Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 12 - Evidence
OTTAWA, Wednesday, March 25, 1998
The Standing Senate Committee on Foreign Affairs met this day at 3:27 p.m. to examine and report on the growing importance of the Asia-Pacific region for Canada (Canada-Japan economic relations).
Senator Eymard G. Corbin (Acting Chairman) in the Chair.
[English]
The Acting Chairman: Honourable senators, our witnesses this afternoon are numerous. Mr. Sutherland, please proceed.
Mr. Peter Sutherland, Director General, Trade Commissioner Service, Planning and Policy, Department of Foreign Affairs and International Trade: I would like to talk about the importance of trade and investment globally to Canada, how Asia-Pacific fits into the global picture, and then specifically some challenges that we face globally, some of the actions we have taken, and refer them particularly to the Asia-Pacific region.
First of all, with respect to the importance of trade and investment, I do not think I need to belabour that point. It is quite obvious. Canada's GDP, 40 per cent of it is accounted for by trade. That is higher than any other industrialized country. On a per capita basis, exports are roughly three times as important to Canada as they are to the United States, twice as important as they are to Japan. So you can see very high importance to Canada from an economic point of view and from a job creation point of view.
Since 1993, roughly 40 per cent of all new jobs in the economy have been directly contributable to trade. The same thing applies to investment. It is a source of new jobs obviously, foreign direct investment. Also it is important to Canada because it is a source of new technologies. Among the G-7 countries, we are the most dependent on imported technology, about 50 per cent of our new technology in fact. Consequently, investment is very important for that reason.
Increasingly investment leads trade. In the old days they used to say that investment followed trade. That seems to be reversed these days. More and more, to be successful overseas, you must have a physical presence either directly, your own company in the market, or through some kind of partnership or joint venture arrangement. Investment and trade are very important. In fact in recent years, the growth of international foreign direct investment has outpaced the growth of trade, so you can see both very important drivers of our economy.
With respect to Asia-Pacific, most of the facts are well known. The top 10 economies in that region collectively account for about 20 per cent of gross world output. The region includes Japan, the second biggest economy in the world after the United States. It includes China, which is the most populous country on earth, and also the one that has the fastest growth rate. Figures I have indicate that since 1978, the Chinese economy has been growing at an average rate of 9.3 per cent per year. That is impressive. Collectively, the region has about 1.5 billion consumers, more than 20 per cent of the consumers throughout the world, and their disposable income is growing at a rate that is far faster than any other region of the world.
Notwithstanding the recent economic difficulties this part of the world has faced, the projection is that over the next 30 years this will be the fastest growing region of the world. This is an area that must be of paramount interest to Canada and other countries that are dependent on trade and investment.
How have we been doing? Our exports have grown an average of 7 per cent since 1990. Last year, 1997, they reached collectively for the region $24 billion, which is still relatively small in terms of our overall exports, about 8 per cent of our total exports go to that region.
Despite the fact that our volumes have grown, in fact our share has declined in recent years. There are a number of reasons for that. First of all, the importance of intra-regional trade in the region has grown immensely. Second, in recent years the competition amongst G-7 countries as well as within the region has intensified. Third, for Canadian exporters, this period has coincided -- especially in the last few years -- with a period of rapid growth in the U.S. economy, which is clearly the magnet that attracts most exporters in Canada, particularly first time exporters.
The focus or attention of most of our export community has been directed towards the United States, and that is reflected in some of the growth figures there and growth figures in other parts of the world.
Also there are some issues and challenges in the region that are symptomatic of challenges we face globally. First of all, there is a concentration of our markets in the region. Between 44 and 50 per cent of our total exports to the region go to Japan. Similarly, the nature of our exports is heavily concentrated in the food stuffs and raw materials area. So this kind of concentration is a problem or a challenge we face in other parts of the world as well.
Other similar problems that crop up that we must deal with in this region, as well as globally, are issues of market access and the relatively small base of companies that actually export from Canada. Faced with this series of challenges, which I say are not unique to Asia-Pacific, the government has developed a series of initiatives to address them specifically. First the issue of market access.
Clearly for a country like Canada that is so dependent on trade, it is important for us to improve our access to markets around the world and to strengthen the international system of rules through the World Trade Organization that govern the way we do trade. A lot of our effort is directed towards making sure that Canada has a leadership role in the WTO.
With respect to Asia-Pacific, the focus of market access negotiations of course is on the APEC negotiations. As a result of last year's meetings at the summit, it was agreed to accelerate negotiations in 15 key sectors, focusing specifically on nine, over the course of this year and next. In those sectors, the intent is to try to accelerate or facilitate trade amongst the APEC members. Some of those sectors are of particular interest to Canada -- for example, environmental goods and services, forestry, fish products, which are among the nine that have been targeted for accelerated liberalization over the next year.
The second major challenge that we face, not only in Asia-Pacific but also around the world, is the relatively small number of Canadian companies that actually export. In fact, some of the numbers that you hear are striking: for example, 50 companies account for roughly 50 per cent of our exports; and less than 10 per cent of our small companies actually export. So what we want to do is broaden the base, increase the number of companies that are exporting.
How are we doing that? Recently, one of the ways has been to establish a special unit that deals specifically with small- to medium-size enterprises, as well as other groups that are relatively under-represented in the export community, groups like women entrepreneurs, young entrepreneurs, aboriginals and some of the multi-ethnic cultural communities that exist in Canada.
On the latter point, that is an area that offers particular opportunities for Canada and Asia-Pacific because Chinese is the third most widely spoken language in Canada now, following English and French. That is an asset that we can use when we do business, particularly at the small- to medium-size enterprise level in that region. It is an asset that we want to develop partly through the new unit that has been created in the department.
Another initiative that we are working on is broadening the base of our exports. Our main export to Asia-Pacific up to now has been commodities, raw materials. We want to graduate beyond that. Our economy has gone well beyond that, and we want to reflect that in our export profile.
For example, back at the turn of the century, services accounted for less than 20 per cent of the economy. Today it is closer to 80 per cent. It has flip-flopped. We want to increase exports in the services area and in new high technology or knowledge-intensive sectors, such as biotechnology, pharmaceuticals, information technologies, that kind of thing.
In that respect, I am pleased to report that we are making some headway in Asia-Pacific. For example, the export of business services to the region has increased by over 20 per cent from 1990 and 1995. We are getting a growth rate in that area of business services, including architectural design, management consulting, that kind of thing, that is quite impressive.
Education, which is another area targeted for growth, is doing particularly well in Asia-Pacific. Some of the Canada education centres that we have developed around the world had their origin in that region. The most successful one has been the one in Korea. What we are doing is building on that base, not only from a point of view of attracting students to study in Canada -- which has long-term benefits in terms of establishing linkages and relationships with future leaders in the region -- but also in selling services such as curriculum development, distance learning, that kind of thing. It is an area that is proceeding well and has very strong opportunities for Canada.
Some of the other areas or sectors that are growing most rapidly in terms of our exports to the region are things like computers, telecoms and auto parts, higher value-added types of exports.
The next challenge that we face around the world particularly, but one which also has repercussions in Asia-Pacific, is the need to diversify our markets more. Eighty-three per cent of our exports go to the United States. There are many reasons for that. You senators know them as well as I do.
With respect to the Asia-Pacific region, there is a heavy concentration of our markets in Japan. We want to expand that series of markets, and we are doing that in a number of ways. First, we are doing it through market-access negotiations in the WTO, and on a regional basis. Second, we are increasing market awareness through techniques or instruments such as Team Canada missions, three of which have gone to the region. They create a high profile for Canada as well as a momentum which enables our exporters to develop contacts and make sales.
In addition, we have tried to increase the awareness in Canada of this region through Canada and the Council of Europe, through our particular involvement with APEC last year and the various series of ministerial meetings that took place, culminating with the meeting of heads of government in Vancouver. Most recently, we built on that with a tour by the heads of the mission. All of our ambassadors have returned. They travelled across the country over a two-week period to build on the recognition factor and the contacts that were established last year, and to explain the situation on the ground as a result of the economic contagion, and spread awareness of opportunities in the region.
We have a larger concentration of trade commissioners in Asia-Pacific, 31 per cent of our total resources overseas, than in any other region. Canada is increasing the number of trade commissioners in that region because of the long-term and medium-term growth potential that we see there.
From the financial point of view, EDC made it very clear during the last few months when the economic situation deteriorated in many of the markets that they are open for business. In fact, they are courting new exporters to use their services to either maintain their position in the market or to enter the market for the first time.
Investment is another area of key concentration. Canada has a very good news story to tell. Through international institutions, such as the World Economic Forum, the Economist Intelligence Unit, the IMF, and the OECD, in recent years we consistently ranked near the top in terms of international competitiveness. The problem is there is a perception gap between that reality and the way we are seen by potential investors overseas. We are still considered to be a hewer of wood and drawer of water. It does not recognize that we are cost-competitive, and that we have state-of-the-art sectors in areas of opportunity such as information technologies and biopharmacology. Part of the challenge is to bust the myth, to close that perception of reality gap.
We are doing that through a campaign which will focus on key markets which are the principle source of investment funds from overseas. One of those key markets is Asia-Pacific, principally Japan, and to a lesser extent Taiwan. Korea is a little quiescent these days, but it will be a good source of investment as will smaller countries such as Singapore. The campaign targets countries and specific sectors such as semi-conductors, life sciences, and so on. It has resulted in the formation of a new unit, jointly established by our department and Industry Canada, called "Investment Partnerships Canada."
Two other aspects of the investment strategy are important. One is our partnership campaign which deals with small- and medium-sized enterprises. The intent is to find partners overseas for smaller Canadian companies that are looking for either venture capital, some kind of technology transfer, a market presence in a foreign market, or a host of different things, essentially, to establish a strategic alliance to enable them to have a foothold in that market. This program has been particularly successful in Taiwan, Japan, Singapore and Korea. A number of missions back and forth have resulted in concrete partnerships being established.
The last point I would like to make relates to the Team Canada Inc. approach that Minister Marchi announced last October at the alliance meeting in Quebec. That will take the highly successful, cooperative, participatory, Team Canada approach to doing international business that has manifested itself through the missions led by the prime minister, and apply it domestically amongst the different players at the federal and provincial levels. That is what Team Canada Inc is designed to do. It is designed to bring, simplify and coordinate access to government providers of export services, whether it be at the federal level or the provincial level. The intent is to make it easier for the exporter to deal with one location, one voice, when seeking information on how and where to trade, when seeking information on various types of statistics or training programs, or seeking someone to consult to pursue a particular market interest. That is being manifested through a single Web site called "ExportSource" which now groups together all of the federal Web sites which deal with and are relevant to international trade. There is a single telephone number that can be dialed anywhere in Canada that connects you with the nearest Canada business service centre where a live operator answers your call and responds to your questions. If it is a highly technical question, you will be put directly in touch with the expert who can respond to your inquiry.
The other aspects of the Team Canada Inc. include a business advisory board which has been established under Mr. Wilson, the CEO of BCE. Twenty individuals representing businesses of different size, different parts of the country, and different sectors will give advice to the government on the various trade initiatives, whether it be trade development, investment development or trade policy.
The three core departments involved in international trade at the federal level, our department, Industry Canada and Agri-Food Canada, are preparing an integrated business plan which will identify common objectives in the areas of investment, market development, exporter preparation and market access which will be reviewed by this business advisory board and will be the subject of a report annually to indicate to Parliament and to the Canadian public what exactly has been accomplished over the preceding year.
A number of initiatives have been taken, focused not uniquely at Asia-Pacific, but on the kinds of challenges that we face, to enable us to build on the successes we have already established in Asia-Pacific and globally in international trade.
Mr. Robert Keyes, Senior Vice-President, International, Canadian Chamber of Commerce: It is a pleasure for us to be here with you this afternoon to talk about Asia-Pacific and trade and investment, and what we can all be doing to further the yardsticks and boost our performance.
I will give most of the presentation and I will ask my colleague, Mr. Hecnar, to comment on several policy issues.
It is very timely to look at efforts vis-à-vis the Asia-Pacific region after last year being such an eventful year with it being the APEC year, a year of Asia-Pacific, the financial upheaval, and significant political and economic changes in the region. It is clearly timely to be looking at how we are doing.
Let me talk briefly about the economic situation. The news has been full of articles on the currency upheavals. Some of these reports are misleading. Certain economies have been affected more than others. Often the reports tend to paint Asia as a homogeneous picture, which it is not. These are individual countries in individual situations. Economies such as Taiwan and China have not been affected. At the other end of the spectrum we have Indonesia which, at the moment, is most affected. It is a spectrum.
Of those countries that were affected -- and Mr. Sutherland mentioned that Korea is in a bit of a lull -- the Philippines, Malaysia and Thailand, are showing signs of a rebound now. The restructuring with the IMF is in place. It is important to recognize that all of Asia is not falling apart.
You may have seen or heard about a survey which was reported on last week conducted by the International Chamber of Commerce about investment intentions. Legal multinationals were asked about their investment intentions and prospects for foreign direct investment in Asia. On behalf of the ICC, we surveyed a number of companies in Canada and fed the results back into that overall survey. We found that by far the majority of these companies intend to stay the course. They will not pull out.
The Canadian companies that we consulted expressed long-term confidence in the region. Eight per cent said that it was time to increase; 77 per cent said that their plans were unchanged; and 15 per cent said they would be diminishing. These results were consistent with the North American result and the overall results across the world where 13 per cent believe direct investment prospects have improved; 81 per cent believe they are unchanged; and 6 per cent believe they are diminished. The companies that intend to be there for a while are realizing that long term, the prospects are very good. We got exactly this kind of picture back from our soundings in Canada.
We know that the basis of successful trade and investment in Asia is to develop a long-term relationship and partnerships. That will not change. For many investors, if they were leaving now when there are difficulties, it would send a distinct message to their Asian hosts that, in fact, they are really not serious about that market. Now is not the time for a weak heart if they believe the long-term market prospects are there, and that definitely seems to be the message. If they leave now, they may find the door closed or a less receptive market when they return.
The underlying long-term fundamentals of industrialization mean increasing consumer demand. It is a hot bed of technological development, and that will continue.
The Canadian Chamber of Commerce has had a long-term involvement in the region through ASEAN; Taiwan and Korea through participation in Team Canada; as well as various bilateral relationships. We have an SME project underway in the Philippines which will run for the next three years. We certainly have a long-term interest in being involved with the Asian region.
In fact, the Canada-Taiwan Business Association meeting will be held here in Ottawa at the end of May. We are expecting a very large turnout from Taiwan and from Canadian companies.
Mr. Sutherland talked briefly about market patterns, about the U.S. being our dominant market, and the importance of the Asian market, and I would certainly agree with that.
We think about government support and involvement in two ways. First of all, there are very specific measures which government takes in partnership with the business community to support trade and investment. I would like to ask my colleague, David Hecnar, to touch on several critical policy points because the whole policy environment in terms of what the government does internationally on trade and investment supports what Canadian companies are trying to do.
Mr. David Hecnar, Director, International Policy, Canadian Chamber of Commerce: It is important to the overall policy framework that we push for trade and investment liberalization vis-à-vis Asia-Pacific. We have a number of mechanisms and processes, including APEC and the WTO, but we must also encourage unilateral liberalization within Asia-Pacific, which is more or less part of the APEC process itself.
Mr. Sutherland mentioned the importance of the upcoming millennium round, and we could not agree with him on that more. This will be a major opportunity where Canada can identify its interests for further liberalization vis-à-vis Asia-Pacific economies, bearing in mind that we must do some serious homework about what we will put on the table. These negotiations, including the built-in part of the WTO agenda, will kick-off in the beginning of the year and the year 2000, but we have two years to take a good look at that.
In terms of Canada having an influence on these types of agendas, we can only have that influence in the preliminary exploratory stage, but if we show up at the negotiations ill-prepared, we will have very little influence on what is on the table and the momentum to making liberalization a success.
The issue of China's accession to the WTO is still out there. Certain reforms are underway in China. There has been some good news recently with the appointment of a new, reform-oriented prime minister. All efforts must be made to keep China at the table for an eventual accession to the WTO.
As we reported to this committee in December of 1996, a number of other policy framework issues are on the agenda for Canada vis-à-vis Asia-Pacific. Investment is still there, but barriers in the region continue to be profound. We are attempting to deal with setting up a framework of rules through the MAI which would hold open accession to non-OECD members, and looking forward to the future and eventual WTO work plan on investment as part of how to deal with these issues with our Asian counterparts.
Intellectual property protection remains a major issue for Canadian companies. Piracy and copyright infringements continue to occur in many of the Asian economies, and we lose a lot of business because of that. That ties somewhat into the APEC work plan as well as the WTO work plan.
Regulatory barriers exist in a variety of areas, whether that be government standards, environmental standards or health and safety standards. That is still a major agenda item. Customs is another where we must try to promote simplification efforts through APEC as well as unilateral efforts in Asia-Pacific. Harmonization of tariff classifications, further adoption of the ATA Carnet system, which is a tool used to simplify the temporary import of business sales samples and so forth.
Finally I would mention the issue of business travel. Restrictions do continue to exist in many Asia-Pacific countries, and that slows down the ability of a business to get into a market, service it and get back out.
There is still a huge and comprehensive agenda that Canada needs to pursue to provide a more liberalized framework for the ability of Canadian companies to compete in the region.
Mr. Keyes: First, we recognize that SMEs, small- and medium-size enterprises, even micro-size enterprises -- one or two person businesses which can really be the engine of growth -- are a very important source of potential export growth for Canada and certainly for the goal of increasing our number of exporters.
Canadian companies have certainly become far more sophisticated at penetrating Asia-Pacific markets, but the SMEs are at a relative commercial disadvantage. The APEC SME business forum was held here in Ottawa last fall. I would commend the report. We heard a lot about disadvantages in finance technology, human resources development networking, markets and market information. Some of these people have limited resources. The key people are raising financing, doing the marketing, doing the development networking, and they are overwhelmed.
We must certain that the efforts of governments and business associations to help SMEs meet the real need, and that we are being effective, given the limited resources and time of some of these companies.
Second, in the new economy our export mix is changing. The emphasis is on services and the potential growth in services. We must improve our lagging position in services delivery into those markets. In fact, liberalizing trade and services should be a top priority for all of us.
We are pretty good at providing resources to the more traditional sectors, but no so with the service sectors. We must ensure that the efforts we are making in support of those sectors meet their needs. Their needs are different.
Third, we have met with a lot of success with business-government partnerships through efforts like the Canadian Business Networks Coalition, the Forum for International Trade Training, the Team Canada missions, and the APEC meetings where we worked very closely with the government. This must continue. Neither of us can do it on our own. Our efforts of coordination have improved in recent years, but we must keep at it. It is a partnership that works.
The resources available to governments have been continually cut back. There has been a move for business associations to try to pick up some of this slack. Our efforts to further that should continue.
Finally, I will touch on the information and awareness-raising activities of the federal government. The Government of Canada can and is playing a most important role in reducing ignorance about opportunities. Canadians are recognizing that there is a lot more beyond our borders, and that we cannot say, "Stop the world, we want to get off." We are so oriented to trade and increasingly to investment. This is our life blood for the future.
The federal government has also played a very important role in providing seed money and help for a variety of business organizations, including the business councils of the Canadian Chamber of Commerce. That funding has been cut back through the late 1980s and 1990s. That has weakened these organizations, and the federal government should, perhaps, be reconsidering that support within the fiscal restraints with which they are faced.
A review of the Canadian Trade Commissioner Service is underway. We are participating in this effort. The trade commissioner service has been vitally important in helping Canadian efforts abroad. The story in the newspaper two or three weeks ago about the role played by the Canadian Trade Office in Taiwan is a perfect example of this. They are facing challenges in terms of focus and volume. A business advisory group is working with the trade commissioner service to try to help them through that.
There may be some alternatives. Perhaps some of these services can be delivered through business associations. We must explore ways of doing that, perhaps on a fee-for-service basis, especially in some of the more familiar markets like the United States where many of our exporters are familiar. We must ensure that a larger portion of our effort is directed at some of the more unfamiliar exporters.
If the committee has not seen this report on investment, I will leave a copy so it can be distributed.
Ms Diane Girard, President, Microtrain International/Global Links Network: It is a pleasure for me to make this presentation on behalf of the Alliance of Manufacturers and Exporters of Canada. As well as being on the board of directors, I chair the Service Exporters Committee. I was pleased to hear that my co-presenters attach such importance to service exports.
My business is a micro-size businesses. In my presentation today I will focus on the needs of SMEs, both in the Asia-Pacific region and in world markets in general.
Today's subject is one which deserves much more time than we have the opportunity to spend, but I will try to cover some of the priority issues which, in our view, have the most potential for making a positive impact on Canada's trade and investment promotion activities.
First, I intend to provide a brief overview of the need for Canadian trade and investment promotion efforts in the region. Second, I will touch on some of the recent developments in Canada's international business strategy and how these initiatives are addressing the needs of emerging exporters. Third, I will present some ideas and recommendations for new initiatives which must be considered in order to enhance Canada's position in the competitive global economy.
We certainly believe the Asia-Pacific region has tremendous potential, but we do recognize that there are some challenges, not the least of which is the recent Asian melt-down.
While larger corporations may be suffering as a result, their markets tend to be diversified enough to be able to withstand some of the pressures imposed by these recent changes, but how many of our smaller Canadian exporters really understand what is happening in Asia? How can they best navigate around the current downturn?
We should be concerned that many of them will steer their efforts away from the region because, for example, they do not understand there are four economies that are in trouble. They should -- and in some cases they do not -- realize that Japan continues to be the largest market in the region with no lack of cash where Canada's exports are booming, and there continues to be a huge amount of opportunity there.
Japan is not experiencing the melt-down, and neither is China nor some of the neighbouring economies such as India and Pakistan. How can Canadian companies obtain the information necessary to make important business decisions on their participation in the region? Our Trade Commissioner Service does not presently have the resources to provide advice to the vast number of companies requiring, in many cases, very specific information about their particular sector and their particular export situation. It is, therefore, critical for a trade post to be innovative in the way they disseminate information in the region.
Over the past few years, a number of initiatives have resulted in the further strengthening of ties between Canada and the Asia-Pacific region. The Team Canada mission to Asia in January of 1997, and the various events related to Canada's year of Asia-Pacific, resulted in a variety of positive benefits, particularly an increased awareness of additional trade and investment potential within the Asia-Pacific region.
In fact many Canadian companies of all sizes, representing various industry sectors, are now benefiting from a number of new contracts, partnership agreements, and the beginnings of potential long-term trading relationships.
A significant number of Canadian organizations are trading in this region today as a direct result of activities having been facilitated by government programs or services, be it through participation on these trade missions, or using assistance provided by the Trade Commissioner Service.
It is essential that our trade investment promotion initiatives continue to be effective if we are to maintain a strong presence in the market as well as in other world markets.
We should also understand that our client base is changing. The alliance and Team Canada Inc. face the same challenges. The demographics of our client base is changing, and we must be prepared to adapt our programs and services accordingly.
With the federal government's stated objectives of doubling the number of exporters by the year 2000, there is a flurry of activity targeted at encouraging companies to go global. It is well-documented that SMEs are the fastest growing segment of our economy. Although many large corporations are conducting business in the Asia-Pacific region and other markets, the majority of services provided by the federal trade and investment promotion initiatives are used by SMEs with limited experience in international trade. These SMEs are often unprepared, underfinanced and underestimate the amount of effort that it takes to be successful in world markets. That is particularly true of the Asia-Pacific region.
How can we deliver a more extensive list of services to a larger, more demanding client base, while continuing to serve our core customers?
This growth in the number of exporters, the degree of export readiness, and the need for specific market information and guidance throughout the export process is resulting in increased demand on the infrastructure supporting trade and investment promotion activities. In addition, since many of these new exporters are from relatively new industry sectors, such as technology-based, knowledge-based and service-based industries, the need to adapt traditional export-support programs to service the needs of these organizations has never been greater.
Meanwhile, in this day of declining government spending, resources are shrinking. Perhaps this was the driving force behind the federal government's recent initiatives. Today's federal investment and promotion activities are directed by what is now becoming more commonly known as "Team Canada Inc."
I would like to spend the next couple of minutes talking to you about our perspective of Team Canada Inc. Most Canadians recognize Team Canada as trade missions of up to several hundred companies led by the Prime Minister.
At the alliance convention last October, the Minister for International Trade announced this new initiative and I quote:
We will call our trade services network -- this co-operative venture of federal departments, provinces, municipalities, educational institutions and you, the private sector -- "Team Canada Inc."
We understand that this new Team Canada Inc. is intended to bring the big team together in all aspects of international business development. This would include the development of Canada's international business strategy, trade policy, trade agreements, trade promotion, exporter preparation, export financing and market information, to name just a few.
How can we ensure that all Team Canada partners are prepared to offer the best services, both those organizations working in Canada and those serving abroad? I would like to talk about Team Canada inside of Canada and Team Canada abroad, in other words, our Trade Commissioner Service.
Team Canada in Canada is certainly the largest team in Canada and possibly the world. It includes no less than 22 federal government departments mandated to pursue international business development, 10 provinces and the territories, four regional agencies, hundreds of municipalities, and hundreds of educational institutions and associations and private sector stakeholders. Each one of these organizations has a different method of preparing exporters. Each conducts independent surveys and focus groups. Each offers "Getting Ready to Export" seminars. Each produces its own export publications and guides and, now everyone has its own Web site.
Are there seven steps to exporting, or 10 or 12? The answer depends on who you ask. That can be quite confusing, especially for SMEs.
There are regional trade networks, national sector teams, sector advisory groups on international trade, and the new Team Canada Inc. Advisory Board. We see this as a cohesive effort to bring all of these players together, so that they can develop a strategic export strategy.
We have seen some positive benefits already from the Team Canada Inc. concept. Government departments at various levels are working more closely together, and that is resulting in the reduction of overlap and duplication.
Some of the new initiatives were mentioned today. A 1-888 export information number is managed by the Canada Business Service Centres. ExportSource, Canada's export information Web site, is pulling all of the government information together. "Take a World View", on Industry Canada's Strategis Web site, which is specifically for service exporters, focuses specifically on the needs of service exporters. As well, regional trade networks located in each province are uniting all levels of government in the coordination of activities related to exporter preparation.
We will undoubtedly see many more initiatives in the coming months. However, we would like to emphasize the continuing importance of keeping the client's needs at the forefront. We will focus on some priorities in the hope that Team Canada Inc. will be empowered to make the changes that are necessary so that all potential partners will join Team Canada sooner instead of later.
Some of these priorities would include the development of a strategic plan, one which will utilize the strengths and attributes of each contributing partner and will serve to guide the team through the planning and implementation stages.
Another is related to preparing exporters. Let us decide together on the best method of preparing exporters at the early stages. Let us collect the best of all the best ideas on export preparation and build a common framework which will provide consistency of program delivery across all departmental, functional and geographical boundaries.
Another priority relates to co-location. This has worked very effectively in Calgary and Edmonton. Let us start working towards the co-location of the various Team Canada partners in both major cities and smaller municipalities. Let us hang one sign on the door, one that reads "International Trade Centre." Let us take a super-store approach, a place where exporters can meet, network, join export clubs, obtain market information, speak with information officers and learn the ropes from educators, mentors and international trade practitioners.
In all of this, we must not forget our youth. Our young people are the exporters of tomorrow. Let us make international trade a career that the next generation will want to pursue. Let us expand our client base to include students in the classroom at the secondary and post-secondary levels. Let us bring these international trade students into our offices, boardrooms and international projects. Co-op placements and mentorship are rewarding for all those involved. From the outset, let us welcome Team Canada Inc. educational institutions and organizations like the Forum for International Trade Training.
Another priority relates to information technology. In this past year we have witnessed the launch of some excellent new Internet tools such as ExportSource, Take a World View, and the Canadian Business Map on Strategis. The budget for these information products is normally geared towards their technical development. It is essential that sufficient resources be put towards ongoing maintenance, and especially marketing and training. We also need to take a serious look at the next generation of information products, those that will enable Canadian exporters to be fully connected. Let us connect our data bases to help these future exporters find trading partners, be it in Asia-Pacific or other markets. Let us connect with the banks and financial institutions to develop electronic commerce tools which will help the exporter overcome trade, cultural, and communication barriers as we know them today.
I would like to give you an example related to the use of technology to provide access to information. A colleague of mine met with a site selection management firm from the Asia-Pacific region. They were looking for potential sites for investment in Canada and the U.S. There were considering 10 to 12 different sites and, because the information on Canada had a fee attached to it -- it would cost $16,000 from a private sector company to access the information on this particular Canadian city -- the site selection committee automatically eliminated it from their short list and focused on the U.S. sites. Access to market information is critical, and we must ensure we are not setting up barriers to promoting investment.
This could all be wrapped up very neatly in a comprehensive information technology strategy focused on international trade and investment.
I will now move to Team Canada abroad, the Trade Commissioner Service. We all know that the Trade Commissioner Service is instrumental in helping us promote our exports overseas, but we also recognize that the Trade Commissioner Service is overloaded, and that causes inconsistency in the delivery of services. Since so many more small companies want to export, there has been an increasing demand on their services.
The alliance has recently been involved in consultations with DFAIT on the current Trade Commissioner Service renewal and performance measurement initiative. Some of these objectives are to redeploy the number of trade commissioners in the field from the current 50 per cent to 70 per cent, and to establish performance standards and possibly introduce a fee for service.
We would like to make sure that the Trade Commissioner Service is focusing on having the right people do the right things at the right time. In that regard, we have a number of recommendations.
Number one, we recommend that training and reskilling be instrumental to the changes that will take place in the Trade Commissioner Service. It is essential that they become more familiar with the markets of tomorrow's exporters, those who are looking for partners, those who want to export their services, and those who want to license their technologies. Our current Trade Commissioner Service will need to acquire new skills. They will need to be proficient users of the Internet and have a solid understanding of electronic commerce.
Our second recommendation relates to productivity. Our Trade Commissioner Service spends over half of its time handling routine inquiries which could be handled by another branch of government in Canada. With 9 per cent of its time being spent in corporate and administrative functions, this only leaves 40 per cent of its time to become familiar with the markets, organized trade missions, and actively work on behalf of serious exporters.
Our third recommendation relates to trade missions. The level of support from the post, unfortunately, tends to shut down a few weeks before the major Team Canada trade missions. That is when exporters need them most. We must consider what can be done to enhance the service, especially since there are trade missions organized by Team Canada, the provinces, the municipalities, as well as by sector specific organizations. We need to clearly define the roles and responsibilities of each Team Canada Inc. partner. How can we make these missions more effective by ensuring that companies are well-prepared in the pre-mission stage, and that they follow up and close business in the post-mission stage?
As for a fee for service, we understand that core services will continue to be provided by the Trade Commissioner Service on a no-charge basis, but that special services like customized market research, bidding assistance, and arranging for professional administrative services may attract a fee. Let us ensure that we are not setting up additional barriers which may prevent exporters from pursuing international trade opportunities.
Lastly, on innovation, since the needs of exporters are evolving, it is important that the Trade Commissioner Service be innovative in delivering its services. By way of example, our Canadian Embassy in the Philippines has recently come up with a creative and innovative solution to this challenge. A comprehensive Web site has been set up which provides the user with an overall, up-to-date overview of the Philippines. Links have been established to the most practical sites including governments, banks, local newspapers, a listing of current bankruptcies, and many more. This kind of initiative requires very little in the way of resources, yet it represents a major benefit to Canadians interested in doing business in the region.
Whether services are being provided by Team Canada partners in Canada or abroad, it will continue to be important for all stakeholders to work as a team.
I will conclude with three overall recommendations. First is access to information. We urge our federal government to increase the international business development budget by 10 per cent and to use that additional 10 per cent to develop and implement a strategy which will promote the use of technology to further international trade objectives. We urge each of our Canadian trade posts to improve access to market information by developing and maintaining a comprehensive Web site for their region.
Second, on export preparation, we urge all stakeholders responsible for export preparation to quickly develop and streamline a comprehensive and effective strategy which will clarify the roles of each of the export service providers so that the exporter can focus on the business of international trade as opposed to spending a lot of time trying to identify who and what services are offered.
Third, on partnerships, we strongly encourage government to continue to forge partnerships such as the Team Canada Inc. initiative, and to include not only governments in this process but also, sooner rather than later, the private sector and educational institutions be included.
In conclusion, we hope that Canada's international business development efforts will be less focused on fixing government and more focused on addressing the needs of clients by being more innovative, entrepreneurial, and results-oriented.
Ms Meriel Bradford, Vice-President, Government and External Relations, Teleglobe Inc.: On the policy side, I certainly endorse the comments on technology use, because that is how business will be done. It is important there be a partnership in place between governments and the private sector so that they work together in electronic commerce.
I would endorse what has been said about China's accession to the WTO. The WTO is a major force for positive change in the global system. Canada has been done well by the WTO. I would add that the WTO is doing well by Canada. Mr. John Weekes is now Chairman of the WTO Council, but if we do not admit China to this organization, it will not be truly representative of the global trading community. That does not mean "China inside at any cost," it means working diligently to bring forth from the Chinese, especially with this new administration, some real market opportunities.
We also require expansion of the telecommunications industry so that we can serve those markets and that China can prosper in the global economy.
That is my policy contribution. I endorse everything my colleague has said about trade development.
The Acting Chairman: Thank you for those excellent and constructive presentations.
Senator Carney: I enjoyed all of the presentations. I am pleased to note that the Trade Promotion Branch is as vigorous as ever. However, I do have some concerns about the material that has been presented.
For instance I had the honour of being this committee's delegate at Globe '98 last week in Vancouver, where there was discussion of one of the areas Mr. Sutherland mentioned, namely, the environmental trade area. That area seems to be stagnant, and that is a matter of concern to Canada since that has been a sector of potential growth.
I am also concerned about the suggestion by some of the witnesses that the Asian flu has been a "blessing in disguise" because our market share was declining and our total exports to that market were only 8 per cent. The suggestion is that it was a good thing we had not done more, because we would have been hurt more.
Who is being hurt by the Asian melt-down? The trade missions go abroad, Team Canada goes abroad -- and exporters are encouraged by that, particularly the smaller exporters -- to beat the bushes and develop markets. That has been the thrust of our trade promotion policy, and particularly so in British Columbia where 30 per cent of our goods go to that market. If your currency is devalued, you cannot pay for your imported goods and services. We are unable to get any advice from either department officials or the business community about who is suffering as a result of, say, Indonesian companies not being able to pay for their imported goods and services.
How can this be avoided in the future?
What level of responsibility does the government have to, say, a Richmond hi-tech manufacturer which it encourages to develop a market in Thailand and the manufacturer goes broke because he does not get paid? What is the responsibility of the private sector and where does the trade promotion responsibility stop?
This is a major problem. Some of us share an anxiety which stems from the total absence of information on certain issues when we are required to prepare a report on Asia-Pacific and the issues between Canada and Asia-Pacific. No one can tell us how can we get better early warning systems of this kind of situation. Whose responsibility is it if a company gets in over its head after it has been encouraged and dragged into this arena? What measures do we need on both sides to avoid the pain? If our market share was declining before, it will be declining in the future, given the experience of some people.
Secretary of State Raymond Chan will be visiting Indonesia over the Easter break to ask what is happening to some sectors of the Canadian business community, and I have suggested to our Chairman that we invite him to appear before our committee to tell us what he has found out.
Does the Chamber of Commerce, the alliance, or the department itself have any suggestions as to how we should deal with this matter in our report?
Ms Girard: As to who is being hurt, I would think that some large organizations are being hurt as well as the SMEs. However, it is more likely that some SMEs have not taken the time to prepare properly for those markets. In fact, they may be aware of organizations and programs such as the EDC and the EDC's Emerging Exporters Program which are in a position to help guide these exporters. As well, some SMEs are not diversified. If they focus specifically on the Asia-Pacific marketplace, and they have nothing to fall back on, they could easily lose their companies. We have seen that happen.
Senator Carney: Even our trade commissioners were unable to do more preparation or to forecast the financial instability. I am not saying that they are blessed with Irish psychic powers as some of us are, but I feel you are not really giving me the answer I want.
Ms Girard: How could anyone predict that this was going to happen? I would love to have the answer to that as well.
Mr. Keyes: I do not have a crystal ball with good answers to those questions. As to who has been hurt by this, I would suggest you look at the resource sector, particularly that sector from British Columbia. That sector is certainly feeling the impact.
How do we avoid it? Hindsight is 20/20. If you look back at this incredible ballooning level of activity, you will perhaps conclude that much of the fault lies with the Asian financial institutions which extended credit when they should not have done so. Yes, we should all have seen it coming. You might ask yourself exactly the same question about the peso situation which Mexico went through a few years ago where many companies were hurt.
Diane Girard's specific point about the use of export credit agencies who sell insurance is bang on. That costs money, but it can save your bacon in the long run. That facility is available either through EDC or through a variety of private sector organizations.
The market is there. The market can be a big, bad world, and there is no safety net. The risks are real. When you go into these areas that must be part of your market risk evaluation. When doing your homework, you must include this in the assessment.
I do not think that is a very good answer to a very good question, but I am not sure that there is anything else I can usefully offer.
Ms Bradford: We also had this discussion with Minister Martin around the table at the Canadian Chamber of Commerce. In a sense, as we have integration of global markets, more and more we are becoming interdependent. When someone at one end of the table has a cold, those at the other are likely to catch it. We were discussing the need for international regulatory measures, perhaps at the sovereign state level, that would allow us to feel comfort that, for example, there is proper supervision of the banking system in whichever country, Malaysia, Thailand, or wherever. In fact, that is the type of problem that led to this particular situation in Asia.
This is not a panacea, but it is certainly something that countries must work on at the international level. They must ensure that we are able to have some confidence in the security of the various financial institutions around the world.
Senator Carney: I will make a recommendation to the committee when it is appropriate.
Mr. James Moore, Vice-President, Policy, Alliance of Manufacturers and Exporters: The linkage between trade promotion and the ability of a country to finance its imports has not always been as good as we would like. Specifically, I am referring to EDC's facilities on export financing, and the match of that availability with the trade promotion efforts of DFAIT. I am pleased to say that there has been a significant improvement in that linkage.
It has been indirectly suggested by others that we should closely monitor the claims the Export Development Corporation has on its insurance policies. We need to continue to promote particularly the SME's side of the credit insurance business.
Recently, our export financing group in the alliance had a meeting with Canadian banks and some foreign banks at which we asked which were the countries from which they were least likely to confirm letters of credit. It was a most interesting discussion. We got no clear-cut answer, so we share your frustration. However, we came away with the distinct impression that the banks are now being extremely selective on which letters of credit from which countries they will confirm.
The main answer rests with monitoring those credit claims and adding to the list of areas where companies have been hurt. Those who are involved in capital project exports and infrastructure, particularly in countries like Indonesia, are really suffering. Those projects are very expensive. They take many years to develop and financing is absolutely critical. Many of them have been put on hold or even postponed indefinitely.
Mr. Sutherland: I have nothing original to add.
However, I will comment on the three questions that were addressed. First, on the subject of early warning, it is absolutely correct that we were unable to predict what happened. Unfortunately we were in good company. The IMF was also unable to predict it, and that is a little unsettling because we had not too long before that come through the Peso crisis in Mexico. Following that there was discussion about developing a better early warning system, with more transparency amongst international economic data so that the IMF could perform a more scrutinizing role and hopefully predict with more accuracy the course of various economies. Apparently this experience proves that has not yet happened but, hopefully, this second incidence of a regional economic contagion will accelerate that process.
Second, in regard to who is getting hurt, British Columbia and some of the other western provinces are feeling the greatest repercussions because of their higher concentration of trade in the region. Specifically, exporters of commodities, raw materials, are being hit in a number of ways. Prices are down, largely because of the experience in that part of the world. As well, demand is down. It is a double hit, if you will. As a result, the economies in the provinces affected are down generally.
The third question was: Given the difficulty of forecasting these things, what can we do? Part of our responsibility is to better prepare exporters for exporting. That means when you are going into a region or any country -- but particularly regions that are more risk prone than others and a little more remote or exotic -- the exporter should be informed that it is advisable to protect himself against risks that may seem remote at the time, but as we have seen can, in fact, happen.
The best means of doing that is through the commercial banking system or through the Export Development Corporation. The tools, the instruments, are available, but the initiative rests with the exporter to take advantage of them. Our job is to ensure that exporters think ahead, assess the possible risks, and take the necessary action to protect themselves.
Mr. Keyes: Some comments have been made on the financial situation, particularly to the effect that, if you had greater competition in financial services in this part of the world a lot of this might not have happened, and continuing competition of financial services might eliminate some of the closed-shop mentality and approach and you would have greater checks and balances as well as a more broadly based situation.
Just recently someone commented that certain seem to be recovering and have made deals. That is good. However the real evidence of the impact of this will be seen in monitoring the bankruptcy rate. If that starts to go up, then you will know that there has been some considerable impact. If bankruptcies do not increase, then you must ask whether the real reforms that will change things are happening.
Senator Carney: We may want to hear from the officials of the Export Development Corporation as to whether or not they are adequately prepared for this, given the demands on them.
Mentioned has been made of the need for a one-stop shopping, superstore approach to trade. Ten years ago when I was Minister of International Trade, the same demand was made, and probably 10 years before that, the same demand was made. As Ms Girard's has said, 22 federal agencies are have a trade mandate. I found that one of the reasons we could take a one-stop shopping approach was that none of those agencies -- and there were not 22 at that time -- would give up their turf in this area. The committee might consider recommending that there be a streamlining of the trade mandate so that this perfectly reasonable request for one-stop shopping can be implemented without the turf wars that have taken place over the last generation of bureaucrats.
The Acting Chairman: I would indicate that our witness next week will be addressing the matter of reforming the international financing system. That witness will be Ms Wendy Dobson who is the Director for the Centre for International Business at the University of Toronto.
Senator De Bané:First, have you considered whether the term of appointment of trade commissioners should be extended to five years instead of two or three? It takes time for those commissioners to build contacts, and some exporters have told me that their term of office of these trade commissioners is too short. They think that a five-year term would be better.
Second, have you thought about trade commissioners being business men as opposed to civil servants? If the person is in the business of selling Canadian firms to a particular country, his personal benefit would coincide with his mission. Of course, that would entail a remuneration commensurate with what that person's experience.
Mr. Sutherland: The duration of postings is not a new issue. Most business people and most commentators would like to see longer periods for trade commissioners in various postings. Clearly, in a post such as Paris or London, the trade commissioner would be most supportive of that recommendation. However, trade commissioners in other parts of the world, which are less desirable postings, would be, perhaps, less supportive.
The point remains that those more difficult, exotic assignments is where you need the longer period of time to develop the contacts and expertise in the marketplace. The department has recognized that and, in the last few years, has extended the minimum period of posting -- even the most difficult posting -- so it is now a minimum of three years. Some are longer than that.
The other way of approaching this is to send the same individual back to the same posting. I was in Saudi Arabia for three years, came back to Canada for four, and then I returned to Saudi Arabia. I was able to take advantage of the contacts I had developed during my first sojourn there to pick up where I left off. I knew the market and individuals; and, in a market like that, knowing the individuals is very important. That is another way of addressing the question. We are considering whether that should happen more frequently. People will return to postings they had before.
As to taking a business-like approach, we are not at the stage where we base compensation on the number of firms an individual trade commissioner attracts to a country. As part of this performance measurement initiative which was described earlier by Ms Girard, you would identify a core list of services and customers that every trade commissioner, through his regular working process, would keep. Then, on an annual basis, we would poll a selection of the clients of our various trade commissioners around the world and ask for their assessment on the services, the help they received from the trade commissioner in question. For example we would as a client who has communicated with a certain post whether, as a result of that experience, the company has done business in the country. We would ask whether that post assistance was indispensable, peripheral or of no help at all. Those kinds of questions will enable us to identify who is rendering the right kind of service. Answers to other questions such as: "What particular services did you most value?" and "What things were missing that should be there?" will help us to determine what it is we are doing well, where we are doing it well, and where and who needs to improve. We are taking that kind of approach to the way we do business.
Mr. Keyes: The comments on the length of rotation are correct, particularly those related to the hardship posts.
As to business people being appointed as trade commissioners, that has happened on an interchange basis. However, it may involve asking certain business people to suspend what is, perhaps, a very successful career, or if they are in a rising stream of a company, to step back out of that stream. In some circumstances, it can be quite career disrupting. The same comments would apply to moving people out of the federal public service into the business community. Where you have a career stream, it can be difficult. However, mechanisms which could encourage that kind of interchange would certainly be encouraged.
Ms Girard: I like the idea of a business person involved in trade promotion being located on site, not necessarily replacing the trade commissioner who is a public servant, but perhaps working with the trade commissioner as a partner or as a local service provider. If the trade commissioner does not have the time or the particular expertise he or she could approach a third party, a Canadian entrepreneur, a business person, who will take that opportunity and turn it into some specific business. There is merit to what you say and perhaps, through partnership, that can be achieved.
Senator De Bané: Mr. Sutherland, during my travel abroad with Canadian business men, I was impressed by some trade commissioners and disappointed with others. The framework of evaluation you have just described would, no doubt, help you identify who are competent, conscientious, and responsive. I was trying to go one step further in suggesting that a business man would be a suitable candidate.
I remember when we had order takers in our banks who would wait to be approached by clients. Today that has changed completely. Now they must sell aggressively. Perhaps we should consider conducting an experiment in a few countries by hiring a national of that country to be our trade commissioner. For instance Germany uses the chambers of commerce to do all their trade commission business abroad. We could try another formula using people from the private sector. We could negotiate the criteria for their appointment. He might require to be not only a competent, conscientious, useful official, but also a real business man selling Canadian businesses abroad.
Mr. Moore: A number of approaches follow along those lines. The first one would be to move the Trade Commissioner Service towards a system of secondments from the private sector. That has been done in a number of different countries, with mixed success. It sounds very good, but in practice you do not always get the right people.
The second one is to have straight secondments from the private sector and switch someone from the Federal Trade Commissioner Service into the private sector. That also has been done on occasion. I think that should be encouraged to a much greater extent, where it can be worked out. However, people who are on a fast-promotion ladder, either in the public service or in the private sector, take a risk when they step off that ladder to take a secondment. However, I think it should be encouraged.
The third approach which is being discussed at great length, but I am happy to say I do not think has attracted much support, is to put the existing Trade Commissioner Service, in effect, on a commission basis which, on the surface, sounds very attractive until you put yourself in the shoes of a trade commissioner. They will naturally be vying for the posts where the most business is done. Those will not be the hardship posts. Then they will be vying to help the bigger companies who have larger contracts, and the smaller companies will suffer. As has been discussed earlier, it is very important that we broaden our export base.
Senator Grafstein: I welcome the obvious change in the process of exportation that we have heard about from all our witnesses. This is a refreshing and more focused approach. We have moved to another level of improvement.
I also welcome the comments from the speakers about how we must differentiate within the marketplace. The Asian market is huge, so we must be country specific, market specific, and sector and subsector specific. You have reflected that in your comments.
It is refreshing to hear about the rebalancing from the big to the smaller companies.
Having said that, I want to turn to our performance in Asia in the last couple of years. Our exports have declined from a peak of 2.9 in 1988 to 1.3 now. While other things are moving in the right direction, our Asian exports, as a percentage of our total trade, have diminished, and that was before the decline. I would agree with the suggestion that the Canada-U.S. Free Trade Agreement has had something to do with it but, at the end of the day, our performance is softer than we would like it to be.
We have a huge deficit with Japan and we have a trade deficit with China. While greater participation by the SMEs will liberalize and enlarge trade, this will not in the short run solve our two major trade deficit problems. We have asked about whether or not it would be useful to proceed with a free trade agreement or at least a managed trade agreement with Japan in automobiles, for example. Is that a useful way to deal with those two big red holes in the short run?
In the last three weeks we have heard that, in order for China and Japan to deal with their internal problems, both have chosen a route that we in North America and Europe think is not a salutary one, namely, pump priming, which is huge capital reinvestment. We were told by the Prime Minister of China that they intend to spend approximately a trillion dollars in capital infrastructure and capital investment.
At our last session we were told that Japan has tried this. They have spent about half a trillion dollars, and they will try to continue in that vein because they have the money to do that. Has the government and its associated members of the alliance focused on government procurement in Japan and in China where there are huge short term benefits for Canada? There is about a trillion and a half dollars available for government procurement or stimulation for infrastructure.
I did not hear one word about that in your discussion today. I am not being critical because maybe we did not focus on it. However, we must, from an economic standpoint, deal with those two red holes. The intermediate term is set, but we have a real short-term problem. I thought procurement might be an answer for us. Would you comment generally on that?
The late Commerce Secretary Brown did something that I have asked other witnesses. He set up a war room in the Department of Commerce in the United States. In his war room, for every country in the world, he had an up-to-date list of every contract of government procurement, the status of that procurement, and the ability or viability of the Americans to move on that. Daily tabs were kept on that as if it were a war-time exercise.
I know the department does not do this. Have you considered that this approach foster the acceleration of trade exchange?
Mr. Sutherland: I would comment first on the "two big holes," as you put it, as that relates to our trade deficit with Japan and China, and the possibility of entering some kind of bilateral trade agreement, managed trade or free trade agreement.
Senator Grafstein: With Japan, not China.
Mr. Sutherland: As in any bilateral trade agreement, there must be a mutual desire to enter into that agreement. Quite frankly, at this stage just that mutual agreement would be beneficial to both parties. Japan is in a situation where, in its global negotiations -- in the European Round negotiations, the GATT negotiations preceding the WTO, and the ongoing WTO negotiations -- it has been a reluctant partner. Their economy is a very, relatively speaking, closed economy. It is a difficult one to penetrate because of the different types of market-access barriers that are in place. The likelihood of getting them to come to the table on a bilateral basis with Canada -- given the relative sizes of our economies, and the prospect of Canada being able to make a meaningful impact on Japan -- is relatively remote.
Our position vis-à-vis Japan is better in a multilateral context where we negotiate with the rest of the world in a WTO setting, for example.
Senator Grafstein: Has the department studied this? I have come to exactly the opposite conclusion based on how there would be a great fit between us and Japan at this time.
Mr. Sutherland: I can investigate that, but I am not aware of any study.
Senator Grafstein: Please do and let us know.
Mr. Sutherland: Yes.
With respect to infrastructure, clearly that is a major opportunity. The figures you quote, the trillion dollars in Asia-Pacific alone, are staggering.
Senator Grafstein: Those figures were for just two countries.
Mr. Sutherland: The figures I have seen are larger than that, in the trillion-dollar range for the region as a whole. However, those two countries are the primary sources of these opportunities. In the region as a whole, even if you slow the process down a bit because of the current economic situation there, there is no doubt that infrastructure projects must go ahead. There are major movements of populations into urban centres which require infrastructure projects to support them. Consequently, all kinds of opportunities are developing there.
One interesting phenomenon is that, whereas in the past these kinds of projects were financed in many cases largely by the international financial institutions, such as the World Bank or the Asian Development Bank or whatever, increasingly they are being financed privately. Because they are being done on a private basis, the ability of a particular country's companies to participate in those projects depends on their ability to participate in the financing of the project.
One of the challenges we face in Canada -- and EDC is in the forefront of trying to spearhead this kind of international approach on the part of our banking community -- is to be able to identify these privately financed major infrastructure projects and to put together financing packages which will enable our suppliers of goods and services to participate in those projects.
You are absolutely right, this presents a major opportunity. One of the keys to participating in those opportunities is financing.
Mr. Keyes: Mr. Sutherland's remarks on the managed trade possibilities are similar to what I would have said, especially with respect to the Japanese situation where companies have found it hard to penetrate. There is a very formal, stiff procedure for getting in.
I will be at a meeting with the Japan External Trade Organization next week, and a question I may well put to them is: Do you see anything, in terms of the current situation, where there might be some benefits to both sides? It must be a win-win situation or people will not go for it.
At the APEC business forum last year we heard a lot about infrastructure. Companies told us -- and this was not unique to Canadian companies -- that the procurement contracts get pitched in huge chunks. Many of our companies are good niche players. However, they causes problems when these contracts are so large. They do not have the financing capability or the technical capability for overall project management. If these infrastructure requirements and the contracts were broken up and tendered in a different way, or if you had larger businesses subcontracting, then they could pick off some chewable chunks. As it is now, some of these projects so large that the only ones who can take them on are the huge international conglomerates, and they do not necessarily flow enough of that through.
Senator Grafstein: I accept what you say, however, the Senate did a thorough review of the various consortia that sought the infamous Pearson airport contract. One of the telling points in that process of examining bids was that they had addressed exactly that problem. They had, in effect, got a number of smaller contractors together in some overarching consortia and then tendered their bid.
That raises the other question, while we are dealing with the SMEs, have we dealt with the question of these consortia putting together large and small corporations in an overarching way so they can then, with government support, attack some of these projects? You will not get the Japanese or the Chinese to throw out their procurement contracts to suit our appetites or our capabilities. We must suit their capabilities.
I raise that with you because you represent an excellent cross-section of government and the private sector.
Mr. Moore: None of us likes the term, "managed trade" because it infers that we are not as business people, able to do what we want to do.
Senator Grafstein: The benefits to Ontario have always been based on managed trade, specifically, the Auto Pact.
Mr. Moore: I will accept that but with a qualification. The U.S. has pushed very hard for what, in effect, was managed trade for a number of years with very little success with Japan. Canada just does not have the economic clout, even if we wanted to do that.
A number of people, Mr. Sutherland in particular, referred to the importance of financing capital projects. A major challenge has come about because governments are withdrawing, to a significant extent, from projects, whether they be in Canada or whether they be in third world countries. That has put enormous pressures on the private sector to come up with mechanisms, consortia, not only to execute, but to finance and then operate those infrastructure projects. There are enormous changes going on even now in the way in which this kind of business is financed.
Canada is not terribly well-placed in this respect. The partnership between Industry Canada and DFAIT includes plans for an IPP conference in the fall where we intend to bring together players, both the exporters of capital projects and the financial intermediaries, to assess how we can put together the kind of consortia that could pursue these projects more successfully. The shift is that you no longer have governments guaranteeing as a sovereign risk the financing of these projects. That is an enormous change.
Senator Di Nino: I have had the opportunity to meet with some of these commissioners in different parts of the world. In some cases I have been quite impressed, but in the majority of cases I have not.
That particular position carries with it a dual role. One is a bureaucratic role, and the other is what I might call a "salesman" role. I would suggest that some thought be given to splitting those roles so that the bureaucratic role could be carried out by a civil servant. That person would ensure that all of the processes and functions of the position of trade commissioner would take place.
Could one "privatize," if I may call it that, the main function of trade commissioners so that the person appointed could, in effect, go out and hustle the business? That may satisfy the concern raised by Senator Grafstein.
As to the size of these infrastructure projects, I think if the project is good, then the financing will be found. Any deal that has the potential to be a success can be financed, whether it is through Wall Street or some of the other vehicle.
Ms Girard, when you were making your comments, particularly as it related to the SMEs, you used the word "unprepared" which disturbed me in the sense that if a small business is operating in different corners of the world it can hardly be unprepared.
Would you not have expected, particularly since most of these ventures would be part of the Team Canada effort of the federal government, that the organizers of these events would have made sure that the participants would have had the tools, the information, and the necessary ability to properly assess an opportunity?
Ms Girard: I would hope so, yes. However, the fact of the matter is that the majority of small- and medium-size exporters are unprepared. They must ensure, for example, that they have people in their organizations who understand cultural barriers. On the financial side, they must assess whether their organization is strong enough to encounter some of the risks that we have talked about today. Have they done their market research or do they, as in many cases, think that they have uncovered a new market opportunity? Or are they hopping the next flight to a new country as soon as possible?
We are telling exporters that two-thirds of the export effort should be done at home in Canada, working with the international trade centres and talking to EDC before they approach the Trade Commissioner Service.
I would be happy to hear from some of my other colleagues on this. We are finding in the workshops and seminars that we are offering to exporters that they have not done their due diligence. That problem is also experienced by the Trade Commissioner Service. The exporters are approaching the trade commissioners for assistance with questions that should be answered in Canada by the 22 federal government departments we have devoted to that, the places that are designated to provide that first level, that front line of support like the Canada Business Service Centres, and the export information Web sites like ExportSource. They are designed to deal with some of the first-level issues.
Senator Di Nino: When the trade services, the different agencies, are approached, is the Government of Canada not guiding these potential investors in foreign ventures sufficiently, or they are just not listening?
Ms Girard: The best attempt is being made with the resources that are available. Many companies wantto get into international trade. It is a question of volume. It is a question of being able to address the specific needs of the supporting companies. The ITCs would be, by and large, generalists. They are able to provide general information. However, much of the information that is required is very specific, so it takes a long time for the SME to find the right individual who can provide that specific information.
Senator Di Nino: I want to address the idea of one-stop shopping, and where this information would be made available. I was surprised to hear you say that we may be helping to send Canadians to foreign markets without the necessary tools to be able to defend themselves in this jungle. I am not laying blame to either one side or the other. This is a fact that I find disturbing.
Ms Girard: We are all disturbed by it.
Senator Di Nino: Taxpayers are spending a lot of money on this. Are we spending it in the wrong place?
Ms Girard: I would have to applaud the recent effort, the Team Canada initiative, which is trying to bring together in one great big family of services the offering from the various Team Canada partners.
SMEs are increasingly using the Internet to access information. If we were to spend more dollars, that is where it should be spent, that is, in getting the information from the grey matter onto a vehicle which SMEs could access.
Senator Di Nino: You made five specific recommendations. The first three related to training, productivity and pre- and post-mission level of support. This is where my interest lies, particularly in the areas of training and pre-mission and post-mission support. Should we be doing something more and something different to help your organization and other small enterprises? Obviously large corporations have the ability to do some of this themselves and they also have the connections to be able to access information which is not easily available to the small enterprises. What can we do to help you to expand the opportunities to make profits?
Ms Girard: I have two very specific suggestions. I am not sure if you are familiar with the Forum for International Trade Training which was initiated by the private sector and supported by government. The three major departments involved are Human Resources and Development, the Department of Foreign Affairs and Industry Canada. It was started in 1992. There are currently 3,000 students enrolled in the program, mostly from SMEs, and there quite a few public servants as well.
There are 300 graduates of the program who are now certified international trade practitioners. They are professionals. We need to increase that number of graduates from 300 to 3,000. If those 3,000 graduates were to go out and help SMEs, they would present a very effective solution to this problem.
On the pre- and post-mission issues, many of the budgets allocated to Team Canada missions are focused on logistics, on the mission itself, and on the political aspects of the mission. No budget is specifically allocated to pre-mission training and preparation and post-mission follow-up and support.
For example, if 500 companies travel to Chile and Argentina, each to do its own market research, that is very counter-productive. I would recommend to Team Canada that a comprehensive manual be prepared telling companies how they should proceed from step one: "You are going on a mission, what should you do?" They should provide pre-collected market reports. They should give them the information they need to know as it relates to passports and visas. That is probably addressed. However, the specific market information opportunities, and the match-making that needs to start at an early stage before the trade mission may not be addressed, so I would strongly recommend that a pre-mission budget be put into place as well as a post-mission budget to assist with follow-up and closing deals.
Mr. Keyes: Using the word "unprepared" may be a bit misleading. I would say "underprepared." Some people are somewhat prepared, but they are not adequately prepared to take maximum advantage of the opportunities presented.
I was on the Team Canada mission to Latin America. Some of the people that I met there had an idea of what they wanted to do, but they really had not thought it through, and they were doing a lot of things on the fly while they were there. They were scrambling. When you are there joining in all of the activities, everything happens in a blur. Before you know it, you are on the plane and on your way home. It is a matter of being prepared, knowing the resources that are available, and having a clear sense of what you want to do. People are partially prepared; not as well prepared as they could be.
We were provided with a bundle of pre-mission information including market analyses, but it arrived three or four days before we left. This Team Canada mission was a real challenge for everyone involved, for the posts, for the headquarters and for the participants because of its size, the response, and the timing of the Christmas holidays. The ice storm did not help. The mission was compressed into a short period.
There was no cross-cultural training. A lot of people have had exposure to Latin America. There are dos and don'ts. This aspect is perhaps more important in the Asian context. However, I was not involved in the Asian mission. In the case of the Latin American mission, when we arrived at each post there was not a list of the top six bilateral issues in the country business people to avoid certain topics. Those briefings could be improved.
As to the comments made by Ms Girard about post-mission follow-ups, these missions do open doors, and they lay the ground work. The key is to capitalize on that. Taking steps to maintain the human contact with potential customers is absolutely essential.
Ms Bradford: You obviously provoked a lot of interest when you asked about the preparedness issue, because we do business in 240 countries around the world. I must do preparatory work every time I go to a place where we do business.
I was also on the Team Canada mission to Latin America. I have a good background in that region. I have worked on it politically, economically and commercially. However, there was no briefing to the business community about the political framework, and what our political masters would be doing while we were involved in the business part of the mission. I knew a good background of information from previous incarnations, but many business people were either insulted, in that they felt they were being left out of the picture, or they were mystified at what these ministers, prime ministers and premiers could be doing that was preventing them from working together with the business segment.
Without criticizing the political leadership, there is a need to brief the business community about the key political factors. If business people know they can help move the political agenda by being sensitive to the issues and explaining to their counterparts in business why Canada would like a certain thing to happen, whether it be more bilateral agreements for air flights or nuclear protection treaties or fishing then that would be a step forward. The business community is in the dark. Following up on these suggestions would better prepare the parties for these types of missions.
Ms Girard: The trade missions are organized by the Department of Foreign Affairs which increasingly is focusing its efforts what are known as "border-out" activities. It is essential that the 22 federal government departments and all the stakeholders providing support to exporters work together on these trade missions.
The border-in activities, the export preparation, is the responsibility of Industry Canada and regional agencies such as the Atlantic Canada Opportunities Agency and the Western Diversification Program. There is a need for all of the stakeholders to work together, and to focus more on the trade missions and the services that they should be providing, both pre-mission and post-mission.
Mr. Keyes: One of the major questions on the fringes and central to the official part of this mission was Canada-MERCOSUR. Some people on the mission did not know what MERCOSUR was. Here we are, two MERCOSUR countries, talking about an association and a trading relationship, and why it is very important to make some inroads and bring down tariffs, yet some people did not know about that linkage. That is an illustration of the lack of preparedness.
Senator Di Nino: In Team Canada we have a good idea that needs to be developed further. It sounds as if the government should be doing much more to assist the business community.
My favourite country in Asia is India. However, when it comes to trade, it is a real basket case. Can anyone illuminate me on that? I do not understand it. Here is a country that is English-speaking with a background that is not so difficult for us to understand. It has similar laws and is similar in other ways, yet we seem to have a lot of trouble with them. Why is that the case?
Mr. Keyes: We can have a conversation off the line at another time, but I can say now that one of the organizations which we manage is the Canada India Business Council, and I would love to put you in touch with the people who are hands-on in that organization. We are making inroads in a variety of niches in which the Indians are inviting participation and help.
India, however, is going through and will have to go through profound structural change in the way the economy is controlled and regulated if they want to invite foreign investment.
In my previous incarnation I was in the mining sector. We had numerous invitations from the mining industry as well as from officials and companies responsible for minerals and mineral development in India. The Canadian mining industry's reaction was that, until India reforms its bureaucracy, reforms its rules and improves the operating conditions, there is great potential but it would not go near it.
The Acting Chairman: Do you have a parting comment?
Mr. Sutherland: India is an interesting case, and I agree with Mr. Keyes. As you recall, in January of 1996, there was a Team Canada mission to that region. Since then, our exports have increased 30 per cent, so we are starting to make some headway.
The Acting Chairman: I would thank the witnesses who made presentations and responded to our questions this afternoon. It was a very useful session.
The committee adjourned.