Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 8 - Evidence - Meeting of May 7, 2008
OTTAWA, Wednesday, May 7, 2008
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:07 p.m. to study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
[English]
The Chair: Honourable senators, our other witness seems to have been delayed. However, we will start, and hopefully the other witness will join us, at which time we will invite him to address us.
In the meantime, we continue our study on the rise of China, India and Russia in the global economy and the implications for Canadian policy. I welcome today as our guest Jean-Michel Laurin, Vice-President, Global Business Policy.
Mr. Laurin, you have the choice of speaking in either official language. I do not know which one you prefer, but you are more than welcome to use either. I understand that you have some comments to make, after which we will engage you in hopefully tough questions and easy answers so that we can all understand them. Therefore, welcome to the Senate of Canada. You have the floor.
[Translation]
Jean-Michel Laurin, Vice-President, Global Business Policy, Canadian Manufacturers and Exporters: Mr. Chair, I am delighted to be here today to represent Canadian Manufacturers and Exporters. If I understand correctly, I have 10 or 15 minutes to make my presentation. Therefore, I will go through my presentation quickly; you have already received a copy of it. Basically, I would like to spend more time speaking with you and answering your questions, so that we can debate this issue that has taken on great importance over the past five years.
The speedy rise of the Canadian dollar as well as the emergence of new industrial powers like China, India and Russia are among the priority issues that our association deals with. This subject is of great concern to the manufacturing industry in Canada. They are not only concerned but they are also interested because there are opportunities, opportunities that I can tell you about.
First, I think that the subject is well chosen and that this is the right time to study the issue from your point of view.
I would like to say a few words on the importance of the manufacturing sector in Canada, which is still the largest business sector in our country. If you look at the structure of the economy and if you divide the services sector into sub-sectors, the manufacturing sector is the one which makes the greatest contribution to Canada's gross national product. We are talking about 16 per cent and if we include exports, or the exporting part of the service sector, the figure reaches 21 per cent.
The industrial sector, or the manufacturing industry, generates many multiplying effects in various communities. We consider that every dollar's worth of economic activity in the manufacturing sector generates $3.05 in benefits in overall economic activity, which makes it the strongest economic multiplier of all the sectors. We often see this in mono-industrial communities: when a factory closes down, the region's economic activity often disappears along with it.
We are talking about a sector that generates 600 billion dollars' worth of sales in Canada every year; 460 billion dollars' worth of the goods are sold abroad, and most of Canada's industrial production is exported to the United States. Nearly two million Canadians are working in the manufacturing sector today. Their salaries are generally 25 per cent higher than the Canadian average. Most of Canada's exports come from the manufacturing sector. More than half, or three quarters, of the research and development activities are carried out by the private sector. This work is not done by universities, but by manufacturing companies, and we often forget this. People think that new companies in the sector in which our future lies, the knowledge industry, are not connected to the so-called traditional manufacturing industries. However, the data show that a major part of the research, development and innovation in our economy is due to the manufacturing sector.
To conclude, we always like to remind everyone that Canadian manufacturers have cut their greenhouse gas emissions by 9 per cent since 1990. Therefore, to a certain extent, we have met our Kyoto objectives.
[English]
The context in which manufacturers think about the rise of China and India in Canada is one in which we have been facing a perfect storm, I would say, over the past five years. The dollar, as you know, has appreciated by about 60 per cent since the beginning of 2002. This appreciation acts as a price cut on export sales. Part of this appreciation is due to China. New economies are emerging — such as China, India, Russia and others — and for any country producing a commodity-type good or a good for which there is competition from these low-cost sources, clients expect that producer to cut prices. Canadian manufacturers have not been able to take the appreciation of the dollar and increase their sales prices in the United States.
For example, if they sold something for US$100 five years ago, they would receive about $160 in revenue. Now, they receive about $100. It is as though they had a price cut of about 60 per cent. Companies cannot increase prices because of foreign competition.
Another factor that has contributed to this perfect storm is higher energy and commodity prices. China, again, is one of the reasons. Because infrastructure investment is so strong in China, there is strong demand for primary goods and strong demand for products that come out of our mines in Canada, but manufacturers have had to contend with higher energy and commodity costs.
Another factor is international competition. On the one hand, export sales are decreasing, and on the other hand, costs are increasing, so margins are becoming thinner and thinner. That is why we have seen so many job losses in Canadian manufacturing companies. In the short run, they have had to cut costs, and labour is often one of the costs that, unfortunately, can be cut quickly. We have also seen a lot of plant closures, consolidation, and production lines moved elsewhere for that reason.
Another factor contributing to the storm we currently face is the slowdown in the U.S. economy. There is overcapacity in the market right now, so again we see consolidation and plant closures.
There are problems in currency and credit markets. Credit conditions are tightening on the continent, and many people expect the U.S. dollar to depreciate further because of problems in the credit market. We tell our members to prepare to compete with the dollar at par for an extended period of time because it is not likely to improve in the short run.
I presented a slide that illustrates the relationship between the Canadian dollar and manufacturing employment. We lost about 500,000 jobs over the past six years in manufacturing in Canada. Much of this loss is due to the fact that the dollar has appreciated. Also, because international competition is strong, to compete, companies must ensure they are efficient in their operations.
While manufacturing shipments grew quickly in the 1990s, growth has been much slower since then. Despite all these current challenges in manufacturing, if someone had said to me five or six years ago that the dollar will appreciate by 60 per cent, I would have expected something much worse in terms of manufacturing jobs and manufacturing shipments.
Manufacturers have been resilient. They have worked hard to find solutions, to review their business plans to take advantage of international opportunities out there and to try to adapt to the new economic environment. Obviously, there has been a cost and we expect to see this cost continue over the coming year, but that is the game that manufacturers are in right now.
[Translation]
On the other hand, growth in the global economy has been quite strong over the past few years. I gave you a table that shows the sustained growth of the world economy, especially during the past few years. Conversely, we are expecting a slowdown over the coming years. However, one of the real changes we have seen over the past few years has been the emergence of China, India and, to a certain extent, Russia as well.
The sources of global growth are much more diversified. We see that developed economies have grown, on the average, between one and 3 per cent over the past few years. In Europe, the growth slightly exceeded 3 per cent during the past few years, and basically, this is rather modest growth. For the coming year, we are expecting less than 1 per cent growth in the United States. As it is our main market for exports, we can be sure that this will have an impact on our economy here in Canada.
Conversely, if we look at the economic growth of the emerging economies, we are looking at about 10 per cent growth in China per year. India is growing at a rate of 8 to 10 per cent per year, and among the other emerging countries, some have also grown strongly and consistently.
The developed economies, the United States and Europe, used to be the largest sources of growth of the world economy. Today, as we can see on page 9, the share of the world GDP held by the United States and by the European Union is decreasing, whereas the share held by China, India, and to some extent also Russia, is gaining ground. The sources of growth are becoming more diversified, and we must also say that our economies are becoming more and more integrated and interdependent. What happens in one country impacts on events in other parts of the world.
On a world-wide scale, in the new business environment that we are in, growth, whether we like it or not, will not happen on our continent, at least not in North America. Most of the growth will happen overseas. In 2007, nearly 60 per cent of the world's economic growth came from so-called emergent countries or developing economies. For instance, China accounted for more than 19 per cent of the world's economic growth. This was more than the United States, with 14 per cent.
If we are looking for the sources of market growth in the world, we must look to the emerging economies. There, we can expect companies to develop new market shares, because these markets are growing at a great pace. Given the clout that these countries have acquired, no company can afford to ignore China and India in its business strategy.
In Canada, our manufacturing sector is still very dependent on the United States for exports. Three quarters of our exports still go to the United States, and one quarter to the rest of the world. Five years ago, it was another picture; up to 83 or 84 per cent of our exports went to the United States. There is a tendency toward a greater diversification of our exports, partly because we are not succeeding in expanding our share of the U.S. market, whereas, in the rest of the world, where the growth is happening, we can develop such markets.
Let me take a few minutes to speak of the main challenges that Canadian manufacturing companies are facing at this time, especially if we consider the emergence of China and Brazil. On a short-term basis, cost containment is a priority for Canadian companies. There are a few slides in my presentation that show percentages. These data come from a survey, an investigation that is done on a yearly basis, covering all the exporting manufacturers who belong to our association in Canada. I cannot say that this is a scientific survey, but it does give us a good ballpark figure. Ultimately, cost containment and the maintenance of short-term viability are the real priority for the companies.
Businesses feel that in order to survive, on a medium- or long-term basis, they must face the short-term challenges which consist in lowering their costs and increasing their profit margins. Moreover, on a medium- or long-term basis, and I am sure that the other witnesses mentioned this to you, the main challenges consist in having a qualified and flexible labour force, with the skills that it needs to take advantage of business opportunities in the emerging markets. This is also a priority for businesses. Innovation is also a priority. Five or six years ago, if you manufactured and sold a product, and if your main competitive advantage was the fact that your product was less expensive than your competitors' product, which was the case for many Canadian companies, today you have a problem, because if you want to get the least expensive product on the market, some companies have cost structures that are far lower than ours, in places like China, India and elsewhere.
On the other hand — and this is what the industries are trying to do — although it is important to keep a competitive price, we must succeed in standing out with a competitive advantage that is not solely based on price. Companies who offer one-stop solutions to their clients have a much more promising future in Canada.
To conclude, we must find out what Canadian companies have to do if they want to remain competitive in the new economic world. I think that we must focus on helping our clients to succeed by offering solutions rather than mere products.
The manufacturing sector had mainly been considered as a source of manufactured products for its clients, whereas today, we are looking more toward delivering solutions to clients along with the products. We want to solve the client's problem. This involves a product, as well as design, engineering, and to some extent, client services, marketing, post- sale services and even financing. The success of a company now depends on this package it can offer to its clients, and not merely on the products.
There is another phenomenon that our businesses need to come to terms with. You have certainly heard about the emerging global chains of supply. We must know how to take advantage of opportunities abroad where we can set up factories and enter into partnerships for obtaining parts. Businesses have recognized that in order to succeed, they need to have suppliers in various parts of the world, they need to find the best possible supplier and they need an integrated strategy from the supplier to the final client. This also involves producing specialized products and services, it involves taking advantage of our know-how, managing our employees' knowledge and successfully translating this into innovative products that are delivered to clients. Innovation now applies not only to the manufacturing systems and the machinery in the plants, but also to the discovery of new business procedures and new business opportunities.
We must also be agile. I think that this often comes up when you talk to manufacturing companies: What are you doing to compete with China? We do not want to compete with China, we want to get away from this paradigm. Often, it is by being agile and able to produce customized products in large enough volumes to maintain a viable business figure; this is one of the sources of success.
In the furniture industry, we saw many companies adopt this strategy with success, despite the fact that everyone is saying that the furniture industry has no future in Canada and that China has severely hurt the Canadian furniture sector. However, some producers are managing to make good profits in Canada by producing made-to-measure products and by delivering the merchandise to the clients much more quickly than if it had to come from China.
Speed is another advantage. We are close to the American market; we do not have to send our products in containers, therefore it does not take six months for them to get there. That is also an advantage for us. We have to make sure that we are efficient in terms of our internal costs in order to make our prices competitive globally.
[English]
To conclude, I want to say a few things about the success factors for Canada; what can and should the government do to help companies thrive in the new business environment?
One of the first things we need to talk about is leadership. We need a clear and coherent strategy in terms of how the country will adapt to this new economic environment. India and China have a clear strategy. They are good at bringing everyone together to make sure they achieve their national objective. I do not say we should have a planned economy but, in some cases — logistics being one of them — there is a strong business case for having a national strategy that is coherent and pulls everyone in the same direction.
I think a competitive business environment for manufacturing companies is also a key factor if we want to compete against those countries. Obviously, a competitive tax environment, especially for business investment, is something we recommend. It is also important to ensure that whatever environmental policies we put in place do not have a negative impact on our manufacturers' ability to compete internationally. A competitive regulatory environment is also critical so it does not become a burden to be a Canadian producer because of more costly regulations.
Again, we must ensure our companies have access to reliable and cost-competitive energy. A lot of manufacturers are based in Canada because they have access to electricity or energy at competitive rates. We need to ensure we maintain that competitive advantage.
Another critical success factor, and one that we keep hearing, is workforce capabilities; the role of the education sector and of skills, in general. I think we need to do a much better job at attracting and retaining skilled labour. A lot of companies in Canada right now could grow much faster if they were able to attract the labour they need to satisfy their clients. Some of our members want to add capacity but they must do so abroad where labour is available. Even though we have high dropout rates in Canada, we still do not have enough people to go into the trades and into the professional programs to staff our companies.
Also, we need to train existing workers to ensure their skills remain relevant because technology is developing rapidly.
Another element I want to mention is the role of innovation in helping companies to improve their efficiency. One area where the government has a role to play is in improving the tax environment for business investment.
Introducing a two-year write-off for investment in plants and equipment probably has been our main recommendation to government in the past few years. The government introduced that change in the budget before the last. However, they allowed it only for a short window. Most companies could not take advantage of that write-off. Therefore, we have asked for an extension of that measure so that companies can write off that equipment much faster when they invest in new machinery. The write-off makes that investment much more interesting from a business standpoint.
Also, we must ensure that we encourage investment in new technologies, and that we strengthen industrial innovation. We also need to help our companies. Government has a strong role to play to expand international markets; we need to open markets and have a trade policy that opens new markets for Canadian exporters. At the same time, we must ensure those rules, once they are in place, are applied fairly and consistently for all industries.
Something else the government needs to do is strengthen support for Canadian businesses as they move abroad. The Trade Commissioner Service and the Department of Foreign Affairs and International Trade play strong roles in that regard. Also, we need to help our companies connect with international business opportunities, whether in international financial institutions or with government procurement in other countries.
Again, companies need access to competitive financing. Economic Development Canada plays a useful role in that access. Their legislation is being reviewed right now and we are playing a role in that review. We are helping because they play a key role in helping companies expand into new markets, especially where the risk is higher.
Another critical success factor for Canadian companies in the current context is ensuring we take advantage of all the opportunities we have on the logistical standpoint. One big issue we face in Canada right now is the Canada-U.S. border. We need to cross the border to ship our products to our clients but the border is thickening. Not only is the physical infrastructure a problem but so is the layering of new programs and new compliance requirements that are required of companies that conduct business in the United States.
We have seen companies invest massively in ensuring their plants and their operations are secure. However, they see more of their trucks going to secondary inspection. Meanwhile, boats full of containers are coming in through ports — whether in the U.S. or Canada — that go through a single inspection. The same amount of goods going from Canada to the U.S. is inspected hundreds, if not thousands, of times.
Finally, we need a national logistics strategy. I know the Standing Senate Committee on Transport and Communications has been doing interesting work in that regard. Again, the government can play a useful role here to help our businesses. I will stop there and I look forward to hearing your questions and having a full discussion.
The Chair: You have presented well the position of the Canadian Manufacturers and Exporters. I thank you for that.
[Translation]
Senator Dawson: I sit on the Transport Committee and we are currently examining containerized freight, and part of our mandate is raising awareness. We need to make people understand that there are opportunities. Our meetings are televised so that we can tell people that there are economic opportunities throughout the world. We are specifically focusing on Russia, India and China.
At the bottom of your table, where you speak of the most pressing challenges for your members, you state that ``defending market share in other countries'' ranks less than 7 per cent. Given the decrease in exports to the United States, I hope that we will be able to help you convince them that this is an opportunity, and not just a significant challenge. I was looking at the list of your members and I noticed that several of these people could benefit from export opportunities to the three countries we are focusing on, but that they could also be partners in these three countries within another framework, the ``complex global value chains'' that have been mentioned.
In China in particular, we are increasingly seeing a manufacturing sequence, and this sequence does not occur within the same country. I would like to explain it to your members because in time we will be making recommendations to the government. How could we help you become a part of that sequence?
I agree with you that marketing constraints with the United States make crossing the border difficult. In the past, you could start assembling an automobile in the United States, finish it in Canada and then send it back to the United States. It was a simple affair. Today, the situation is much more complex and it is not as easy to cross the border to Detroit.
I see that you are following the Transport Committee and the Foreign Affairs Committee. Please pass on your recommendations to us if you have any, as you see where we are headed in the preparation of this report. We are there to help you and I think the comments you made about the border with the United States are a sad statement. You are not the first one to tell us this and we have to make sure that, to the greatest extent possible, we do not build such impervious borders with emerging markets. Brazil is often forgotten. Your members are people who can explain what we should not be doing in order to avoid making these borders too impassable.
One way to do this is to encourage your members to make partnerships with these three emerging countries a priority and to make sure that you establish a presence in these three countries in order to be in a position to benefit from business opportunities.
Mr. Laurin: On the border issue, the long-term solution is truly to have a perimeter approach. It does not make any sense that our borders separate two friendly countries that have never been at war with each other and that trade billions of goods every day. It would make more sense to put our resources into our ports in order to be in a position to receive what is coming from other continents. There have been cases highlighted in the media over the past few months concerning imported toys, for example, on the issue of product safety for consumers. This does not mean that there should not be security measures in North America.
However, we need to do more in order to engage or involve our American partners and make them aware of this situation. The Americans still see Canada as another foreign country, and borders are an issue only in the context of Mexico.
In Canada and in the United States, the same companies in the automobile sector, for example, export products in a continuous manufacturing process. It is important to raise people's awareness in the United States. There is an interparliamentary Canada-United States committee. Some of your colleagues sit on this committee. They are doing very important work. They meet regularly with Congress leaders in the States. This is the sort of work that needs to be focused on in order to resolve the border situation. In Canada, overall, government officials understand the importance of the border. We need to find a way of responding appropriately to the issues; however, on the American side the same level of criticism does not exist.
What can we do to help Canadian businesses take advantage of the supply chains or partnerships, in India or China? A few years ago there was significant concern. Not very many businesses were interested in this. Meetings were held in some areas in Canada. Invitations were extended to members to come and speak about this issue. I even saw economic development corporations or regional chambers of commerce organize missions to China or India and they were criticized for this on the basis that they were exporting jobs and helping the competition. The shift has now taken place. Businesses want to go and see what is happening there. The majority of them, a large number of them, have already gone to establish partnerships where it is beneficial for their sector or their industry.
What has prevented many businesses and what continues to prevent several of them from doing this is the fact that they are dealing with short-term financial problems, and they want to get through the current manufacturing crisis. The current focus is not that of developing new markets and establishing new partnerships.
One can be interested in China, for example, in order to reduce the product cost for certain components. The thinking would be that manufacturing this component costs a certain amount, and if it is sourced in China, then the cost will be lower and that will translate into lower costs for clients and a higher margin for the business. Several businesses think like this.
However, small- and medium-size businesses do not always have the resources. Over the short term, priorities have to be established, the efficiency of operations in Canada has to be improved, and our clientele has to be maintained. We will be working on this and developing it over the mid-term. There is an appetite for this on the part of businesses and providing them with some assistance in the short term in order to get through the crisis will help them become established in these countries.
We did a poll last year — I have not given you the results and I can send them to you. We asked those businesses going to China to open a plant with a partner, and those businesses that were obtaining supplies in that country why they were doing so. Why were they interested in this adventure? Surprisingly, one of the reasons was reducing costs, but what was just as important was establishing a presence.
We need to develop partnerships in China in order to be a player within our industry and be able to sell there, and develop partnerships. A business opening a plant in China may have a short-term goal of obtaining supplies at a lower cost; however, if we want to sell our products in China over the mid and long term, then that business has to have a partner in that country and a presence there. That is a crucial factor and we are seeing many businesses make this shift.
Senator Dawson: Have you tried to find examples of success or failure amongst members of your group who have tried this, and their level of satisfaction?
Mr. Laurin: I do have data that I have not shared with you. I can send it to you. We are working on a study along with other associations involved with China in order to obtain more of this kind of information and find out about businesses that are already in China. We are currently travelling throughout Canada to focus on this issue and on the changes that I mentioned earlier, in order to take the pulse of our members and to learn more about their expectations. We would like to know what their business strategy is in the current context. We would like to deepen our understanding of the challenges and opportunities that the businesses that have gone there have encountered.
What we have found out is that several have had negative experiences in China. The number one success factor for all those we consulted was their ability to find a good partner, whether in China or in India. Those who found a good partner have had extraordinary business relations. They are investing considerably in those countries.
The key to success when you are going to do business in these countries is to find the right business partner. The situation in China is much more difficult than it is in a country like India simply because of the language.
We have been organizing missions in partnership with the Confederation of Indian Industry. I would say that it is generally simpler to do business with India. Furthermore, in China the market appears to be more difficult to manage. It takes longer to get to know our partners and to develop a relationship of trust that will benefit both parties.
[English]
The Chair: Mr. Laurin, if you have data to share with us, we would appreciate it. Send it to the clerk of the committee, who will ensure that all members of the committee receive it.
[Translation]
Senator Massicotte: Mr. Laurin, your presence today is greatly appreciated because we constantly have a need to improve our understanding of the economy, especially in your sector which is so important for our competitiveness and our economic growth.
For several years now, the Government of Canada studies have shown that we are not spending much money on new investments. Our productivity is low compared to that of the Americans. For several years now, they have been able to reach a level of efficiency that we have not managed to reach in Canada. Eventually we will suffer as a country for this and perhaps that is already the case.
Economists are recommending that more be invested in the manufacturing and construction sectors. They are also recommending that we invest in efficient equipment because that is essential for our future. You mentioned the Canadian dollar that is very high and that puts you at a disadvantage. However, you are aware that while it puts exports at a disadvantage, it benefits imports. Have you noted an increase in imports of new machinery, new equipment, and software, that are often American products? Now is the time to purchase these types of products and invest in our future. Is that currently happening?
Mr. Laurin: To a certain extent, I would say that businesses are investing in machinery and equipment. Import data shows that there is an increase, but not to the extent that one might have expected given the current context.
Our members often tell us that the impact of the dollar is not necessarily that significant because we import a lot of machinery from Japan, Italy and Germany. The last time I checked the numbers, approximately 55 per cent of machinery and equipment imports came from the United States. There is an impact but it is not as significant as one might believe.
Furthermore, when a business does decide to invest in equipment, cost is only part of the equation. It is a little like buying a car. Just because cars are on sale at the local dealership, it does not mean that we are going to buy one immediately. Several factors are taken into account in making a decision.
Confidence is one factor. We need to know if we will have the same standard of living and the same salary. We need to decide if we really need a new car. It is because of these factors that investment in machinery or equipment has not been as significant as economists expected.
Businesses often tell us that when export prices go down 60 per cent, they do not have enough cash to make those investments. On the other hand, these businesses realize that this is important if they want to stay in business and remain competitive.
They are businesses that are not necessarily investing in Canada. They can assemble equipment elsewhere and it is in these cases that fiscal measures that encourage investment become very important. In the United States, accelerated depreciation measures were implemented for new equipment purchases.
This is one of the main reasons why we were advocating that the government implement accelerated depreciation measures. Businesses in the United States are benefiting from these measures and our members are telling us that their American competitors are in a better position to invest because the return on their investment is much higher.
Senator Massicotte: That is not surprising from what I see in the survey of your members. They are saying that monitoring and costs are their number one priority. When you look at the studies, it is obvious that from the perspective of the manufacturing sector in Canada, we are much less productive than the Americans. We are way behind.
You are saying that we should import American products such as very sophisticated software and you are also saying that businesses are not doing this. Is it possible that manufacturers have lost confidence? Even though we need to be more competitive, we need to invest, in our country there seems to be more of a short-term approach rather than a long-term one.
Mr. Laurin: In general, businesses based in Canada seem to have a positive bias. From what I can see, people want to find reasons to invest here. Somewhere they have a sense of patriotism. We often talk about China and India, but some of our members have decided to invest in the United States because that is where their clients are. Their clients are asking them why they are manufacturing in Canada if they are selling their products in the United States. In the past, it was less costly to do the manufacturing in Canada, but that is no longer the case today. Other reasons need to be found to invest in Canada.
Unfortunately for us, several businesses have decided to create jobs and invest on the American side. I think that fiscal measures are incentives but they are not the only ones. For several years it was much easier to attract investment in Canada. However, if you speak to Canadian heads of American or European subsidiary businesses, you find that these people are feeling pressured because at the end of each quarter, they are audited.
It is much more difficult for them to attract investment and even simply preserve what they already have here, in Canada, given the current context.
Senator Massicotte: As you know, when an economy is growing as it is in Canada or Austria, the relative percentage within that economy constantly goes down. In your response, you mentioned the fact that companies have the choice of whether or not they will invest, and that costs are lower elsewhere. Investing in the manufacturing sector will eventually be less costly and the cost will continue to go down in Canada. It may be at 22 per cent today, but it will go down to as low as 16 per cent. There are even some very wealthy countries where this number is 2 per cent or 3 per cent.
Mr. Laurin: Since the 1950s, the manufacturing sector's contribution to the economies of industrialized countries has been decreasing from year to year for one main reason: enhanced productivity. Fewer people are required to produce the same number of goods. In terms of manufacturing shipments, you can see an increase, and I could have gone back to 1950.
Industrial production continues to increase from year to year even though the number of employees is decreasing. The portion of GDP is also decreasing. So the rest of the economy is growing more quickly than the manufacturing sector, except that an industrialized economy remains based on manufacturing. I am thinking of countries like Switzerland or Singapore that do not have a large manufacturing industry. That is rather unique. If you look at France, Germany or Japan, they have a very strong manufacturing industry. However, they are no longer producing the same product they did 30 or 40 years ago.
We are seeing that among our members. Increasingly, the manufacturing part is less important and research and development are growing in importance. In the pharmaceutical industry, for example, the value lies in research and the development of marketing. Once they have come up with a formula for producing a drug, that is not really where the complexities lie. That remains part of the manufacturing. The ultimate objective is to produce a product and sell it.
The notion of manufacturing is changing. The best example is the BlackBerry in Canada. It is manufactured in Kitchener and the parts are imported, but the knowledge and design are what make it what it is. The organization is managed from Canada; that involves a product, but it is much greater than simply manufacturing a product.
I think we must have this change in understanding about the manufacturing sector. It is no longer a matter of manufacturing, the value lies in everything surrounding it, in the services directly linked to the company and in services like pay. In the past, companies looked after their own pay, they had their own industrial maintenance service, but today much of that is outsourced. There are specialized firms that look after that today. It is accounted for like jobs or activities in services, except that if the manufacturer is no longer there, the service disappears as well.
[English]
The Chair: Before I call on Senator Mahovlich, I wish to sneak in a question here. Otherwise, I may not have an opportunity to ask one.
Mr. Laurin, a number of comments have been made about the unlevel playing field in competing with these new emerging economies, particularly in the area of regulatory regimes: rule of law, labour laws, environmental laws and so on.
Is your association dealing with that issue or concerned about it?
Mr. Laurin: Some of our members definitely have concerns. They feel they can compete with anyone around the world as long as the playing field is level and the rules of the game are applied equitably.
When you talk about labour and environmental standards, every country is sovereign and has its own regulatory framework. It is hard to regulate trade in that situation. There is the principle and then there is reality. How do we trade even with the United States? There are discussions in the United States right now that, perhaps, they should open NAFTA because of these elements. How do we take that into account in any type of agreement?
I am not sure that is the best way to deal with trade. You are talking about China, India and Russia. They are developing countries; to an extent, you must compare them with other countries that have been developing. Canada was once a fast-growing country, as well. I think they are on that path, too.
When we talk to people, either in business or government in these countries, they see the situation evolving rapidly in terms of wages, standards and so on. The countries are developing and we must take that into account.
When it comes to the global trading regime and a level playing field, one thing we care strongly about is rules. We have a lot of people in Canada and around the world negotiating trade agreements and negotiating at the level of the World Trade Organization, WTO. We fight hard for these rules and to ensure that they are as advantageous to Canada as possible. However, the issue is enforcing these rules.
We have members that have used the trade remedy process that is in place. However, many companies now say it is not a level playing field and they are victims of dumping or counterfeiting. The onus, however, is always on the Canadian producer to prove it. The process is complicated; trade remedies are complex. If they are in a business and making a product, it is hard to become familiar with that process. They need to hire outside expertise, like lawyers. That expertise can become costly quickly. They need to become organized within their industry. These requirements all cause delays. Once they reach the point where Canada Border Services Agency determines that, yes, there is a case, and they go to the Canadian International Trade Tribunal, even if they obtain a ruling that is positive, two rulings have been completely ignored by the government: the bicycle case and the barbeque case.
I do not know if anyone has talked to you about those cases, but they set a dangerous precedent. Why would companies go through this whole process and obtain a favourable ruling only to have the government ignore it?
That is where we hear a lot about the process. It is important to ensure the rules are applied. We have many people working on negotiating the rulings, but enforcing them is always complicated.
You are talking about the emergence of China. They are growing rapidly. Things are happening there that would not necessarily happen in Canada. What is the appropriate way to deal with them? We have rules in place. We must ensure we can use these rules without requiring companies to use a long or costly process.
Senator Mahovlich: Is it easier dealing with Russia now than it was in 1972? Are things improved for a corporation to go over to Russia to deal with the Russians? A few years ago, the Russians took over a Canadian hotel.
Senator Stollery: I know that story. There is a catch to it. They basically swiped it.
The Chair: Apart from the story, perhaps Mr. Laurin can make a comment.
Mr. Laurin: There are a lot more linkages now than before between Canada and Russia from a business perspective. I hope you will hear from the Canada Eurasia Russia Business Association because they are right in the middle of it. Perhaps you have heard from them already? A lot of activity is happening between the mining sector in Canada and Russia. Russia is investing heavily in its railway infrastructure and Canadian producers have a lot of solutions to offer. Bombardier recently committed to a partnership with a rail supplier in Russia because the market is booming in that sector.
In some specific sectors, we have seen strong growth in trade between the two countries. However, for the average manufacturer I would say that Russia is not on their radar screen. Most of the growth in Russia has been based in the resource sector.
If companies are in the resource sector, or a supplier to the resource sector, they are trying to find partners there and do more business. However, people always tell them to be cautious about that market. It can be rocky doing business there.
However, we have a number of members doing business in Russia and they are raving about that market.
Senator Mahovlich: We were told the other day a ship came through the Hudson's Bay to Churchill and loaded up with goods. It was easy and convenient for them. Will this shipping continue? Do you know about it?
Mr. Laurin: I am not aware of that particular shipment. However, from a logistics perspective, there are tremendous opportunities in going through the Northwest Passage. It makes the distance to Russia much closer.
Senator Mahovlich: Distance is the problem. The convenience of dealing with China, India and Russia is the distance that we must travel. However, if we deal with the U.S. and we can keep our border open with them, that trade is much more convenient for us.
Mr. Laurin: One great competitive advantage that Canadian companies have is proximity to the U.S. market. If a client needs something right away, we are right there. Most of the Canadian population is close to the Canada-U.S. border.
However, I think you are saying that logistics matter. The world is shrinking. I was with a member in Nova Scotia not long ago. It is cheaper for that member to ship goods to China than it is to ship across the Atlantic to Europe because we are sending empty containers to China. If we put something in those containers, they will not charge much because they need to take them back to China.
In one way, the world is shrinking. However, we need a logistics strategy to ensure that our trade advantage — the proximity — with the U.S. is not lost because of security requirements. Obviously, we must show that our shipments are secure but there are ways to do that and to keep the border running smoothly.
On the other hand, in one way these countries are far away; in another they are becoming closer. We need to ensure that the goods that come into or leave the continent transit through Canada because that is a big proportion of our business.
Senator Mahovlich: Is the quality improving? Is the quality of goods, say, from China and Russia, improving? Germany always made excellent goods. This quality was why they did so well.
Mr. Laurin: A few years ago, when we discussed this issue, the quality of Chinese products was bad. There are still a lot of concerns about the quality of Chinese products but that is where having a good partner is important. Some of our members source components from China. Obviously, the components need to have inspections when they come to Canada but China can produce high quality goods. The newest plants in the world are being built in China. They have the latest technology and equipment.
They can produce high-quality, high-end products. However, at the same time, they produce some of the lowest- quality, lowest-end products in the market.
Senator Mahovlich: It is buyer beware.
Mr. Laurin: Exactly; some companies learned their lesson the hard way. For example, we heard about Mattel last summer. They thought they were buying a certain product and there were some things in that product that they did not know were there. Companies must be careful.
Senator Stollery: I am looking at one of the charts, ``Export Performance 2007,'' and it is interesting. We are aware of the exchange rate issue. Years ago, this committee basically wrote the report that is used at the research bureau on the importance of exchange rates in our trade with the U.S, so we are knowledgeable about that issue.
People talk about productivity and all of that. In fact, although I do not understand the logic, a lot of people said the dollar should be higher because a higher dollar will cause us to raise our productivity.
In the chart ``Export Performance 2007,'' the year-over-year percentage change shows that the U.S. is down 3.8 per cent — in their exports, I presume, correct me if I am wrong. Japan is up 5.6 per cent and the European Union is up 6.2 per cent.
I find it odd, because the U.S. dollar has declined and the euro has gone up dramatically against the U.S. dollar, so the European Union exporters have the same problem, maybe even worse, that we have, for the same reasons. In Japan, the yen is running around CAD 100 or CAD 103, something like that, and their exports are up and U.S. exports are down.
It seems to me that if the U.S. dollar is down, the U.S. exports should be up because their dollar is cheaper. What is the story here?
When we talk about exports of manufactured goods or imports as a merchant who is buying this stuff, I have had a little experience with this situation, and changing suppliers is a major decision for a merchant. They do not change suppliers based only on the price. There is a lot more to the decision than price. There is the reliability, the quality, the fact they know the people and they have dealt with them for 30 years; they do not rapidly change that relationship. At some point they might, but it is not done quickly. I suspect that Canadian exporters have not yet faced that particular obstacle because many customers will stick with them, thinking maybe the dollar will fall and all that.
Then I look at this chart. The Canadian companies that export to the U.S. — furniture companies and many businesses, you can take your pick — are closing and jobs are lost; yet I see the same problem in the European Union, a worse problem than we have, and I think of my own purchases. At Christmas, I bought a $2,200 pair of binoculars from Austria. I am a birdwatcher and I bought Swarovski binoculars, which are commonly used by birdwatchers because they are the best binoculars in the world. I am not an unusual person in buying that kind of quality. The binoculars are the most highly rated in the world.
I did not buy a crappy pair of binoculars because I take my hobby seriously. I kept saying these things will go through the roof because of the euro, but a store in Toronto at Bay and Bloor in the Manulife Centre sells not the binoculars, but the crystals. At the corner of Broadview and Eastern Avenue, where I take my expensive BMW 1200RT motorcycle for service, they are doing a land-office business in the most expensive motorcycles in the world. Why; because of quality, that is why.
No one uses the word ``quality'' enough in this country, it seems to me. When I look at these figures, they are dramatic — a 6.2 per cent increase in exports from the European Union is dramatic. I assume it is outside the euro zone; it may not be. Why are we not able to compete with quality?
I looked at the figures this morning for the U.S. The U.S. debt-to-GDP ratio is over 50 per cent, approaching 55 per cent. The military expenditures are over $1 trillion a year. I do not see how it is sustainable. Therefore, it seems to me obvious that the dollar has not finished its decline, which then will impact on Canadian and all other exports to the United States.
That is why the committee, under the able leadership of our chair, is talking about the Asian markets, the new markets. Obviously, the U.S. will remain an important country to us; it is only down the road. Nevertheless, we must deal with this emerging scene.
You are here representing the Canadian manufacturers. Why is it that we do not hear the word ``quality'' mentioned often and why are we unable to compete? I know we do in some areas, but why are the European Union exports going up and ours are going down?
Mr. Laurin: That is a good question. I think you are right when you say we need more companies in Canada that are like the company that makes your binoculars. I do not think you cared so much about price when you bought them. You wanted the best that was on the market and that is what you bought. We need more products in Canada like that one.
That is what you are seeing in companies. A lot of them were built in Canada in the 1990s. They grew their market share in the U.S. because their products were cheaper than products made in the U.S. or elsewhere. Now they realize if they want to stay in the marketplace, they need to be a global player that is among the best. It is more expensive to manufacture, to produce here, so we need a product that is among the best in the world.
That is why we use the example of BlackBerry so much. They came out with a leading edge product that people will buy because it is the best on the market.
Senator Stollery: Absolutely; the other slide I am looking at here — ``Most Pressing Challenges'' — has about 10 or 15 bullets and none of them says quality in the documentation you have given us. It is interesting, and I think it confirms what I am saying about Canadian manufacturers. Nowhere in here do I see the word ``quality.''
Mr. Laurin: What you are calling quality, a lot of companies would call innovation. You are talking about a product that is innovative, that is among the best; they would call that innovation. They would say they want to innovate, to be always on top of the competition because they have the most advanced product.
In terms of quality, in reference to a lot to manufacturing operations, that means making sure their product is exactly the same as their specifications. To manufacture anywhere around the world right now, they must produce quality with the smallest number of defects possible. Quality refers more to defective products. What you refer to is more innovation. At least that is how our members would refer to it.
A good example of what you describe is IBM, who has a manufacturing plant in Bromont where they produce modules for game consoles and high-performance computers. Their business strategy is interesting in that their products are not price competitive at all. I believe they are about 15 to 30 times the price of what those products would cost to manufacture in China. However, their competitive advantage is the collective brain of their 2,700 employees in Bromont. Their current production was conceived in the last 18 months. What they will produce 18 months from now no longer exists.
They are constantly innovative. They come out with higher performance products and innovative solutions. When Nintendo or Sony comes up with a new product, IBM is there from the beginning to research and develop. Once the product has been on the market for 18 months, they generally sell the production process to a low cost company in Asia and collect the royalties. That strategy is a winning one for many companies.
You say we need to stay on top of the game and have products that no one else around the world can make. In that way, people will buy from us because we make the best and they cannot buy them anywhere else. We then have a clear competitive advantage over the competition and, once they become a commodity and people have caught up, we will sell our patent or collect the royalties when we find other people to manufacture the product for us. More companies are trying to move into that business.
Senator Stollery: I notice that most of these companies in Europe are family-owned.
The Chair: I have some sympathy for our deputy chair's position. I would use the word ``reliability'' as well. We want a product that can be used for a long time without breaking down. I believe that is what Senator Stollery refers to, although I am not trying to put words in his mouth. We have not focused as much on reliability as we could have in this Canadian environment.
[Translation]
Senator Nolin: I hear my colleagues talking about quality and I have the impression that it is somewhat contrary to the commercial approach. Perhaps quality is important for industrial products, but for commercial products, let us be serious: I do not think there are many manufacturers who want me to keep my toaster for 15 years. They want my toaster to break down within two years and for me to buy a nicer one, a bigger one, a more enhanced version, but one that will not last very long. With the quality cycle, I have the impression my colleague Senator Stollery has identified a serious problem: I think the desire to produce a quality product from the outset has been lost. But that is not my question.
One of the questions raised by Senator Stollery dealt with knowing whether European data includes trade beyond the euro zone or within it.
Mr. Laurin: The figure that I gave you, the 6.2 per cent, represents Canadian exports to the European Union.
Senator Nolin: And that represents our performance in that region?
Mr. Laurin: Exactly. Perhaps my title was confusing.
Senator Nolin: That is a lead-in to my next question; I am looking at the 16.9 per cent figure; we are currently examining the markets in three countries.
Mr. Laurin: In large part.
Senator Nolin: No doubt you were asked this question already, I remember putting it to you in another forum: Is the government a good partner to your members abroad in terms of exploring, developing and finalizing markets? Is the Government of Canada a good partner to your members, and if not how could it be? You are not required to give me a verbal answer now.
[English]
We would ask for a written answer to such a long question. I am sure it would be appreciated by the witness as well.
The Chair: Mr. Laurin, would you like to give us a verbal answer? When you have additional information to provide, we would welcome a written response. You may wish to address Senator Nolin's question now.
[Translation]
Mr. Laurin: I will forward the information. I promised data to some of your colleagues and I will try to send you a more detailed answer.
I think the government has a fundamental role to play. There are provincial governments, but in terms of international trade, the federal government has a role to play, obviously, particularly when we talk about emerging economies such as China, India and Russia, and also all the other developing countries. The government has a critical role to play in those countries.
If you are asking about the United States, the government has a different role to play. But, with regard to developing countries, the government has a role to play, not only to provide market information and to have people on the ground helping us to find partners, but also in helping us learn about the local culture. It also has a role to play in terms of the risks, and in identifying business opportunities, because often, in China or in other countries, be it in Asia, Africa or elsewhere, the local government is the number one buyer and has an important if not preponderant role in the country's economy. So, it is important for the governments to talk to each other; the Canadian government can provide a great deal of assistance to Canadian companies when it comes to opening doors, be it by taking part in projects, by helping with feasibility studies or technical assistance, or through established government programs. In the past, there have been a number of federal government programs that have been useful for Canadian companies.
I would say that today there is a bit of a chill. I think that the government could be doing more and I know that there are discussions currently being held within the government. We want to look at the best way to support Canadian exports and Canadian companies that want to enter certain high-risk markets. A company that has never exported will not be tempted to start with Africa or Indonesia, but rather with the United States. Increasingly, we want to encourage companies to go to those regions because those countries, as I said earlier, are experiencing economic growth. We need to be there, that is where the action is.
Senator Nolin: Therein lies my question. The involvement of the state is important, I think that no one can deny it and that you are confirming it. I am assessing the service performance.
I think that we will need to be more specific. I heard your answer, but I think that a Senate committee studying this issue is looking for answers to those questions and witnesses such as you can help us to move forward.
Do not be afraid to touch upon areas that are more fluid, let us say. Put aside your fear of public administrators and do business with us. Write us and think about your answer and write us. It is important that we understand what your members' needs are and what the Canadian government can do to assist you.
Mr. Laurin: May I ask a question?
Senator Nolin: Of course. It is unusual, but it happens.
Mr. Laurin: I would like to know how much time you have to complete the exercise that you have begun?
[English]
Senator Nolin: Mr. Laurin would like to know the committee's time frame.
The Chair: Certainly, it will be a few weeks — I would say until the end of the summer because this is only the beginning of our study.
The information is important for us but it is also important for Canadian manufacturers and exporters because the information we gather will be used to make recommendations to the Government of Canada. I will take it one additional step and say, do we supply research material for you when you phone the people in Canada for background information on the economies, companies, trade representatives, countries and regions to assist you in assessing available opportunities. Is the Export Development Corporation useful? Are all those things that we have put in place of more or less value to you today? Are they more important? Are there things that you think we should do that we are not doing now. If you provide us with those answers, they will be taken into the evidence of the committee and considered in our report.
[Translation]
Senator Nolin: Mr. Laurin, I would add to that not to hesitate; outside of these rooms, we often hear people say, you know, the consular services are there, but they do not really help us very much. We go to see them to be polite because we do not want them to work against us, directly or indirectly, but we do not count on them too much. Listen, we approve those people's budgets every year. We need to be convinced that this investment is effective. That is why we are doing this study.
Mr. Laurin: We will send you a series of detailed recommendations. The reason I asked the question is because we are currently undertaking consultations with our members across the country; if I could provide some new examples and provide grist for the mill, with new figures, we will have a lot of material to share over the coming weeks and months. I could send documents as early as next week.
[English]
The Chair: We would appreciate that. In particular, we would like to see any experiences that your members have had, both positive and negative.
Senator Smith: I want to talk about competing in this global economy as well as to understand what the reasonable targets are where we can hope to export our products and be competitive, both in terms of exports and also protecting our home base.
Let us use the auto manufacturing sector as an example because that sector has been at the heart and soul of Ontario manufacturing for years.
The challenge is not only productivity, it is also marketing. I will describe a personal experience. A couple of months ago, I needed to buy a new car. All my life, I have bought North American cars, and part of that decision was loyalty. For 20 years, I have bought Buicks or Cadillacs from Addison Motors.
Last year they closed. I live in downtown Toronto, at Bay and Bloor, right in Yorkville. There is not, at present, a single GM dealer, a single Ford dealer or a single Chrysler dealer in central Toronto. They are not there. There is an Audi dealer, a large BMW dealer, a Mercedes dealer, a Volvo dealer, et cetera. I talked to someone about this several times. It was frustrating. We are not only talking about quality.
I understand Senator Stollery's point. I like that Cadillac. I would have bought one. The closest dealer is Etobicoke. For the first time in my life, I bought a foreign car. The government at present is talking about free trade with Korea. They are already competitive. They will be even more competitive.
Is there any realistic chance that we will export cars to Korea? I want to believe it will happen. However, when we hear about all the hurdles they are throwing our way it makes me want to tear my hair out. I do not want to see Canadians revert to being ``hewers of wood and drawers of water.''
In what markets can we reasonably compete in our car exporting? Can we maintain our exports to the States? Their markets keep shrinking.
If we go to downtown Toronto these days and look at the cars on the road, they reflect the dealers that are there. They are not North American products.
To what extent can government policies be relevant, strategic and helpful? I know that Buzz Hargrove is talking in a new way, which I think is trying to be strategic.
We are not even talking about these new $2,500 Tata cars from India or the cars they are building in China. I do not know if you can shed any light as to why the government is talking about free trade with Korea at the moment, but those are my frustrations. I pick from personal experience and any light you can shed on those things would be interesting.
Mr. Laurin: First, I will say a few words about the negotiations with Korea. We have expressed strong concerns with those negotiations. The auto sector could be seriously impacted by the trade agreement.
We must look at trade in a larger perspective. In general, we are probably one of the most pro-free-trade associations. We have a strong positive feeling towards free trade. On the other hand, we must ensure that it is trade.
Will Canadian companies effectively have access to the Korean market where, for years, they have found ways either through standards, permits, certifications, shipping through a certain port, et cetera, to —
Senator Smith: It is a one-way street.
Mr. Laurin: Yes, do they really want to trade with Canada? That question is the fundamental one. If they do, there is business to be done there. We mostly export raw materials and some agri-food products to Korea right now. Access to Korea is important to those producers. We have members who conduct a lot of business there and they want the trade agreement to work. On the other hand, it must be ensured that Canada will benefit overall as a country.
That is the nice thing about trade. It is not one person who wins and the other loses. Both parties should win by doing business with each other. The concern we have with the trade agreement and the way it is being negotiated is, will it benefit Canada as an economy?
The other issue you mentioned is how to compete with China, India or Korea, especially when talking about cars. A lot of companies try not to compete; their solution is not to compete with China but to do things it is not able to do yet.
In the car sector, we are talking about quality. There have been independent studies conducted on the quality of cars that come out of foreign plants and Canadian cars consistently — especially Buicks — rank among the highest quality cars out there. That is one element where they can differentiate themselves.
Car manufacturing in Canada is going through many changes because manufacturers must cope with those changes. A lot more low-cost cars will enter the market from other countries. Manufacturers realize it is a long-term trend. Therefore, they are trying to stay ahead of the game.
Innovation is something that is easy to say but takes a lot of time to do, especially when we are talking about large organizations. We are talking about fundamental shifts in their business strategy.
However, the car sector in Canada is one we should be proud of. Canada has one of the strongest centres of excellence in manufacturing, mostly because of the automotive sector in Ontario. Many countries, states in the U.S. and provinces would love to have a strong automotive sector like the one in Ontario. We must ensure we keep that sector. It has been the base of Ontario's economy for a long time.
The Chair: Take this as a question you can answer in writing if you do not know the answer. I went to a presentation by Dennis DeRosiers on the automotive industry. He stated emphatically that the domestic automotive manufacturers are losing market share to a degree where they are laying people off. I think we know that. However, he also said that the foreign manufacturers in Ontario — those foreign companies that are manufacturing cars, whether it is in Alliston or St. Thomas — are increasing their market share and are hiring people. I have tried to confirm this information and have been unable to.
Is that true? If you do not know, can you find out for us?
Mr. Laurin: Two of the three most significant investments in the automotive sector in Ontario were from Japanese car manufacturers: Honda and Toyota. We have to look at not only manufacturers based in the United States, but those based abroad. Some U.S.-based manufacturers lately have had financial troubles well documented in the media. That explains why they are doing some extensive restructuring right now. Foreign-based companies seem to weather the storm a bit better.
I am by no means an automotive sector expert. I do not know if you had a chance to meet with the Canadian Vehicle Manufacturers' Association, but they should definitely be invited here because they have views on this issue.
The Chair: We will discuss this issue with them when they come before us. It is on the list but I do not know exactly when representatives will appear. I only wanted to know if you had an opinion on that issue.
Senator Johnson: On your website, you say:
Our mission is to continuously improve the competitiveness of Canadian manufacturers and to expand export business.
Can you highlight some of your Canadian success stories that you talk about here? Also, what are you focusing on now? How do you prioritize the issues in your lobbying work for the industry and exporters?
Mr. Laurin: To prioritize our issues, we talk to our members continuously. We have a number of different ways to consult our members. We have a national board of directors that plays a strong role and our board must agree with our policy positions.
We have a number of policy committees with policy experts — for example, a committee on customs and market access. Members of these committees are people at a senior level and they are experienced in these issues. Whatever position we take on customs, we will develop it with our members through those policy committees.
Then we consult our larger base of members through, for example, our annual management issues survey. I provided you with some of the results from that survey. Consulting our members in the association is something we do all the time. It is something we do through various means. We ensure that whatever position we take on an issue, our members are comfortable with it, and that the position we take and the issues we prioritize are relevant.
In the short term, a priority for most of our members is to ensure they can remain competitive and profitable, or can return to profitability. That is why most of our advocacy efforts are focused on things like tax issues — not asking for general, across-the-board tax cuts but more targeted tax cuts for machinery and equipment, ensuring that we invest in technology and innovation, and in upgrading the skills of our employees. That issue is probably one of the issues we focused on the most. Obviously, there are other issues. The last two or three slides in my presentation outline some of our policy recommendations.
To answer your first question — what are some of the Canadian success stories — there are a few. I can talk about a few of them that I am sure you have heard about.
Senator Johnson: Perhaps you can give us a couple or you can submit them.
Mr. Laurin: I can submit case studies of Canadian companies that have enjoyed success.
Senator Johnson: It is nice to hear about them once in a while and, from your perspective, how we are doing.
The Chair: Let us give him some applause publicly over the airwaves. At 3 a.m. tomorrow morning, if you are up, you will probably see this meeting. Do you have some examples that you would like to share with the committee?
Mr. Laurin: I would love to do that because we are not asked that question often.
Senator Corbin: Do it. Give us names.
Mr. Laurin: You often hear about Bombardier, for example. That company is based in Quebec. They started with a Canadian invention and eventually diversified into other markets. Now their products are all over the world. They are a global company. They are Canadian because their headquarters are here, but they are really a global company — they hire and employ people from all over the world.
Senator Mahovlich: I hear they are moving to another country, are they not?
Mr. Laurin: Not as far as I know.
Senator Mahovlich: I heard there was a tax problem or something.
Senator Corbin: They were moving to Wisconsin or Minnesota or something like that.
Mr. Laurin: I will send you a list of some of the smaller companies. I want to check with them to make sure they are comfortable with it. You often hear about the Bombardiers, the large companies, but you do not hear about a lot of the service companies that do business in so many different developing markets that it is unbelievable. You have never heard of these companies most of the time.
One of our members is an agri-food company. They manufacture a special type of bean. They are active in some of the most exotic markets that you will have heard about because there is a demand for that specific niche-type of product. They have about 10 employees, maybe 15 maximum, and they conduct business in all these countries. They are agile in international trade, yet they do not employ a lot of people. You should hear some of those stories, namely, about companies conducting business around the world.
Senator Johnson: They are making a lot of inroads. Legumes are exported a lot from Canada.
Mr. Laurin: Yes, in the papers, we tend to hear about the larger companies. They play an important role but there are a lot of medium- and small-sized companies. Talking about China, a lot of medium-size companies are conducting extensive amounts of business over there. I will provide you with specific examples.
Senator Nolin: Give us a list.
Mr. Laurin: Obviously, before we say any name, we like to ensure that the company is comfortable with providing it.
Senator Johnson: Yes, give us a list, please.
The Chair: I want to ask a question on technology transfers. We have heard, both in committee and privately outside the committee that one concern people have when they partner with some organization in emerging economies such as India and China is that the technology they bring to those countries is often copied and stolen. Do your members have that kind of problem? Do you hear these kinds of issues?
Mr. Laurin: Part of the information I will send you after this meeting will deal with some of the issues our members have when they conduct business in China specifically. One issue is that they are afraid their patents will be stolen; they have heard about some of the cases.
It is true that companies have been victims of patent infringement or they have had their intellectual property stolen. I do not think the issue is only with China; it is also an issue in Canada. Your committee should make recommendations to ensure that we have the right laws and regulations in place to protect intellectual property. That is one side of the equation. The other side — and we tend to neglect it — is enforcing those laws and regulations.
For example, the government has been looking at revising the Copyright Act, which is long overdue. We not only need a new Copyright Act; we need to ensure there are resources for enforcement.
We have a member in southern Ontario where there is a clear case of counterfeiting. Someone has imported replicas of this member's product; the products are counterfeit and come from China. The member is liable to an extent because people buy these products thinking they come from the member's company but they do not.
Convincing the public authorities to address that issue has been a real problem. The RCMP does not have a lot of resources to tackle this problem. They have decided to focus their resources on other elements. They need to take this issue much more seriously and dedicate more resources toward this problem. The Canadian authorities need more resources to tackle this problem because we are talking about an economy that is moving into a more knowledge-based economy. We need to ensure that we protect the knowledge that goes into a product.
The United States raises this issue continuously with Canada. Most counterfeit goods that go into the United States transit through the Canada-U.S. border. They come through a Canadian port and eventually cross the border into the United States.
I was recently in Washington and we met with some of our member companies there. That issue was one that most, if not all, raised. Not only is it an issue for their company, it also hurts Canada-U.S. relations.
You talk about the border and how we want the Americans to be less concerned about security at the border and trust us; but for them to trust us, we must show them we can be trusted. Counterfeiting and making sure we fight piracy has been a major challenge for us.
The Chair: Mr. Laurin, that kind of information is exactly what we hoped to receive from you. It will be helpful as we continue our deliberations on this issue. If you or your members are interested in conveying additional information to the committee, please contact the clerk of the committee so that it is taken as evidence.
[Translation]
Senator Nolin: I would like to better understand the table that you have provided which, honestly, misled us slightly, at least it did me and my colleague Senator Stollery. If I take the table from the preceding page, destination of Canadian exports in 2007, am I to understand, if I read the two tables that follow, that there was a 1.1 per cent drop in performance in 2007?
Mr. Laurin: Exactly.
Senator Nolin: So, I can apply the results I see on the next line to each of the destinations?
Mr. Laurin: The first slide where you see a pie chart, of the destination of Canadian exports, is on page. . .
Senator Nolin: I am trying to read or put the two together.
Mr. Laurin: The pie chart?
Senator Nolin: And the one that follows. I am trying to see the correlation. Let us take the case of the countries we are currently concerned with, which would be included with all the other countries. So this represented 9 per cent of our exports in 2007, so our performance was nearly 17 per cent compared to the previous year. Have I properly read both the charts?
Mr. Laurin: The pie chart refers to the destination for exports in 2007; 75 per cent went to the United States, 9 per cent to Europe and 2 per cent to Japan, the second chart with the curves is growth over the previous year, that is 2007 compared to 2006. So exports to the U.S. dropped by 3.8 per cent in 2007 compared to 2006.
Senator Nolin: But in the case of American exports, that is, the 75 per cent in 2007, that was not 78.8 per cent the previous year?
Mr. Laurin: No.
Senator Nolin: Hence the importance of the study we are doing. A 17 per cent increase in the performance of our exports in all other countries that are not our traditional industrial allies is a non-negligible economic element.
Mr. Laurin: There is an element that is not reflected in the figures; there are Canadian enterprises that will open factories in China and they will not necessarily export products directly from Canada, therefore, in trade statistics, it does not count as an export. However, a Canadian company will open a factory in China and sell its products on the Chinese market, but it does so from a factory that it has built over there. A few years ago, there was great reluctance to help Canadian companies set up business abroad, but if we want Canadian companies to become world-class players, we must help them to globalize their production.
Senator Nolin: Do you have any statistics about this?
Mr. Laurin: Statistics on this subject are practically non-existent. I have some statistics on Canadian investments abroad that I could share with you. But unfortunately, the statistics on international trade do not keep up with the rapid pace of new trends. There are several factors that we cannot get in the statistics, but I have some documents I can send you.
Senator Corbin: For further clarification, you said that the International Monetary Fund was the source of some of your tables. Should I conclude that all the other tables were produced by you?
Mr. Laurin: All the economic data have been taken from the International Monetary Fund, except the data on Canada's trade, which comes from Statistics Canada.
Senator Corbin: I see; but that is not mentioned here.
Mr. Laurin: When the figures come from the IMF, it is indicated. All the others come from Statistics Canada, except the slides which are based on our own survey. I do not even put this in writing, because 90 per cent of the statistics we use come from Statistics Canada.
Senator Corbin: I would like to clarify this. We are discussing exports in general, and you are from the manufacturing sector. For instance, in the table, the pie chart of the destinations of Canadian exports in 2007 includes the entirety of Canada's exports, does it not? This is not only the manufacturing sector?
Mr. Laurin: It is the total picture.
Senator Corbin: Your tables are not always clear; it is not always easy to determine what you are referring to, exactly. Therefore, when giving additional information to the committee, could you be more precise in giving the sources or explanations? Indeed, some of these tables can be rather complicated to interpret. Thank you.
[English]
The Chair: This discussion has been most interesting and useful. Thank you for appearing before the committee.
The committee adjourned.