International Trade Committee on Oct. 2nd, 2017

[The Chair, Liberal, Mark Eyking]

Good afternoon, everyone. We especially welcome our witnesses today.

As our witnesses and the people listening know, our committee is the international trade committee. Right now, we're in the midst of a study on the priorities of Canadian stakeholders having an interest in bilateral and trilateral trade in North America, of course, between Canada, the United States, and Mexico.

Our committee has been fairly active in dealing not only with Canadians and Canadian stakeholders; we've also spent considerable time in the United States. We travelled west to California and the State of Washington, and we were in the Midwest and also in the city of Washington.

Thank you for coming today. If you're new to coming in front of a committee, I'll let you know that we have French and English translation. You might get some questions in French. Also, we'd like you to keep your presentations under five minutes, if you can. That gives us a lot of time for dialogue with the MPs.

We're supposed to have somebody on video conference from the Women's Enterprise Organizations of Canada. If we can connect, we'll hear from them a little later.

Without further ado, right now we have with us Spirits Canada and the Organization of Women in International Trade.

From Spirits Canada, we have Mr. Helie and Mr. Westcott.

Folks, you have the floor. Go ahead.

[Jan Westcott, President and Chief Executive Officer, Spirits Canada]

Thank you very much, Mr. Chairman.

I'm the president and CEO of Spirits Canada. Joining me today to answer any questions you may have is my colleague, C.J. Helie, our executive vice-president.

The Canadian spirits industry produces amongst the highest value-added processed agrifood products made in Canada. Canadian distillers source locally grown cereal grains—barley, corn, wheat, and rye—and transform these into premium-branded consumer goods.

We often talk about the value that the international export of Canadian spirits, and of Canadian whisky specifically, brings to Canadians in terms of jobs and wealth creation. Open and free markets are not a zero-sum game. Canadian spirits manufacturers can compete with the best the rest of the world can produce.

Certainly, Canadian consumers have benefited from the elimination of import customs tariffs on spirits, the elimination of higher liquor board markups on imports, and the introduction of a very wide range of new products, including single-barrel American bourbons or reposado and añejo tequilas, product categories unknown to most Canadians before NAFTA.

While Canadian whisky has been a dominant player in the U.S. market since the American Civil War, we've actually enjoyed a 100-fold increase in the value of our exports to Mexico since the coming into force of NAFTA in 1994. That's a pretty dramatic improvement in our business.

With fully 70% of Canadian spirits production exported, international trade is essential to the health of domestic manufacturers and to thousands of Canadian companies, many of whom are classified as either micro-, small- or medium-sized businesses that provide essential goods and support services to us as manufacturers.

However, Canada actually exports very little Canadian whisky, the commodity. What we do export are brands of Canadian whisky, iconic brands such as Canadian Club, Crown Royal, Canadian Mist, Black Velvet, Alberta Premium, Forty Creek, and Wiser's, as well as a whole series of innovative new brands, such as Alberta Dark Batch, Lot 40, and, Crown Royal's best whisky in the world, Northern Harvest Rye, amongst many others. It's actually this branding and the Canadian value-add that distinguishes spirits from many other agricultural exports and even many processed agrifoods.

As I mentioned earlier, 70% of Canadian spirit product is exported. Relevant to today's discussion, our NAFTA partners, the U.S. and Mexico, account for 85% of that total, so saying that retaining open access to the NAFTA market is critical to the future of the Canadian spirits industry is actually a gross understatement.

NAFTA is critical to spirits, and spirits are critical to NAFTA's beverage alcohol trade. In fact, spirits account for over 65% of the value of beverage alcohol imports sourced from Canada by the U.S. and Mexico. NAFTA, in fact, has helped distilleries in Canada, the United States, and Mexico compete with products made outside of North America. People often miss that. That's a very important point.

After 20 plus years of NAFTA, our supply chains are very closely interwoven. We benefit from the mutual recognition of our respective signature products such as Canadian whisky, American bourbon, and Tennessee whiskies, as well as tequila and mezcal. We also recognize that after 20 years the agreement could use some improvements and modernization.

The priorities of the Canadian spirits industry for the renegotiation of NAFTA include the retention of duty-free access for all Canadian spirits to the American and Mexican markets, including maintenance of the current rule of origin, and the extension of the formal recognition of “Canadian whisky” as a distinctive product of Canada, which is to include Canadian rye whisky as well.

We've also tabled a joint proposal, along with our colleagues at the Distilled Spirits Council of the United States and Mexico's National Chamber of the Tequila Industry, for an annex to the “Technical Barriers to Trade” chapter, modelled after a similar annex under the TPP negotiations, to deal with various labelling, packaging, certification, and similar regulatory issues. We're working hard to get alignment between our industries across the North American footprint.

We've also requested the inclusion of additional disciplines for beverage alcohol state monopolies to ensure that things like product markups and fees are fully transparent, standardized, and applied equally on all spirits, regardless of country of origin.

In closing, I would simply add that despite the accelerated pace of negotiations we are experiencing in the NAFTA context versus more traditional negotiations, we are extremely pleased and satisfied with the outreach and the consultations being undertaken by both Global Affairs and Agriculture and Agri-Food Canada. We remain extremely confident in Canada's negotiating teams, and underline both their professionalism and expertise as best in class.

We would be happy to answer any questions you may have.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you, gentlemen.

We'll move over to the Organization of Women in International Trade. With us we have Alma Farias and Ainsley Butler.

Welcome. You guys have the floor.

[Ainsley Butler, Representative, Ottawa Chapter, Organization of Women in International Trade]

Thank you, Mr. Chair.

It's a pleasure to be here to discuss how OWIT embraces the modernization of NAFTA and efforts to make it more progressive. Thank you for the invitation.

I will be providing OWIT's opening remarks today. I am a board member of OWIT's Ottawa chapter. I work as a responsible sourcing programming manager for UL, Underwriters Laboratories, where I advise companies and brands on supply chain issues. I'm here today with Alma Farias, who will respond to the committee's questions. Mrs. Farias is a board member of OWIT's Toronto chapter. She is at the trade facilitation office for Canada as the Ontario regional representative. She also has a consulting practice to assist Canadian companies to access the Mexican market.

The Organization of Women in International Trade, or OWIT, is a global not-for-profit association seeking to advance women's role in international trade and business. With 2,000 members in 30 chapters around the world, OWIT members are professionals engaged in all aspects of international trade. Together, our members make a significant contribution to global economic growth.

OWIT believes that women are a valuable resource in trade. Women-owned businesses are an increasingly important driver of change in the private sector for broader economic development. Many studies demonstrate that women's economic participation contributes to higher GDP levels. In Canada alone, for example, women-owned businesses contribute $150 billion to the economy per year, and employ more than 1.5 million people. But around the world, and also here at home, women continue to represent an untapped economic potential. The current NAFTA renegotiations offer an opportunity to develop and build on this potential. Gender is an essential issue for trade and for NAFTA.

It goes without saying that in the 23 years since NAFTA entered into force, technological progress has transformed North American business operations. The context in which trade takes place today is vastly different from what it was last century. Critical trade issues must be addressed. A few topics that we discuss regularly, for example, are supply chain transparency and labour standards equivalency. On a forward-looking basis, we wonder how emerging and newly emerged sectors will impact women and men.

We know that trade agreements impact men and women differently around the world. This is also true here at home. For example, women in the SME sector are less likely to access the credit they need to increase their participation in trade and fully benefit from the trade agreements that Canada signs. Evidence suggests that even when a sector expands as a result of trade liberalization, women are less likely to experience wage increases and are more likely to remain small producers. This is bad for everyone. Innovation, Science and Economic Development Canada confirms that female-owned SMEs exhibit lower growth rates compared with male-operated enterprises.

In general, OWIT strongly supports the inclusion of a gender component in all future international trade agreements. OWIT also believes that specific actions must be taken in parallel with trade agreements to improve the participation and economic impact of women in trade.

This brings me to three issues that OWIT would like to highlight today in the context of current NAFTA renegotiations.

First, OWIT supports Canada's commitment to pursuing free, open, and progressive trade that benefits all parties. As such, OWIT supports increasing focus on gender in NAFTA. Although negotiations on this matter may be difficult, we encourage ambition. OWIT was inspired by the modernization of the Canada-Chile trade agreement, which will enable all parties to benefit from the agreement through a better appreciation of how women can participate in trade and the impact of trade on women.

OWIT sees the strong potential of a trade and gender chapter in NAFTA, and encourages Canada, the United States, and Mexico to develop a model of co-operation to address trade and gender issues. A framework for trilateral committees considering gender and trade would be the minimum de rigueur action to be taken to demonstrate commitment on this issue. OWIT encourages Canada's trade negotiators to be aware of the various ways in which women and men operating businesses can be impacted differently by any renegotiated provisions. A gender analysis would offer concrete information about the differential impact of NAFTA on women and men.

OWIT believes that in the context of NAFTA greater focus on SMEs would have positive gender benefits because of the significant involvement of women in the SME sector.

In particular, SMEs would benefit from a more harmonized regulatory network that simplifies the complex administrative processes of North American trade. OWIT believes that a gender analysis of the question of mobility of persons would reveal how modernization of this chapter would best benefit women, men, and families. OWIT points to the comprehensive economic and trade agreement as an example to draw on.

To further support a progressive trade agenda, OWIT recommends using the gender and trade tool box developed by the United Nations, which is the first attempt to provide a systematic framework for policy-makers to evaluate the impact of trade reforms on women and to identify gender inequalities prior to implementation of trade agreements.

[The Chair, Liberal, Mark Eyking]

Can you wrap it up? We're over the time.

[Ainsley Butler]

I definitely can.

[The Chair, Liberal, Mark Eyking]

Thank you.

[Ainsley Butler]

OWIT encourages Canada, Mexico, and the United States to affirm their commitment to the advancement of women in trade. This is consistent with NAFTA parties’ international agenda and in line with the UN sustainable development goals. This is further in line with the World Trade Organization's next public forum, which will seek to establish consensus on a gendered approach to trade agreements and trade policy.

On behalf of OWIT members, I wish to thank the honourable committee for its efforts to advance international trade opportunities for Canadians. We're grateful to be included in your consultations and hope to see you here again in the future.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you. I think we'll be asking you to come here more often with your perspective.

We're moving to a video conference all the way from Edmonton. From the Women's Enterprise Organizations of Canada, we have Marcela Mandeville.

Can you hear us all right?

[Marcela Mandeville, Director, Women's Enterprise Organizations of Canada]

Yes, I can. Can you hear me?

[The Chair, Liberal, Mark Eyking]

Yes. Is this your first time before a committee?

[Marcela Mandeville]

Yes.

[The Chair, Liberal, Mark Eyking]

Well, welcome. You can go ahead with your submission. We try to keep it under five minutes, but we're not too strict on it.

You have the floor.

[Marcela Mandeville]

Thank you very much.

On behalf of the Women's Enterprise Organizations of Canada, I want to extend our extreme appreciation for being included in your meeting today.

I'm also the CEO of Alberta Women Entrepreneurs. We are part of the Women's Enterprise Initiative, WEI, in western Canada, which is funded by Western Economic Diversification.

To talk a bit about the Women's Enterprise Organizations of Canada and to give you a context for our perspective in relation to international trade, WEOC, as we call it, is an organization that is formed nationally of members who work directly with women entrepreneurs. We are an organization to support other organizations in their efforts to help women entrepreneurs in Canada build the capacity and the access to the resources they need.

As many of us know, and as studies have shown, to this date, women-led ventures are still an underutilized resource. As the representative from OWIT mentioned so nicely, we are seeing that there is still considerable opportunity to engage women entrepreneurs, in particular in international trade, as a component to being successful business owners in Canada.

In relation to trade, we know that our entrepreneurs seek international opportunities in many cases but find that there are some barriers to becoming successful in international markets. One of the things we've observed in our 20-plus years of working with women entrepreneurs is that there are some systemic issues as well as some internal issues that are faced by women entrepreneurs in relation to their pursuit of international trade opportunities.

There are key areas that experts have looked at.

The first is the lack of resources and the lack of access to networks. By “resources”, quite often we mean capital. It's access to money that they need, whether it's private equity or debt financing or other forms of capital, to get them to grow and expand, in particular into international markets.

The second is access to decision-makers in those networks. Not only is there often an issue within our own provinces in getting to decision-makers to actually make sales and generate revenue, going into international markets creates an added layer of complexity. We know that there are some great resources available through the government, and we do encourage our entrepreneurs to access them, but there is still an ambiguity in awareness of those opportunities and how to best maximize them.

The third piece is the actual direct connection into those markets. We've been doing a lot of work on that in the western provinces in particular through a project on expanding international trade in western Canadian women-owned businesses. We want to look at how we can expand the opportunities for women to access new markets, to make the right connections and alliances, and, at the same time, to look at a holistic approach to get them the resources they need.

We've been working through this project with our women entrepreneurs to provide them with resources towards financing, equity capital, and leadership capacity, as well as direct connections through trade missions into markets. What we have seen since January 2015 is that our 138 firms in western Canada that have participated have generated over $70 million in leads. That's tremendous.

Has it translated directly into contracts? Not quite, which demonstrates that there is still a gap that needs to be filled in providing access to those contract opportunities and winning those contracts for women entrepreneurs. I'm speaking only from the western Canadian experience, but when looking at the studies, I believe that this translates to women entrepreneurs across the country.

In essence, we are definitely trying to increase participation rates in international trade. We see that there is an appetite when there is an understanding of the opportunities.

We know that trade agreements such as NAFTA, as well as bilateral trade agreements, provide more awareness of the doors that can be opened for Canadian-owned businesses, in particular for women-owned businesses, if there is a gender lens and gender focus on portions of those agreements—for example, with supplier diversity. How can we take the best practices of countries such as the U.S., for example, in their efforts in supplier diversity and look at how that could be complementarily used in Canada as well as Mexico?

There are organizations working in supplier diversity right now to encourage minority suppliers and business owners to access those contract opportunities. Through agreements like NAFTA, we can strengthen the position of our small and medium-sized enterprises to get access to those contracts.

On behalf of the Women's Enterprise Organizations of Canada, thank you so much for offering us the opportunity to share our perspective and join in the conversation. We hope to be part of this in the future.

Thank you.

[The Chair, Liberal, Mark Eyking]

Thank you very much to all the witnesses for coming forward.

Now we're going to have some dialogue with the MPs. Each MP gets five minutes. We're going to start with the Conservatives.

Mr. Allison, you have the floor.

[Dean Allison, Conservative, Niagara West, ON]

Thank you, Mr. Chair.

To our witnesses, thanks to all of you for being here today.

My questions are for Spirits Canada. You've talked about how you're happy with where you see the NAFTA negotiations going at this point. Why don't we talk a bit more about the supply chain? You guys represent organizations like Forty Creek in my riding, which recently sold to Campari in order to compete on a more global level and access other markets.

I would like to get your thoughts on what attracts investment to Canada. You guys said that you compete with the best in the world on that. In the last budget, there was an excise tax that was going to be raised and would continue to be raised in perpetuity. Talk to us about how you guys compete with supply chains and with people across the border and around the world.

I'm assuming that most of your guys are also competing—because there are some multinational corporations—for investment dollars. Talk about what you guys do and what's important in order to attract those dollars here to Canada versus to other plants around the world.

[Jan Westcott]

First of all, beverage alcohol, no matter whether it's beer, wine, or spirits, is a global industry. Canada is part of that global industry and has a proud history of being one of the dominant manufacturers and suppliers and developers. As Canada is celebrating its 150th anniversary this year, Wiser's Canadian whisky is celebrating its 160th anniversary of continuous sale and production. Canadian Club celebrates its 160th next year. We've been here a long time and doing lots of things, but it's a global business.

We're very fortunate in Canada that we have a product that is unique to Canada. We're also very fortunate that our product has seen tremendous success. That's Canadian whisky. We have been the beneficiaries of some circumstances south of the border in the United States—the Civil War being one, as well as prohibition to a certain extent—that have opened doors for us to introduce our products to Americans. Americans have appreciated that. For almost 100 years, we were the largest-selling whisky, bar none, in the United States. In fact, in Texas today, more Texans drink Canadian whisky than any other whisky.

Can we make it? Absolutely. Have we been able to sell it? You bet. The question is, how do we do that?

It's a global business. The same guys who own the best whisky in the world, according to Jim Murray at the Whisky Bible, Crown Royal Northern Harvest Rye, also own Johnny Walker Black, Bulleit Bourbon, and Bushmills Irish Whiskey. As they're sitting at their global capex table deciding where investment should go from their company, with a fiduciary responsibility to make sure every dollar that gets invested is going to get the best return, Canada doesn't come out so well on that. That's simply because tax levels in Canada are literally the highest in the world.

What that translates into is much lower gross margins than those of our competitors in the United States, or in the U.K. in particular, and increasingly in Japan and a number of other countries that are coming on as whisky producers. There's no question that those are challenges.

I have been in the spirits business for 16 years—I was in the wine business before and in the beer business prior to that—and I would say that attracting that investment into Canada, into the Canadian business, and into the Canadian whisky category is becoming increasingly challenging. Frankly, some of our presidents talk about going to their global capex meetings, presenting very good cases for investment in the category or in the business here, and not being very successful versus their colleagues in Britain.

As I said, it's a global business. Those challenges are there. The tax measures in the last budget, as we made a point of telling people, are not helpful. At the same time, we're seeing the emergence of many new small distillers in Canada, just as we did in the beer industry and the wine industry.

We happened to be meeting with one of them shortly after the budget came out. That person, who is in Vaughan, makes an award-winning couple of whiskies. It's the Still Waters company. It makes Stalk and Barrel, which has won a number of awards. He basically said that they're small guys and they don't have a lot of economies of scale. That little bit of profit that they had forecast just as they were to go out and start looking for more a more senior level of investment was going to be taken up by the excise increases.

There's no question that there are a lot of challenges. I think I would say two things. We have demonstrated both tremendous confidence and tremendous success in maximizing our ability to deliver products that consumers around the world want, as well as developing supply chains, certainly with Mexico and especially with the United States, that allow us to do that. I made the point earlier that one of the things that NAFTA does for us is that it allows North American businesses—Canadian, American, and Mexican—to compete more effectively with other similar businesses around the world. That's critically important, particularly for a relatively small country like Canada.

[The Chair, Liberal, Mark Eyking]

Thank you, sir.

That wraps up Mr. Allison's time. We're going to move over to the Liberals.

Mr. Fonseca, you have the floor.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Thank you, Mr. Chair.

I'd like to thank our presenters. Through your deputations, you spoke to really unleashing the potential of a modernized NAFTA. That's what I was hearing. I was hearing it from all three of you as you spoke so eloquently.

Jan, what you brought up is that NAFTA helps us compete with those from outside. How exactly does it allow us to compete?

[Jan Westcott]

First of all, Canada has, what, 35 million or 36 million people? I think we enjoy the standard of living we do in Canada because we have been very successful exporters, and I think spirits is a classic case of that. We export 70% of what we make.

In fact, we're really a farm business. We buy grain. We convert it to alcohol. It's a relatively modest commodity, no disrespect to our farm partners. We're actually in business with farmers. We convert it to alcohol, add a huge amount of value by branding, and then we sell it all over the world. I think we've been very successful at that.

That is one of the attributes of this business: extremely high value-add and extremely good use of.... Pick one province. We produce in Alberta, Manitoba, Ontario, and Quebec. In every single one of those provinces, all of the grain we use is grown by farmers in those provinces. We're significant grain purchasers but, more importantly, we're significant people in terms of converting the value of that into the maximum possible and, along the way, providing jobs for Canadians.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

Just last week our trade committee was down in Milwaukee, Wisconsin, which is a big beer centre. You've also mentioned that you, the Americans, and your Mexican counterparts are looking for an annex for barriers to trade. Can you explain that? Would it be labelling, etc.? It's a mature agreement. It's been 23 years, so why hasn't this been done up till this point?

[Jan Westcott]

I think the world changes. I think it takes time to get to know everybody and to see.... Since NAFTA came in, we have penetrated parts of the United States that we hadn't before, and absolutely in Mexico. Our success in Mexico has been unbelievable. We've learned things and we've discovered things. As the opportunities emerge, it shows us what kinds of changes need to be made to make it even more successful and better.

In answer to your question, I would say that it's economy of scale and the ability to recognize things that can be improved, and then to actually get them improved. While some people have been worried about renegotiating NAFTA, we think this is an extremely important exercise to go through. It has been 20 plus years, and there are opportunities.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

My next question is for Alma, Ainsley, and Marcela. You brought up this up in terms of best practices when we look at gender within an agreement. This was brought up around supplier diversity.

Marcela, I think you brought it up. Is that something you would like to see in the chapter if it were brought into NAFTA?

[Marcela Mandeville]

I think it's an interesting opportunity. It really depends on the context of how it would be included, but it's to look specifically at minority-owned businesses. That includes women because women win only a very small percentage of contracts—less than 5%. In many cases, it's around 2%. That's extremely low in terms of the actual number of female-owned firms in our country.

If you look at something like a supplier diversity program, you see that it offers the opportunity to look at setting some baseline metrics around purchasing and increasing the transparency of the supply chain. For example, in the U.S., it's based on corporations that want to do business with the federal government; therefore, they need to spend a certain percentage with minority-owned businesses.

It may not need to look exactly the same, but I think we need to look at how we are encouraging the supply chains within our trade across all of these countries to include minority-owned businesses and, specifically, if we're looking at it with a gender lens, women-owned businesses as part of that.

[Peter Fonseca, Liberal, Mississauga East—Cooksville, ON]

How do we stack up globally if you look at best practices when it comes to gender, not only through NAFTA, but with NAFTA and other agreements?