Thank you very much. It's a pleasure to be here.
I thought I would start, in talking about the importance of trade to small and medium-size enterprises, by going back to a bit of theory about why we think trade is important. It's not hard to convince Canadians of that, because historically we've been an open economy. Trade has always been critical to our growth. Whether you go back to the fur trade days or the days of selling wheat abroad or whatever, it has always been an important part of our DNA as a country.
I don't think anyone would really question the value of being an open economy and being able to export to the rest of the world. There's a lot of value to small and medium-sized businesses in being able to scale up. Given our small regional economies in Canada and the fact that we have a dispersed population along the border suggests that the best way of scaling up is through exports.
That's exactly what the data tends to demonstrate, that the companies that tend to grow faster are also the ones that tend to export. That's obviously something that could be important in terms of our standard of living and growth.
We also have to remember that there's another side of the coin, and that's foreign direct investment. Foreign direct investment can be complementary to exports, if it allows businesses to develop markets abroad for distribution of the products that they sell into those markets, given the supply chains that are created on an international basis. Foreign direct investment can also be very important for that reason, as a way of scaling up, as well, for many companies.
There is another side to foreign direct investment, which I think needs to be a concern to policy-makers. This is not to say that one should stop it, but it should be remembered as one of the constraints that could be important to the economy. It is that foreign direct investment sometimes takes place because a market trying to export could be not competitive enough. Therefore, businesses find that they must go to another market—perhaps jump over a tariff wall or non-tariff barriers—and that it might be better to establish facilities abroad rather than trying to export from Canada. Also, if we tend to be not competitive as an economy, that will encourage the flight of capital from Canada to go to other jurisdictions to export as well.
There's a flip side to foreign direct investment. It could be very positive and complementary to domestic investment, or it could be a substitute for domestic investment. We should remember that.
That raises the question of the role of government in helping small and medium-sized businesses to grow.
I think there are really two types of ways of helping small and medium-sized businesses. The first way is for governments to try to remove obstacles for exports from Canada. These are things like tariffs. We have done a very good job in trying to reduce tariffs, whether it's been through the World Trade Organization and access to the...and our membership in that. It includes the various trade treaties that we have developed, whether with the United States, the Pacific, or Europe now, and also a number of little countries such as Costa Rica, Ukraine, etc.
Those are all good things to do because they lead to some reduction in tariffs. However, often many non-tariff barriers are still in existence and that tends to encourage foreign direct investment rather than exporting from Canada. To the extent that we can try to reduce those, that will be important too.
We also have to remember that Canada has to be cost competitive to export as well. Countries get into trouble when they lose their competitiveness. As we've seen lately in the energy industry, as capital has moved south, the U.S. energy industry is growing quite well while ours is in the doldrums at this point.
The other issue that governments have a role in is to try to address various market failures. This is where just having a trade agreement is not sufficient. I think governments have to help businesses, especially smaller ones, develop the ways and means of being able to penetrate other markets. I've had some personal experience with small firms that have tried to develop markets in other countries, and it's not easy.
One of the problems that Canadian firms face is that they don't get the same financial backing from Export Development Canada, and other means, unlike some of their competitors, who are able to get, let's say, the European Bank or better access to the World Bank funding to penetrate third world countries especially. It's just not good enough to have a trade agreement, one also has to make sure one creates the infrastructure that can help develop that trade. I think that's a very key note for your committee to think about and talk about for the future.
The other point I wanted to make is that the third world is highly risky. I think that's where the market failure can occur because it's not easy to get internal financing for many of these third world countries, unlike advanced countries in Europe and the United States. If we do want to diversify our trade, I think that's where governments do have a role in providing some risk capital to help these companies penetrate these markets.
I think I'll stop there, and I am happy to take questions later.