Thank you, Madam Chair. Good afternoon, everyone.
Thank you for inviting me to participate in today’s discussion. It's my pleasure to be here on behalf of Canada’s 90,000 manufacturers and exporters and our association's 2,500 direct members to discuss the transitional trade agreement with the United Kingdom, the implications for Canada, manufacturing and the exporting sector, and the future of our vital industry.
Our association’s members cover all sizes of companies from all regions of the country and all industrial sectors. We represent the majority of Canada’s manufacturing output as well as Canada’s value-added exports.
My plan is to outline the challenges that manufacturers and exporters face with this situation. I will also share solutions that I hope we can discuss in the Q&A session as well.
As the committee knows, with over $20 billion in exports, the U.K. is Canada’s third largest export market after the U.S. and China. Canada-U.K. trade was one of our very first trade relationships and traditionally has been our doorway to the European market. According to CME's management issues survey—a large biennial survey of Canadian manufacturers—the European Union, and the U.K. in particular, is a top-three market that exporters see as having the most potential in the next five years. It is vital that we protect our market access to the U.K.
We were therefore relieved to hear last week of the new Canada-United Kingdom Trade Continuity Agreement that we understand largely copies CETA. Obtaining a permanent Canada-U.K. trade agreement is clearly important and the end goal. Having this transitional agreement in place for January 1, 2020, to avoid any disruption was paramount.
Obviously, not having this transitional agreement in place would be bad, especially in a year where we can least afford it, economically. CME stands ready, therefore, to help this committee and the government avoid that scenario. We urge the government and all parliamentarians to work together to move this agreement through Parliament as quickly as possible to meet that January 1 deadline.
Beyond these mechanical trade agreement issues lies an even bigger problem that I must raise. That is the problem of our declining value-added export performance. It's a decline that has been accelerating despite our signing more and more free trade agreements.
Let me explain what I mean. Two-thirds of Canada’s value-added exports—the type of exports that Canada makes the most money off of—are manufactured goods. In other words, Canadian manufacturers take raw ingredients, transform them into something of higher value and then sell these goods abroad. This bigger bang for your buck type of trade has been declining for years. In fact, with the U.K., manufacturing exports have been declining steadily for five years, even after we signed CETA. We have a 10-year streak of negative trade balances with the U.K. in manufactured goods. Last year, that deficit ballooned to be four times larger than it was in 2010.
I know in some circles it's considered gauche to point to trade balances as cause for concern. Sure, consumers may be winning, but we cannot ignore the lost economic potential that the decline in value-added exports represents. It would be like me being happy with the price of things going down a bit while my take-home pay is cut year after year. It's just simply not sustainable.
Why is this happening and how do we fix it? Simply put, Canada’s manufacturer exporters are too small and are at capacity. Generally speaking, of Canada's businesses, a higher proportion are small SMEs than most of our global competitors. From a fundamental structural perspective then, we need to get our companies to invest in their businesses, help them to grow and scale up. Larger companies are simply better-positioned to take advantage of global trade.
CME's 2020 manufacturing survey results backed this up. When asked what is holding them back from exporting to new markets, they told us that the risks are too high because they lack competitive edge with foreign companies. They simply feel they can't compete and don't bother to.
It is important that we agree that this structural domestic business problem is driving our export underperformance. Landing new global customers through FTAs is rather pointless if we cannot produce the goods to sell to them at competitive prices.
You may ask yourselves if this isn't the point of EDC, BDC, CCC and the trade commissioner service. Aren't they supposed to help de-risk exporting and help SMEs get out there?
The answer is yes and we would argue they all are quite good at doing just that. The problem is the disconnect between these great programs and the exporters knowing that they exist. When we polled manufacturers, we found that those who use these agencies and programs love them, but a majority of respondents couldn't even identify some agencies, let alone the programs they offer. This is a big problem. We have the dual challenge of our exporting companies being small, underinvested in and uncompetitive, and a big gap between government assistance and companies actually using that assistance.
Here are some concrete solutions that I would love to discuss in the Q and A session.
Number one, create a manufacturing strategy for Canada that focuses on modernizing and growing the sector. It needs to help companies invest in the technology that will help them scale up and truly become global players. We happen to have such a plan, which we discussed with many of you in the spring. I will be happy to leave a copy of this report with the clerk.
Number two, launch a made-in-Canada branding exercise at home and in international markets to celebrate our manufactured goods. This will boost awareness of Canadian capabilities and technology as well as sales and exports. As my friends here in the food and agricultural sectors can attest, the maple leaf is a global brand with a sterling reputation that we don't take advantage of enough.
Number three, bridge government export agencies and exporters by leveraging the vast networks of business trade associations. This can be done by investing in Canada's trade associations' capacity to link the two sides and act as a concierge service for exporters. The government used to do these types of initiatives to great effect. We think they should again.
Number four, expand our efforts on SME exporter mentorship. Organizing and managing private peer-mentoring networks is another way in which Canada's trade associations can be used to maximize company-to-company learning.
All these actions are table stakes if we want Canada to play a bigger role in global trade. They will also go a long way to helping current manufacturers maximize their export potential for years to come. However, while we at CME believe these solutions are something we need to work on now, the priority, of course, is ensuring that we maintain current global market access.
Let me reiterate that CME stands ready to assist you to make certain that a transitional agreement is in place between Canada and the U.K. before the end of this year and, in time, a permanent trade agreement between our two nations.
Thank you again for inviting me today. I look forward to the discussion.