Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 11 - Evidence, June 3, 2009
OTTAWA, Wednesday, June 3, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to continue it's 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: I welcome everyone to the meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The committee is continuing its special study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Appearing before the committee today via videoconference is Mr. Raaj Tiagi. He is a senior economist at the Fraser Institute's R.J. Addington Center for the Study of Measurement. Mr. Tiagi has an MA and a PhD in Economics from the University of California, Irvine. He co-authored with Mr. Lu Zhou, the report entitled Canada's Economic Relations with China.
Raaj Tiagi, Senior Economist, R.J. Addington Center for the Study of Measurement, Fraser Institute: I would like to start by thanking you all for inviting me to present this report. I will quickly go through my presentation, and I believe you have copies with you already.
The key point we are trying to get across is to show that, while Canada's economic relations with China have grown significantly over the last decade or so, there is still a lot of scope for further improvement in this relationship.
Keeping in mind the time that I have, I would like to talk about three key aspects of this relationship. The three aspects are merchandise trade relations with China, Canada's services trade with China and foreign direct investment with China. I will then quickly compare Canada with its competitors and the policy implication for Canada.
The first aspect of this relationship that I would like to talk about is the merchandise trade relations with China. As you can see from figure 1 on slide 4 of the presentation, Canada's merchandise trade with China is extremely small, approximately 6 per cent of Canada's overall trade as of 2007. The United States is by far Canada's largest trading partner, accounting for about two thirds of Canada's overall trade in 2007. However, if you look at trade over the years, then trade with China has certainly increased. It equals about 2 per cent of Canada's overall trade in 1998 and was 6 per cent in 2007. Exports to China have grown dramatically. In fact, exports between 1998 and 2007 have expanded by about 250 per cent. As of 2007, China was Canada's third largest trading partner. Imports have grown dramatically between 1998 and 2007, and China is the second main source of imports for Canada, or was as of 2007.
This higher growth in imports from China against exports to China has resulted in huge trade deficits with China, and the trade deficit with China was $135 billion as of 2007. However, when we look at Canada's trade with China by Canada's provinces, Ontario seems to have the largest trade deficit with China, but there are provinces like Alberta and Saskatchewan that actually have small trade surpluses.
Taking a quick look at Canada's exports to China, these consist mainly of minerals and forest products with pulp mills accounting for about 60 per cent of Canada's exports. Imports from China consist of manufactured products. Computers and equipment manufacturing consists of the largest share of these imports from China.
The second aspect of the economic relationship I will talk about is the services trade with China. Again, like merchandise trade, services trade with China is very low; it is about 1 per cent of Canada's overall services trade as of 2005. That was the latest year for which data was available. Over time, services trade has certainly increased, but if you look at services imports, they have increased but not by as much as the increase in merchandise imports.
If you look at services exports, they have also increased quite a bit, but again not as much as merchandise exports to China, and this is between 1998 and 2005. However, what is different about services exports vis-à-vis merchandise exports is that Canada actually has a services trade surplus with China in its services trade.
The third aspect of this relationship that I will quickly talk about is foreign direct investment. Between 1998 and 2007, Canada's investments in China grew dramatically by 300 per cent and were valued at about $2 billion Canadian in 2007; they are definitely low when you compare the investments in the U.S., which are about $226 billion. On the other hand, China's investments in Canada have also grown by about 170 per cent and accounted for about $928 million Canadian as of 2005.
How does Canada compare with other countries? We looked at Australia because Australia has a similar resource and economic base as Canada. We found that Australia seems to be more integrated with China than Canada. If you look at import-to-export ratios with China or the growth in trade deficit, Canada seems to import more from China and export less; Australia seems to export more to China and import less, and Canada's trade deficit with China has grown by so much more than Australia.
Looking at this from the other direction, again Australia seems to be better integrated with China than Canada is with China. Again, China imports more from Australia than Canada, and it exports kind of the same amount to Australia and Canada.
I should stress here that the aim of this comparison is not to say that trade should be balanced between the two countries or that trade between Canada and China does not reflect economic realities but really to show that there are unexploited opportunities available to increase benefits from trade that can actually enrich both countries.
What does this all mean for Canada and its economic relations with China? I think it is simply Canada must expand and diversify its trade with China. In particular, Canada should tap into China's growing second- and third-tier inland cities, and Canada needs to market its new products from its retail sector, its new technologies and increase the services trade with China.
I think it is important for Canada to sign the foreign investment promotion and protection agreement with China. This would certainly help investments from both sides to actually increase quite a bit. Canada does not have an improved designation status with China, so if signed, this agreement would allow Canada to tap into China's lucrative tourism market.
Senator Stollery: In your presentation I was struck by the fact that only 66 per cent, you said a little more than two thirds, of our trade is with the U.S. whereas three years ago it was 86 per cent, so our trade is down enormously, 20 per cent of our trade. I say that in the context of pointing out that I have been told by the chief economist of Goldman Sachs International that the Chinese contribution to global domestic demand and global growth in GDP is forecast to be greater than that of the EU and the U.S. combined.
Your forecast agrees with or emphasizes the fact about our own trade in this country. The U.S. is only 50 miles down the road from Ottawa, and yet, our trade has dropped in the last short period of time by about 20 per cent. It is only 6 per cent with China, which I think is probably a significant increase over the last three years. Am I correct?
Mr. Tiagi: That is correct.
Senator Stollery: What do you think we should be doing? We all know the U.S. is in a relative decline. No one is arguing or ever would that the U.S. will not always be a major customer for Canada as we will be for the U.S. because we are neighbours, but this sounds serious. It sounds to me like we should take China more seriously than we have been doing. What to you think about that statement?
Mr. Tiagi: That is exactly what they are trying to put forth in this report. It is not as if we should increase our trade with China at the cost of reducing our trade with the United States.
Senator Stollery: Nobody would argue that point.
Mr. Tiagi: We should take steps to develop our relations with the United States as well and question why trade has declined in the past few years with the United States. However, at the same time, there is potential for Canada to increase its trade with China.
In the report, we look at many ratios. For example, we look at export propensity ratios, and they tell us that we have much more scope to increase our exports to China and we should do that, and that is exactly what I tried to put forward in our presentation.
Senator Stollery: Mr. Chairman, I think the figures speak for themselves, and I would be happy to give the floor to the next questioner.
The Chair: A number of different barriers exist when dealing in trade. I am interested in your thoughts about non-tariff barriers in export to China and to other countries. Can you tell us what you feel are the most difficult and non-tariff barriers that China puts up to discourage the importation of Canadian products?
Mr. Tiagi: That issue needs to be resolved. That is why in this report we also talk about these other agreements that need to be in place so you can have more trade with China. For example, we talk about the foreign investment promotion and protection agreement that needs to be in place to overcome all these barriers that we face in our trade relations with China. When we do that, that is a step in the right direction, and that will help trade increase between the two countries.
Senator Wallin: According to your executive summary, our trade with the United States accounts for two thirds of our overall trade but accounts for 80 per cent of our merchandise goods and 58 per cent of our services.
My question is about the level of U.S. debt that China holds and how much of an advantage of disadvantage you think that is.
Mr. Tiagi: We did not discuss this topic in our report. I do not know what to say, as we did not cover this item in our report. I do not want to comment.
Senator Andreychuk: You made some comparisons with Australia. If my memory serves me correctly, Australia made a conscious choice to concentrate its efforts on trade and investment into the Asian area, first, and withdrew from some activity elsewhere in the world. In other words, they concentrated their activity, shut down some embassies and put more money into their efforts in China in the late 1980s. Certainly, China figured prominently in their analysis and planning because not only did they want to go into the Chinese market, they wanted to do all of the ancillary countries that can be partnered with or have an advantage with China.
To what extent is Canada playing catch-up? What do we have to do to catch up specifically, other than the normal things that you are saying, such as the agreements in place, with which I agree? What is it that we can or must do to play catch-up with the other people who have already positioned themselves and have taken some 20 years or 30 years to do so?
Mr. Tiagi: One point that I mentioned in my presentation was that China's inland cities are growing rapidly at this stage. One way to target or to tap into this growth would be to open trade centres in these cities. That is an excellent way to have representatives in those cities that are experiencing this growth. These cities will have 5 million consumers and we need to be there to market our products. Opening trade centres is a good start. It is as simple as that.
Senator Andreychuk: Much of our previous history with China was with resources. What could be a key innovation for Canada? Is it in services, in trade, or in a new form of negotiation with resources?
Mr. Tiagi: Services definitely is one key area. As you can see, services trade with China is extremely low. As you have more people entering the middle classes in China, there will be an increased demand for services. Canada can provide those services — for example, schooling, telecommunications et cetera. Services are one key area in which Canada can improve its ties with China.
Senator Andreychuk: It works both ways, of course. We have had many Chinese students in Canada. Have we taken advantage of that opportunity to link back with these students? Back when we had Commonwealth scholarships, it paid back with the linkages and relationships we had with the visiting countries when they found employment in key positions. Is anyone tracking where the Canadian-trained Chinese students position themselves in the Chinese economy? Is there any data that we can utilize to find these students and make business connections with them?
Mr. Tiagi: We looked at the Chinese students who come here to study, but we do not have sufficient data to look into where these people are settling. In fact, I did try to include that data but there was just not enough. I see that as an important part of the equation. We could see if there are any established linkages between the two countries, but we did not have sufficient data.
Senator Downe: You indicated we should establish trade centres in some mid-sized cities in China. Have you costed out what sort of investment the government would have to make?
Mr. Tiagi: No, I do not know. I am not in a position to answer that question, I am sorry.
Senator Downe: The Fraser Institute has not done any cost-benefit analysis on this subject.
Mr. Tiagi: No, we have not.
Senator Downe: Have you done any analysis of what capacity we would have to build in the Government of Canada that we do not have now to advance our trade with China, other than these trade centres?
Mr. Tiagi: No, we have not really. This is the first in a series of reports that we are planning to work on in our relations with China. First, we thought we would have this basic, factual information, dealing with this economic relationship, and then look at different aspects and provide a more detailed analysis of something that you mentioned, such as a cost-benefit analysis. At the moment we have not done any other work on this relationship.
Senator Zimmer: I want to give this a bit of a different spin and approach it based on cultural and multicultural relations, which enhance commercial relations. Being a former President of the Royal Winnipeg Ballet, I do recognize the value of cultural and multicultural assets. I recognize how they can enhance commercial business assets. At the same time, various Canadian business associations exist, such as the Canada-China Business Council and the Canada-India Business Council, which have appeared before this committee.
Can you be more specific about what is not being done but should be done to exploit or explore Canada's existing cultural and multicultural assets that could enhance commercial relations?
Mr. Tiagi: Again, I would like to explore this particular angle but we did not really have enough data. We could look at the Chinese immigrants and see what kind of businesses they are setting up in Canada. I am sure that these businesses are linked to their own businesses in China in some sense, because people from China will be linked back to their relatives or business partners in China. It would be a good start to look at immigrants from China who have chosen to settle in Canada and do something about the cultural aspect.
We have not really talked about this in the report because it was difficult to measure it.
Senator Zimmer: The ballet employs several dancers from China and it is amazing to see how much the audience has grown in Chinese participation just because there are Chinese dancers in the ballet. It has increased ballet membership and it enhances the relationship of the business we do with them. It is something we should explore.
The Chair: I have a point of clarification. The executive summary you have provided for us is dated February 2009. When did you conduct your study?
Mr. Tiagi: We began the study in October 2008.
The Chair: Would the changes in the world economic situation that have occurred since then lead to any changes to your thoughts that are reflected in your report?
Mr. Tiagi: These changes are momentary because we know that economies go through swings. China, in any case, is growing. There will be a lot of demand for natural resources and all of these other products. Again, we need to increase our trade with China because we all know that the U.S. has been experiencing a downturn, but China's economy has remained comparatively strong. I would not change my conclusions.
Senator Wallin: I realize that your work is really on the measurement issue, but I will just try one other topic and see whether this is even on the horizon.
With respect to the question of partnerships and people who do business and have been doing business in China for a long time, their biggest concern is the length of time it takes to establish a relationship and the insistence upon partnership, which may or may not be easy to do with a government agency. Is that changing? Have you measured any of that?
Mr. Tiagi: We have not measured any of that. We did talk to some people when I was doing my study, and I agree that it is certainly a problem and it definitely needs to be looked into.
Senator Stollery: I was impressed the other day, as I think other members were, by the appearance of witnesses from the agricultural community. As you know, China is the largest pork consumer in the world as well as the largest market for pork. Our pork producers seem to have gotten themselves into a spot because they use a chemical on hogs that is unacceptable to both the Chinese and the Malaysians. I am sure I was not the only person taken aback.
Under the general rubric of standards — this is something people throw around in international and trade negotiations — it really boils down to the fact that they use the same chemical that was used on beef not so long ago to make it leaner. They do this with pigs in order to make them lean so the pigs weigh more when they sell them. Unfortunately, as I read it, Malaysia considers it a carcinogen and China does not allow Canadian pork to be imported, as we were told the other day. Do you have any advice for these people?
Mr. Tiagi: We have not touched upon these issues, but I do realize there are different bottlenecks that will be there for trade, and we need to overcome them. We just do not have bottlenecks with China, but we do have several bottlenecks with other countries, and we need to find a common ground. We have all of this empirical literature that shows there are so many benefits from increased trade.
Senator Andreychuk: We were told that our competitors in China are Australia, the Europeans and the Americans. What is it that we should address if we are talking about exports from our country or even services? What is it that we bring that distinguishes us from our competitors, who seem to come from similar backgrounds, histories and I am told products?
Mr. Tiagi: I certainly believe that we do have a lot of natural resources. I know Australia has natural resources as well. I think the key point here is that inland cities are really expanding. I think where we can benefit is by tapping into that market before it becomes saturated. We have natural resources, and we know that China needs these natural resources, which is what we can definitely bring to the table.
The Chair: We are now commemorating the twentieth anniversary of Tiananmen Square, the tragic evening 20 years ago, that took many lives. China has signed many international agreements on human rights, justice and freedoms.
Is there a role that can be defined when dealing with another nation that is trade and investment oriented, as well as the influence one may have on a nation's treatment of its people or the nation's respect for human rights? Do you have an opinion on that issue?
Mr. Tiagi: We kept the human rights issue out of the equation when we looked at our relationship with China because that is a subjective thing and we cannot really measure it. However, I believe that if you engage China economically, there is a way to deal with these other issues. I would say that indeed economically, those are the issues.
The Chair: I want to thank you for your very kind contribution to our deliberations. Once again, I apologize for the tardiness of the commencement of our meeting. We express our gratitude and look forward to the next time you appear before us. I am sure it will happen. Thank you very much.
Appearing before the committee as our second panel today via videoconference is Ms. Andrea Mandel-Campbell. Ms. Mandel-Campbell is a veteran journalist specializing in international business and global competitiveness. She is the author of a book most of us, if not all of us, have read, courtesy of our deputy chair, entitled Why Mexicans don't drink Molson, for which she was a finalist for the Writers' Trust of Canada's Shaughnessy Cohen Award for Political Writing.
Ms. Mandel-Campbell, welcome to the Senate. We look forward to some comments by you and then we will invite our members to ask you questions.
The clerk says that we should tell you that you are being taped. Is that all right with you?
Andrea Mandel-Campbell, Author, as an individual: That is fine.
The Chair: We are looking forward to your wisdom.
Ms. Mandel-Campbell: I just want to preface this by saying I have spent a lot of time abroad, and dedicated much of my career to looking at global competitiveness and trying to put Canada in that context— what it means for the competitiveness of Canadian companies and Canadian industry. I would like to point out that India and Russia, in particular, are not my specialty, not having been to those countries, but hopefully I can provide you with a big picture, in any case.
I do believe that the ability for Canada to be able to take advantage of global markets is critical. In my book, I talk about the concern that I had about being reliant on a single market, namely, United States. I made the point about the automotive industry and the forest industry.
I was writing about that back in 2003, when I first started doing my research. Unfortunately, a lot of this has come to pass, for many different reasons. It is critical that Canadian companies be able to operate in other jurisdictions, because having our eggs all in one basket is a dangerous position for any country to be in.
I want to point out the news that came out today that Australia had positive GDP growth for the first quarter of 2009. It is essentially the only OECD country that has been able to avoid a technical recession, and pretty well the only OECD country that has had positive growth. It had, in fact, record exports — the second highest level of exports, with the exception of 1961. Much of that is commodity based. We are talking about coal and iron ore and agriculture products. Australia truly believes in open and free trade and has done many reforms that have allowed it to take advantage of that. It has an open attitude toward being globally competitive in markets around the world, and that has stood that country in good stead. Going forward, that should be a critical component for Canada in terms of its ability to create prosperity and maintain our standard of living.
The Chair: You spoke about a truly open attitude. Can you expand on that statement?
Ms. Mandel-Campbell: In Australia's case, in particular, they have truly embraced free trade in the sense that they head up something called the Cairns Group, which has gotten rid of a lot of agricultural subsidies and tariffs and whatnot that we in Canada still like to hang onto. They have been much more of an aggressive advocate for free trade on a global scale, which is why they have, in many cases, replaced Canada in terms of importance at the Doha Round.
Canada was removed from the so-called "quad group." We used to be one of the four major countries that pushed forward on the GATT and the successive rounds of free trade after that. Australia, to a large degree, has superseded us. They are the point of reference now. When you look at debate on this and negotiations, the world looks more to them, I think, than to us.
They are in the middle of free trade negotiations with China, and they have done a lot of the free trade deals with countries like Singapore, for example, that we have had on the back burner for a while. They have been a lot more aggressive in terms of embracing free trade.
The Chair: That gives my colleagues some opening for some great debate.
Senator Downe: You indicated in your opening comments that Australia has initiated many reforms. Could you tell us about some of those reforms?
Ms. Mandel-Campbell: They run the gamut in terms of how they deal with everything from trade to agriculture to innovation. The philosophy they base themselves on, to a large degree, in terms of operation is always being consumer oriented regardless of whether that is a particular company, a government institution or even a national laboratory.
It is not necessarily that they always run their operations on subsidies from government. Their national lab, for example, runs based on client fees; they are working with Australian and international companies doing research and innovation.
A good example is in the agricultural sector, where they are at the forefront in terms of research into crop varieties and genetics. They have done that because they have created an arm's-length entity from government that works closely with industry and with end users.
Because they have a more centralized form of government, they have been able to bring together their various resources at different universities; it is a kind of user-friendly model based on ultimate consumption. It has allowed them to be at the forefront in terms of coming up with new genetics for their weed crops, for example. It has allowed them, in many ways, to become world leaders in what they do.
Senator Downe: How much of what they have done is transferable to Canada? For example, in agriculture, you spoke about the elimination of tariffs. The great benefit we have in trade is we are next to the United States, the largest economy in the world. That is also a handicap when you come up against their agricultural subsidies. For example, in Canada, we have a supply management system for dairy that allows Canadian farmers to receive a high return on their investment. That would be gone if we eliminated tariffs.
Australia does not have any other country on its border; it has to export or import. How much of what the Australians have done is transferable to Canada, in your opinion?
Ms. Mandel-Campbell: It is transferable to a large degree. I cannot tell you the number of Canadian entrepreneurs and farmers that I come across in my work who tell me about the opportunities and business initiatives that they would like to undertake, but they cannot. In the dairy sector, they are stopped from exporting; or when it comes to the Wheat Board, they are stopped from following through on different kinds of entrepreneurial initiatives because of the Wheat Board's stranglehold on the sector.
In my humble opinion, I think the reason why Australia has been able to surge ahead is the simple fact that it has removed many of the limitations on its agriculture sector that we still have in Canada.
New Zealand has been a world leader in dairy. This country I think is the largest private sector dairy provider in the world. They are halfway around the world, an extremely isolated country, and it certainly has not stopped them from being successful.
Senator Wallin: It has been a couple of years since your book came out, so when you talk about a "recalibrated Third Option," do you think we have made progress on that, opening discussions with the EU, those kinds of things?
Ms. Mandel-Campbell: Yes, absolutely. I actually think those are great initiatives and I heartily support them. I think that following through with the EU is something that we should have done, and I think our initiatives with Colombia and Peru are fabulous. Frankly, we can take advantage of the fact that I think there will be a stalling in the United States in terms of their free-trade initiatives that were kind of super-propelled under the Bush administration. I think that will be stalled for a while, and there is a great opportunity, particularly because in the case of Latin America, Peru and Colombia, these are countries where there is already huge Canadian interest. I see this as really only benefiting our cause in many regards.
Senator Wallin: We have watched companies like Power Corporation of Canada with a long track record in China. Others have come in and tried to do the turnaround more quickly and cannot actually engage in the partnership which is demanded and required. Do you see any changes on the Chinese side?
Ms. Mandel-Campbell: What do you mean by "the Chinese side"?
Senator Wallin: I mean the government requirements that there be X — and the percentage changes — involvement, partnership, money, government, at the very least Chinese private sector partners but usually government.
Ms. Mandel-Campbell: My sense is that the government's share of the Chinese economy — even though I think by our standards is still quite large — has actually diminished quite a bit; and it is much more the private sector that calls the shots in many cases. In the financials services sector, that is a bit different. They seem to be able to tell the banks to lend and the banks lend.
I would say that when I talk to people in China, they will tell you that it really is much more private-sector-dominated than people really realize. That is not to say that there are not a lot of hidden subsidies; there definitely are, no question.
The other question Canadian companies need to ask is why they are going in there and just how cost effective it is going to China. They have to think about whether they are going in there for the domestic China market or whether they are looking to outsource. Many numbers say that China is not as cost-effective as it used to be and is maybe 8 per cent or 9 per cent less expensive than the United States. Maybe the country with the cost advantage is Mexico, for example.
Senator Wallin: Even China is doing outsourcing to its close neighbours where the wage rate is lower.
Ms. Mandel-Campbell: Exactly — Vietnam.
Senator Wallin: I would like your views on this final point because of the business you are in. We know the number is staggering in terms of the amount of American paper that the Chinese hold, so much so that Tim Geithner is on a plane to assuage everyone and have that conversation.
How significant is that for the global picture and our relationship to it, both to the United States and China?
Ms. Mandel-Campbell: I do think it is concerning. I know there have been moves afoot that there be some other reserve currency other than the United States dollar. I frankly do not see that as being very realistic any time in the near future. Do I see a devaluing of the U.S. dollar? Probably. I hear estimates of about 50 per cent over the next five years, let us say. That definitely has huge implications for Canada; there is no doubt about it.
In terms of the rebalancing of the world where we have these great inequities which of course fuelled a lot of the turmoil we are seeing now, I do not know if I see that changing, frankly. The Chinese I know would like to restructure their model so it is not so export oriented and that there is more domestic consumption, but what has been an interesting detail in all of this is the more the interest rates lower, for example, the reaction in China is to actually save more. They figure in order to make more money they have to put more money aside to make more money on a lower interest rate.
My concern is I do not know how much we will be able to right these global imbalances, which have propelled many of the problems we are seeing now. I do see, like I say, the U.S. dollar weakening and interest rates rising for sure, and with that comes inflation.
Senator Stollery: It is a big discussion in the sense that our witness talked about the Doha Round and agriculture, and at this point I will bore people by saying that Don Macdonald in his report on the economy in 1983 or 1984 said that the two most difficult things to negotiate are culture and agriculture. The Doha Round, I would remind our witness, is primarily about agriculture.
Ms. Mandel-Campbell: Yes.
Senator Stollery: I was with our chair in Hong Kong at the ministerials, and as I often tell my friends, there were 10,000 delegates and 9,500 of them were there to ensure that nothing happened. It is sort of a Mexican stand-off. You have spent some time in Mexico, so you will know what I mean by a Mexican stand-off. They open fire on each other.
Ms. Mandel-Campbell: I was going to say, they get bloody, yes.
Senator Stollery: You talked about the Wheat Board. I do not think the Wheat Board has ever been a factor in the trade negotiations. I do think the marketing boards have been a factor in trade negotiations. As you know, the marketing boards, particularly the milk marketing board, lost a major case at the WTO but not against the U.S., as some people think, but against New Zealand. This has been a major impediment to Canada's participation in the Cairns Group, to which we used to belong.
I think that Canada should be doing much more to deal with the emerging giant that we all know as China.
We had the pork producers and we talked about agricultural exports, and Canada is the fifth or sixth largest exporter. We found out that the pork producers put ractopamine in their pigs, which is a protein-enhancing drug. It means that you can sell the pig and get more money because the protein weighs more than fat, but it is considered by the Malaysians to be a carcinogen and is prohibited by China, the largest consumer of pork in the world.
Do you have any recommendations for the Canadian pork producers if they want to encourage their exports to China?
Ms. Mandel-Campbell: I am afraid of the second question.
I spent a fair amount of time out west talking to different livestock producers. The general statement I would make is that we really have not spent a huge amount of time looking at international markets because it has been fairly easy up until recently to be able to just either ship live cattle or export into the United States. Once again, it is the same template, same paradigm. The U.S. is now looking at rules of origin for livestock and animal products, so we can no longer camouflage our Canadian products as American, which has generally been our strategy for competing.
The cattle industry has gone through a crisis and the pork industry for other reasons has gone through a crisis, but we have not in general — I would say this goes across the board for many Canadian industries — made a huge effort to customize our products to the demands of customers around the world because up until now, it has been pretty easy to just sell it as a camouflaged product into the U.S. That will have to change.
I know the cattle industry is starting to make many efforts, but they will have to think about what their customers want, and they will have to customize as to what their customers want and need. I realize there are also protectionist issues there, but the opportunity is there if they are willing to do it.
Senator Stollery: We have had many witnesses on this subject, and your book about Molsons, which is a beer I cannot stand because I think it tastes terrible. I do not like any of the Canadian beers; I think they are sour.
Ms. Mandel-Campbell: That is on the record, is it not?
Senator Stollery: No, it is true.
The Chair: We will make that a recommendation.
Senator Stollery: It leads me to my question.
The Chair: It is subjective.
Senator Stollery: Someone else can like it, but I do not, and I know a little bit about beer.
We had a witness from the exporters association who gave the committee a list of things that Canada should do to improve trade with China, Russia and India. Nowhere in the list of about 10 appeared the word "quality." I mentioned at the time that I had just paid about $2,500 for a telescope — I am a bird watcher — an expensive Swarovski telescope. That telescope is made in Austria and everyone who shares in my hobby tries to buy one. A highly paid workforce makes these telescopes for a family-owned company, and quality is what they sell. You want the best, in this particular instance, Swarovski sells it. If you get something else, it will be some other company who makes it.
I did not see "quality" on any list as to what Canada could do to improve exports. What do you think about that? Is quality not what it is all about?
Ms. Mandel-Campbell: That is an interesting point. I think the argument I make in my book is similar to that in that, as I am sure everyone in the room knows, in Canada we have largely competed on volume and price. That has been our competitive template. How can we do it cheaper than in the States? Canada has gone with volume, no-name and generic stuff.
We are seeing a reset world now where things are changing. If we look at the automotive industry, we are seeing a massive paradigm shift where the rules of the game are changing. We are saying that you can no longer rely on getting a highly paid job at GM, that job will be protected, and it will be your job for life. People cannot rely on coming out of high school and earning $80,000 a year working in a GM factory. That, to me, is really the tipping point of what we will see going forward.
Canada cannot continue to compete on that basis. We are looking at the Canadian dollar, which is hovering close to 90 cents U.S. again, and as the U.S. dollar continues to weaken, we will continue to have this problem. It must be high-end stuff and it must be customized.
Senator Stollery: Could one recommendation of this committee be that the Government of Canada, possibly under the rubric of the Governor General, give out yearly awards to Canadian companies for producing quality products rather than just, as you say — and I know it is true — is cheaper than the other guys. Never mind; what is it like? In the U.K., as you know, they give The Queen's Awards for Exports and Technology, and it is a very important award.
Why could we not do that in Canada in order to attempt to try, as a government, to raise the quality of our manufacturing and our goods?
Ms. Mandel-Campbell: I agree with you and that is a good point. We do have provincial awards for exporter of the year, that kind of thing, but I can see where we could definitely make that award on a national basis. It could be very sophisticated and we could really celebrate some of these companies. There are actually many of them out there.
Senator Stollery: Why should Canada not stand for quality? I do not think that is the view that some people have at the moment.
The Chair: Ms. Mandel-Campbell, I would like to ask you a simple question: At this point, where do you think the Doha Round is going?
Ms. Mandel-Campbell: Frankly, I do not hold out a huge amount of hope for the Doha Round. I know there are still feelers out there that people would like to revisit it again. Now is a tough time. We are seeing many protectionist measures, more than I think are being reported in the press, and I just do not know how much appetite we are seeing currently. We are seeing a lot of national arbitrage. We have seen that in Europe where different countries are vying against each other to see who can get what to get a plant in their country. We are seeing a lot of that, so I do not hold out a huge amount of hope, at least in the immediate future, that we will see anything very substantial.
Senator Zimmer: Thank you, Ms. Mandel-Campbell. As Senator Stollery stated, things are either culture or agriculture. In your list of things to do and not do you suggest we enhance our cultural fluency. I want to take that tact of culture.
Others from whom the committee has heard in the course of this study have emphasized that Canada's culturalism and multiculturalism is a valuable untapped asset enhancing Canada's commercial relations. I recognized this a bit when I was President of the Royal Winnipeg Ballet. We had a couple of dancers from China. When we brought them in, we noticed during the receptions among the business community that attended that there was a change in attitude of the relations with business we were doing with them because we had dancers from their country.
Could you be more specific on what is not being done or should be done to explore and exploit Canada's existing cultural and multicultural assets in terms of enhancing commercial relations? Do you have any thoughts and ideas on that subject?
Ms. Mandel-Campbell: I will give you a good point. Just to go back to the news of the day, we talk about Frank Stronach and Magna having apparently won this bid to acquire a stake in Opal. He had a two-hour dinner with Chancellor Merkel, Chancellor of Germany. Why do you think he was able to do that? He was able to do that because he is Austrian-born and speaks German. I have no doubt in my mind that played a significant role toward his ability to relate. They had a cultural compatibility, and they were able to talk to one another. He understands the lay of the land.
Even Sergio Marchionne, also a Canadian citizen and the head of Fiat, said that one of the reasons we will be able to do something with Chrysler is because he understands North America; he went to school in Windsor and understands the Canadian culture. I would point to these two people as examples of how Canada's multiculturalism actually works in its favour, but we need to use it more strategically.
The question of "how" is a good question. I would point to a couple of examples that I have come across, looking at the Department of Foreign Affairs and International Trade. I know a few people there who are very smart and who spent years working in China, and now they are working at a desk in Latin America. I do not get it. The people are fluent in Mandarin, but their skills are wasted.
I point out in my book that, from a government point of view, if we look at our ambassadors and how we use them, it is the same thing. Why is our multicultural resource not being used when we fan out across the globe in terms of our trade commissioner service? I can go on and on with examples of Colombia-born Canadians who work in export development and government departments who are working for U.S. trade shows. Their skills are just not being used. There could be more strategic emphasis put on this multiculturalism.
Senator Zimmer: That is interesting. I do sit on Mr. Stronach's board on Magna, and it does enhance relations. It opens up avenues. That gives you another angle to come from. The bonds you create are amazing, and you are absolutely right. Thank you.
Senator Downe: Before I ask my question, further to Senator Stollery's comments, I would mention that your colleague, Scott Reid, M.P., is hosting a Canadian beer-tasting event this evening. You may want to take the deputy chair of the committee.
The Chair: It is not Molson's, unfortunately. I can tell you from last year's experience that you will have difficulty getting in the door, but please do try.
Senator Downe: To the witness, there is growing controversy today about linking trade and aid, and I am sure you are familiar with that discussion. What are your views on that subject?
Ms. Mandel-Campbell: I do agree with the premise that one thing Canada has a tendency to do is to give little driblets of money here, there and everywhere. We like to spread things out thinly. It is better, frankly, to be strategic and choose a few countries and make a big difference. There has been some controversy over the fact that we are not putting as much money and aid in Africa as we committed to doing, but I also would argue that rather than giving a little bit here and there and making not much of an impression that we focus on a few countries where we could make an impact. Frankly, I do not have a problem the idea of trade and aid.
Senator Downe: For example, you referred earlier to the Canada-Peru Free Trade Agreement that has been signed. In the case of Peru, less than 1 per cent of their total economy is dependant on foreign aid, but some of the African countries that were cut had more than 20 per cent on their dependency on aid. Obviously we have a free trade agreement with Peru and not the other countries. That was an intentional decision. In your opinion, was that good policy?
Ms. Mandel-Campbell: You have to look at the country in question and whether it needs aid. Peru's economy has been going gangbusters for several years. That is not to say, though, that the country does not need or could not use more aid. I do think it is a good idea to be able to leverage your different capabilities. If you are in that country and making significant investments, let us say, in the mining sector in Peru, you have many communities near these areas where Canadians companies are operating that truly could benefit from some kind of development. To me, that seems, in many ways, like a very good partnership.
Senator Downe: I do not disagree that many communities could use the development, but the information we have is that there is a much smaller percentage of dependency on foreign aid in Peru than in the African countries we cut. The argument is that we did it because we wanted a trade agreement with Peru, and is not so much a question of need as trade policy.
Senator Andreychuk: I do not think we have cut our aid to Africa; we have changed the countries of designation and we need to follow that change.
You said we should not be so trade dependent on the United States and that we should diversify. Did you pay any attention to the lost opportunities or the more enhanced trade between provinces? The intra-provincial issue has been of concern for many of us. When we got into the NAFTA situation in Saskatchewan, in some cases, in certain value-added agricultural products, it was easier to ship south than it was east or west. I am wondering whether we should be paying more attention to our own internal trade.
Ms. Mandel-Campbell: I do not think they are mutually exclusive. We can do many things at one time. In fact, the more balls you have in the air, the better off you are.
I have said before that it is frankly embarrassing that we do not have free trade between provinces. I am always riddled with stories of a company such as a potato chip manufacturer in Ontario who has operations in Ontario and New Brunswick, and cannot import his potatoes from New Brunswick into Ontario because of trade barriers. The manufacturer has been trying to do it for five years, and still cannot do it, so he imports the potatoes from the United States. It goes on and on.
Gordon Gibson wrote an editorial in The Globe and Mail yesterday or today precisely on this subject. There is no question that it is long overdue. The more opportunities we have and the more competitive we make Canada as a country, that only helps us when we move into international markets.
Senator Andreychuk: You said you are not against aid and trade. Has Canada fully explored the ability to use some sort of assistance, whether you label it aid or not, to help countries in the trade situation?
I think of some of the African countries when the WTO needed certain expertise to handle the negotiations. Have you looked at that sort of aid to facilitate trade?
Ms. Mandel-Campbell: That is a huge opportunity. Many people say to me that the best thing that Canada could do in many regards, and we have done this in cases in China, for example, is to help the institutional infrastructure of a country. In the case of China, we have done a lot in terms of helping with the legal system and creating a more transparent accounting system. When you talk to business people about this, they will tell you that the best thing Canada to do for them in Mexico is help create a more transparent legal system in that country. There is no question that we could definitely be helping on that front, and that is something that Canadians are pretty good at.
Senator Stollery: We are supposed to be talking about China, India and Russia. I think we probably do not disagree very much. It is important for us to diversify our trade and to get involved in this new emerging market.
You did talk about free trade agreements with Colombia and Peru. As you know, with Mexico, one of the weaknesses with the NAFTA, from the Mexican perspective, was that it included agriculture. My goodness, I sometimes wonder who makes up the figures in Mexico.
I would say that 40 per cent of the people work in agriculture, mostly subsistence. The export of efficient beans and maize into Mexico meant that Mexican farmers could not compete and that is one of the reasons for the huge exodus to the U.S. over the years about which we are aware. We interviewed all the parties in Mexico City and they all agreed about this; it is not just my view. The Mexican farmers could not compete.
Colombia is even more dependent on agriculture. Peru is a little bit of a different animal because of its big desert. The debate has been going on in Panama. I go to Panama quite often and I read the Spanish in the papers. There is a huge argument in Panama. Colombia is a little weirder. I have not quite figured it out. The Colombian government and the Panamanian government want a free trade agreement with the U.S. The opposition was led by agriculture. It was very strong opposition.
I do not know that they won their case. We have not looked at the agreements. They are coming. Peru, I believe, is coming to us shortly. Someone told me that one could not export agricultural products into Peru at less than the Peruvian cost of production. There is some limit there. I do not know what it is.
In Colombia, without any doubt, 60 per cent of the people are in subsistence agriculture, which is one of the reasons it is so dangerous.
What do you think about that? It may be good for the Canadian exporters of beans, maize and various products, but what happens to the Colombian rural population, if what happened in Mexico, happens to them? They will be displaced and that will increase the power of the FARC. We all know about the Sendero Luminoso. There is an ethnic difference in Peru that does not exist to that extent in Colombia.
These free trade agreements are with countries where the population is heavily involved in subsistence agriculture. It was very dangerous for the Mexicans. It caused huge problems. Do you not think those problems will be even worse in Colombia, in particular, and possibly Peru?
Ms. Mandel-Campbell: In the case of Peru, some of their agriculture products are extremely competitive. We see them here in Canada.
Senator Stollery: Those are fruits and vegetables.
Ms. Mandel-Campbell: It is asparagus, broccoli and that kind of vegetable.
Senator Stollery: I am sorry, I do not mean to cut you off. The Mexican agricultural free trade was promoted by the highly efficient exporters of horticultural products, fruits and vegetables, but of course that is not what most of the people do. They produce beans and maize, et cetera.
Ms. Mandel-Campbell: The subsistence farmers, to a large extent, are producing for themselves, from my experience in Peru and Mexico. They have a little plot of land and they are feeding their families with it and maybe bringing a little bit to market.
There is some challenge there, although I know that Saskatchewan companies already sell pulse products into these countries anyway. If that is a concern overall, that is something that these countries need to think about because these countries want to get many of these people away from subsistence farming. It is the same thing that you are seeing in India and it is the challenge that India is having in terms of having such a mass of peasant farmers not making an economic living.
These countries are trying to bring in investment to help some of their people come out of subsistence farming because it is not an economic future for these people. By bringing in foreign investment, they create better-quality jobs. It is not that they should not have some structures in place, and that is the challenge many of these developing countries face. How do they make that transition? There is not a reason that, when we forge these free trade agreements, we do not ask these questions and that we do not try to make efforts even to help these countries in creating these foundations.
The Chair: Has the Government of Canada made available sufficient resources, both domestically and internationally, to assist the business community in its trade and investment search in other parts of world?
Are there consular offices? Do we have people here in Canada who can advise and prepare some of the work that is done by the Chamber of Commerce? Do we support our trade efforts, both domestically and internationally?
Ms. Mandel-Campbell: I have mixed feelings about that, in the sense that I have met some people at DFAIT who do an amazing job. What strikes me sometimes is that if Canadian companies made the effort, there is really an amazing amount of resource out there for them that is free, readily available and provided by the government.
I argue that in some cases it needs to be more strategically allocated. We need to have a greater emphasis in terms of our ambassadors, who they are and who we choose, because they are our face to the world in the countries they are in. Sometimes you meet them and they are very smart. I see ambassadors — and I think I say this in my book — as being Canada's number one salespeople. That should be in their job description. Some of them know it, but not all of them.
In terms of the Chambers of Commerce, right now it is a very ad hoc kind of thing. We have these little expat associations here and there, and maybe a little Chamber of Commerce headed up by one guy who does it in his free time on Saturday afternoons.
Could we benefit from something like that? Absolutely. It also has to be a reflection of the presence of Canadian companies in those countries. If there is not that interest or presence, it is hard to create it.
The Chair: Finally, in your book you suggested that our financial system, the banking system, may be overly regulated, which may be a constraint to business.
Ms. Mandel-Campbell: I knew someone would ask that question.
The Chair: I mean that with tremendous respect for your work and what you do. Because it is such a topical issue, would you like to comment on it?
Ms. Mandel-Campbell: Yes. It is interesting. The die has not been completely cast yet. As it turns out, there are banks like Citigroup that in fact were too big and unwieldy and even though they were large, were not necessarily good at what they were doing. We do have some things to our benefit.
My own perspective is that we have been lucky in the fallout in that by nature, the banks operate on a risk-averse culture and they have been able to make so much money in Canada because of the captive market they had that they never really had the incentive to go out there and buy risky assets or do anything like that.
Having said that, I do not think that we should hold up our arms in victory and say that we have the right system. There are many shortcomings in the system. While right now risk aversion is the modus operandi that seems to be garnering success, I do not think in the long term that that will be the way forward. The financial system will pick itself up and dust itself off and you will see banks like Santander out of Spain, like Barclays out of the U.K., like some of the Australian banks that have managed to have international scale and at the same time not get into the mess of toxic assets.
I think there is a happy medium there.
The Chair: Thank you, kindly. On behalf of all of us on the Standing Senate Committee on Foreign Affairs and International Trade, we extend our gratitude for your being here today. My colleagues will agree that it was a very informative meeting. We appreciate the assistance that you gave us in preparing a report to the government. We look forward to the next time.
Ms. Mandel-Campbell: I am honoured that you asked me to participate.
The Chair: Ms. Mandel-Campbell, thank you very much.
(The committee adjourned.)