International Trade Committee on May 13th, 2014

[The Chair, Conservative, Rob Merrifield]

We have quorum. If members will take their seats, we will move forward with the meeting.

I want to thank our witnesses for coming forward.

We are progressing with our study on the global markets action plan.

We have with us, from the Canadian Council of Chief Executives, Ailish Campbell, vice-president. Thank you for being here again. We're always excited when you can stop in.

We have, from the North-South Institute, Pablo Heidrich. Thank you for being here again.

We will start with you, Ms. Campbell. The floor is yours.

[Dr. Ailish Campbell, Vice-President, Policy, International and Fiscal Issues, Canadian Council of Chief Executives]

Mr. Chairman and committee members, thank you for the invitation to appear on the global markets action plan.

Before I begin my remarks, let me tell you a little bit about our organization. The Canadian Council of Chief Executives is a not-for-profit, non-partisan organization composed of the CEOs of 150 leading Canadian enterprises. Member companies collectively administer $4.5 trillion in assets, have annual revenues in excess of $850 billion, and are responsible for the majority of Canada's exports, investments, R and D, and training.

We engage in an active program of public policy research, consultation and advocacy. The CCCE is a source of thoughtful, informed comment from a business point of view on issues of national importance to the economic and social fabric of Canada.

My remarks today, Mr. Chairman and committee members, stem from one simple fact: the prosperity of Canadians and the health of the Canadian economy depend on trade.

Total Canadian exports in 2013 were $530 billion in a $1.9 trillion economy. Promoting Canadian commercial interests abroad is critical to our competitiveness and to our standard of living.

A second fact is that the government of any nation plays a key role in the success of its exporters.

As John Manley, the president and CEO of the CCCE, has stated in support of the global markets action plan, it:

...aligns Canada's trade promotion resources to help Canadian companies take advantage of opportunities in high-growth emerging markets and traditional markets of strength. By identifying economic diplomacy as a key to advancing Canadian commercial interests, the federal government is ensuring Canadian companies have the support to succeed abroad.

The partnership approach to success in global markets, in which business and governments are aligned on and execute opportunities, is at the core of the global markets action plan. The CCCE now calls on the government to effectively implement the global markets action plan, or GMAP.

There are four priority elements on which the GMAP will be judged a success.

The first, priority number one, is a strong and positive commercial relationship with the U.S. and a renewed North American partnership.

The U.S. is Canada's primordial trading partner. Canada-U.S. trade in goods and services in 2012 reached close to $742 billion, or 41% of Canada's GDP. Number two is the EU at a just over 5% share. Number three in terms of total goods and services exports is China, at about 4%.

The U.S. is responsible for almost 73% of Canada's total exports. Let me reiterate that. The U.S. is at 73%; the EU is at about 5%, and that is blended goods and services—merchandise trade might be higher at about 11.5% with the EU—and China is at about 4%. It is an order of magnitude unmatched by any other partner.

Our trade with the U.S. is so unique because of the amount of American content, of course, in the final products of Canadian goods.

Indeed, the forecasted recovery of Canadian merchandise exports to their pre-recession levels, which EDC, the Conference Board, and others have forecast, depends in 2014 on a U.S. recovery and on demand for Canadian products.

It must be the top priority of the GMAP to improve Canada's border and its border systems with the U.S. to increase regulatory cooperation and continue to advance North American energy security and sustainability.

The CCCE calls on the Canadian and U.S. governments to take the good work done under the beyond the border pilot projects and transform these into generally applied border procedures.

The CCCE also calls on the U.S. federal and state governments to exempt Canadian firms of all sizes from harmful buy American provisions that affect Canadian firms of all sizes. If this requires negotiation, let's get on with that.

Broadening our lens, there is great potential for a renewed North American partnership. Engagement with Mexico in this regard is critical. With growing energy production in Canada and the U.S. and significant energy reforms in Mexico, there is a critical opportunity to improve continental energy security and environmental sustainability. As well, a more diverse energy supply and competitive pricing will improve the attractiveness of North America as a location for resource and manufacturing industries and will build on important supply chain dynamics.

Priority number two, by which the success of the GMAP may be assessed, is of course the implementation of the Canada-EU comprehensive economic and trade agreement, CETA.

I have appeared before this committee in the past on the importance of CETA, so I won't go into detail here. I will only say that the agreement in principle was announced more than six months ago, in October 2013. The CCCE calls on both parties, Canada and the European Union as well as its member states, to complete the technical negotiations and announce a final conclusion to the deal before the summer break, and then to commence the ratification of CETA as quickly as possible in the fall of 2014.

Priority number three is a strategy for Asia, including a strategic partnership with China.

In 2012, Canada officially joined the Trans-Pacific Partnership, which has now expanded to include 12 countries with a combined GDP of nearly $22 trillion. Again, I've appeared before this committee on the importance of TPP, so I won't go into detail here, only insofar as to say that Canada is well advised to be participating actively in the TPP and has the CCCE's full support for its participation in these negotiations.

The CCCE also supports a rapid conclusion to the Canada-Japan economic partnership agreement as outlined in GMAP.

However, several countries identified as priority markets in GMAP are not in TPP. These include China, Hong Kong SAR, India, and Indonesia.

As such, the CCCE recommends that Canada: continue its negotiations with India for a free trade agreement; create a strategic partnership with China similar to what Australia has accomplished, which could lead to enhanced commerce in sectors of mutual interest, or as New Zealand has done, negotiate a free trade agreement with China.

As a first step, we would also call on the introduction and ratification of the foreign investment and trade promotion and protection agreement with China. We call for the implementation of the free trade agreement with South Korea as quickly as possible. We also call on the government to commit to a larger trade commissioner service footprint in Asia, in particular in those markets where commercial relationships are deepening and show the greatest potential for export.

The fourth and final priority is the growth of Canadian exports to emerging markets. As the Canadian Chamber of Commerce recommended in its report, “Turning It Around: How to Restore Canada's Trade Success”, Canada should take a look at the suitability of its trade finance instruments for developing markets. In addition, I would recommend to this committee that you consider requesting data from Industry Canada on the number of SMEs that export through supply chains of large firms to emerging markets.

Given that Canadian foreign affiliate sales now exceed the value of Canadian exports—again, we are selling more in markets than we are in fact exporting from Canada to other markets—this underlies the importance of bilateral investment treaties as a vital part of Canada's trade policy tool kit.

A bold move for emerging markets could be to unilaterally eliminate all tariffs and not wait for others to reciprocate, as the study we released yesterday suggested. The federal government is to be commended for eliminating tariffs on manufacturing inputs. The question remains, why not eliminate tariffs for other sectors, and especially those from developing country markets?

To conclude, resources and infrastructure are required for success. The GMAP is indeed just that, a map to deepen commercial relationships with established partners and identify new customers. While we look outside of Canada's borders for new opportunities, the plan to effectively implement GMAP and build on our strengths starts at home. This plan starts with firms. The onus is on us. Canadian companies must have the products, the strategy, and the marketing plans to identify and sell to new customers.

In many markets, and particularly emerging markets, the government is a critical partner in the early stages of landing new customers, in particular for SMEs. For large firms, high-level, top-to-top relationships are critical to lend support to sale strategies and create a positive reputation for Canadian products.

On the government's part, it's vital that the tools to enable new commercial relations are properly resourced in order to deliver on GMAP's objectives and the priorities I've set out in my presentation today. Government services, such as Export Development Canada, Canada's trade negotiating teams and diplomatic resources at the World Trade Organization, as well as the trade commissioner service, are key tools.

The CCCE would recommend that this committee do a deep dive into the budgets, full-time staff, and the recruitment and training tools of all trade promotion programs of the federal government. This data is required for your committee to ensure that trade promotion entities are streamlined in their services to business, possess business acumen and local market knowledge, and have access to catalytic funding and the digital tools to reach businesses around the world in order to deliver effectively on opportunities.

We also endorse the proposal by the Chamber of Commerce to create a forward planning committee with the private sector and other levels of government to coordinate delegations under the Canadian banner.

I'd also recommend to this committee an examination of Canada's logistic systems—roads, ports, rail, and airports. Transport Canada data indicates that total shipping time between the EU and Canada, as well as between Asia and Canada, is not improving, and in some cases the total shipping time is lengthening. The recent slowdown at Port Metro Vancouver will certainly result in a deterioration of the 2014 data, and we hope that can be reversed.

We commend the GMAP for looking beyond just traditional tools, to also looking at the enabling logistics infrastructure that will allow firms of all sizes to deliver on their export opportunities.

In conclusion, the CCCE fully supports the objectives presented in the global markets action plan. Now is the time to ensure there is alignment on the resources required to deliver on the plan and compete with the best in the world.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Heidrich. The floor is yours.

[Pablo Heidrich, Senior Researcher, Governance of Natural Resources program, North-South Institute]

Mr. Chair, and honourable members, good morning, and warmest thanks for giving me the opportunity to speak with you about the positive effects of the global markets action plan.

My field of work at the North-South Institute is on international trade and investment, particularly looking at the relations of Canada with the developing world, and within that, very much with the countries in Latin America.

The North-South Institute is a Canadian institution that is non-partisan and non-profit. It's fully dedicated to providing advice to the Canadian government, Canadian firms, and the Canadian public on the relations of Canada with the developing world.

Given the topic for today, I will be mostly talking about the relations of Canada with the emerging markets. I recently published an op-ed on this export promotion plan, and some of the things I will be saying today are based on that. It was published in Embassy magazine a few months ago.

In our view, the GMAP strategy comes very much as a renewal effort of the current government to expand Canadian exports worldwide. While the specific goal of this initiative is to increase the number of small and medium exporting firms, given their important role as employment creators in Canada's economy, the way this proposal has been framed indicates to me that the purpose of the government is deeper and more encompassing than simply raising exports by small and medium enterprises. More than anything it is a way to position Canada's foreign policy, particularly toward the developing world, and what that should be about. It also means a possible redeployment of Canada's diplomatic assets from the political and development sides of DFATD to its commercial section.

In several ways this strategy is very understandable. Canada as an exporting nation is very much in trouble. While world trade has grown by 70% since 2000 until now, the exports of Canada have grown by only 11%. I'm talking about the exports of goods. From 2006 until now—to be more precise, during the time of this current government—it has grown by only 6%. Meanwhile, U.S. exports, for example, have grown since 2000 until now by a full 101%, and EU exports have grown by 87%. In short, Canada is losing global market share, and is doing so very quickly. We are still, and the world is trading more every day.

Thus, a decided push to focus on expanding exports is very much correct. The emphasis on small and medium enterprises might be correct as well, but we should not confound the terms, and in this case, we should not confound the policy aims.

Canada can well expand exports without increasing the number of small and medium enterprises involved in that trade, and vice versa. We can also increase the number of small and medium enterprises that are engaged in exports without really increasing overall exports. If I interpret this policy correctly, the idea is to increase the participation of small and medium enterprises in Canadian exports, and not necessarily to increase our total exports.

We all know that Canada has a serious competitiveness problem, and that is expressed in the low pace of growth in exports. This policy does not, however, deal with that in a central manner. If it were to do so, other measures inside Canadian borders that have to do with national economic policy would be needed before engaging in any export promotion effort of any kind. Therefore, I would like to return to the idea and the issue of reallocating diplomatic assets and the strategy to advance commercial interests, particularly toward emerging markets.

This is a very costly thing to do as it's formulated in GMAP, to reallocate political and aid assets to the commercial side of diplomacy, and most nations do not do that. The reasons are simple. Politics and business don't hold the same tempo, and nobody wants negative short-term spillovers, such as, for example, Russia turning off the gas exports to Europe because there is a conflict over Ukraine, or the U.S. losing global production chains with China due to arguments over human rights. Simply, business and politics are not always aligned, and there are barriers and firewalls that need to be kept. On that side, long-term political considerations must override short-term business interests if we are to maintain a strong policy consensus on security issues and diplomatic governance with emerging countries around the world.

Precisely nested in successful political relationships is where export promotion efforts and official visits can have positive commercial impacts. In other words, we cannot just get off a plane in official missions in countries where we don't even have an embassy and try to sell our wares as if we were there as an established presence.

This requires that the political diplomatic agenda is not directly linked to the commercial one, and again, vice versa. What I see, however, in the GMAP public formulation is that politics have infiltrated commercial diplomacy goals to an extent that it might go against our wider business interests. In Latin America, for example, small markets such as Uruguay and Paraguay are counted as being emerging markets with specific opportunities in the plan, but other much bigger markets in the region that already are much more important trading and investment relations for Canada, such as Argentina, Ecuador, and Venezuela, are not mentioned. They are ignored.

The same happens in Asia and Africa, where many markets are inexplicably absent from the strategy and others are inexplicably present.

The only variable I can see as rather constant against these lapses in economic rationality for an export promotion policy is that those present on the list have governments that are widely identified with conservative politics or neo-liberal economic plans, while those that are absent have more centre or centre-left governments and have less neo-liberal policies. In other words, politics, in my view, is undermining the map of opportunities for Canadian small and medium enterprises, and particularly exporters. Therefore, I would really recommend a clear explanation of how markets have been chosen for this policy. This is very much needed to generate credibility for the policy.

Finally, I'll look at goals and relationships. To say, as GMAP indicates, that we're going to reallocate diplomatic resources to promote exports, with this policy formulated with such a narrow focus in a series of countries to simply increase the exports of small and medium enterprises and to increase that number of enterprises by 10,000 firms, hoping to create only 40,000 jobs in five years, for me is not sound dollar-per-dollar public expenditure. Given the annual ups and downs of the Canadian economy as a whole, that number of small firms will die or be created every month, and that number of jobs will be reduced or increased in the overall economy every month. So to say that in five years we'll be creating that number of firms and that number of jobs with such a policy.... It's something that is so small for the amount of effort in the redesigning of our diplomacy, I don't understand the proportion between the effort and the desired result.

Increasing exports has to be, however, the central strategy if Canada is to have an export promotion policy at all. Within that, emphasis might or might not be given on supporting small and medium exporters, or even on increasing their number in certain markets. We need to have bigger goals if we're going to use such encompassing tools for promotion, especially when we're talking about redesigning the entire Canadian diplomacy apparatus.

To increase exports, the short list of policies that Canada must urgently follow is well known. We have to facilitate full market integration of its immigrant professional class. We have to reduce barriers to trade between provinces. We have to eliminate the prohibition on investments from foreign state-owned enterprises. I'm talking about not whether all these things are good or bad. What I'm saying is that these things are necessary to increase exports. We have to establish distinct parameters to recruit an enlarged trade commissioner service.

I very much thank you for your attention. I can answer questions later.

[The Chair, Conservative, Rob Merrifield]

Thanks to both of you for your presentations.

I believe we'll start the questions and answers with Monsieur Morin.

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

Thank you, Mr. Chair.

Mr. Heidrich, what you talked about is very thought-provoking.

Regarding target countries, it would appear that the determination of criteria for countries of interest to us is a bit arbitrary.

Are you concerned that mixing politics and trade could carry the risk of ideological contamination with regard to our decisions?

[Pablo Heidrich]

Yes. I read in the GMAP presentation done by the government that there was a series of consultations with the private sector, with think tanks, and with academics within Canada and abroad on how to make that list. However, the actual process on how that list was put together was not in the papers that I read, so I do not know how the actual list was produced.

I can see that the result has, as I mentioned, very surprising elements, as countries are not there. I don't understand why, for example, Ecuador and Argentina are countries of interest for the U.S. and for the EU but not for Canada. If they think they are, why don't we? I understand that Japan also considers Venezuela a country of interest, but not Canada. Canada sells a lot of oil-related and mining-related machinery, so it could very much compete with Japan in Venezuelan markets.

I'm talking about markets that have sometimes up to a half a trillion dollars of market size. We're talking about very big emerging markets. We're not talking about small exotic countries.

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

For instance, globally, Brazil and Argentina have much larger economies than Uruguay, Equador or some of the micro-countries that, as if by chance, have a similar way of thinking and political direction.

If we are looking to sign agreements only with people who think exactly like us, our options may be limited.

What do you think?

[Pablo Heidrich]

Yes, that's very much the case. Brazil is included, however, in the list of GMAP.

I just want to basically underline the fact that if we want a business-oriented policy, then it must be business oriented. You cannot have it both ways. You can have certain strong political views, and then that would be for the political side of diplomacy, but then you need to have a political side of diplomacy. It cannot be all commercial.

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

Canada is the largest supplier of pork to Russia. That market is important for Canadian pork producers. That is where they send all the parts that are not wanted in countries like Japan, which buys only the best cuts.

The political tension between the two governments will definitely not foster trade. I think that trade and politics are not a good mix.

Can you please comment on this?

[Pablo Heidrich]

Yes, indeed. That's why most countries do not reallocate their diplomatic political resources to do trade policy, to do export promotion policy, because they basically need to have at least two faces. One is to promote your economic interest and your business interest, short-term with micro-policies. The other one has to deal with political dialogue and diplomatic relations, where you can also have your ups and downs. Again, that should not, as much as possible, affect business interests.

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

How much time do I have left?

[The Chair, Conservative, Rob Merrifield]

You have two minutes, but you don't need to take them.

[Some hon. members]

Oh, oh!

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

Ms. Campbell, GMAP, or the Global Markets Action Plan, reflects the federal government's desire to promote and sign free trade agreements that will have a major economic impact.

Is there any evidence of the cause and effect relationship between free trade agreements, wealth creation and employment productivity gains?

[Ailish Campbell]

Free trade agreements, as well as investment, do lead to improved job creation, export promotion, and investment. I would commend to you a Department of Foreign Affairs, Trade and Development study on that very question.

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

Thank you.

[The Chair, Conservative, Rob Merrifield]

Very good.

We'll now move—

[Fin Donnelly, NDP, New Westminster—Coquitlam, BC]

Is there a minute left?

[The Chair, Conservative, Rob Merrifield]

You have a minute, yes.

[Fin Donnelly, NDP, New Westminster—Coquitlam, BC]

I'd just like to ask, Mr. Heidrich, the GMAP states that the federal government will “ensure that all Government of Canada diplomatic assets are harnessed to support the pursuit of commercial success by Canadian companies and investors.” The plan also indicates that Canada's trade policy framework will “leverage development programming to advance Canada’s trade interests.”

I was wondering if you could talk a little bit about how development programming can support Canada's trade interests, and to what extent trade priorities and development goals can be mutually reinforcing and produce meaningful results for both Canada and developing countries.

[Pablo Heidrich]

In one minute?

[Fin Donnelly, NDP, New Westminster—Coquitlam, BC]

In 30 seconds.

[The Chair, Conservative, Rob Merrifield]

In 30 seconds, actually.

[Pablo Heidrich]

All right.

I would say, in principle, yes.

The international practice.... If you look at different countries in Europe that have quite substantial development programs, within them they have programs to support the private sector through aid programs. It's very difficult, because you need to maintain very high ethical standards and you need to make sure the businesses from your country are not going to do anything that could contravene not only the laws of that country, but also your own laws. Sometimes you do not have the legal framework to actually compel businesses to behave in a certain manner when they are abroad.

The purpose of the government might be correct, but I think we still need a certain framework to regulate how Canadian companies operate abroad before they are given Canadian public funds to support strategies abroad.