International Trade Committee on May 1st, 2013

[Ève Péclet, NDP, La Pointe-de-l'Île, QC]

Ms. McClenaghan, I would like to echo my colleague's question. This is very important, given that what we are talking about here are companies that represent Canada abroad. My colleague mentioned a situation involving Chile, but we are well aware that it has also happened in Peru.

Barrick Gold has admitted that its security guards raped a number of aboriginal women in Papua New Guinea. It is therefore really important that we talk about corporate social responsibility, and more specifically the social responsibility of Canadian corporations that represent Canada abroad. I think it is worth delving a little into this subject and talking about the standards that apply in Canada, what gaps there are in those standards, and how they could be remedied, for example. If we get involved in this kind of alliance or free trade treaty, it is important that the standards applied in Canada also be applied abroad.

Could you tell us about the deficiencies in the Canadian system and what could be done so that human rights are respected and incidents like aboriginal women being raped by employees of Canadian companies do not happen again?

[Theresa McClenaghan]

I agree. I would look to the specific standards that exist. For example, water standards are generally quite high in Canada, so you can be looking at both the freshwater quality objectives that Ontario has as well as the drinking water guidelines that Canada sets. There's no reason that you should be having the situation where Canadian companies have to meet anything less abroad.

In terms of health and safety, occupational health, those are other areas we work on as well. We're quite concerned to make sure that we're constantly pushing for better standards here at home. We think there's lots of room for improvement, but we certainly don't want the companies meeting anything less abroad either.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Keddy.

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

Thank you, Mr. Chairman and welcome to our guests. I have two quick questions.

At the beginning of the testimony there was quite a bit of discussion between Mr. Sekulic and Mr. Kurbis that we're looking at the Pacific Alliance as the fifth largest export market for pulses for Canada. For that very reason it would seem to me—and those are your comments—that it's important for us to play in this field, if you will.

Quite frankly, the U.S. has not been invited to join at this point. It's separate from TPP. I want to ask you both about the importance of that. To be in a format that is a trading agreement, and it's going to possibly morph into a much larger trading agreement, but we don't know that yet because we've not seen those parameters, but I think to be there without our major competitor is a huge opportunity for Canada. Do you see that same opportunity there?

[Gord Kurbis]

I'll make a few comments and then ask Nick to also comment.

In agriculture, we understand the value of options. If for whatever reason we're not able to get what we would like to get out of TPP, or if it turns out that Colombia, which is not a member of TPP, becomes an increasingly important trading partner in the Pacific Alliance and it represents an opportunity to bring them into the fold of some sort of improved regulatory harmonization, or if the Pacific Alliance expands greatly in scope, providing opportunities we can't really forecast at this very moment, these all represent benefits to our industry. That's an option value for us.

[Nick Sekulic]

Rising food commodity prices are stimulating investment in infrastructure and assets globally. The key thing for Canadian farmers is to be as competitive as possible and that means access to markets. We should never pass up an opportunity to improve access to markets, especially a key market.

[The Chair, Conservative, Rob Merrifield]

Time is gone. Thank you very much. We certainly want to thank you. We got to know you well enough so we can call you Gord, Nick, and Theresa.

[Voices]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

Thank you for coming and testifying before our committee. With that we will suspend as we set up the next panel.

[The Chair, Conservative, Rob Merrifield]

We'd like to start our second round.

We have with us from Canadian Manufacturers & Exporters, Mr. Mathew Wilson, as well as from Bombardier Inc., Mr. Pyun.

Mr. Pyun, the floor is yours to start us off. We look forward to your comments.

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

Thank you, Chair, for the opportunity to appear before the committee. I look forward to an exchange with you on our perspectives on the Pacific Alliance.

Again, my name is Pierre Seïn Pyun. I'm vice-president for government affairs at the corporate office of Bombardier. What I would propose to do is to give just a very quick overview of the company and our priorities, and then look at our activities and perspectives in Latin America overall, and then conclude with our take and comments on the Pacific Alliance in particular.

As you know, Bombardier is a manufacturer of trains and planes. We have a global operation with our headquarters located in Montreal, and we are listed on the Toronto Stock Exchange. We have around 72,000 employees and 80 manufacturing and engineering sites around the world in 26 different countries. Our revenues were close to $17 billion for the fiscal year that ended on December 31, 2012.

We're a very export-oriented company from our base in Canada. We generate 95% of our revenues from outside of the Canadian market. We are the third largest civil aircraft manufacturer in the world, with the widest portfolio of business aircraft. We're actually number one for business aircraft, going from light jets to mid-size, super mid-size, to intercontinental-range business aircraft with our Learjet, Challenger, and Global families of aircraft. We are the world leader in regional aviation. We are actually the inventor of regional aircraft with our CRJ regional jets and Q400 aircraft.

We are currently developing a new narrow-body trunk line aircraft that we call the C series. It's going to be the most cost-efficient, fuel-efficient, and environmentally friendly aircraft in its category, seating between 100 to 160 passengers, depending on the configuration that the customers want. The CS100, the smaller version of the C series, will do its first flight by the end of June and will enter into service next year.

On the rail side, we are the largest rail equipment manufacturer in the world, supplying light-rail vehicles, metros, trams, commuter trains, regional trains, locomotives, turnkey systems like automated people movers, monorail systems, and also very high speed trains, as well as the key components for train technologies, including bogies, train controls, signalling systems, propulsion systems, and so on and so forth.

I would flag two major priorities for us this year.

We're very heavily invested in research and development with the C series aircraft program that I mentioned, but also we are working on other aircraft, the new aircraft programs, like the Global 7000 and Global 8000 and the Learjet 85. The company is spending a lot on research and development. This year we'll be spending $2 billion on property, plant and equipment overall for the company.

Also in keeping with this focus on research and development, we're currently working on our very high speed train technology, which will be introduced into revenue service in the Chinese market. We're talking about trains that can go up to 360 kilometres per hour.

The second priority that I would flag, and I think it relates to the topic at hand today, is our increasing focus on emerging markets. Europe and the U.S. remain very important markets for us. In the aerospace segment, Europe generates 20% of our revenues and North America 56%. They will remain important for us. For rail transit, Europe is 63% of our revenues and North America is 18% of our revenues, but there's no question that we're increasingly turning our attention towards emerging markets.

At this point of time, Asia Pacific represents around 12% to 13% of our overall revenues, but we're intent on growing that share and growing the share of other emerging markets as well. To give you a sense of the progress on that front, in the last five years our revenues from the so-called BRIC countries have quadrupled from $500 million to $2 billion. That's a good segue to Latin America.

Overall I think we have a fragmented presence in Latin America. We're quite strong in Mexico. We have a strong manufacturing presence and I would say a growing presence in Brazil as well, particularly on the rail side, and also in business aircraft. But we think that our record in Latin America, again, overall from a broad perspective, is quite spotty in light of the significant potential that the market presents. We still have a long way to go, with perhaps the exception of business aircraft. In that sector we're doing quite well, with a 26% market share in Latin America.

As I mentioned, we have a strong presence in Mexico, with over 3,000 employees. We have manufacturing sites on both the aerospace side and rail side, with our sites in Sahagún and also Querétaro. Sahagún is on the rail side and Querétaro on the aerospace side. Querétaro has been really a good-news story for us. We have invested one-half a billion dollars in that site, which produces different components for our aircraft, including electrical sub-assemblies, harnesses, and structural parts for our aircraft.

I mentioned that we're also present in Brazil. We're actually expanding our presence in Brazil, where we have a little fewer than 400 employees at this point in time. Last year we inaugurated a new manufacturing site in Hortolândia, which is in the state of São Paulo, for rolling stock manufacturing. Currently we're working on a large-scale monorail project for the city of São Paulo. There's a lot of input coming from Canada, from our site in Kingston. It's an engineering site, and Kingston, Ontario, is doing the design, engineering, and testing for that monorail system, for which the vehicles will be manufactured in Brazil.

We also have an aerospace presence in Brazil, with a parts distribution centre in São Paulo and a regional support office there as well. We are pursuing aerospace opportunities in other Latin American countries. On the commercial aircraft side, just to give you a sense of our presence, we have in total close to 70 aircraft. That's our installed base of commercial aircraft. We have a few customers obviously operating those aircraft. But overall it's a region dominated by our competition. So for ATR, which is a European company for turboprop aircraft, the installed base of ATR aircraft is double our installed base of Q400 aircraft. Of course, Embraer is very strong in Latin America and they have as customers many, if not most, of the large carriers such as AviancaTaca, Aeromexico, and so on and so forth.

With respect to countries that are part of the Pacific Alliance, on the rail and metro side, we see some opportunities in Colombia, for the city of Bogota and Medellín as well. We are pursuing signalling opportunities and also propulsion system opportunities for real projects in Chile and Peru.

For business aircraft overall, as I said, we have a large fleet of aircraft in operation in Latin America, close to 450. That's a 26% market share. That's one segment where we're doing quite well. I was talking about the overall potential the market offers. We see a demand for around 2,300 business aircraft in the next 20 years for Latin America. On the commercial aircraft side, we see a market for around 930 aircraft in the next 20 years, but as I mentioned, currently our penetration is quite minimal.

I'm going to conclude with a few comments on the Pacific Alliance.

Overall there's no question that we're a strong supporter of all the efforts undertaken by the Canadian government to engage in trade negotiations to open and diversify markets. We think that removing barriers to trade and improving certainty for foreign investment obviously are key for companies such as Bombardier that are outward looking. We benefit from trade agreements from a number of perspectives, including that agreements facilitate investments and business mobility as well as trade in equipment and services.

With regard to the Pacific Alliance, we welcome and encourage deeper commercial ties with the region. We believe that this will be in the interests of the rail and aerospace sectors here in Canada. We also think that participation as an observer at this point in time in such groups as the Pacific Alliance reinforces Canada's commitment towards regional integration and to market-centric international cooperation schemes or arrangements with like-minded countries that will facilitate growth in investment and trade linkages.

At this point in time, we don't face any particular market access barriers in that region and with respect to the current members of the Pacific Alliance. However, more engagement from the Canadian government in the region with a view to increasing Canada's influence in the region with, as I said, like-minded countries, would be very welcome, because we see significant potential for Canadian businesses, including Bombardier, in the markets that are covered by the Pacific Alliance.

I will leave my comments at that. I would welcome any questions.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Wilson from Canadian Manufacturers & Exporters.

The floor is yours, sir.

[Mathew Wilson, Vice-President, National Policy, Canadian Manufacturers & Exporters]

Thank you, Mr. Chair.

My name is Mathew Wilson. I'm the vice-president of national policy with Canadian Manufacturers & Exporters.

I'm pleased to be here on behalf of 10,000 members across Canada to discuss Canada's possible entry into the Pacific Alliance and to provide our support for the government on this initiative.

For those of you who don't know CME, we're a national organization with offices in every province and every region of the country and members right across the country, as well as offices in Europe, Mexico, and the United States.

Eighty-five per cent of our members are small and medium-sized enterprises that represent every industrial and every export sector, and from all regions of the country.

Manufacturing is the single largest business sector in Canada. Canadian manufacturing sales totalled $571 billion last year, directly accounting for 13% of Canada's economic output. Manufacturers employ about 1.8 million Canadians in highly productive, value-added, high-paying jobs. Their contribution is critical for the wealth generation that sustains the standard of living of each and every Canadian.

Manufacturing is an export-intensive business. More than half of Canada's industrial production is exported directly each year. In fact, manufacturers are responsible for 63% of Canada's total merchandise export and more than 70% of Canada's goods exports to the countries of the Pacific Alliance.

It is increasingly critical for Canadian manufacturers to succeed in global markets and to diversify their customer base, just as Pierre was talking about in Bombardier's case.

As manufacturers further invest in innovation and become more agile, specialized, and able to serve niche markets, the more they need to find customers, suppliers, and business partners globally.

While Canada and the U.S. remain the priority for most of Canadian industry, we must also understand that a growing share of our membership is looking to take advantage of new and emerging opportunities beyond North America in countries such as those in the Pacific Alliance.

The opportunities the companies are looking for are to find new customers in new markets, to find potential investors in Canada, to seek investment opportunities abroad, to be able to source services from around the world, and to find qualified personnel to bring back to Canada.

While Canada has existing free trade agreements in place with Chile, Colombia, Mexico, and Peru, these markets are still being developed and discovered by many Canadian manufacturers. In a recent survey of our members who represented almost 2,000 facilities across Canada, companies outlined how their supply chains and customer bases are expected to change over the next three years. Increasingly, manufacturers are looking less and less at domestic markets and more towards opportunity in developing markets.

Mexico, which has by far the largest economy in the Pacific Alliance, is in particular expected to be a significant growth market for Canadian exporters. Over the next three years, based on our survey results, there will be nearly a 20% increase in the number of companies exporting to Mexico, with more than 90% of companies expecting to be exporting there by 2015.

Total exports to the region of the Pacific Alliance were worth more than $7.5 billion last year, of which $5.3 billion were of manufactured goods. Many of these exports are in traditional sectors, such as aerospace and automotive production, which is deeply integrated across the NAFTA region; however, exports are much more diversified and growing across such sectors as agricultural products, iron and steel, mining equipment, oil and gas extraction equipment, and electronics. Given the expected growth of the economies in these markets, they should provide additional market opportunities for companies in these sectors as well as in such other sectors as construction, engineering, insurance, transportation equipment, and financial services.

In order to take full advantage of these trade agreements, CME's priority for the government's trade agenda policy as a whole, as well as for specific trade agreements such as this one, is to ensure that it enhances manufacturers' and exporters' ability to compete and win in domestic and global markets. In other words, our priority is to ensure that trade agreements put us in a position to grow and strengthen Canada's manufacturing base, and by extension to grow Canada's exports of goods and services.

We believe, in the case of the Pacific Alliance, that given the existing FTAs with these countries, it can be an important initiative to strengthen trade relations with existing business partners and better position Canada to lead regional integration throughout the Americas and into the Pacific region.

This agreement will help set the framework for further supply chain strengthening and for growing export throughout Central and South America and across the Pacific. CME believes that this opportunity and strategy are similar to those of the Trans-Pacific Partnership, which started with a small group of companies and grew to a much larger collection of economies, one which now represents more than 650 million consumers and more than $20 trillion in GDP.

We also believe that using multilateral frameworks such as the Pacific Alliance provides Canada an opportunity to elevate all countries to the same high level of ambition that Canada has in its negotiations, including those of the TPP and CETA currently under way, and ensure that free trade agreements not only eliminate tariffs but also will open up foreign markets through the elimination of non-tariff barriers, will open procurement markets, and will facilitate the movement of goods and people among these trading partners.

CME is very supportive of Canada's full involvement in the Pacific Alliance and in other such trade agreements that expand market access on a reciprocal basis and will deliver a net benefit to Canadian industry.

Thank you for letting me be here today. I look forward to the discussion.

[The Chair, Conservative, Rob Merrifield]

Thank you very much for your testimony. You may have answered some questions of individuals around the table about the importance of the Pacific Alliance.

Before we get to Mr. Easter, and I'm sure he'll have some great questions for you, we're going to start with Madame Papillon.

[Annick Papillon, NDP, Québec, QC]

Thank you.

I would like to thank our guests for being with us today.

First, I have a few questions for the representative of Bombardier, which is a Quebec company.

You said there were no tariff barriers in the case of exports from members of the Pacific Alliance. Is that correct?

[Pierre Seïn Pyun]

Yes. I said that Pacific Alliance members did not face significant barriers, be they tariff or non-tariff.

[Annick Papillon, NDP, Québec, QC]

Could you tell me what benefits the Pacific Alliance offers that could not be offered by the free trade agreements already signed with the members?

[Pierre Seïn Pyun]

We see it as allying ourselves with countries that are on the same wavelength as Canada regarding free trade. What I am talking about here are countries that believe firmly in open markets. It also means raising standards together, essentially to set examples that can be applied to other bilateral or regional agreements. We are well aware that there are already free trade agreements with some current members of the Pacific Alliance, and that in terms of philosophy, those countries are already very oriented toward free trade and international trade.

In addition to setting higher standards with countries that share Canada's views, it would mean expanding the government's diplomatic involvement in a region where we are facing very strong competition with our competitors who enjoy diplomatic support from the government of the country where they are located or established. That comment applies to both rail and aerospace. Embraer, in Brazil, is a competitor we are very familiar with that is very strong in the region. That explains, in part, the limited penetration of our commercial aircraft sector.

Essentially, there are about ten of our CRJ business aircraft in operation in the region. That is very few, compared with what we see in the rest of the world. I also mentioned ATR, a French-Italian joint venture. For a number of reasons, it is very competitive in the market. It has been present for some time now.

We see this as an opportunity to get more involved in a region that represents considerable potential.

[Annick Papillon, NDP, Québec, QC]

How would the Pacific Alliance enable you to harmonize Canadian standards with the member countries'? Why do you prefer to join that agreement, when it comes to harmonizing standards, rather than simply making improvements to the free trade agreements that already exist with the members?

[Pierre Seïn Pyun]

It is a business opportunity. Mexico, where we have a strong manufacturing presence, as I mentioned, has agreements with the other member countries of the Pacific Alliance. Our approach is certainly not bilateral only; it is global and regional, when it comes to the value chain and the supply chain. We have an opportunity, starting in Mexico, to become more active in the region, with inputs from Canada and from elsewhere. That is what a global company like ours that wants to be competitive has to do.

Some of these countries are also members of the Trans-Pacific Partnership, or TPP. I think this is an opportunity to create alliances within a smaller forum, with a view to achieving common objectives in a larger forum, such as the TPP.

[Annick Papillon, NDP, Québec, QC]

As you know, we are in the process of negotiating free trade agreements with a number of countries, including India, Japan and Europe. There is also the Trans-Pacific Partnership. If you were to try to determine Canada's priorities in relation to those agreements, where would you put the Pacific Alliance?

[Pierre Seïn Pyun]

For myself, I would leave it up to the government to set the priorities for the negotiations. There are potential synergies between the TPP, which is a priority both for the government and for us, and the Pacific Alliance.

Realistically, I am wondering when Canada could become a full member of the Pacific Alliance. At the moment, Canada is an observer, as you know. What we are hearing is that Canada perhaps could not become a full member in the near future.

[Annick Papillon, NDP, Québec, QC]

Given that resources are limited, should we not focus our negotiations more specifically on the Trans-Pacific Partnership, for example?

[Pierre Seïn Pyun]

For our part, we see them as complementary. In terms of timing, that might work.

As I said, it may not be realistic to think that Canada can actually become a full member in the next year. The Pacific Alliance has indicated that some countries, Panama and Costa Rica for example, were possible members, in the short term. For Canada and a number of other countries, us not being the only observers, we are talking more about the medium and long terms. The parameters of the regional agreement have yet to be defined.

In any event, at this stage, we see our involvement in the Pacific Alliance, as an observer, as being complementary to the TPP negotiations.

[Annick Papillon, NDP, Québec, QC]

Thank you.