The shortfall has now grown to 26 million homes, with urban and rural India combined. Urban India alone has a requirement for 18.6 million homes, of which 15.2 million homes are for the economically weaker section of the society—that is, the population living below the poverty line. This encompasses the slum rehabilitation sectors of the country and of urban India.

When we entered India in 2001, it was primarily to provide earthquake-resistant homes for states like Gujurat, where there had been a major earthquake, and other states that were in zone 4 and 5 earthquake regions. Gradually from there we diverted into the needs of India's slum rehabilitation business, where slum rehabilitation in Bombay alone was a major challenge for the MHADA, which is Maharashtra Housing and Area Development Authority. Bombay alone, which has an unofficially declared population of over 21 million, has about 8 million officially declared people living in slums, which are known countrywide as shanties.

It is a challenge, because when we tied up with an NGO, a non-government organization, headed by an Austrian citizen in Bombay in 2004, we took the challenge of rehabilitating about 1,800 families living in a place called Wadala in Bombay. This was in 2004. I even invited CIDA, which had supported many an international group entering the Indian market. The Canadian International Development Agency supported us for market entry in 2002 and then the implementation process in 2004, which enabled us to tie up with a group called Tata Steel, a subsidiary of the Tata group, India's largest steel producer.

When we had a strategic alliance partnership signed in 2004, our focus was mainly to see how we could best involve the light gauge steel system—a quick-build prefabricated system—in the slum rehabilitation requirements of Bombay. We did model homes. We even had CIDA look at the land we were planning to redevelop, which was, as I said, slum rehabilitation. It was not a real estate business, it was more of a government-initiated program where, based on the rates in our proposal, they would give us that particular land where xnumber of families needed to be rehabilitated in the overall designs. The floor area meant for a family of two was 320 square feet, and a family of four had a minimum requirement of 450 square feet, which we had to provide.

When we did the survey in 2004, there were about 1,850 families living in this particular 20.2 acre lot in Wadala, Bombay. By the time we had the proposal moving forward in 2006, we were ordered to take a new survey, which showed that 600 more families had come in. The families would prove that they had been there before 1995 by forging a certificate through government sources to get approval from the authorities that they had been inhabitants there.

These were the challenges that we were facing. Though it would be quite an attractive project, it was capital intensive. We had financial support from some institutions—India's institutions as well as foreign institutions through support of this type of a venture—but the challenges we had to face were to get the approval, which was a lengthy process, and then when we did get those approval processes in the pipeline, there would be a re-survey ordered, and that would change the complete scenario.

This is a brief background of Minaean's efforts until 2006 in the housing sector of India, primarily in the state of Maharashtra and Bombay.

Many of you must be aware that practically half of Bombay is occupied by slum dwellers.

So that was 2006. In 2007 we introduced our modular buildings. We got involved with Shell Petroleum to construct retail shop buildings for their gas stations. They had a licence to put up 2,000 gas stations; we were exclusive suppliers of modular buildings for them. We put up three plants, two in Bombay and one in Bangalore, to produce these modular buildings and supply these buildings to Shell for their various locations.

This was a novelty for India then, because prefabricated modular buildings had not yet entered the market. Though they're widely used here in North America as well as in Australia, in India they were a novelty. That would have been a change even for the government authorities in accepting a new system, which was light gauge steel covered with the drywalling that we use here in North America.

Again, then came the recession. Shell had to cut back on the country's needs. We are now getting back on track by tying up, with a memorandum of understanding, with the Gujarat government and the National Thermal Power Corporation plant.

These are Minaean's achievements as of date. But, as I stated, the whole process is an uphill battle. We need support from the Canadian government. We are of a strong belief that the CEPA will enable that, because export of designs and architecture, as well as the export of certain materials from Canada to India, which attract duties and tariffs.... It will provide a benefit to us to be more competitive in the country.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We will now move to the question and answer portion of our meeting.

We will start with Mr. Sandhu.

You have seven minutes. Go ahead.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you.

I want to thank both of the witnesses, Mr. Bacon and Mr. Pinto, for being here with us today.

Mr. Pinto, I have to start with you.

India is not one of the major trading partners with Canada, considering its population, size, and the large, rapid economic growth that's taking place there. You talked about challenges that your company faced, as well as some quite tough uphill battles that you've had. Can you elaborate on those obstacles your company has faced? Can you be more specific?

[Mervyn Pinto]

Primarily, Mr. Sandhu, what we have faced is that although the government and quite a few state governments have announced a single-window system for getting an approval process through, it takes its own time in getting these processes through. Quite often, more importantly, the pricing threshold in the country is of a level far below what Canada can dictate or Canada can manage with.

For example, on the construction front, for low-cost housing, which is the requirement for the country to house the majority of the population struggling to find a roof over their head, the government is still offering around 600 rupees a square foot. This has, of course, been brought up from 400 rupees a square foot when we first started doing construction in India, in Bombay, or in the outskirts of Bombay. Bombay is all high-rises, so the single-family or double-family or apartment buildings up to four floors.... The pricing the government was offering was 400 rupees at that time when the rupee was at close to 35 rupees per U.S. dollar, so it was still about $12 to $14 a square foot.

We were given this challenge to see how best we could match this particular pricing in India. We had to more or less, apart from exporting the design and supervision from Canada, purchase all the materials locally to avoid any duties or tariffs that could burden the cost structure.

Having done that, the first tough challenge that was offered to us was by the Andhra Pradesh State Housing Corporation, from Hyderabad. Mr. Nara Chandrababu Naidu was quite an aggressive, dynamic chief minister of the state. Gujarat state went into the earthquake and lost practically 30,000 people in that earthquake in 2001. Our first trial project to construct 50 homes was given by the Andhra Pradesh State Housing Corporation. We also proved that we could construct these houses, within 380 square feet. But—

[Jasbir Sandhu, NDP, Surrey North, BC]

Mr. Pinto, I only have seven minutes.

I just want you to be more specific. We've heard on this committee that the Indian market presents a challenge to Canadians, including the highly bureaucratic nature of the Indian government, the lack of infrastructure, and the inconsistent application of rules and regulations.

Does your company have any experience in regard to these issues? Please be brief.

[Mervyn Pinto]

I would say yes, and basically it was the approval process. Getting the approval from the state government of that particular section—MHADA in Bombay—was a tiring process. Something we should have had within 30 days would take us practically 90 days. That was one of the major problems.

In transportation, it was the octroi problem. Crossing Bombay City to the outside of Bombay City would attract another 11% of octroi. These are the burdens we faced as we moved along.

[Jasbir Sandhu, NDP, Surrey North, BC]

Thank you.

Mr. Bacon, we've heard over and over on this committee that there have been issues with the railway companies getting goods and products out to Vancouver. What have your experiences been with the railway companies over the last number of years, and what does the government need to do to get our products out to the ports?

[Gordon Bacon]

The experience really varies from period to period. The experience of all exporters in the last month or two has been that there is a deterioration in service, and this impacts every exporter's ability to be seen to be a reliable supplier. There is testimony that was given at a standing committee yesterday that cited some of the numbers.

In a market like India, which is very price sensitive, what is our strategy to drive costs down and efficiencies up? That is really something we have to tackle to be a long-term supplier to India, and then to many other markets as well.

The testimony that was given yesterday by the Coalition of Rail Shippers really presented the united position of the forestry industry, the mining industry, the fertilizer industry, the agriculture industry, and on through, as to what should be done. If you would like, I could certainly share that position of the Coalition of Rail Shippers with this committee, because we do believe it is part of that holistic approach to the competitiveness of Canadian exporters.

[Jasbir Sandhu, NDP, Surrey North, BC]

I have one short question here.

You talked about phytosanitary standards in Canada being very high. What are they like in India?

[Gordon Bacon]

Well, India doesn't have the same capacity to establish its own, so they rely on Codex Alimentarius, the United Nations' established body.

The challenge we have is that the UN does not provide adequate funding to ensure that these food safety standard-setting bodies are up to date. So we have a lack of synchronization between what we have as rules in Canada and what India would accept.

That leaves us in the position where Canadian farmers can use products for which there is no legal tolerance level in India. It is safe. It's not a question of safety. It really is a question of needing to harmonize the timing of the establishment of these standards. If we can't get it done through Codex, our suggestion is that we look to mutual recognition between India and Canada to be an intermediary until we have a UN functioning system.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Holder, you have seven minutes.

[Ed Holder, Conservative, London West, ON]

Thank you very much, Chair.

I would like to thank both of our guests for attending today.

We understand the rationale for wanting to put this CEPA together when we look at how merchandise trade has increased, effectively tripled in recent years, and that's significant.

So to the extent, Mr. Bacon, that you already have a considerable portion of the market in India, I'm trying to get a sense from you, if you don't mind.... You talked about your market share and you mentioned that India wants to be more independent in its own pulse crops growth.

I'm trying to understand, then, if you anticipate that is a potential impediment to the CEPA we are working toward. Do you see any challenges with your industry relating to their plans?

[Gordon Bacon]

Yes, potentially there are. As I said, India has had the ability to impose an import duty on pulses, which had been done in the past. That's a protectionist measure to—

[Ed Holder, Conservative, London West, ON]

How long has it not been on?

[Gordon Bacon]

It's been more than 10 years since India has applied it, because India's demand for pulses has continued to grow, and its domestic production has basically been flat to slightly down.

[Ed Holder, Conservative, London West, ON]

But you're not anticipating, unless this protectionist mindset comes into play.... I presume you've conveyed to trade officials, on behalf of your association, the concerns relating to a potential tariff.

[Gordon Bacon]

Yes. We don't see, in the immediate term, any likelihood of it being imposed.

We are trying to inject some long-term stability into the regulatory environment, and removing it takes it off the table at some point. India is investing in biotechnology to enhance its pulse production, they are protein-deficit. So it's a big priority domestically.

There is obvious conflict between encouraging import of product and at the same time wanting to encourage domestic production. The easiest way to encourage domestic production is to boost the price levels that farmers are receiving, which then would be hurt by the import of product. It's hard to be both, both encouraging local production and being a net importer of product.

[Ed Holder, Conservative, London West, ON]

It's interesting. Agriculture always tends to be that issue with trade deals, certainly that I've been involved with since joining this committee several years ago. And as we are experienced with the CETA, the one between Canada and the European Union, we're now into the crunchy bits, those emotional arguments—I'm going to speculate for just a moment—such as French cheeses or hams from Italy and the like. And other questions come as they relate to agriculture.

You made reference to significant increases in growth in production in Canada. Help me to understand. Is this because in the pulse crop industry more pulse crops have been grown to take advantage of greater trade around the world? Or is there a better growing cycle now?

[Gordon Bacon]

Two things happened.

If we go back 15 or 20 years, the Canadian pea industry took off as a feed ingredient source to Europe. That was in response to high domestic price supports for cereal grains in Europe, which made the price of animal feed high. That, then, allowed us to come in to address not only the high support prices being paid for cereal but the ongoing protein deficit in the European feed market.

If we go back probably 25 years, we started an industry in Canada in response to U.S. farm bill price support that barely drove down the price of cereal grain production in Canada, and farmers were looking for some alternatives. I think our industry's origins were really part of a production distortion, which we have addressed in large part over the years through bilateral and multilateral agreements and a general trend to higher commodity prices.

But in the process we became a technology leader in our production processes, in our varietal development. We can get into a very detailed explanation, such as yields of pulses relative to yields of cereal wheat, cereal grains in Canada versus other producing regions, but the bottom line is that we've become very competitive. We are the world's biggest producer and exporter of peas and lentils, and we're among the top five bean and chickpea producers. So we are a major force, accounting for one third of global trade originating out of Canada.

We've become big, and now we just want to make sure that we remain stable and competitive. As an association, we've shifted our focus to look at what we can do to add additional value to the crops we're already growing and to ensure that we remain competitive.

[Ed Holder, Conservative, London West, ON]

I suppose you and the Heart and Stroke Foundation should get T-shirts that say, “I love pulses”.

You talked about standards relating to Codex. You said that Canada has one of the toughest standards in the world. When we make these arrangements, how do we set the standard for the purpose of India, which as you indicated doesn't have our level of technology, or at least our level of standard? Are we working, in your sense, with your experience...?

I did not ask this of your colleague the executive director of Pulse Canada when I saw him at Transport yesterday because we talked about other issues.

Is the standard that's set in trade negotiations one that is consistent country to country in your experience? How has that been set for your dealings, let's say, with Europe versus your dealings with CEPA, CETA, or for that matter NAFTA?