International Trade Committee on Nov. 26th, 2013

[The Chair, Conservative, Rob Merrifield]

We'd like to call our meeting to order.

We want to thank our witnesses for coming forward.

We're into this afternoon's sessions on the discussion and study of the Canada-European Union free trade agreement. We are excited to have our panellists with us. We will yield the floor to them and hear from them, and then we'll get into questions and answers.

From the Canadian Manufacturers and Exporters, we have Ann Janega, vice-president of the Nova Scotia division. From the Halifax Port Authority, we have George Malec and Cathy McGrail.

Thanks to all of you for being here. We will get started right away.

Ann, the floor is yours.

[Ann Janega, Vice-President, Nova Scotia Division, Canadian Manufacturers and Exporters]

Thank you very much, Mr. Chairman.

Thank you, members of the committee, for this opportunity to make a presentation about CETA.

From the recent presentation made to you by Dr. Jayson Myers, our president of the Canadian Manufacturers and Exporters, I think you know a little bit about our organization.

Here in Nova Scotia, we represent a dedicated group of manufacturers, exporters, suppliers, and stakeholders. Like our colleagues across Canada, we are working hard to find new markets and customers and to create employment.

We estimate that about 24.5% of Nova Scotia's labour force is directly and indirectly employed in manufacturing. These jobs are important, because generally they pay, we estimate, about 14% more than the provincial average wage, and many of them are based in rural communities that depend on these anchor employers and industries.

As Jay Myers would have told you, we see the CETA announcement as positive, comprehensive, and substantial for our country and for our manufacturers. Here in Nova Scotia, our members see the agreement as a platform, really, to promote some of our current advantages, to crystallize some new and lucrative partnerships, and, importantly, to position our economy for future growth.

I understand that some of the committee members may be able to tour the infrastructure of our port and airport soon. If you're able to do that, you may see some of the advantages that allow us to boast that Halifax is Canada's most connected port with Europe.

Recently, our region, including the four Atlantic provinces, quantified more than $115 billion in so-called megaprojects. These are real projects in the offshore and onshore for gas and oil, mining, shipbuilding, and manufacturing. They're notable projects, but combined with the opportunities of CETA, they've really given our businesses what we call an added spirit of optimism. We think that CETA will allow organizations like the Canadian Manufacturers and Exporters to remind our businesses that we really have a lot to grow on.

And growth is necessary. At a recent conference here in Halifax entitled “4Front Atlantic”, some members of the CME focused on the challenges of going global. Like the rest of Canada, the numbers here were a little disappointing. Only a minority of our industries are true exporters, and this group numbered only 500 true exporters in Nova Scotia. We think we can do way better than that.

CETA will give us, Nova Scotia, and organizations like the CME an opportunity to show that growth through exports is possible and desirable. We think it will allow us to jump-start into some really valuable partnerships.

The role for organizations like CME and other non-government industry groups—perhaps some that you will be hearing from—is quite significant. We try to facilitate the success of our companies. We can't do it for them, but we try to help.

How are we doing this? Here in Nova Scotia, CME is working in collaboration with governments and with partners such as the Port of Halifax, the airports, our universities, including Saint Mary's University and Dalhousie, and with other collaborators such as, for example, the Halifax Marine Research Institute. We're trying to share information, and we're trying to fast-track progress. We're working to help our firms prepare and to become more competitive.

Here in Nova Scotia, our local group has launched a new CME export and market readiness action group. One small example of the approach we'll be taking is to help firms make connections with some of the resources and opportunities that already exist, even in the EU. For example, an initiative called “Horizon 2020” has an impressive price tag attached to it. It's a funding program in the EU of 70 billion euros over seven years for research and innovation.

Why do we need to know about that? Starting in January, this fund will be available to Canadian partners in certain key areas. They need to know what the areas are, and we need to help them access them.

We'll be supporting our CME members in different ways. Another small example: examining and challenging the issue of procurement—I think you will probably hear about that at the committee level—and how to provide our firms with earned access to contracts at home and abroad. We are going to be promoting our natural advantages here. CME will work more with Canadian partners, with importers and exporters. For example, our partners, even here at home, are not aware that cargo arrives in Halifax two days more quickly than at any other east coast port.

We are going to be helping our members find new partners and funders, and I have provided one example of this through our work with the National Research Council. They deliver a program in Canada called EUREKA, which is an international network that supports R and D through technology. That's available worldwide, not just in Canada. We're helping our members connect with those opportunities.

One key thing we'll be trying to do, as all the CETA information filters through, is helping manufacturers to find markets in Europe by finding those markets now. For example, we'll be offering access to the Enterprise Europe Network.

Our responsibility here was assigned by Minister Ed Fast earlier this year. CME is the Canadian entry point for our firms who want to connect, not just with Europe but with 54 countries worldwide. We will be trying to promote this access for companies so they can immediately start to see what it's like to enter these new markets.

I have given a summary of that program.

What's next with CETA? There are still many questions and much work to be done. We are encouraged that we have time to prepare, and we are going to start now.

With our president, Jay Myers, and on behalf of manufacturers and exporters in Nova Scotia, we congratulate the Government of Canada on this massive first step and the enabling mechanism that is offered through CETA.

Thank you very much.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Just to clarify part of your testimony, you said that the port of Halifax is two days faster than any other east coast port. Is that in America and Canada?

[Ann Janega]

I think I will defer to my colleagues here to answer that question. I don't want to get into any trouble.

[The Chair, Conservative, Rob Merrifield]

I found that a very interesting comment.

Maybe we will get that from the Halifax Port Authority. We have George Malec.

The floor is yours.

[George Malec, Vice-President, Business Development and Operations, Halifax Port Authority]

Thank you, Mr. Chairman.

Thank you, committee members, for the invitation to appear before you this afternoon.

I will address that question in the second part of my comments. What I would like to discuss during the next 10 minutes is port infrastructure and then supply chain management, because those are inextricably linked in what makes Halifax such a valuable piece of the Canadian supply chain puzzle as we go forward with this excellent development—CETA.

In terms of port infrastructure, many of you will be somewhat familiar with the port of Halifax. For those of you who aren't, let me position us geographically. We are a land bridge. We are the closest point of contact for a major seaport between ourselves and Europe, or in fact the Southeast Asia market transiting through the Suez Canal. Both of those are particularly key markets for Halifax. Right now, 38% of our volume is Canada-Europe trade, so it's a very significant and substantial part of our business.

Over the last decade and a half, this port has been consistently built out to accommodate the ever-increasing size of the larger vessels that are currently seen being deployed on the global trade lanes because they are more efficient. We are in a period of time right now when it's intensely competitive to move cargo globally. In fact, we're seeing an ever-accelerating movement towards shipping lines using bigger vessels to economize and deploy on their trade lanes.

Halifax is the only post-Panamax build-capable east coast port in Canada. Our water depths of 16 metres to 16.2 metres at our four major container berths are unrivalled down the east coast of North America, with the sole exception of Norfolk. We are deeper than other Canadian container ports on the east coast.

We are also one of two right now, aside from one port in New York, that can handle fully laden post-Panamax container vessels at a water depth of about 13.5 metres to 14 metres. You have to have at least a metre and a half for under-keel clearance. Ships don't go very well bouncing along the floor of the ocean.

Now, in terms of our infrastructure, we have two dedicated container terminals each supplied with super post-Panamax cranes. Those are cranes that can reach across—22 container bays wide—the breadth of a vessel. That's the essence of what post-Panamax means, that it's simply too wide to go through the current Panama Canal.

We are seeing a lot of ships of that size being deployed around the world's trade lanes. We built this port out in Halifax specifically to accommodate that type of vessel and to take advantage of the fact that we are on trade lanes and trade routes that are the closest of any major port to Europe in particular. When you're travelling on a great-circle sailing route leaving Europe, you will hit Halifax approximately 36 hours faster than you will by transiting up the St. Lawrence Seaway or by going to the port of New York. And it's 48 hours faster than Norfolk. So when we talk about trade lane connectivity, that's very important to bear in mind in terms of getting your product to market.

One of the other key things about port infrastructure here is the fact that with the four container berths at each of our two terminals cumulatively, and the four miles of on-dock railway network that we have between our two terminals, we can turn vessels quickly. Velocity and reliability are key in terms of your infrastructure. We have built this port out to accommodate these ships to make sure they are not delayed in their global trading patterns, because if you get a reputation for being an unreliable port in terms of vessel congestion, that will affect your marketability. A lot of these shipping lines are operating on very tight sailing schedules. They can't afford to be delayed.

In terms of port structure, as you will see tomorrow during our port tour, we have a lot of port infrastructure that's been built out very recently. We've added two more super post-Panamax cranes to the stable of cranes that are available now in the port of Halifax. We are completing a $110 million capital infrastructure program as we speak.

The amount of $35 million was recently invested at the Halterm container terminal in the south end of the city to provide an extension to the berth as well as a new state-of-the-art plaza for truck-gate handling. As well, $73 million is being invested right now into Richmond Terminals to build that facility out as a modern multi-purpose brake bulk terminal for major projects and the expectation of rehandling some of the cargo around megaprojects in Atlantic Canada.

Let me tie that into supply chain management, because that's really the “so what” factor. I spoke about the integrity of the port in terms of its reputation for velocity and getting people in here on time, productively, with a very skilled trained labour force, so it's reliable, it's productive, it's efficient.

The “so what” factor is what do we actually connect? Currently, the port of Halifax has 16 different shipping lines that connect Canadian trade to European trade. That's more than any other port in Canada right now. We also offer the only roll-on/roll-off container service, so for heavy equipment, trucks, project cargo, or vehicles, for example, carried on the Atlantic Container Line, one of the long-standing members of the port of Halifax's suite of companies, you'll see that this offers us the ability to continue to leverage the trade networks and the trade lanes in support of bilateral trade between Canada and the EU. Those service connections have a reverse flow. It's not just one way. The shipping lines that operate connecting Canada through Halifax into the EU offer both sides of the equation and the opportunity to function in an effective supply chain system.

Augmenting that, of course, is the outstanding CN Rail network in the port of Halifax. I alluded to the fact that we have four miles of on-dock rail between our two terminals. That's a tremendous amount of trackage available to position rail cars to facilitate the flow of containerized goods on and off the terminals. In addition to that, we have multi-purpose break-bulk facilities, which also handle project cargo and extra-dimensional cargo. We're one of the major trading ports, for example, between Canada and Cuba right now. Even though we're talking specifically about CETA today, it goes to the whole concept of supply chain management that Halifax affords as a critical land bridge to facilitate Canada's trade.

That CN rail network I referred to of course gives us unparalleled transit times, so when the container is offloaded here and we track every box in terms of its velocity, how long it takes, the dwell time on the terminal to get from the ship onto the railcar and for the railcar to get inland and headed to its destination, that is an extremely impressive time. We are into the Toronto market consistently within 48 to 72 hours of the container being discharged in the port of Halifax. That is something that again comes to the forefront when we talk about supply chain optics, as well as profitability for shipping lines and the reliability for shippers and users of the port.

So when we talk about the potential for Canada-EU free trade, we're not talking simply about what that impact is for Atlantic Canada. We're talking about the fact that the Port of Halifax facilities can be leveraged to punch right across the country both ways. So in many respects we function as the port of Toronto; we function as an Ontario conduit on the land bridge between Europe and Canada. Our market reach is considerably more robust than what most people would associate with a port based in Atlantic Canada. That's how we're designed. That's how we market the port. That's how we're built out. It's towards these efficiencies of scale by handling as much potential Canadian traffic as possible that we continue to offer the reliability, the service, and the highly trained labour system that we have here in the port.

With that, Mr. Chair, I conclude my preparatory remarks and I welcome questions.

[The Chair, Conservative, Rob Merrifield]

That was very good and a very thorough answer to the question I asked. I didn't quite expect that thorough an answer.

Mr. Davies, the floor is yours for seven minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chairman.

Thank you to all the witnesses for coming.

Ms. Janega, can you give us some examples from the manufacturing sector in Atlantic Canada of how EU tariffs as they exist now are negatively affecting Atlantic Canadian exports to Europe?

[Ann Janega]

I don't have detailed knowledge of all the sectors, but I know the one that has been highlighted the most for us is in the seafood area. I think you probably heard some representations this morning that there are tariffs now that will be completely eliminated. I think they're in the range of 20% on things such as cold water shrimp and lobster. I would defer to my colleagues in the seafood industry to give the specifics there.

[Don Davies, NDP, Vancouver Kingsway, BC]

I'm sure seafood can be considered a manufactured product, but when I think of manufactured products, I think of machinery, goods, something with value added, such as tires and those kinds of things. Is there any other sector that you think CETA will particularly benefit through the reduction of tariffs?

[Ann Janega]

I think there is, but I regret that I don't have the answer to that question, largely because I haven't been able to plow through the entire agreement. I have some questions in certain areas. For example, I had an inquiry yesterday from a firm that deals with gravel processing equipment, aggregate. They purchase equipment. Often, they're forced to buy that equipment and have it shipped through sources and countries through which they would prefer not to. If they buy their equipment from Germany, for example, does it have to come through the U.S.? What will the cost impact be? We're concerned about some of those details, and we realize we're going to have to do more research. Perhaps the answers aren't even known yet.

[Don Davies, NDP, Vancouver Kingsway, BC]

Do you have any estimate to give to us along the lines of how many jobs in Atlantic Canada your organization estimates CETA will create? Do you have a number on that for us?

[Ann Janega]

No, none that I'd be comfortable sharing at this point, I'm sorry.

[Don Davies, NDP, Vancouver Kingsway, BC]

Finally, in terms of pharmaceutical products, I think it's almost certain that the intellectual property changes we've made to CETA will inevitably increase drug costs, which are often a cost driver for employers, particularly those that have drug plans for their employees. Do you have any concerns among your members—you represent the manufacturers and exporters—about increases to their drug plans costed in business? Has anybody expressed that to you?

[Ann Janega]

I recognize that it has been targeted as a point of interest, primarily through the media. I'd have to say that where pharmaceutical manufacturers are concentrated outside of this region, it hasn't been an area that I have personally focused on. I think my colleagues in the national office have looked at this.

I know that Jayson Myers, when he spoke to the committee, looked at the very base number of 80,000 jobs in general across the country, without allowing for growth, getting back to your earlier question about the possibilities the agreement will offer.

But on pharmaceuticals, I'm sorry, I can't offer any specifics.

[Don Davies, NDP, Vancouver Kingsway, BC]

Fair enough.

I've looked at some numbers from Industry Canada. The trade deficit between Canada and the EU for the last 13 years has averaged $19 billion. For each $1 of goods that Canada exports to the EU, we import $1.52 worth back. That's the quantitative issue. Qualitatively, though, they also point out that across 23 sectors, Canada's total goods to Europe comprise a much higher percentage of primary or barely processed goods, and we're importing a lot of manufactured items back from Europe. I have a chart here that shows that of the top ten Canadian exports to the EU, seven of them are gold, diamond, iron ores, uranium, petroleum products, wheat, and coal and solid fuel. That's seven out of 10. The top ten Canadian manufactured imports are medications, motor vehicles, turbo jet propellors and turbines, aerospace parts, wines, blood and blood preparations, machinery parts, and medical instruments. Some people argue, including Jim Stanford, that reducing tariffs will exacerbate that trade imbalance and will make the flows of barely processed goods increase to Europe and increase the manufactured items back.

As a representative of manufacturers in Canada, do you have anything to tell us about that?

[Ann Janega]

I think I'd refer back to the number I mentioned in my comments about the low number of firms that are actually exporting right now. These are companies that are presumably profitable, are doing business, perhaps doing business in the U.S., or perhaps only doing business in Canada, and for whatever reason they haven't looked at expanding their markets beyond our borders. I see that as a big opportunity for.... If you can assume that exporting is good and brings other people's money into our country, then we see CETA as a platform on which to build that growth.

Perhaps to address some of these other issues that I mentioned in terms of accessing equipment, if companies here are purchasing equipment, for example, and they're required to take a circuitous route to get there—

[Don Davies, NDP, Vancouver Kingsway, BC]

It may help them as consumers.

[Ann Janega]

That's right. So we see it as an optimistic and positive boost.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Malec, what industries do you see increasing their shipments, their exports to the EU out of Halifax, because of CETA?

[George Malec]

Your previous question addressed a number of the shippers. Statistically, they were already engaged in the traffic. We can anticipate an acceleration around some of those.

Specifically, the one that we understand will be a net beneficiary under CETA is the Atlantic-based seafood exports, which are a very vibrant part of our export economy. The significance for the port of Halifax is that seafood exports generally are always shipped in what are called refrigerated containers. These are high-value containers that demand a premium freight rate for a shipping line. In fact, that underpins the rationale for several major shipping lines to come into Halifax and actually use the port facilities.

Now, the multiplier effect of that, sir, is that when you've already brought your ship in and you're loading snow crab, lobster, things of that nature that are going back to the European market where they command a premium value, the chances are very good that you'll maximize your port time, and the rail connectivity of CN will do even more volume. So it is in fact a definite multiplier effect for us. When you say that one particular commodity under CETA, such as Atlantic-based seafood, will definitely benefit, there will be—and we anticipate it very clearly—an aggregate benefit because those ships will have longer port times and will be more compelled to use their time cost-effectively to reduce the amount of port time they might have to spend in another port, like New York, offloading cargo that's destined for either Toronto or Chicago.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. O'Toole, seven minutes.

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

Thank you, Mr. Chair.

I'd like to thank all of you for taking the time to come. It's important for us to get out of Ottawa and listen to people in the field, as they say, not just to talk about the agreement, but also to talk about how the country and our key sectors can prepare for it as we bring it through to conclusion.

My friend Mr. Davies bemoans with regularity that there are only sector by sector marketing materials, as he describes them. But I'd invite him to actually read them, because then, Mrs. Janega, he'd see that machinery and equipment manufacturers face between a 2% and 8% tariff rate with Europe; electrical parts and equipment, between 3% and 14%; scientific and precision instruments, between 3% and 7%; rail products, between 2% and 4%; and plastics and moulds and pipe fittings, in the 6% to 8% range. As each industry and as manufacturers dive down, they're going to realize that their goods will be most cost-competitive in Europe right away.

But that prelude leads me to a question from your actual testimony, which is that you have a key statistic that 24% of the workforce in Nova Scotia is employed with your members, within the manufacturing sector. But then later you said only 500 could be categorized as true exporters. How do you think we can get more of those critical manufacturing jobs to look at markets beyond Canada?

[Ann Janega]

I think it's a question of being risk-adverse and also being educated.

One of the things that CETA is opening up for us is the opportunity to talk about some of the issues here today, the questions, the concerns, those that we can address or otherwise. It also allows them to hear about the resources available through facilities such as the port. By showing these firms the opportunity is there and having collaboration among facilitators, like the governments, like agencies such as CME, we can examine it carefully and work towards it. But unfortunately I don't have an immediate answer.

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

Mr. Risley, who appeared just before lunch, spoke about how his company has a bit of a natural advantage to benefit from this deal, but also with other markets opening up and diversifying trade because of their scale, because of their size. He has a sales and marketing team already in place to take advantage of new markets.

Do you foresee within the manufacturing sector in Atlantic Canada more consolidation, so that manufacturers might achieve size for scale to be competitive in Canada, North America, and then Europe? Do you see that as a trend?