International Trade Committee on April 29th, 2015

[The Chair, Conservative, Randy Hoback]

Good afternoon. It's 3:30, so we'll get started with our meeting here today. Pursuant to Standing Order 108(2), we are resuming our study of small and medium-sized enterprises.

Our witnesses today are from Caboo Paper Products Inc. and Google Canada; and by video conference, the Canadian Association of Moldmakers from Windsor, Ontario, and International Road Dynamics Inc., from good old Saskatoon, Saskatchewan.

I will start in the order listed here with Caboo Paper Products. We have Mr. Albert Addante, chief executive officer, and Mr. Kevin Yu, director.

You have eight minutes. The floor is yours.

[Albert Addante, Chief Executive Officer, Caboo Paper Products Inc.]

Caboo Paper Products is a Canadian company involved in the manufacture, import, and distribution of eco-friendly paper products. Caboo brand paper is made from bamboo and sugar cane, which are sustainable resources, unlike paper products made from trees, thereby addressing the deforestation concerns that we all have. We believe that the market we are creating could very well pave the way for a revolution in this industry, and we can proudly say it came from a local Canadian business from the grassroots level.

Our first point concerns the challenges we are continually facing with CBSA policy when clearing product into the country by ocean freight. The expense and delays we face have a significant impact on our ability to compete and succeed in this market.

Second, we would like to urge our government to offer increased support and funding toward Canadian companies that are involved in environmentally sustainable options. We believe this is a new global economy. We must adapt to the concerns we all face with the environment. The ability to adapt should rest not only on the government’s shoulders, but on those of the entrepreneurs of Canada who offer innovation.

Last, we believe that small to medium-sized companies involved in import and export trade should also be included on Canadian trade missions abroad. A Statistics Canada study says that small and medium-sized businesses account for 54.2% of our GDP. We believe there should be a better representation for us when promoting Canadian business abroad.

On point one, though we understand and support the importance of thorough inspection of product being imported into Canada, the issue facing us is that CBSA examination and related costs are passed on to the importers, regardless of their size or the value of the product they are importing. These charges could be $2,500 to $3,000 per container, which in our market reflects around 25% to 30% of the entire value of our shipment. In many cases, the cargo is not even examined at port but removed by truck to a bonded facility at the discretion of CBSA. In these instances, our containers can be examined for days, even weeks. During this time, the ocean freight line that actually owns the container shelves gives us a limited amount of time, or free days, to return the containers, regardless of our situation. Overall, we could potentially be charged not only the entire examination fee, but the penalty from the steamship line, which has cost us upwards of $150 a day per container. As a small importer trying to compete in this market, we need to succeed, and we feel that we need some help in this area.

Another point is in terms of government support. Because we are an international trading company, we trade in U.S. dollars, and when our dollar drops, our costs go higher. Basically, we could be working at a loss on an ongoing basis as long as the Canadian dollar is low. That, along with the CBSA issue we are facing, can eat up our entire profit.

Also, as small to medium-sized companies, we feel we could use support with funding when it comes to taking on a large retailer. As a small manufacturer, we have to get into some bigger markets in order to grow. A retailer such as Costco might take us at some point, and we'll need to put a large quantity on the water, perhaps 30 containers. Where do we get the financing to do that? Some kind of support from the government, perhaps a low-interest loan, would help us greatly, as opposed to going deeper into our personal finances to try to fund an opportunity like that. As a growing business, we don't want to pass up a large opportunity.

The last point is that we would like to have more exposure to international trade when the governments are going abroad with delegations. For example, when a federal trade delegation travels abroad with business leaders, small to medium-sized companies should be given the opportunity to join and network with foreign leaders to further grow their business and enhance their reputation.

Those are the three points.

[Kevin Yu, Director, Caboo Paper Products Inc.]

We hope the that federal government can provide more funding to support medium or small companies. I worked in Japan for a very long time and I know Japan has a lot of these kinds of programs to support small and medium companies. Sometimes they give you low-interest loans, or sometimes they just give you money to support you to do something. All the information is open and everybody can search online and apply for this kind of program. I hope Canada can have a similar program to help our small and medium companies.

Thank you.

[The Chair, Conservative, Randy Hoback]

You have two and a half minutes left if you need it, but if you don't that's fine. We'll move on to our next witness.

[Kevin Yu]

Okay.

[The Chair, Conservative, Randy Hoback]

The next witness is Mr. McKay from Google Canada, head of public policy and government relations. You have the floor for eight minutes, sir.

[Colin McKay, Head, Public Policy and Government Relations, Google Canada]

Thank you very much, Mr. Chair.

Members of the committee, députés et députées, thank you for having me here today.

As this is our first time appearing before the trade committee, I'd like to take a few moments to tell you about Google Canada.

In 2002 Google Canada opened our first doors in Toronto, which makes it one of our first international offices. After a decade of growth, we now have more than 600 Googlers working across four offices, including in Toronto, Kitchener-Waterloo, Montreal, and right here in Ottawa.

This group of Googlers has accomplished a lot, from mapping several areas in Canada's Arctic and in the Houses of Parliament just across the street, to putting our Canadian engineering talents to work on core products used by hundreds of millions of Google customers around the world. Google continues to grow and invest locally in Canada because we appreciate the market, we appreciate the individuals, and we appreciate the educational opportunities for engineers and others that become Googlers.

We are very pleased to have the opportunity to participate in this study and to discuss with you how the Internet is a driver of growth and opportunity for small businesses, both here in Canada and around the world. When Larry Page and Sergey Brin started Google, their mission was to organize the world's information in a universal and accessible way. That's how the Google search engine was born. Fast-forward to today and Google has truly become a growth engine creating opportunities for entrepreneurs, creators, and businesses of all shapes and sizes to reach beyond their traditional borders and into markets around the world. It turns out that the web is a great equalizer for small businesses. Anyone can succeed online from anywhere in the country. lt's all about the strength of your idea and the quality of your product. It turns out that the Internet is the ultimate equal opportunity marketplace.

Digital tools built for billions of users—including email, maps, collaborative documents, easily expanded cloud storage, highly refined search results, and immediately relevant marketing resources—have meant that scaling up your business to go global has never been easier or cheaper.

We know, as economic policy experts and as tech policy experts, that digital leaders outperform their competitors in every industry. Today every business is a digital business and every business can be a global business.

As we often do at Google, let's look at the numbers. There are 2.5 billion people who are part of the global online marketplace. That number is set to double in the next few years—and that's across the sectors that have been identified by the government and economists as high growth sectors. By 2018 the number of cross-border shoppers online is expected to triple. ln six major markets, including the U .S. and China, this amounts to 130 million users spending more than $300 billion annually.

Canada already has a lot of the right ingredients when it comes to SMBs embracing the opportunities of the web. Canadians have some of the highest rates of Internet usage and smart phone ownership in the world. We know the tools, we know the devices, and we use them as consumers almost all the way through the day. Our business community is trusted and credible the world over. We produce products and services that are fiercely in demand in both established and emerging markets. Interestingly Canada is the world's third-largest exporter of content on YouTube and 90% of the views for this content created by Canadians come from outside Canada, which is higher than any other country. We also have the benefit of an amazing array of cultural diversity, which is a natural advantage in growing our presence in international markets.

There are some Canadian SMBs who are ahead of the curve on this. Manitobah Mukluks, for example, makes traditional mukluks and moccasins with techniques used by Canada's first peoples. ln 2012, after 15 years of selling exclusively in Canada, they sought to expand to an international audience. This meant launching an e-commerce site using Shopify's online retail platform and experimenting with online marketing, like Google AdWords. Today Manitobah Mukluks sells to over 45 countries through their online store and over one-third of their website visits come from outside Canada.

Broadly speaking, Canada still has some work to do. Fewer than half of small businesses have a website at all. This is despite the fact that nearly all Canadians use the Internet before they buy, but then only 3% of retail purchasing takes place online. We can discuss the factors for that later on. Consider that fewer than 5% of Canadian SMBs are exporting, yet we know that exporters do better. They have substantially higher productivity and more revenue per employee.

To help Canadian businesses to better understand and to take advantage of their export opportunities, we at Google Canada recently launched an online destination to help SMBs grow beyond their borders. On this site we've included an export business map with specific insights on international customer preferences, holiday seasons, and shopping trends for SMB owners and managers. For example, if you design leather goods, maybe it's good to know that in China handbags and luggage are a significant online retail product category, or that kids go back to school in South Korea in March, not September. These moments and insights matter, and we hope they will help Canadian SMBs lay a road map to grow their businesses.

These new export-focused resources are added to a host of other Google tools, services, and initiatives designed to help SMBs grow into and succeed in the digital age. Globally, our Google for Entrepreneurs program builds capacity through partnerships with organizations who have strong ties to the local start-up and entrepreneur communities on the ground. In Canada, we work with Communitech in Kitchener—Waterloo and Notman House in Montreal to hold events and provide training for small businesses.

To recognize small businesses that have used the web to succeed, we created the Google eTown Awards, which are designed to showcase communities that are leading the way by using online tools and services.

As I mentioned to Mr. Morin, the municipality of Saint-Sauveur won that prize in 2013 for its focus on digital advertising.

Last October, we launched Retail Spark with the Retail Council of Canada and Shopify to help over 700 Canadian small and independent retailers go online.

Our message to the committee today is simple. The single most important thing you can do to help Canadian small and medium-sized businesses compete globally is to get them online quickly. The Bank of Canada recently forecast that our economy is expected to grow less than 2% this year. Meanwhile, the global digital economy is growing at more than 10% a year—and in emerging markets, it's growing at 12% to even 25% a year.

We know that every $100 million in export revenue generates approximately a thousand jobs. That's our potential. My commitment to you is that Google will continue to be a partner in powering that growth, and together, we'll unlock the extraordinary potential of Canada's economic future.

I would like to thank the committee once more for giving us the opportunity to take part in this important study.

That concludes my remarks.

[The Chair, Conservative, Randy Hoback]

Thank you.

We'll now move on to our next witness by video conference from Windsor, Ontario, the Canadian Association of Moldmakers, Mike Hicks, vice-president.

You have the floor for eight minutes.

[Mike Hicks, Vice-President, Canadian Association of Moldmakers]

Once again, thank you for having me on today. I'm sorry I couldn't be in Ottawa. We're very busy here in Windsor, and I'm very glad to report that.

The Canadian Association of Moldmakers was formed in 1981. We basically had a lot of mold shops here in Windsor, and a lot of our companies exported. They were primarily very good technical people but were very weak in sales and marketing.

The association was formed for the betterment of the industry. Our board is a volunteer board. I'm here in a volunteer capacity today. I'm the vice-president of DMS. We supply components throughout North America. Our headquarters is in Windsor, Ontario. It's very unique; we're a Canadian company supplying a lot of American companies as well as Canadian companies. We also sell in Mexico.

Regarding our board, we're comprised of six mold shops, three service companies, and three suppliers. Again, we're a fully volunteer board. We have some very quality people on our board who are experts in different services and so on and so forth. For instance, we have Jason Grech from KPMG as our treasurer. We have Mark Skipper, who is our legal counsel. He's with Paroian Skipper. We have custom broking people. We have experts in SR and ED tax credits, and so on and so forth. Diane Deslippe is our executive director. She will be going to Stuttgart next month for a new mold making show that's taking place.

As I said, we do a lot of exporting, and we want to thank you for having us here today. Primarily I'd like to give you a few examples of where you are helping us.

In 2008 when our industry was very down, we were given money to go to Mexico as a trade association. We went down to Mexico for the first time to exhibit, and we found a tremendous market that needed our skills. I want to emphasize that in our industry we're building tools; we're not doing production and we're not doing assembly work here.

Since we were down there in 2008, several of our companies have opened up satellite facilities in Mexico and in the southern States to service southern U.S. and Mexican business. There's been a net gain of Canadian jobs, and we've been given tremendous opportunities. I was last in Mexico in November 2014, and it was tremendous to see the strides that we have made down in Mexico.

If you look at our association, our website is www.Camm.ca, and there's a listing of all of our members. As I said, we're comprised of mold shops, service companies, and suppliers. As I mentioned, many of our mold shops have opened up satellite operations in Mexico and the southern States very successfully. We've worked very closely with Brian Masse, who is our local MP here, and people like Mike Breen, who is with Industry Canada, and other government associations. Throughout the years since 1981 we've seen mostly great cooperation. You've listened to us. I think we've been like a poster child for the Canadian government as far as exporting goes.

In the early 1990s we expanded. We used to be called the Windsor Association of Moldmakers. We became the Canadian Association of Moldmakers. Again, primarily most of our work is done in Windsor, but there are several mold shops in the Toronto area. There are also mold shops in Quebec. In Toronto and Quebec they primarily were servicing a local market. I think they want to join our association to raise their sales and marketing because they know we have a high profile globally and because they realize that some of the local base has been declining in Toronto and Montreal. Recently we have affiliated with the APMA here in Canada to raise our profile even more.

As I said, we've received a lot of support from the agency. We continue to appreciate the SR and ED tax credits you provide. We appreciate the GOA funding we were given. When we go to do a trade show, it really helps us.

Some of the new markets we are having trouble penetrating are Brazil and Argentina. We know those are the next big things.

As I mentioned, we're going to be in Europe next month at a trade show. Especially in the automotive sector, a lot of those companies are looking at low-cost areas like the southern States and Mexico. They're looking for zone partners. That's why we go to Europe. We meet those people there. We tell them about our certain successes and so on and so forth. We do a lot of networking. As I've said, we present a lot of leads to our members. It's a system that's working for us.

We are a non-profit organization, so we continue to need your help. Windsor as you know is the capital of unemployment in Canada and, unfortunately, we have a deficiency in the number of mold makers here. We've been working with our local college, St. Clair College, and we work with the university and with the school board.

We're in the process of trying to get our industry Red Seal approved, which would also help us. It would also raise our profile in trying to attract young people and new talent into the industry.

But overall, as I've said, we appreciate everything you've done for us. We're very glad to be part of this today. Here I would note that I also participated in 2006 when you had the House and Senate committee hearings on the future of manufacturing in Canada.

Thank you for having me today.

[The Chair, Conservative, Randy Hoback]

Thank you.

We'll move on to our next witness from good old Saskatoon, Saskatchewan, from International Road Dynamics, Terry Bergan, president and chief executive officer. The floor is yours, Mr. Bergan, for eight minutes.

[Terry Bergan, President and Chief Executive Officer, International Road Dynamics Inc.]

Thank you, committee members.

I provided a fairly lengthy briefing of what I'm going to say, so I'll sort of skip through that.

International Road Dynamics is a small technology company that got started in the 1980s by the three of us. We grew it through R and D to demonstration of our product to commercialization in a very large marketplace called intelligent transportation systems. Basically our systems, our instrumentations, our weigh-in-motion devices help make highways safer, more efficient, and environmentally friendly.

There are applications for our business worldwide. We have subsidiaries in the United States, Mexico, Chile, Brazil, India, and China. Some are wholly owned and some are shared with a joint venture partner who's local. To date we've exported to 76 countries worldwide. Ninety-five per cent of our revenues are export. We've delivered over $700 million worth of equipment to customers worldwide.

In my briefing paper I talk a little more about what's happening on the ground. I'm head of the international portion of our business, which is anything offshore of North America. Anything between Canada and the United States we internally describe as our domestic business. That being said, there is a distinct difference between doing business in the United States and Canada, and in the United States and the rest of the world. There are various degrees of differences in different parts of the world. With operations in Chile, we enjoy the business throughout Latin America, and with operations in China and India, we enjoy business in those regions as well.

Over the years, we've taken advantage of and appreciated many of the programs that were targeting exports, such as trade missions. I can't emphasize enough how important those trade missions are. In many countries, being there with a government official is the best endorsement a company can get, just as when I bring overseas buyers into Canada, having a federal or provincial or even city official with us is very important.

We've participated in Team Canada missions. We've participated with Prime Minister Harper in India. It's very good exposure. The assistance it provides, especially for an SME, helps extend a limited budget for exploring and growing markets. When you're in the technology business, a lot of times you don't have a lot of time. If the opportunity is there, you have to get out there.

We really appreciate the work of the consulates and embassies. That's the first phone call I made in 1980, and I continue to make it today. We've worked with ambassadors and commercial officers everywhere we do business, and they are a great help in providing guidance and insight and in getting over the bureaucracy or some of the uniqueness in each of those countries.

I know that the CCC backed off a little bit, but we made use of the CCC, and it made the difference for us in getting a significant job in Saudi Arabia. We didn't have to sign it with the CCC, because once we brought them to the table, the Government of Saudi Arabia accepted our credibility because the Government of Canada was there, and we went ahead without it. We have worked on projects not led by IRD but through other Canadian companies and have used CCC government-to-government contracts.

In the early days, CIDA was very important to us in market studies, the funding to provide those, and the funding to explore markets and find out where there was funding to carry on fairly significant projects. Once again I encourage the activity of the CCC.

I just can't say enough good things about EDC. We would be an American or European company if it weren't for EDC. As I said in our briefing paper, technology is one thing and we had some challenges with technologies early on, but for us, as an export company, it wasn't the technology or the credibility that was the greatest issue, it was financing our exports. In many cases Canadian banks are good but they really don't have the insight into what's happening in international markets. If it weren't for EDC, just because of financing, we probably would have had to sell the company.

So we use all of the EDC programs today to help guarantee our exports, help guarantee our lines of credit, bonding in these countries and, of course, payment guarantees.

That brings us to the fact that all of these programs are really good. We took advantage of them and we appreciate them. They encourage the small SME companies to go into the marketplaces, but business is done differently elsewhere. I heard Argentina mentioned, and I can give you lots of warnings about Argentina, Brazil, India, and China. We have an anti-corruption policy, which I fully support, but that said, it is different in these countries. These countries are experts in getting you into a position where you're at their mercy.

Just to give you an example, an SME goes into a country supported by the Government of Canada, you meet companies and you're greeted and you think they're good companies and you enter into a contract and maybe things aren't as specified as you would like them to be, which is typical in many of these countries. Then it gets to the point where you're trying to deliver, you get into a little bit of trouble, you have to go to the customer to try to get that sorted out, and in the meantime you have a receivable that's coming due from Canadian banks. They're after you after 30, 60, or 90 days, and the payment cycles are different and pretty soon you're at the mercy of the customer, and right away you're then set up for a bribe.

It happens time and time again. I've had it happen in Brazil, India, China, Argentina, Paraguay, Uruguay, you name it; it's out there and it's the way they do business.

I think that's one area I really encourage Foreign Affairs, the embassies, and consulates to get involved. I think they've got to go out and educate the potential customers, the governments, of the challenges that Canadians companies have in doing business and understanding the bureaucracy—but most importantly so that we don't participate in the corrupt ways that business is done in many of these countries.

Embassies and consulates could keep a clean hands list of companies that they know and that are clean and make sure that the government officials know that is the way that Canadian companies are going to do business. That way we can help with avoiding that challenge.

One of the areas in many of these countries, just like in North America, is infrastructure, which is the game that's being played right now as governments worldwide are investing in infrastructure. There are tremendous opportunities for Canadian companies. As I mentioned earlier there's Japan, but there are also many other countries that are very active in supporting their exporters, especially in the infrastructure game—

[The Chair, Conservative, Randy Hoback]

Excuse me, Mr. Bergan.

[Terry Bergan]

—where there are many very large companies involved.

[The Chair, Conservative, Randy Hoback]

Your time is up, Mr. Bergan. If you could wrap up in the next 10 to 15 seconds that would be appreciated.

[Terry Bergan]

Okay, my timer is saying about the same, so we're in business.

I think with the leadership of the CCC and the EDC we can look after the front end of the contract plus the financing and be able to control the cashflow and thus the potential of corruption in Canadian consortiums. I did that presentation to Minister Fast.

Thank you.

[The Chair, Conservative, Randy Hoback]

Thank you, Mr. Bergan, I appreciate that.

Mr. Davies, you have the floor for seven minutes. It's all yours.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman.

Thank you to all the witnesses for being here today.

Congratulations to all of you for your initiative and entrepreneurship in starting and running your businesses.

I'm going to start with you, Mr. Addante and Mr. Yu.

In your comments you mentioned the delays and challenges you faced with CBSA at the border. I think you said that you've had containers coming from China with your paper product in it and some of those containers have been identified by the CBSA to be searched, which takes the container to a bonded warehouse to be searched, which results in delays for you and in your getting stuck with the bill for it.

I have two questions. One is can you give me an idea of the volume of that? How many containers have you brought over and how many of those have been searched? Second, do you have any suggestions or ideas about how we can remedy that situation for you?

[Albert Addante]

To date into Vancouver we've brought in 18 containers and we've had 5 examinations.

Of course, at the very beginning you do get examined a little more, which is normal and we support that. But 5 out of 18.... And bear in mind that we're talking about paper towels and toilet paper, so there's only so much value in one container, approximately $10,000 to $13,000. So when you're hit with a $2,500 to $3,000 bill, it definitely adds up and deflates you a little bit in terms your ability to compete.

One remedy that we did touch on was to perhaps peg the value or the cost of the examination to the value of the contents. For example, a container of computer equipment might be worth a million dollars, but if we're worth $13,000 perhaps our examination fee can be a little different or a little less, something proportionate to the value of the container.

That would be one idea. I don't know how that will resonate with the CBSA but it's an idea.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. McKay, when we're talking about online business, we're really talking about trade in services. Do you see any barriers to this trade? Do our trade agreements or other regulatory mechanisms help or hinder an SME trying to build a business online?

[Colin McKay]

Thank you, Mr. Davies.

I think you raise an important point, in that when we're talking about digital businesses and conducting business online, we are talking about services trade and we're talking about the transmission of data between countries, between communities, and between a consumer and a business. It's vitally important when we look at trade agreements, whether bilateral, say, with Korea or with India, or much broader trade agreements like the Trans-Pacific Partnership, that there's a very close eye and attention paid to the concept of data flows and the ability to use Canada's flexible regulatory framework around data protection and e-commerce legislation, and to ensuring that's replicated in other countries so that Canadian businesses that are comfortable with the domestic regulatory framework know they're working with a similar framework elsewhere in the world.

This is somewhere where we've seen hiccups and complications develop, especially as you're in an economy where countries try to develop domestic economies through some form of nationalism, some form of data sovereignty. It's a point that we need to concentrate upon, especially as we look at services trade being redefined within a world where the increasing amounts of data in that trade are conducted in a virtual environment, so that our trade agreements reflect the reality as well as the economic impact of that trade.

[Don Davies, NDP, Vancouver Kingsway, BC]

Mr. Hicks, has your sector or industry been impacted by Buy American policies? If so, can you give us an idea of how that has occurred? Do you have any suggestions to the committee as to what we could do about it as a federal government?

[Mike Hicks]

It has. Obviously there is Buy American, but our industry has a tremendous reputation globally, so we're a sought-after type of industry sometimes. Again, some of our Canadian companies now have American subsidiaries. Again, they are more satellite operations, and the main build is of course in Canada, so they can play the American card, if you know what I mean? They can say “We do have an American presence” so they can use that to their advantage when these types of situations come up.

Again, our industry is not a new industry. It's an established industry, so again we do have a great global reputation. So it is a factor, but we've been able to overcome it. I don't know if you have a secondary question, but basically it is an issue, but we have worked with it. It's not a pressing issue as far as I'm concerned. It is there, though.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Addante and Mr. Yu, back to you. I'm interested in the effects of currency in your business. Obviously with international trade, currency fluctuation levels affect businesses differently. Can you explain to this committee how currency has affected your business?

[Albert Addante]

Definitely. When we launched our products, we were at around par, $1.05 to $1.10, on our purchasing for U.S. dollars. Obviously we do put in some padding in there in case it does change another 5%, but since then it's gone to as high as $1.30 to purchase U.S. dollars. Obviously most commodities worldwide are purchased in U.S. dollars. We buy our products in U.S. dollars. By the time we get it exchanged, that basically takes all of your profit out. Basically the harder you work, the harder you're working for nothing, in a way. It makes it very difficult for us. So it definitely affects our business.

We could definitely raise the prices, which we've had to do a couple of times, but it's not as simple as just “Here, Mr. Distributor, it's another 30% or 20%.” It takes 90 days and anything can happen between that time and 90 days. You might have to purchase more products.

[Don Davies, NDP, Vancouver Kingsway, BC]

You may or may not be aware that with the Trans-Pacific Partnership, I know there are American legislators calling for the TPP to have currency provisions in it of some type to take control of that.