Thank you very much.
It's a great honour for me to present to a House of Commons committee. In fact, there's really no greater honour for a citizen than to have the chance to speak to our representatives.
My observations here are based on Canadian economic history. I think I share an interest with the rest of the people in the room for creating a better quality of life in Canada: good jobs, sustainable growth, and shared prosperity.
For reasons I hope to make clear, I'm out of sympathy with Canadian trade policy and have been for about 30 years, for reasons that are similar to those that led the late associate deputy minister of international trade, Minister Mitchell Sharp, who was my boss when I joined the Department of Finance in 1966, to oppose the Canada-U.S. agreement. For the same reasons that led him to oppose the Canada-U.S. agreement, I also opposed it. My preferred approach is multilateral trade, sectoral-based. I have problems with a trade policy that is industry and trade association driven, and I also have trouble with bilateralism.
I want to make three brief points: first of all, that trade policy needs to follow economic policy and needs to follow the kind of industrial policy that David Emerson was talking about in his report, not drive it; second, that trade policy is fundamentally about investment—Canadian investment and Canadian industry—and not about exports; and third, that bilateral trade negotiations are costly because we have to give up more in head-to-head negotiations than in multilateral negotiations, and in multilateral negotiations we get the benefits of what anybody else manages to negotiate.
My first point is really something that was clear to me when we negotiated NAFTA. I was in Mexico about three times to talk with the Mexicans. For a company to be successful in Mexico or anyplace else, it needs a desirable product. It needs a client. It needs financing. It needs infrastructure to deliver its goods on time. As important as trade strategy might be, it can't do any of these things.
Trade agreements do not create the conditions for good business-government relations. The former chief economist, Dan Ciuriak, from international trade, has talked about the “sunk costs” that are required to trade and how steep these are for many small and medium-sized businesses. Exchange rate fluctuations create great risks and perhaps temporary opportunities.
Successful economic policy requires companies that normally have a strong presence in the home market, with the possible exception of the entertainment industry, where you start abroad and then become successful at home. Trading companies are companies that have a strong research and development base, domestic manufacturing, superior transportation facilities, green production practices, safe working conditions, and good relations with their trade unions. Those kinds of companies should be the objective of Canadian economic policy. With those companies, we have a chance to be successful internationally.
My second point is that it's commonly said that exports create prosperity, which is true. But if that's true, does that mean imports destroy prosperity? My reading of the global markets document is that it has much in common with the doctrine known as mercantilism. Mercantilism said that if you have a strong presence internationally, you can accumulate what at the time was gold and now would be profits from exports, and that's what equals prosperity.
Now, Canada has profitable corporations. In fact, the retained earnings—the cash on hand, the “dead money”, as Mark Carney called it—now exceed the national debt in Canada. I'm not sure how that benefits Canadians directly.
When I look at exports, what I conclude is that in fact we export in order to import. We can build television sets here, or we can grow wheat and buy television sets with the proceeds. So why would we trade at all unless we gained value from imports? Canada became a very rich country by exporting goods with a low labour content, such as wheat and oil, and importing goods with a high labour content, like consumer electronics. We've paid a price for this, in that our unemployment rate has persistently been higher than it probably should have been, and certainly was, compared to the United States.
Moreover, if we become very export orientated, we become very vulnerable to downturns in the export market. If you go back, from the time of the fur trade, every successive staples product that Canada has exported—and we've become very profitable in doing that—has culminated in some kind of a major downturn. The most dramatic was the 1930s, when we lost our world market for wheat. There were 50% of the people in Saskatchewan who lost their employment prospects, and farmers started the On to Ottawa Trek.
The basis of exports is investment, and quite often in Canada we've had large foreign investments, like in bitumen today. Those foreign investments have to be serviced by sales abroad, which require pipelines, facilities, and strong markets. If those markets, for whatever reason, dry up, then it becomes impossible to service the costs of those investments. The entire industry gets into deep trouble, and the entire Canadian economy gets into deep trouble.
To build an economy around growing exports as a share of GDP is to make yourself increasingly vulnerable to world economic conditions.
All the members of this committee will be familiar with the Canadian current account deficit, which turned negative in 2008. It was about $60 billion last year and the year before, and has totalled about $275 billion for the last five years. It is our deficits and services and investment income, of about $25 billion each, that explains this, and this issue needs to be addressed in the trade strategy document. How do we deal with our current account deficit?
What we are doing now is allowing the Canadian dollar to sink, which will help to balance the external accounts. Of course, it decreases the Canadian standard of living at the same time. Canadian resource exporters will get more in Canadian dollars for their foreign currency sales at the same price, but also mergers and acquisitions—Maclean's magazine was talking about it this morning—will go up as well. People in Hamilton will remember when U.S. Steel bought up Stelco, it promised to maintain 3,000 jobs, and then it shut down the steelmaking operations. Now it looks like they're going to wind up the economy.
We have problems that are linked to foreign investment when it comes to the export sector, and in fact when it comes to the domestic economy. We've entered a world of footloose corporations. They are eager to seek out the lowest possible cost for labour, and to adopt measures such as importing temporary workers, or depressing wages through cuts to employment Insurance, or, as was done in the 1995 budget, eliminating the Canada assistance plan and therefore federal dollars going into welfare. Those measures may serve to reduce Canadian wages, but they don't necessarily make the Canadian economy stronger or create more for exporters.
The bilateral treaties that Canada signed with the U.S. provided American companies with what they were seeking in protecting overseas investment, opening up services, trade, protecting intellectual property rights, and gaining the right to sue Canadian governments. I'm not so sure that Canada has done that well. We still have the same protectionist legislation. We gave up a lot of strategic tools for upgrading and processing raw materials. We gave up government procurement. We gave up export taxes. We gave up sector-specific programs, other than in national security or, ironically, energy.
I read Jean Chrétien's memoirs, and he talked about the low-cost industrial strategy of tourism. Well, our free trade partners now require American citizens to return to the United States carrying a U.S. passport, and that has hit the Canadian tourism industry—those foreign exchange earnings from tourism—quite badly. I live in Quebec City. The American tourist hotel, Hôtel Loews Le Concorde, is closed, and Quebec City is a world-class tourism destination.
With regard to bottlenecks, trade treaties don't build you a bridge to Detroit, and they don't build you a Keystone XL pipeline, it seems, either, so I'm going to argue that trade policy has to be based on a strategy of ensuring investment in Canada. Canadian investment, for most world product mandates, has worked for the aerospace industry, as David Emerson pointed out in his report; they don't seem to have worked as well in other sectors, which is too bad.
Finally, if you'll allow me to indulge, I just want to talk a minute about multilateral trade agreements, which Canada really invented in the 1930s prior to the Second World War, in the Ottawa Agreements.
The failure of the International Trade Organization to get through Congress meant that we ended up with the General Agreement on Tariffs and Trade, and after the Second World War, industrial tariffs were in the 50% range. We negotiated those down to a much lower—less than 10%—range when we were into the bilateral negotiations. In those negotiations, because Canada had 80% of its exports going to the United States, and it was taking about 60%—and now 50%—of its imports from the U.S., when we sat down to negotiate, most of our concessions were made to the United States, and we had to make major ones in order to increase our market share in the United States.
Then the Americans, 20%—and now 15%—of whose market came to Canada, had to sit down, negotiate, and give concessions on 85% of their domestic market to other countries. Under the most favoured nation policy, Canada got every one of those concessions, irrespective of the amount we had to pay to get concessions on our bilateral.
I would just conclude by saying that the benefits of multilateral trade in negotiating with other countries are considerable, and that should be the priority for Canada's trade policy.
Thank you very much.