International Trade Committee on Feb. 4th, 2014

[Kevin Boon]

I think one of the big things.... Money always helps, but it's our money we're asking to get back. We're talking about taxpayers' dollars, so when we ask for that we have to make darned sure we're able to return that investment. It is extremely important for us to be able to make sure we have the introductions to the right people in the right countries to be able to bring trade back. I'll use an example. We're doing a feasibility study here in British Columbia right now regarding an opportunity to put a federal plant here in British Columbia. With that we see an opportunity to hit the export markets. Now that CETA is pretty much there, we see an opportunity to do it. But in order to do it in a manner that will enhance both us and trade, if we can get foreign investment—I'm not saying that we get them to buy it—from a European investor and from a Chinese investor, for example, and from our own domestic investor, then we'll have an opportunity and there will be an incentive to take our product across those borders. It's not just buying the product; it's buying it after it's been processed so they have a vested interest in getting that product there.

Once we have that and we have that investment, it's much more likely that we'll have a stable partner for the future. We don't have the volatility of them saying they don't like this and they're gone. They'll work with us to make sure that it meets the needs of their country and they understand the costs involved as well.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

Mr. Newman, at the end of your presentation you were making reference to the preferential purchase policy that some countries use to promote their domestic suppliers. I didn't catch which country that was. Was it Japan doing that? Can you elaborate on that?

[Paul Newman]

Yes, I can.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

It doesn't seem to fall within normal trade practices. It seems as though it would be an offence to any trade agreement or bilateral agreements we might have.

[Paul Newman]

The industry and government—DFAIT and other agencies in our own government right now—have considerable concern about this. Japan has a multi-pronged incentive or program right now to push forward the domestic forest sector and essentially, to substitute imports. They're doing it on the land base by providing incentives, subsidies, for forest road development and things like that. They're doing it with manufacturing facilities. They will fund up to 50% of new mills and other operations. The latest incarnation we've seen is through something they call the wood-use points program, and the equivalent of about $600 million equivalent has been provided to the forest agency in Japan to provide incentives to Japanese consumers to buy domestic wood. It has the potential to hurt not only Canada, but of course, all international shippers into Japan. There's been a lot of work, actually, on our part and on the part of other international like-minded countries to try to take exception to this.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

I know my time is done, but I never thought of Japan as a forestry nation.

[The Chair, Conservative, Rob Merrifield]

Actually, when the committee traveled to Japan a year ago, we did examine this quite a bit and we are absolutely concerned about what you're saying.

Thank you very much.

[Ed Holder, Conservative, London West, ON]

How was that trip?

[The Chair, Conservative, Rob Merrifield]

It was a great trip, and you're not bitter, I know. Some of the members couldn't go.

We do want to thank you, witnesses, for coming forward. We appreciate your time with us.

With that, we will suspend as we set up for our next set of panels.

[The Chair, Conservative, Rob Merrifield]

We ask our members to take their seats.

We have on this panel, from the Asia Pacific Foundation of Canada, Mr. Woo, the president and CEO. You've actually been with us by video conference before, is that right? We certainly appreciated your comments and look forward to your comments this morning, as well as the question and answer period.

We also have scheduled Mr. Van Keulen from the British Columbia Dairy Association. He was with us yesterday but has not quite arrived. If he arrives, we'll give him the opportunity to share his comments as well and have a question and answer.

We'll start with you, Mr. Woo. The floor is yours.

[Yuen Pau Woo, President and Chief Executive Officer, Asia Pacific Foundation of Canada]

Thank you, Chairman.

Thank you, members of the committee, for having me here to share some ideas with you again,m and welcome to Vancouver. We arranged some good weather for you.

I'll make some comments on the TPP from a strategic Canadian trade policy perspective. I'm not able to comment on the details of TPP. We don't know much about the details, but I think there are some important considerations for us to look at, even without knowing the details of the negotiations so far.

The first strategic point to make is that Canada has yet to conclude an FTA with any Asian country. We are an outlier compared to most of our industrialized country competitors, certainly in the G-7 and the OECD, and that puts us at a competitive disadvantage vis-à-vis countries that do have trade agreements with Asian partners. The best example of this competitive disadvantage is in the case of Korea, where we have been negotiating—as you all know—coming to nine years now. In the meantime, we have been overtaken by the United States and more recently, by Australia. Both of those countries now have margins of preference, particularly in the cultural sector, that put our exporters at a disadvantage.

So the issue of the TPP should be seen in the context of our trade position in Asia as a whole and our relative disadvantage in Asia because we do not have any agreements to date with Asian countries.

What I'm trying to say here is that TPP is a very big game in the formation of trade agreements in the Asia-Pacific. It's not the only game, and we need to keep all of our options open and to continue to pursue trade agreements bilaterally with existing negotiations, as well as perhaps with new trading partners in Asia with which we have not yet embarked on free trade agreements.

The second point I want to make is a general point, but one that really has to be reiterated, which is that FTAs in general terms, to the extent that they are generally about opening markets and lowering barriers to trade, increase economic welfare for all parties concerned, even if there may be relatively little competitive gain for one economy over another. That reason in itself—the gain in economic welfare for all the players—is an important reason to liberalize trade. We should pursue the opening of markets even if the relative gains for our economy vis-à-vis our competitors may not be so great. The efficiency gains, the productivity gains, the consumer welfare that's generated by more open markets, is a plus for all of the players.

The third point is that, from a narrower perspective about competitiveness, the game is not about overall economic welfare, but it is about preferential access. This is a different kind of calculation we need to make when we pursue free trade agreements. Basically, that game is about gaining preferential access for us and not having others get preferential access. We want a trade agreement with an economy where others don't have a trade agreement so that we have those margins of preference. As I've already said, on that game we are losing because we don't have agreements in Asia whereas some of our major competitors do.

In this sense, the TPP for Canada is, I think, essentially a defensive play for us. As it turns out, we already have a trade agreement with a number of the TPP members-—most notably the United States, but also with Chile, Peru, and Mexico. Certainly the United States and Mexico, two of our more important trading partners, are already within Canada's preferential trading arrangements.

For us to not be involved in the TPP would run the risk of other members of the TPP gaining access to those markets that would erode our preference, that would erode the advantage we have. It's important for us to be at the table, if nothing else to protect the preferential access that we have in existing markets and also to gain new access to markets that we currently don't have trade agreements with.

The TPP has been described as a 21st-century trade agreement that will not only look at traditional market access for manufactured goods and agricultural products and services but will also talk about some new generation issues. This is where we have not much information, but this committee, and I think Canadians, are right to pay special attention to the types of provisions that are negotiated in the areas of IP, e-commerce, and to some extent state-owned enterprises.

The traditional beliefs about opening markets and liberalization in terms of goods and services do not apply quite so simply when it comes to intellectual property and e-commerce. It's important for Canada to take a position on those issues that genuinely advances Canadian interests, and not just the interests of the countries that currently are the leaders in intellectual property and e-commerce that will entrench the strength of the incumbents and make it more difficult for developing economies. It's also for Canada to gain strength in the areas of IP and e-commerce.

So my caution on the new generation issues is that we not treat them as ancillary, but really as central to the value of the TPP for this country.

My final point, ladies and gentlemen, is that the TPP must not be about excluding China. There has been a notion for a number of years that the point of the TPP, being driven so hard by Washington, D.C., is in some sense to provide a buffer against China's rise and perhaps to try to force China into a position that is closer to western market economic approaches. At one time China also saw it in this way, and felt that it was being left out of the TPP, but more recently we have heard very encouraging signals from Beijing that they in fact want to be part of TPP and may well consider submitting an application to join.

What we are hearing now is some resistance on the part of the United States—to not let China be part of the discussions, and to create a number of preconditions before China is admitted—but I think Canada should take a position to welcome China's participation. It would in fact bring them closer to the economic system that we are familiar with, and it would avoid creating a rift, or a line, if you will, down the Pacific Ocean.

Even better, if we still have the opportunity to negotiate bilaterally with China on a free trade agreement, as the Chinese offered to us over a year ago, we should take up that offer.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. We look forward to that.

I'm sure that will stimulate some very interesting questions.

We have with us again Mr. Van Keulen.

The floor is yours.

[Stan Van Keulen, Board Member, British Columbia Dairy Association]

I see I'm early.

Yesterday I spoke here on the CETA agreement and you understand the impact it has on dairy. I want to reiterate that, to put it on the record that the CETA agreement has presently increased CETA's access of cheese to close to 16,000 tonnes extra now and that is effectively doubling the current EU access.

As a local dairy farmer and on behalf of the people I represent, we're proud Canadians and we're proud of the industry that we've built. We stand second to no one in the industry when it comes to quality, the types of products we produce, and I think as Canadians we can be proud of that. To have another threat with the TPP and I'm not sure if it's going to be a threat, but when it comes to the supply management system we'd like to keep it intact in its present form. CETA has taken something from us already and we don't want the Trans-Pacific Partnership agreement to take any more.

To speak personally here, I'm not against trade. I think trade has to be fair and equitable. I think what the government is doing is wise and it's smart to be part of the Trans-Pacific Partnership, but I think what we've given up already in dairy is enough. I think we have to recognize that. This next round of negotiations is going to be very difficult because the Oceanic countries are going to be knocking on the door wanting to get into our market.

On that note, I want to emphasize the three pillars of supply management. One of those is the production management, the discipline we have in this country—we take care of the surplus. There's no government support. There is no cash outlay by the federal government, unlike the European Union where there are close to 40% subsidies. The American system...we knew with the farm bill that if it didn't pass, the price of milk was probably going to double to the consumer. There is obviously some sort of subsidy program that they have down there.

The other thing is the predictable imports. I mentioned yesterday when I had that glass of milk here and in that glass of milk a processor will fractionate those products down, whether it be here or Europe or in New Zealand or Australia and then they'll try to circumvent the rules of the imports to come into this country. The foundation of supply management is the predictability. As dairy farmers we know what a milking stool is and I think most of the people in this room know what a milking stool is. Years ago we had a lobby day and we would go out and give each and every MP a milking stool, but it was a card holder. The thing about that milking stool is it tips over if the third leg or any of the legs are cut off.

That's the analogy I want to use when it comes to the three pillars. The production management, the predictability of the imports, and the pricing mechanism that we establish under government regulation in this country give us a fair and stable price and no cost to any of the consumers through subsidy dollars to the federal government.

As the TPP moves forward, we in this industry would like to see no further impact on dairy. We would like to see, obviously, more access to other countries, but as I pointed out yesterday, we are in a trade deficit obviously. But if it means no access to gain our market and control of our market, it would probably be better to have a very stable market, because the stable market we have within Canada is good right now.

I want to stress the three points again.

We want to keep our industry stable and strong. It doesn't cost the Canadian taxpayers any money. It doesn't cost the federal government any money. The farmers in this country, probably for the last 15 to 20 years, have never derived any subsidy dollars from the federal government. We derive our funding, our costs, our income through the marketplace. We're proud of that fact. There are not too many farmers in the world who can say that. We'd like to have that continue, and we want to grow our domestic market.

I pointed out yesterday, with the CETA agreement, that these people have access, the additional 16,000 tonnes, to get into a market that we've established, or we've tried to establish through advertising programs, through incentive programs, new development programs. There are programs that we have within the dairy industry whereby if somebody wants to start in the industry in the processing sector we give them a special quota to allow them to develop their new products, to get it online for a period of two or three years before. We're helping people in this sector develop new markets, develop new products, and move forward.

I want to close by saying that I really appreciate the fact that you allowed me to speak here. I really appreciate the fact that I'm speaking on behalf of our industry. This goes on record that we believe that our industry is a very strong and viable industry, it is a very prosperous industry, has no direct costs from the federal government. I think I can't stress that enough.

The other thing is that supply management isn't what it was 25 years ago. We are constantly evolving. We are evolving maybe slower than some people wish, but as I speak right now, in Ottawa right now, there are discussions taking place on new pricing mechanisms, on new ways of allocating quota. These things are happening all the time. Our industry is not standing still. It's maybe not moving forward fast enough for people, but it is not standing still. It is not an archaic system. Some of the MPs and the Minister of Agriculture clearly say that we have to modernize supply management. We are doing that. We've consistently done that, maybe not as fast as people want, but I want to leave you with the note that we are moving forward. If the words “modernization of supply management” is the term that people are comfortable with, we are doing that today.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll start our question and answer with Mr. Davies.

The floor is yours for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Van Keulen, Mr. Woo, thank you for being with us today.

Welcome to the committee, Mr. Woo. First of all, I want to start by thanking you for the wonderful work and service you've done as president and CEO of the Asia Pacific Foundation of Canada. You've really contributed so much to Canada's policy, and I want to thank you on behalf of all parties.

Mr. Woo, I want to start with you. You have written that Asian countries feature prominently in the global markets action plan, and they will welcome Canada's primacy of economic development. But you've also written that the strengthening of economic ties with Asian countries will not come about just by sending trade missions to the region or signing FTAs.

I will quote you now, it says:

The fact that Canadian foreign policy goals are now defined largely in economic terms does not mean that the instruments for advancing those goals are of an exclusively commercial nature. The role of the Canadian government has to be more than that of a chief marketing officer. Asian counterparts are also interested in political and security dialogue, scientific and technical cooperation, educational exchanges, and cultural diplomacy.

I'm wondering if you have any specific suggestions for, I guess, pan-economic groups in which Canada can and should be taking part in the Asia region.

[Yuen Pau Woo]

Yes.

Thank you for your comment, and thank you for reading my writing. It's good to know that somebody is.

I make a distinction between having economic goals as part of our foreign policy objectives and coming up with tools to achieve those objectives that can go beyond economic instruments. It's understandable that we are driven largely by economic interests, and our Asian counterparts understand that. However, the way in which we achieve our economic objectives has to be done through a variety of measures. For example, we need to have a very strong diplomatic presence and a strong political security presence in the region where our partners understand that we are there not simply for our economic benefit, but for the peace and security of the region and the advancement of development goals, particularly in the developing countries.

A great example, I think, would be in the area of international education, where the government, of course, is making some moves to strengthen two-way movement of students. This is not simply about a commercial initiative where we gain more dollars from foreign students who pay high fees at our Canadian schools. It is about building long-term relationships, institutional partnerships, research partnerships that will benefit both countries in the long term.

On your specific question of taking part in regional organizations, I think that it's part of the thinking that I have as well. There are a number of new regional fora in Asia, particularly the East Asia Summit, which is emerging as the premier organization for discussions on political security and economic issues. It's not a trade agreement. It does not have an ostensible commercial objective to it. But we should aspire to join it, because if we are not part of that club of decision-makers on the future of the region, we will be left out of decisions that will impact on our economic interests. I know the government is making some moves to join. We should redouble our efforts and try to find a seat at that table and at other tables in Asia that, as I say, may not necessarily have an overt economic focus.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Now, domestically you've further written:

Even if we view Asia principally as an economic opportunity for Canada, it is not clear that we currently have the wherewithal to tap into emerging opportunities across the region. This is especially so in the services sector, which is poised for rapid growth in the years ahead....

Selling services to Asian countries is fundamentally different from selling commodities or manufactured goods. It will require deep knowledge of domestic markets, and a level of political, social, and cultural awareness about Asia that is not widely available in Canada.

...the biggest challenge to long-term economic success in Asia is not what we do in Asia, but it is in what we do right here in Canada.

Do you have any specific suggestions you can give this committee about how we can develop the capacity in Canada to take advantage of this?

[Yuen Pau Woo]

We need to build Asia competency in our school systems, both at the K-to-12 level and post-secondary, and we need to build it across the corporate sector. We need Canadians who have the skills, the experience, and the knowledge to be successful in Asia. That of course does mean teaching about Asia in the school system, but it's also about on-the-ground experiences, about placements in Asia. It's about corporations that reward staff that have Asia expertise. It's about boards in major corporations that value having directors with knowledge, skills, and experience in that part of the world.

Australia has set itself an objective, for example, within 10 years for every Australian student to have the opportunity to learn an Asian language through the school system—every single Australian student. They have also set an objective for a third of their board members in the corporate sector, of course, on a voluntary basis, to make sure that they have people on those boards who have direct Asia experience and knowledge. We don't have that in this country. We don't have an appetite to do that. Unless we have the will and the instruments to build Asia skills, literacy, knowledge, expertise in this country, all our ambitions through trade agreements and through speeches and high-sounding advice from me and others will come to naught because we won't have the people to follow through.

[Don Davies, NDP, Vancouver Kingsway, BC]

Perhaps I might ask you about state-owned enterprises. That's a specific feature that might characterize dealing with countries like Vietnam. What special considerations, if any, should guide Canada's trade approach when dealing with countries that conduct business through SOEs?

[Yuen Pau Woo]

First of all, countries with large SOEs in their economy are looking to rationalize and to divest of the state in those enterprises. They are looking for more efficient ways to run their economies, and over time we will see a diminishing share of the state in economies such as Vietnam and in China. However, the SOEs are not going to go away, and in some sectors they are going to remain the dominant sector, the dominant player, both domestically and internationally.

This is particularly true of the oil and gas sector, where SOEs, as many of you know, control about 80% of the proven reserves in the world. Under those circumstances we have to work with SOEs. We cannot treat them as an outlier. We cannot treat them as an anomaly in the system. They are a normal part of the system, and we need to come up with ways to work with them for Canadian interests. We can regulate in the Canadian interests without discriminating against SOEs.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Cannan, you're next.

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

Thank you, Mr. Chair. Thanks again to our witnesses.

Mr. Van Keulen, welcome back.

Mr. Woo, it's great to have you. Last time, you were at our committee via video conference. We've come to your beautiful community. As a British Columbian representing the interior riding of Kelowna—Lake Country, I appreciate the great work of your foundation, which is helping constituents in my riding as well as around the province, educating people about this most ambitious trade initiative being negotiated with the Asia-Pacific region.

It's important for Canadian businesses to realize that we do not have a bilateral trade agreement with these countries that we're working with specifically, or the majority of them. Australia, for Campion Boats manufacturers, we're at a disadvantage. The U.S. has a bilateral with Australia. I know it's important. It would only be 5%, but that's the bottom line, 5% off a major product such as a boat. It makes a big difference.

Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam—of course, the U.S. is the twelfth partner with Canada in the negotiations at the present time. You talked about the potential of China coming to the table.

It's important also to reinforce the magnitude of the ambitiousness of Prime Minister Harper's vision, with Minister Fast working as the trade minister on the CETA, which covers an area of about 500 million people with a GDP of $17 trillion, and the 792 million approximate population of the TPP partners with a $27.5 trillion GDP. If we're able to secure these agreements, Canada would be the only country in the world that would have a comprehensive trade agreement with 75% of the world's GDP. It's an incredible legacy that can come together. I know it's very ambitious, and I understand that lots of discussion has to take place.

Picking up on my colleague Mr. Davies' comments—I appreciate your foundation's work; I've read some of the work—you've made some excellent suggestions on how we can help the majority of Canadian businesses get engaged and take advantage of these trade agreements. As you know, British Columbia is working with the U.S., who is still our number one trading partner and biggest ally and will continue to be.

But what are some of the ways your foundation is...? I looked online. You have some seminars coming up. Maybe you could share how we can work together to educate British Columbians and Canadians about the opportunities that present themselves.

[Yuen Pau Woo]

If I could go to the point both of you have touched upon now, the importance of services, I think we are at an inflection point in Asian economies where growth is going to be driven increasingly not by investment and by exports but by domestic consumption. Economies such as China will be restructuring so that they provide not just higher GDP growth but a better quality of life for their citizens. The way they do that is by increasing the share of income that goes to consumers rather than to corporations and by developing what you might call quality of life services and products in the economies, particularly in urban centres.

Hence, growth is going to come increasingly from the services sector, and this is an area in which Canada, on the face of it, has a lot of expertise. However, we have not in the past paid much attention to services exports. We've really been very fortunate to ride on the back of a commodities supercycle, exporting raw materials to Asia on high prices that have benefited this country very greatly. We are now at the end of the commodities supercycle. As Asia transitions to an economy that is driven more by domestic demand and by services, we will need a different way of succeeding in Asia. To sell services in Asia is not simply about putting something in a container and shipping it over. It's about understanding the market, understanding political, social, and cultural institutions. It's about being on the ground.

That's why I think the single biggest challenge for Canada is not necessarily negotiating more free trade agreements or sending more trade missions or making grandiose statements. It's about equipping Canadians with the skills, the knowledge, and the aspiration to be successful in Asia so they can get the job done. Putting stuff in a container and shipping it over is not going to be enough anymore. Asia wants much more sophisticated products and services, and we need to step up to that challenge.

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

I agree. It's relationship-building and cultural education. I was commending your association. I am looking at some of the upcoming sessions, even this month, as far as educating on the opportunities and the dynamics of TPP....

I know there's some reference to leaked documents. Don't comment on leaked documents, but could you share with us a little bit how you've been involved in the consultation to date with Minister Fast on the negotiations.