International Trade Committee on May 6th, 2014

[The Chair, Conservative, Rob Merrifield]

We just heard that all trade issues are your problem.

[Jayson Myers]

That's right. I heard that and I hope we can get into a discussion about that.

I have a bit of a vested interest in the global markets action plan as a member of the advisory council advising the minister. I do think it's a good plan. I think the minister and officials in the department and other agencies all deserve a lot of credit for putting this together, because it's the first plan we've had in a long time that tries to prioritize government trade policy, government trade services, and tries to align across government.

As you discussed, the success of the plan is going to be seen in the results at the end of the day, and that's clear. I look forward to discussing with you what I see happening in Canadian business. I'd be very pleased to speak about the specifics of the plan itself, but I wanted to make a few very general observations at the beginning.

From an economic point of view the first is the strategic importance of exports and of international business for Canadian companies. I think coming out of the recession between 2002 and 2012 we saw 23,000 manufacturing operations close down in this country and out of that probably about 20,000 exporters disappeared. Most of that took place before the recession, and it was largely driven by the very rapid and volatile appreciation of the Canadian dollar, so we have a lot of rebuilding to do.

Now, as we're in recovery mode, export sales and manufacturing sales have recovered to pre-recession levels, but what has become very clear for the Canadian economy as a whole is that our economic recovery depends on business investment and on exports. Canadian consumers are pretty much maxed out as are governments, so from focusing on where the key levers of economic growth are the export side business investment is crucial. I see them tied together, but it's also crucial to prioritize where government is putting its investments and where it can make the biggest impact on international business development; and that was a part of the thinking behind the GMAP.

It was to identify the priority markets for business, and there was a lot of consultation with the business community along those lines. It recognizes—and I think previous witnesses spoke to this as well—that international business is not just about exports and imports, it's about investment and intellectual property and the movement of people, which is more and more important today. It's about being able to meet standards and about being able to enter into procurement markets and provide services, which is becoming more and more important as well for any company that's trying to find new customers. That was very important, because in the recession 30% of our exports disappeared in a matter of six months, between October of 2008 and March of 2009.

In looking at how we rebuild our export base, how we respond to the new reality of international business, I think this action plan goes a long way and does a good job in prioritizing markets, and not only from the point of view of what markets are growing. You do need a different plan. Businesses need a different plan and governments need a different response in our developed markets, like the United States, versus those new markets that are emerging or in particular market segments where we don't have a general interest but maybe, as in the area of energy in the Middle East or procurement projects and infrastructure projects in Africa, where there are specific business interests that are not general. I think the plan does a good job in prioritizing that.

The third thing that is really important, apart from responding to the changing nature of business, business needs, and trying to put priorities around this, is the alignment that the action plan rolls out for agencies, for trade policy, for foreign policy, and for development policy behind the economic diplomacy that it talks about, but also the alignment of trade services and of business development services that are being provided by agencies like EDC, or CCC, or the trade commissioner service, right across the government. I think that's important.

There are two other things. In any good strategy, of course, you need metrics. You need objectives and you need metrics and you need to continually judge the success of the implementation of the strategy against the reality of whether this is working or not. It does provide that. There are metrics in here, and it also provides an adjustment strategy. We talked a little bit before about further iterations of this, but what it really does is it provides a response mechanism through better consultation with business to adjust priorities.

I guess I see three areas where I think we should go further. The first is in the area of investment. Over half of our trade is carried out within companies; it's intra-corporate investment. It's BlackBerry selling to BlackBerry, and Bombardier selling to Bombardier, and Ford selling to Ford. So that investment to secure anchor investments is crucial in the Canadian economy, and our ability to access those investments through supply chains is—in some cases—an even better way of accessing international markets than a direct export approach.

I was reminded of this. I made a visit to Hong Kong with an extremely innovative water technology company. They thought they would be able to sell this technology to clean up the harbour by Kai Tak Airport. We were told by the Hong Kong government—very politely—“Great technology, but it would be better for you to work with an engineering company in Canada, partner with them, because we don't buy technologies; we buy engineering solutions”.

So there are better ways, I think, that need to be.... John Curtis spoke before about how we can develop capacity within Canada to build supply chain relations internationally. I think capacity building is very important. If you're going to go to new customers, you need new products, you have to meet new standards, and you have to develop new products. Innovation plays a key role in that, as well as new skills.

Another way I think we can do a better job is in the effective enforcement of our trade rules. It's great to be able to negotiate new market opportunities—that's super—but we have to make sure that our trading partners actually abide by the rules, so an effective mechanism for effective enforcement of trade rules is especially important.

I can talk a little bit more about what CME is doing. The market plan has helped us align our priorities and our investments to help our members and work with, not only government agencies but other industry and trade associations, like Importers Exporters Canada. Here it's helped us set priorities, and we're working very closely with our partners. I'd be glad to talk about that a little bit later.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Now we've lost our video feed. I'm not sure if we've lost our audio feed.

[The Clerk of the Committee, Mr. Paul Cardegna]

We're looking for it.

[The Chair, Conservative, Rob Merrifield]

Joy, can you hear us?

I think we've lost them both.

While we're trying to hook this up, we will proceed with our question and answer, and hopefully we can get Joy on video very quickly. Once we do get that connection, we will interrupt the questioning and proceed to the testimony.

We'll start with you, Monsieur Morin. The floor is yours.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Thank you, Mr. Chair.

Mr. Myers, the goal of the GMAP plan is to increase, working alongside governments, the presence of our SMEs in the exports sector over the next five years. How much of the efforts to increase exports will SMEs fund?

[Jayson Myers]

Let me start off by saying sometimes I think we regard small exporters as multinational corporations. We expect them to be experts in regulatory management, international trade, and legal affairs in their ability to very rapidly develop new products for new markets. The problem is they don't have the capacity to do that.

There's a lot of risk involved in any form of international business. So I see a couple of strategies that small companies are undertaking. One is simply to reduce their risk. That's done by partnering with service providers and partnering with other agencies that can assist you such as the trade commissioners, EDC, CCC, and industry associations like ours.

Certainly we're seeing a lot more networking to identify what the challenges may be.This involves not only the market opportunities but talking to other people about what they did wrong or what they did right in these markets. So peer-to-peer networking for small companies is essential.

But I think above all...because sometimes we get too caught up in the problems. I see a lot of small companies that don't think about exporting because they've been told that they can't. They've been told that they have all these barriers out there, and I think the biggest concern I have, the biggest challenge facing small companies, is the issue of business leadership itself. Businesses have to incorporate an international strategy into their business planning and then be able to manage that. Yet they won't be able to do it on their own. They'll have to partner in order to do it. So that's a very general answer.

[The Chair, Conservative, Rob Merrifield]

Thank you. I'm going to interrupt because I do believe we have Joy back on video.

Can you hear us?

[Joy Nott]

Yes, I can hear you.

[The Chair, Conservative, Rob Merrifield]

Very good. I'm sorry for the technical problem but you're coming through loud and clear.

Now you'll have the floor for your presentation.

[Joy Nott]

Thank you.

My name is Joy Nott, and I'm the president of the Canadian Association of Importers and Exporters. Jay and I always joke about the fact that one of the most common questions I'm asked is what the difference is between I.E. Canada and CME. Probably the main difference is the fact that Jay represents manufacturers, I represent importers, and we both represent exporters.

That being said, I.E. Canada, as we're more commonly called for those of you who are not familiar with us, is about 80 years old. One of the things we focus on, unlike other trade associations, is to specialize and focus only on tariff and non-tariff trade barriers and border operations. Unlike other trade associations, including CME, that cover a wide area of advocacy issues on behalf of their members, we're very targeted and very specialized, so the GMAP plays right within our wheelhouse.

The first thing I would have to say about the GMAP overall is that we do applaud the government. All the things I heard Jay say, when I was still connected, about the fact that he's quite happy with this plan, I would echo those general sentiments. First of all, the fact that there is a plan in place.The fact that the plan has a focus to it in many different areas relative to market sectors and specific industry sectors, I think, is something that is obviously needed. You can't achieve anything without focus. So the fact that the plan is there and has a certain core focus to it is very positive and we applaud that.

All of that being said, you heard some of the things Jay had to say relative to some of the challenges out there for business overall. The fact is that supply chains—and I'm sure this isn't news to any of you—are highly complex today and involve importing, exporting, manufacturing, in ways that when I started in this industry 30 years ago, even I couldn't have possibly imagined how complex some of these supply chains would become.

In context of the reality that businesses are facing every day, the one thing I would say I find is a bit lacking with the GMAP is the fact that it tends to be focused on exports, and I get why exports are important. Again alluding to Jay's earlier comments about the economy depends on exports, I get it, and our members get it. But all of that being said, supply chains in a modern company are circular in nature, they are not linear. By that I mean exporters import, importers export, there is manufacturing that happens at various stages along the way in various countries, things are partially manufactured in one country and move on, and a finished good to one particular chain partner is not a finished good at the end of the line. So one of the things we find is lacking with the GMAP is a comprehensive import strategy that directly ties itself to the GMAP.

Currently, import policy is under the jurisdiction of the Minister of Public Safety and Emergency Preparedness. Under that same portfolio you have the RCMP and you have prisons. So while Canadians and our members certainly advocate for border security and a safe Canada, and all that sort of thing, and we understand the reasoning as to why CBSA was moved to Public Safety after the events of 9/11—it all makes sense—there's a difference between border security and import policy.

Border security involves all the things people think about when they think about security. Import policy—and I don't mean to sound flip—is people sitting in cubicles at various government agencies coming up with policies that companies that do business in Canada have to deal with.

In a recent report to Minister Fast, the Minister of International Trade—in fact only last week—the small and medium-sized enterprises advisory board that Minister Fast has in place actually put forward a recommendation that border security be uncoupled from import policy and that import policy should sort of find its way closer to something like the GMAP, in fact even maybe look at going so far as moving the import policy piece of CBSA away from the Minister of Public Safety to, perhaps, the Minister of National Revenue or even to the Minister of International Trade.

What we're really advocating for is a holistic view.

There have been many CITT cases in the past few years. There was of course what was in the mainstream media last summer about the iPod tax, the 9948 coalition, the television sets. All of that had to do with the fact that Canada has an import policy and an import regime, and then all this good work that's happening on the GMAP is sort of focusing. Those two things are actually more closely aligned and tied to each other than I think some of this work that's being done currently really gives credit to.

Some of the holistic approaches that we're talking about are the fact that, for example, in the 2013 budget, there was a move to actually modernize the general preferential tariff regime. No one, including our members, is going to argue with the fact that China should be continuing to receive duty relief. There's no argument there. China, despite the fact that by OECD standards it might still be regarded as an emerging economy, no one in Canada, including our members, is arguing with the fact that they are a power to be reckoned with, emerging or not. No one's saying that. However, increasing duty rates on a wide, varied portfolio of products from 72 countries with an 18-month warning in advance is just too short a timeline for supply chains, with their complexity today, to recontract and retool themselves.

Then, in this last federal budget in 2014, there's a consultation on tax planning by multinational enterprises, where the government is asking, amongst other things, what are the impacts of international tax planning by multinational enterprises on others that participate in the Canadian economy.

I guess what I'm trying to say, and in conclusion, is the fact that there needs to be a holistic view of all these things. While I think that this particular GMAP goes a long way further than the previous GMAP to addressing some of those alignment issues, I think that there's a little bit more work that could be done.

With that, I'll make those my concluding remarks. Of course, I'm open to any questions.

[The Chair, Conservative, Rob Merrifield]

Sure. I appreciate that very much.

We will move to Mr. Morin to continue. You have another four minutes.

Go ahead.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Ms. Nott, you spoke of very concrete realities. We have a good idea what reality is like for SMEs.

All my life, I have seen businesses start from nothing and grow. Often, they got their start thanks to public contracts or by meeting a need in the local economy. The first precondition to exporting is to survive.

My question is perhaps for both witnesses. Do you think there's more we can do to keep businesses healthy, so that they may eventually begin exporting?

I am not convinced that they need a hand on their shoulder guiding them. All business leaders dream of exporting their goods and succeeding. However, they must first survive the hostile environment in which their businesses were created.

Ms. Nott, could you elaborate a little on this point?

[The Chair, Conservative, Rob Merrifield]

That's for both of you, I think.

Joy.

[Joy Nott]

Sure.

Whether or not we need to be doing more for SMEs to actually help them to survive and thrive, relative to some of the statements that Jayson Myers made earlier, I think SMEs, for the most part—at least the SMEs that I'm familiar with, that I've talked to—come from one of two schools: either they're very much a global thinker and they have the leadership courage to take their companies into different markets, or they come from the opposite school, where they are very intimidated by rules and regulations that seem to be highly complex, that they don't understand. T hey don't necessarily have the expertise in-house or the bandwidth in-house for somebody to take these rules and regulations and dissect them and understand to what extent those rules and regulations apply to their company.

I think small companies come from one of two camps. How do you encourage them to thrive overall? I think there are just challenges right now in the global economy, period. I don't think Canada's behind any other developed country in supporting our SMEs; at least, that's not the sense that my members are giving me. I don't think they're looking for government support. I think that they're looking for, what I hear most often, is a reduction of red tape. Moving into different markets, what makes them nervous is the red tape that they're going to experience in those foreign markets. That's not something that they feel is within their control. So for some of them they find it very intimidating.

Jay.

[The Chair, Conservative, Rob Merrifield]

Jay.

[Jayson Myers]

Building on that, the red tape issue is important and it's not just in foreign markets. In the animal vaccine market there are companies that produce vaccines here in Canada that Health Canada is no longer giving a certificate of quality to and therefore cannot export because under the rules of Health Canada, they have to be selling that product in the Canadian market. Frankly, that's stupid. We need to do a better job of reviewing the regulatory system, making sure that we have regulations in place here in Canada that don't impede our companies as they do business internationally.

One of the biggest challenges though—and I think Joy would also agree with this—is communicating opportunities but also communicating the services and the partners that are available for small companies to work with. If you have a lot of exporters right now—I can tell you on the manufacturing side, when you take a look at the after-tax profit margin of small companies in Canada and you ask, in an eight-hour production shift, how long you have to work until you make a profit, pretty much right now you have about five and a half minutes to make the money you need to reinvest in business growth. That's one reason a lot of companies are extremely risk averse. They focus more on getting payroll out the door, and that's why they look for the biggest returns, the safest market.

If they're going to change that thinking, they need to be able to partner to reduce the risk in a way that makes sense for them. They get a bigger return and they can see the opportunity. It's all well and good to identify export opportunities or import opportunities or partnership opportunities, but often, you don't know if this is a qualified lead here. So many companies get burned because they may see the opportunity, they may rush into a huge market, but when they get there they're not too sure about the people they are dealing with. It takes a lot of time for a small company to build up a successful export business.

[The Chair, Conservative, Rob Merrifield]

That's very good. Thank you very much.

Mr. O'Toole and Mr. Cannan are sharing their time. Go ahead.

[Erin O'Toole, Conservative, Durham, ON]

Thank you, Mr. Chair. I'll be splitting my time with my colleague, Mr. Cannan.

Thank you both for appearing, Mr. Myers and Ms. Nott.

I wanted to focus quickly, Ms. Nott, on a line of discussion you had. Certainly you had some complimentary language about the focus and the strategic vision that the global markets action plan, GMAP, offers, but we're disappointed there weren't more specifics with respect to imports.

If we are growing relationships with other countries on a trade level, as we have been with Europe through CETA, through South Korea, through some of our bilateral discussions, and if those engagements are productive and lead to either a FIPA, a protection and promotion agreement, or an FTA, a free trade agreement, the import side is built into that as well because the relationships are reciprocal. The import members within your organization can work to promote these agreements, which will also have a strategic benefit for importers particularly, as per the comments Mr. Myers had on the global integration of supply chains.

Would you care to comment on that?

[Joy Nott]

Sure, I completely agree and understand what it is that you're saying with regard to FTAs that we're currently negotiating and the ones that we've signed. I.E. Canada has testified many times before this committee and various Senate committees to say that we support free trade overall. The difference is not the free agreement that we negotiate at an international table with an international partner such as the CETA, or Honduras that we just finished with, or Japan or India, or any of the ones that we're working on. What I'm talking about is the import policy that is applied here domestically, on the ground, by Canadian bureaucrats.

Just to give you an example, there are a number of Canadian companies that import what you and I, and I'm sure anybody in your family would point to on a table and say that's a pickle. It's a glass jar with a metal lid. The contents of the glass jar are clear and it's very clear what the contents of the jar are and that they are pickles. I won't go into all the excruciating details, but pickles have one rate of duty, cucumbers in brine have a different rate of duty, and it's a higher rate of duty. Our domestic bureaucrats have put a number of Canadian companies through what I'm going to call administrative discomfort, by reclassifying something that anybody on the street would say is a pickle and reclassifying it as cucumbers in brine.

That has nothing to do with the free trade agreement that we negotiate with a foreign country; that has everything to do with how we interpret our own import policy here, boots on the ground, in Canada. There needs to be some comprehensive political and senior level bureaucratic oversight over the import policies that are enacted, juxtaposed against something like the GMAP and the free trade agreements that you were referencing.

I don't know if that exactly answers your question, but that's the first example I can think of.

[Erin O'Toole, Conservative, Durham, ON]

It does in a way because I think it identifies two separate issues. The GMAP is certainly export led because it is part of our economic diplomacy and a strategic approach to growing new markets and which ones should take priority.

Your issue, which I did encounter prior to politics as a lawyer, as an in-house counsel for a large company, is I think the bureaucratic mindset that sometimes comes into trade. I saw it when I didn't know how many different parts a chicken would have. If you wanted to distinguish parts of chickens, or cucumbers in brine, sometimes there is a disconnect from the chain and flow of commerce when people are applying rules. I think that can be addressed almost outside of GMAP to make sure that businesses aren't impeded in this global sense.

But I'll pass the rest of my time to Mr. Cannan.

[The Chair, Conservative, Rob Merrifield]

I want to just say before, we call them bureaucrats, pickles, and now we're getting into chickens. We should focus here.

[Voices]

Oh, oh!

[The Chair, Conservative, Rob Merrifield]

Mr. Cannan, go ahead.

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

Thank you, Mr. Chair. I will try to get us out of this pickle here and move on.

Thank you very much to Ms. Nott. It's good to see you again. I had a good time in South Korea and I thank your association for your support with opening the Asian market. We look forward to continuing to expand markets.

Also to you, Mr. Myers, for being here today and also being a part of the advisory committee.

Just with my limited time, there were some comments about our needing to go faster and deeper. We hear from other people that we're going too fast. It made me want to comment on whether this is the right balance.

Also, you mentioned about communicating opportunities—is it a challenge? Mr. Fast is leading a delegation in Asia next week and we heard about the pros and cons of delegations. The trade commissioners.... What are some of the other ways that we can help as a government to communicate to your members more efficiently?