International Trade Committee on Feb. 3rd, 2014

[The Chair, Conservative, Rob Merrifield]

We'd like to get this started. We'll ask our members to take their seats and we'll get going.

We are continuing our study on the comprehensive economic and trade agreement between the EU and Canada. Tomorrow, we'll be into the Trans-Pacific Partnership. As a committee, we have a whole day of witnesses before us today.

I'll just let the committee know that we will be interrupted to some degree by a fire alarm from about 9:55 to 10:30; they are doing a drill. We don't have to move, depending on the noise level. If the noise gets too intense and we can't carry on with the meeting, we'll break, suspend at that time, and bring back the next panel a little later once the fire drill is over. We will play that as best we can depending on the noise level. So don't get too alarmed when the fire alarm goes off.

We want to thank our witnesses for coming forward. In this first hour we have with us, from the Wavefront Wireless Commercialization Centre Society, James Maynard, and from the Business Council of British Columbia, Jock Finlayson.

It's great to have you with us.

I see in my notes, Mr. Finlayson, that you're up first. We look forward to your testimony, and then we'll get into questions and answers. We'll kick it off with you, sir. Thank you.

[Jock Finlayson, Executive Vice-President and Chief Policy Officer, Business Council of British Columbia]

Thank you very much, Mr. Chair.

On behalf of my organization, I want to thank the committee for the invitation to appear before you today.

I should just say by way of background that the Business Council of British Columbia is a cross-sectoral business organization that represents about 260 enterprises that are active in all parts of the provincial economy—resources, manufacturing, construction, high tech, utilities, transportation, hospitality, retail, wholesale, trade, health care, education, and the professions. Our member companies and affiliated industry organizations account for about a quarter of all private sector jobs in B.C.

I should say that we have looked at the technical summary of the proposed Canada-EU economic and trade agreement in principle, which was unveiled last year. We have also looked at some of the academic and policy literature that has been published on this topic. As well, we have consulted with our members who happen to have an interest in trade and investment relationships with the EU. Based on all of that, we are supportive of Canada bringing this agreement over the finish line.

Our judgment is that CETA will be positive for the Canadian economy, particularly over the medium and longer term. We expect it will boost gross domestic product, stimulate the creation of more jobs, reduce costs for taxpayers in Canada, promote two-way investment flows, and, importantly, help more Canadian enterprises, including enterprises based here in British Columbia, gain a stronger foothold in the EU marketplace. I would just emphasize that, notwithstanding some of the challenges that a number of European countries have been having, the EU is collectively the largest marketplace and economy in the world.

Specifically, we think that being part of a broadly based modern economic and trade agreement like CETA with the European Union is going to benefit our country in a few key areas.

First, the agreement will give Canadian firms improved and to some extent preferential access to the world's largest market, consisting of 28 countries that are home to more than 500 million relatively affluent consumers. The EU accounts for about a fifth of global economic output, consumption, and production. Once it is fully implemented, we believe CETA will result in the elimination of tariffs on a wide range of products of interest to export-oriented firms in Canada—including those in B.C.—and reduce a lot of non-tariff barriers to trade that tend to operate at the border. Very importantly, it will expand and promote trade in services between Canada and the EU. These will include engineering, professional, computer and information, and scientific and technical services, all of which are an important part of the economic base here in British Columbia.

Of interest, Canadian trade with the EU has actually been growing in a period when trade with the United States has been stagnating. So even though the EU is not a fast-growth market, it is actually a market that is looming a bit larger for Canada and Canadian exporters.

The Conference Board of Canada, in a recent study, projected that Canada's exports of goods and services to the EU are poised to increase significantly particularly if market access is in fact improved.

Second, we think CETA will open up government procurement markets both in the EU and here in Canada. This situation should be advantageous to our businesses because the EU procurement market is worth almost $3 trillion a year. Under the terms of this agreement, Canadian companies will be better able to bid on most types of procurement contracts issued by public bodies in the EU collectively as well as by the national, regional, and local governments of the 28 EU member states.

At the same time, we have to recognize that EU suppliers will have a greater ability to bid for public sector procurement contracts here in Canada subject to a list of exceptions. Since the EU public procurement market is vastly larger than that in Canada, it stands to reason that Canada should gain more from reciprocal access to public sector procurement. In addition, taxpayers in Canada should welcome the prospect of greater competition in the whole domain of public sector procurement as this will tend to reduce prices, improve quality, and increase transparency.

Third, CETA will support and advance the strategic goal of diversifying Canada's international trade and commercial relations so that over time we will become less dependent on the United States.

Here I would note that increased diversification has been a strategic goal set by federal governments over recent decades. It's a goal that's also endorsed by most of the provincial governments and supported within the business community, so it's something I think most Canadians would like to see.

Fourth, and importantly, CETA will encourage greater direct foreign investment between Canada and the EU, and strengthen the protection afforded to investors from each party in the other's market.

The EU globally is an enormous source of outbound foreign direct investment. It is also the second-largest source of the stock of FDI here in Canada, at about $175 million in 2013. Canadian companies, for their part, are increasingly our direct investors in the EU as well, and will benefit from the greater protections of foreign investor rights afforded by CETA.

CETA will also help to set the stage for Canada to participate in a credible way in another set of international trade negotiations that are also of interest to this committee. I'm referring here to the proposed Trans-Pacific Partnership. A Canada-EU agreement that addresses such topics as agricultural protectionism, intellectual property, foreign investment, and services trade will better position Canada to negotiate effectively as part of the TPP discussions.

Finally, I would just remind committee members, and you no doubt are aware, that the United States and the EU had signalled quite clearly that they intend to pursue negotiations aimed at reaching a far-reaching transatlantic trade and investment partnership arrangement. These are early days yet, but the EU-U.S. agreement if it comes to fruition is expected to go well beyond the elimination of tariffs and other border restrictions to trading goods by encompassing intellectual property, foreign direct investment, and the alignment of regulations concerning manufacturing and services.

In other words, the EU-U.S. agreement will probably be similar in scope to what we see in the proposed CETA. With CETA, Canada becomes the first western developed economy to hammer out a comprehensive agreement with the EU. Should CETA not proceed, Canada will be on the sidelines and Canadian business will be placed at a competitive disadvantage in the EU market if the Americans and the Europeans in fact move ahead to conclude their own agreement.

In summary the Business Council of B.C. believes CETA will provide a number of benefits to Canada. It will enhance our access to the world's largest market for both goods and services, enable Canadian companies to bid for EU government procurement contracts on a non-discriminatory basis, promote two-way investment flows, and enhance competition and transparency in the domestic public procurement marketplace.

We also hope that the final terms of CETA will entail a gradual reduction in the agricultural trade barriers currently embedded in Canadian supply management regimes governing the production and sale of eggs, poultry, and dairy products. These regimes not only lead to higher prices for Canadian consumers, but they actually make Canada a less attractive place for value-added food-processing industrial activity. Based on the technical summary document released by the federal government last year, it's not clear to me to what extent CETA will actually affect agricultural supply management, but we'd like the committee to know that my own organization would strongly support reform of supply management regimes in Canada if this turns out to be part of the outcome of the CETA deliberations.

Thank you, Mr. Chairman.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to our second panellist from the Wavefront Wireless Commercialization Centre Society.

The floor is yours Mr. Maynard.

[James Maynard, President and Chief Executive Officer, Wavefront Wireless Commercialization Centre Society]

Thank you, Mr. Chairman.

Committee members, thank you for the invitation to appear before you today to discuss the importance of the Canada-EU comprehensive economic and trade agreement.

Wavefront is Canada's centre of excellence for wireless commercialization and research. We accelerate the growth and success of wireless companies by connecting them with critical resources, partners, and opportunities to drive economic and social benefits for Canada. Wavefront is dedicated to supporting wireless companies in Canada and is making a big impact on our economy in the process. We are very focused on specific aspects of commercialization. We work with SMEs in the wireless and ICT sectors to accelerate their go-to-market capability by facilitating access to specific key services that drive growth and profitability.

It is important to know that 90% of the export activity in the ICT space is conducted by companies of under 100 employees in size. This is a critical thing, and it's a significant driver of jobs, growth, and prosperity for the country.

We focus on five platforms that drive growth. We provide access to technology resources, key business and advisory services that companies often go without because of their size, and skills development and training. One of the important things is that we have a very strong market linkages program where we actively work on linking continents all around the world, making strategic linkages that then provide accelerated pathways to connections for Canadian companies going into markets. Over the last three years, as a centre of excellence, we've engaged in almost 20 trips to 17 countries and have introduced almost 100 Canadian wireless companies to major economic opportunities around the globe. We see the impact of trade and trade legislation every day in our activities with our member companies, and Europe is a big area of involvement for us.

As a result of these capabilities, an audit of our impact at the end of our first year as a centre of excellence showed Wavefront's activities had accelerated the time for Canadian wireless businesses to market by up to 12 months—anywhere from 4 to 6 months on average, but almost 12 months out of a sell cycle—by using the strategic assets that the federal government funding of a centre of excellence can facilitate. We've helped companies, on average, to grow 20% faster than they could on their own, and we've also shifted their trade, or their business, into international markets 33% faster than they were able to do on their own.

As a result, for every dollar of public funding that we've received as a centre of excellence, we have been able to generate $4.80 of GDP activity. More importantly, those activities have returned $1.25 back to the treasury, so it's a good financial deal for the Government of Canada to invest in organizations like that. In these times, a 25% rate of return is a pretty good rate of return. It is a good business deal for Canada.

On average, ICT exports to Europe are about $1.8 billion per year. These exports face tariffs often as high as 14%. Upon entry into force CETA will immediately eliminate these EU tariffs on ICT products, making world-class products more competitive and creating conditions for increased sales. For example, Sierra Wireless, which is headquartered here in Richmond, B.C., is the world's largest provider of machine-to-machine communications devices. They generate about $500 million annually in revenues, and they have about a 35% share in this sector. This tariff reduction will directly impact their competitiveness, so this is a good thing. Sierra Wireless is Canada's second-largest telecommunications manufacturer, so this is a significant impact on a significant piece of the Canadian economy.

CETA should provide market access for the Canadian ICT sector that is commensurate with the access that is given to European competitors into Canada. This is a significant win for Canada given the size of the market to which we now have access. With this agreement, Canadian ICT companies will have preferential access now to the two richest economies in the world: the United States, through NAFTA, and the EU, through this agreement.

One thing that's really important is access in terms of people and temporary entry into Europe. Because so much of the IT sector is based around services, people are a big part of the opportunity here. The reducing of barriers, which allows our Canadian business people to enter more easily both for business purposes as well as for the delivery of services, is a huge benefit for us. Again, most of our companies are small and they don't have the legal departments to actually fight the overhead to get in. So this is a big benefit, improving the efficiency and effectiveness of our Canadian companies.

I think that a lot of my points are similar to what Jock has said so I won't be repetitive. One of the things I want to stress here is that while this is a great agreement, there's more work to be done because this is only the beginning. This is like laying the foundation to a huge trade opportunity and a huge window, especially the window that is open while the U.S. still does not have this agreement. I'd really encourage the committee to look deeply at other things that need to be built on top of this foundation to continue to drive the opportunity.

I have a couple of suggestions that can capitalize on this achievement and drive the momentum for Canadian small and medium enterprises in European markets.

First of all, it's really important to emphasize the importance of the trade commissioner service to Canada's small and medium businesses, given that most of our companies are under 100 employees. The fact that there's a network of trained, on-the-ground trade commissioners in all the major countries in Europe is a huge asset and a huge strategic leverage point that we can use to, again, accelerate our time to market in these markets. Right now many of the countries, like Finland and some of the northern European countries, do not have direct trade commissioner coverage. That's a huge hole; these have been cutbacks over the last few years. Again, this is about incremental investment that will deliver, many times over, return in terms of economic growth.

Second, we need to make more strategic use of some of our trade assets that are already in place. For example, EDC is regularly negotiating pull-lending facilities with major multinationals around the world. You are all familiar with the pull facilities, where they will go to an AT&T and they'll do a debt facility. The intent of the debt facility is to provide dollar-for-dollar access to Canadian markets and Canadian companies. It is very similar to an industrial regional benefit on the defence side.

We need to capitalize on those. We work hard to get the agreements in place, but then we don't actually hold accountability for the economic impact of those agreements. Most of those agreements for the pulls are based on a best-effort basis as opposed to having real strategic emphasis pulled on that. When we have large agreements with Deutsche Telekom, which is the number seven or eight wireless operator in the world, which has access in 55 markets around the world, not just Germany but 55 other countries.... When we have that trade facility in place, we need to strategically focus in and bring all the influence of the Government of Canada to drive that agreement to open up markets for our companies.

With the CETA and the EDC trade agreements, it's like we have our foot in the door and they can't shut the door on us. Now we need to push the door open and drive it to the next level to get our companies access. We have agreements now with AT&T, Telefonica, Deutsche Telekom, and America Movil. These are major agreements in major markets of the world where there is huge exploding growth. With extra emphasis, just incremental to the amount of energy that has gone into CETA and to what EDC has put in place, we can see huge economic benefits to our companies doing trade in these marketplaces.

The other thing is that I want to congratulate the government because it's very clear that the prosperity agenda and the focus on trade has had an impact. The bad news is that a lot of ministries and departments are now converging on duplicative and overlapping trade agendas. I would say, again, this is a question of focus. DFATD is focused on trade. We need to make sure that there is sharp focus to drive the trade agenda, because sometimes messages can get blurred when you have overlapping agendas from different ministries.

I think the last thing, to echo Jock's point, is that we need to bear in mind that a competitive country like Canada in global markets needs a competitive market inside Canada. I would strongly urge the committee to create emphasis on knocking down the trade barriers inside Canada, because oftentimes it's more difficult to do business between provinces.

Also important is bringing the Canadian brand together to create a unified international market as opposed to small regional voices from the provinces. We need to come together under the brand. I've experienced the strength of the Canada brand. We have a huge asset in that. We need to leverage that much more than we do.

The other piece is the opportunity cost for the lack of productivity investments in ICT in Canada. On average, that represents about 10 times our trade with Brazil. This is a significant thing. If we were, for example, to do away with supply-side management, that would force companies to invest; it would force them to become more competitive; and that would better position them to take advantage of the international agreements.

That's it for my comments. Thank you for your time, and again congratulations on an excellent agreement.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. I'm sure we'll get into more of that discussion as we get into the questions and answers.

We'll start with Mr. Davies.

The floor is yours for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman.

Thank you, Mr. Maynard and Mr. Finlayson, for being with us today. Welcome to the trade committee.

Mr. Maynard, I'll start with you and pick up on something you talked about, which is something I think we all agree on. Increasing trade opportunities for Canadian exporters is not just a question of signing an agreement. There's a lot of infrastructure that goes around that to fully take advantage of those agreements. You mentioned, I think, something very important, which is making sure that Canada has trade commission officers abroad to provide on-the-ground support for Canadian businesses that want to access those markets. The other side of that coin is to have effective Canadian trade offices here in Canada, particularly for our SME sector, so they have a resource they can go to if they have questions or are interested in accessing a certain market in Europe, and somewhere they can get information.

Do you feel that exists now, that we in Canada have sufficient resources to support our small and medium enterprises to learn about those export opportunities?

[James Maynard]

Yes, actually, I think we do. I know there have been some reductions, but if you look at the amount of overlap with provincial trade offices and NGOs like ours that are actively engaged in trade, I think if we can find new and creative ways...the existing organizations are there. It doesn't mean we need to have another overlapping layer but just that we need to find more effective ways to mobilize organizations to fit up into the trade strategy. For example, as is happening now, trade commissioners could be embedded inside organizations like ours. I think that's a very effective way to pull it together without having to overlap and get another layer of organization.

[Don Davies, NDP, Vancouver Kingsway, BC]

Okay, thanks.

I have one other question for you. We understand that Europe right now has stronger privacy laws vis-à-vis Canada. There was an article in the Ottawa Citizen from January 9, 2014, that expressed a European parliamentary committee's concern about the adequacy of Canada's data protection laws—I think they were talking about PIPEDA—in the context of CETA.

Are you concerned that Canada's weaker privacy laws will be an impediment in terms of fully taking advantage of trade opportunities in the IT sector?

[James Maynard]

I'm not really an expert on privacy. I can only speak to the experience of our companies. We have not seen that impact the ability of any of our companies to do business in the European market.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Finlayson, Steve Verheul, the chief negotiator for CETA, gave a speech recently. He said, “We need a business community willing and able to take on new opportunities. We now need to build a broader strategy to take advantage of the European market.”

I'm just wondering if you have any comment on that, and if so, whether you have any suggestions for the kind of strategy the business community might need to have or the things it might need to do to better take advantage of CETA.

[Jock Finlayson]

Well, you know, even if we have good trade agreements in place, with important markets like the European Union, ultimately it's up to enterprises, entrepreneurs, and companies to step up and take on new business and to take the risk associated with investing abroad. Exporting is not an easy thing for a lot of companies—small and mid-sized companies—but we clearly need more of our firms in Canada to do that.

I don't think government can really force that to happen. Government can put in place framework policies, trade agreements, market access arrangements, and some of the support infrastructure Jim has mentioned, but ultimately it's up to companies and entrepreneurs to take advantage of opportunities that are there.

I suspect that Canada's going to have to raise its game. I think the business community in Canada is going to have to raise its game in terms of the global economy we're operating in today. The gravitational pull of the U.S. market has been powerful and in some ways overwhelming for a lot of our enterprises. We've just gone through five years in which the U.S. economy has really underperformed. Our trade has stagnated. We've seen that in our own member companies. I think it's really heightened the importance of diversification, of building markets overseas.

The job of government is to do the kinds of things like putting a trade agreement in place, but I think it's really up to the companies to take advantage of it. Hopefully, they will.

[Don Davies, NDP, Vancouver Kingsway, BC]

Former Bank of Canada governor Mark Carney stated that he estimated there was $500 billion of idle capital, Canadian capital, right now. Compared to a lot of European countries, Canadian employers under-invest in research and development and employee skills training. Would those be areas that you would think the Canadian business sector should look at in order to more effectively compete with European businesses?

[Jock Finlayson]

I do believe the corporate sector in Canada is going to have to step up on things like innovation and employee training. We do undertrain relative to a lot of other countries. I'm not sure what all the reasons for that are. It's one of the reasons that more competition here in the domestic marketplace is a good thing. It will stimulate our own companies to up their game. A protective market is not effective in stimulating the kind of corporate behaviour that I think we want to see.

Trade liberalization, I think, can be helpful in not only creating opportunity abroad, but also more competition at home that will hopefully spur some of that corporate action.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thanks.

You mentioned you thought that CETA would be positive over the medium and long term.

Do you see any short-term pain or structural adjustments to the Canadian economy? In terms of jobs, which I think is what people really are concerned about, how many jobs do you estimate will be created in British Columbia because of CETA? Do you have that number? If so, when might we be able to actually see those jobs?

[Jock Finlayson]

I'll answer that as an economist rather than as a business representative.

These kinds of policies and agreements affect the structure and performance of an economy over a long horizon, longer than the kinds of horizons that elected officials typically need to be preoccupied with, and that creates a bit of a dilemma, I think, for all of us.

I would not see this agreement as having a dramatic effect one way or the other, frankly, on the macroeconomy of Canada or B.C. in the short term.

I don't know how many jobs would be created in B.C. I've seen the federal government's modelling work from 2008 or 2009. That should be updated, by the way, because it's out of date now. I think it would be important to redo that study. It wouldn't be a huge number, frankly, because our trade with Europe is modest, but they would be high-quality jobs. One of the things we are concerned about is the quality of employment that's being created, particularly in the private sector. Export-oriented industries, industries that are involved in international commerce whether on the trade or investment side, tend to pay their workers more, tend to have higher productivity, tend to be more innovative. Those are the parts of the economy where we should be trying to stimulate growth and investment. An agreement like this can be helpful in a modest way, but it can be helpful in setting out on that path.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Cannan. The floor is yours, sir.

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

On behalf of my British Columbian colleagues, welcome to our trade committee, and thank you for welcoming us and being part of these important talks.

We've had an opportunity to spend some time out on the east coast, in Halifax, to listen to some of our friends in eastern Canada. Witnesses have come to the committee over the last several months to look at the economic benefits since the agreement was announced and prior to its announcement. This has been a work in progress for the past five years, and as you mentioned, it's not going to happen overnight.

We had the European Union ambassador at our committee last week. The EU has to translate it into 23 different languages, and it's a couple more years before it comes into effect. It is a historic trade agreement. It seems like a natural fit for British Columbia. I think the EU is about our fourth-largest trading partner. There are a lot of cultural ties. There are strong economic and environmental labour policies. They tend to bode well. You mentioned the professional perspectives.

I have a couple of questions based on your comments, gentlemen.

James, in your preamble, you mentioned the growth opportunities for small and medium-sized businesses, the SMEs. We know that about a million SMEs are exporting, the majority of them to the U.S. How do we get them to see those opportunities? One of the reasons we're out here, too, is to educate and create awareness.

From your industry perspective both of you, Jock and James, is there something the government can do to partner with the EU to help your members become more aware of these potential trading opportunities and partnerships down the road?

[James Maynard]

Promote the successes. In true Canadian fashion, we don't talk a lot about our wins like we should. We have some very interesting Canadian companies that are doing significant things in the European market. I just think if we promote those successes, that's the number one step.

The other thing is to work more closely with organizations like ours. We touch 7,000 companies a year across the country in terms of access to information. If we could work and increase our organization and alignment with the Department of Foreign Affairs and with EDC, and I would say strategic trade assets that the government's already deployed, then we could start to get leverage flow of companies into these markets.

[Jock Finlayson]

I would add I think big companies can sort of do it on their own. The one area where government can be helpful there is having competitive export financing programs in place because a lot of the people we're competing with are using those instruments quite aggressively.

We have 385,000 businesses in B.C. and 98% of them are small. The vast majority of them are never going to get involved in exporting outside of North America or even outside of Canada. The task for government, I think, is to try and work with the relatively small proportion of all businesses that are not currently involved in international commerce but have the capacity to do so—in other words the high-potential businesses—and they would certainly include a lot of our technology companies that are producing tradeable goods and services from day one.

That's where I would put the effort, not with business holistically. I think you need more of a rifle shot approach frankly where you're identifying the high-potential sectors, working with accelerators, working with well-organized industry associations that represent particular subgroups of companies that have the potential to do trade.

That's where I would put government's limited resources in terms of providing information, assisting companies, and taking advantage of markets overseas.

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

So it would be like the forestry wood products, agriculture, fish and seafood.

[Jock Finlayson]

Forestries have been great, not in Europe, but we've had the story of the B.C. lumber industry and the penetration into Asian markets—which by the way took a dozen years—again it was a long-term exercise, industry working together with the federal government, with provincial officials, consistently through different governments and different ministers. They continued to push to get into the Chinese market and some of the other Asian markets. It has now paid huge dividends, and it actually saved the industry and allowed it to survive the epic downturn of the U.S. housing market.

That's a good example of where quite a targeted approach carried out over more than a decade really positioned us in a very favourable way. There may be some lessons there for how we would do it in other offshore markets.

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

Mr. Finlayson, in your opening comments you mentioned something about government procurements. Did you say the figure of potential market was approximately $3 trillion?

[Jock Finlayson]

I've seen $2.5 to $3 trillion for the EU. They have a big government over there, as you know, so there's a lot of procurement that takes place. It's a huge market for us. As I understand it, very few Canadian companies today are selling goods or services into the EU public procurement market. One of the big wins that may emerge from this agreement—ultimately it's an empirical question—one of the promising areas I see here is improved access to that enormous procurement market in the EU public sector, which our companies really don't have today.

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

Which do you see as some potential British Columbia businesses to benefit from government procurement opportunities?