Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 27 - Evidence - Meeting of May 30, 2013
OTTAWA, Thursday, May 30, 2013
The Standing Senate Committee on Foreign Affairs and International Trade met this day, at 10:32 a.m., to study security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, the Standing Senate Committee on Foreign Affairs and International Trade is convened to continue our study on security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.
We have two panellists by way of video conference. From the Conference Board of Canada, we have Danielle Goldfarb, Associate Director, Global Commerce Centre; and from the Trans-Pacific Connections, we have Hugh Stephens, Principal. He is also on video conference, though he has disappeared from the screen. Do we have a problem here?
While we are waiting, Ms. Goldfarb, can you hear me?
Danielle Goldfarb, Associate Director, Global Commerce Centre, Conference Board of Canada: Yes, I can. Good morning.
The Chair: We will take a moment to find out what happened to the other panellist; he seems to have faded from the screen.
Mr. Stephens is with us now.
Hugh Stephens, Principal, Trans-Pacific Connections: I am. I am sorry; I just stepped out for a moment.
The Chair: I will turn to Ms. Goldfarb for her initial statement and then Mr. Stephens. Then we will have questions and answers. Welcome to the committee.
Ms. Goldfarb: Thank you. I just want to make a few points that draw on several recent studies that we have published at the Conference Board of Canada. They are studies that have looked at the impact of the global economy on Canada and the impact of global economic changes on Canadian trade, in particular. In fact, we just released a new study today on Canada's next top markets, which will look at the most important markets for Canada's future.
My three points are, first, that Canada's commercial relationships are changing; second, Canada's future markets go beyond the obvious markets; and third, we need different strategies in non-traditional markets, both business and government strategies.
First, in terms of Canada's commercial strategies changing, we know that global trade has been taking off over the past decade. At the same time, Canadian exports have actually flatlined; we are exporting the same amount now in terms of export volumes as we did a decade ago. Canadian export growth continues to lag behind the global average by about 5 per cent annually, which is really bad news for a country like Canada that has a small domestic economy and needs to depend on global opportunities to bolster living standards.
At the Conference Board, we call this the lost decade of Canadian exports. Essentially, it reflects with whom Canadian businesses trade. Most of our exports are aimed at slow-growth markets, so this overexposure to slow- growth markets and underexposure to the fastest-growing emerging markets is almost entirely responsible for Canada's lost world market share over the last several years.
However, I think the common wisdom that Canada cannot reduce its dependence on the U.S. market is really starting to change; there is a dramatic shift already under way. Canada's trade with markets outside of the U.S., particularly fast-growth markets, has taken off. From looking at the data, we know that Canadian companies have been increasing their export share going to these markets, and they have been investing in them and importing from them.
This dramatic shift is due to the rapid growth in the developing world as well as weak growth in the developed world. While developed-country economies accounted for almost four fifths of the world economy a decade ago, they only account for about two thirds now, and that will decline dramatically over time, according to current projections.
This is not only a dramatic shift but a really fast shift. It happened in a decade, which is pretty fast. It is dramatic and rapid. We expect the trend to accelerate.
We have done forecasts of what will happen to Canada's trade in the future, and it shows that the U.S., of course, will remain our largest trading partner for the foreseeable future. However, Canadian exports to the U.S. will drop from about three quarters of our total exports today to just over two thirds by 2025.
By contrast, Canada's share of goods trade with China will expand from 3 per cent to 7 per cent by 2025, and the same goes for other fast growth markets. We forecast that the share of Canada's exports to India will more than double, and will actually be roughly equal in size to the share going to Mexico. Trade with Brazil is also likely to double by 2025.
It is not just the geographic composition of our exports, but also the geographic composition of our imports that has become incredibly diverse over such a short time. Now half of our imports come from outside the U.S.
It is not just the geographic distribution of trade but it is also the industrial composition of our trade that is changing. Rapid growth in the developing world has led to a resource boom in Canada, and despite our iconic image of trucks leaving with goods, going across the Canada-U.S. border, we actually find that services are among our fastest- growing exports. That is actually a shift in our industrial composition of trade.
The second point I want to make is that our future markets go beyond the obvious. Markets that represent the greatest economic potential for Canadian companies, of course, are with traditional partners like the U.S. and the European Union. They also include the rapidly growing, largest-developing economies of India, Brazil and China. Those markets are already on our radar screen.
However, in the study we just released today, we look beyond these usual suspects. What we look for are countries that get as close as possible to what we call our sweet spot. This means that the market has to represent growth potential, but they also have to have some existing connections with Canada to build upon. We also excluded the riskiest, smallest economies; they had to have some scale to them.
We wind up with a list of countries that, again, moves away from the obvious suspects: Indonesia, Malaysia, Turkey, Thailand, South Africa, South Korea, Chile, Mexico and many others; we have a list of 24.
A number of our next top markets, as we call them, are actually in Southeast Asia, which has roughly the same economic size as the Great Lakes states, an economic region with which we are more familiar. However, they will not be the same size tomorrow; Southeast Asia has grown at 6 per cent annually over the past five years, taking out the effects of inflation. The Great Lakes states have had negative growth in that time; it has been a bad growth time in the U.S. economy. The key point here is that these economies represent much greater growth potential than our traditional trade and investment markets.
We need to think beyond the usual suspects and not underestimate the potential of some of these new markets, as well as the fact that we already have a presence in some of these markets. It might be a small presence, but we can build on that presence, and we need to get to know these markets better.
Finally, we cannot necessarily think that we will be engaged with the global economy with markets that are different from our traditional trade partners using the same strategies that we have used in the past. Many of these markets can be extremely challenging to do business in. Therefore, in our research we are looking at recipes and strategies for success, both on the business and on the policy front.
I will outline a couple of these and then sum up. First, we need to look for the pockets of openness and growth. India's economy, for example, is notoriously closed, but the auto sector in India has been growing at 20 per cent annually over the past five years. The auto industry is relatively open to Canadian trade and investment, so that is an area where Canada has a strength, where it is relatively open for us, and where there is extremely rapid growth and possibility. That is just one example of where we can look for pockets of openness in closed economies.
If we look beyond our usual markets — the usual suspects — we may be able to get better access. Everyone in the world is courting China, India and Brazil. If you are able to court some of those markets, then you may be able to get access to government and business leaders. In those economies, government contacts can be critical to business success.
We need to recognize that there is not just one way to benefit from fast-growth markets. We can sell into the U.S. economy, to a U.S. multinational engaged in some of these fast-growth markets. We can import from these markets, and we can set up in one market that gives us access to other parts of the region, such as using Thailand to get access to the rest of Southeast Asia.
There is also a perception that you have to be large to succeed in these markets. You do not have to be large. In fact, Canada's small companies have accounted for almost all of our export growth to Thailand, India, Singapore, Hong Kong and Vietnam. However, not all small businesses are suited to expanding to fast-growth markets. Our research is showing you cannot just be that middle-of-the-pack company; you need cutting-edge technology, a global reputation, a commitment to learn deeply about the international market and you need to be on the ground frequently and for the long term.
It is also important to recognize that while free trade deals are generally viewed as the main policy tool of government to connect Canadian companies to these markets and remove barriers in these markets, it is not the only tool. Relationships in these markets that are extremely different from Canada's traditional markets are really important.
Government policies and services are needed to help companies learn about these markets and develop relationships with trusted local partners that can help them access these markets and understand them. Those are very important ways that government can help our companies succeed in these markets. Developing these relationships may be more important than things like formal intellectual property provisions. If you have a strong relationship and if you are constantly innovating, then trusted relationships and constant innovation can be a way of ensuring that your company is not subject to intellectual property theft.
Some of these more informal mechanisms to deal with things like intellectual property protection, supply chains and so on depend on having a trusted local relationship. Government policies can help support that kind of network development and match-making.
To summarize, I think the world economy has changed dramatically in a quick time. Canada's role is changing dramatically. The opportunities are tremendous and they go beyond the obvious. I think the challenges are equally tremendous, and Canadian business leaders and government leaders need to think differently about how we address those challenges. Thank you.
The Chair: Thank you, Ms. Goldfarb. I will now turn to Mr. Stephens.
Mr. Stephens: Good morning from beautiful British Columbia. Can everyone hear me okay?
The Chair: Yes, we can hear you, loud and clear. We agree with you — it is beautiful in British Columbia.
Mr. Stephens: Thank you for the invitation to appear. I am honoured to speak to your committee. I have looked at your terms of reference and see they are very wide-ranging, encompassing the full range of Canada's relationship with the Asia-Pacific region. I am glad you have turned your attention to this subject; it is obviously timely, topical and important.
I have been closely associated with Asia for most of the past 40 years, either through study, living or working in the region. More recently, I have been observing and commenting on regional developments from the West Coast.
I first landed in Asia in 1975 as a young officer with the then department of external affairs. I was sent to learn Mandarin Chinese in order to prepare for a posting to the Canadian embassy in Beijing, where I served from 1978 to 1980, the early days of our relationship with China. A succession of assignments with the department in Ottawa and abroad at Canadian missions in Pakistan, Korea and Taiwan kept me closely connected with Asia and with Canada's activities in Asia.
In 2001, I jointed the U.S. media and entertainment firm, Time Warner, as Senior Vice-President for Public Policy for Asia. I worked for almost a decade at the company's regional headquarters in Hong Kong. This was an opportunity to step back and look at Canada's role from the outside, as seen through the eyes of others, and observe from the perspective of a large U.S. company operating in Asia how Canada was perceived in the region.
More recently, I have returned to Canada and now serve as Executive-in-Residence of the Asia Pacific Foundation of Canada, and I know that the foundation's president and CEO, Yuen Pau Woo, spoke to you recently. I am also Vice-Chair of the Canadian Committee to the Pacific Economic Cooperation Council, known as PECC.
I mention this rather long exposure to matters Asian not because I think it makes me an expert, because it does not. In fact, the more time one spends in the region, the more one realizes how much more there is always to learn. I mention it because it provides a perspective on how things have developed over time and how Canada's relationships with the region has evolved, which is certainly part of your study.
To cite one example, the question is often asked with respect to China and democratization in China whether the glass is half full or half empty. Having seen the glass completely empty in the 1970s, I would say the glass is definitely half full and it is filling. There is a long way to go, however, and progress has not been uniform.
A longer-term perspective also helps put in context Canada's current realization that Asia is important, if not crucial, to our future well-being.
I think it is no secret that Canada's engagement with Asia has not been consistent. Interest has been episodic, and that has and is hurting us today. If we leave aside the legacy of the very early contact with Asia, which was largely through Canadian missionaries, from the 1950s on we started building a strong Asian policy foundation, initially through the Colombo Plan in South Asia, through our relatively early recognition of the People's Republic of China, through strong engagement with ASEAN, being a founding member of APEC, and so on.
However, for the past 10 or 15 years, indeed until quite recently, this legacy of goodwill was squandered by what I guess I would call a benign neglect. Quite simply, we dropped out of sight, relatively speaking. There are reasons for this I am sure, but I am happy to notice that over the past three to four years, this neglect is being reversed.
However, although we have started showing up again, simply showing up, while it is a good start, is not enough; we have to earn back the credibility we once had. Asia is not sitting back, waiting for us to show up again. However, the good news is that we are welcome when we do; we have a reservoir of goodwill to draw on still.
In closing, I would add that one relatively underutilized channel of contact that Canada could engage with more is through Track II dialogue. Here I would like to mention the role of the Pacific Economic Cooperation Council, PECC. It is a tripartite, non-governmental organization. It is tripartite in the sense that it encompasses academics, government officials in their private capacity and private-sector representatives — a so-called Track II organization that is really a think-tank for the region. It has been around since 1980. Canada was a founding member and is still active. PECC produces studies and thought pieces on the region, its challenges and future directions. Being a Track II organization, it is a good forum for testing out ideas and building informal networks in the region.
I would be happy to discuss PECC's current research interests, which include open regionalism with a study of trade architectures, and inclusive growth and social cohesion, which is a growing issue for the region. A lot of work has been done in bringing down trade barriers, but the benefits have not trickled through to all parts of the population. There are also the issues of infrastructure and connectivity, both physical and human, which include energy, transport and services.
Indeed, this coming weekend, the PECC's twenty-first annual general meeting is taking place in Vancouver for the first time in many, many years. This meeting will be held in Vancouver in conjunction with the Canada-Asia 2013 forum organized by the Asia Pacific Foundation of Canada. We will have a good group of Asian experts and Canadians interested in Asia meeting together over the next three or four days of next week.
I will close my comments there. I would be happy to elaborate on this and any other themes you wish to pursue. Thank you.
The Chair: Thank you, Mr. Stephens. I do have a list of questioners.
[Translation]
Senator Fortin-Duplessis: My first question will be for Mr. Stephens.
In a very interesting article published in June last year by the Asia Pacific Foundation of Canada, you say that Canada is not very present in Asian media. What initiatives would you recommend to increase our presence in the media, and how should Canadian authorities position themselves?
[English]
Mr. Stephens: Thank you for the question.
There is no question that as the media world has evolved, the Canadian presence in Asia has declined. The media has an important role in interpreting to Canadians what is happening from a Canadian perspective. Of course, there are news feeds from other organizations that Canadians can see, but the representation of Canadian media in Asia is very slim. I guess the one exception is the Beijing bureau of The Globe and Mail, which has been there since the 1950s and continues to provide a good source. We have correspondents in Beijing. However, other than that, I do not think the Canadian media has any other presence in Asia. This is something very difficult for government to remedy; it is a private sector issue. I think it is unfortunate.
I am not necessarily advocating this as a solution for Canada, but if we look at the Australians, with whom we are very often compared, Australia has made a conscious effort to try to project its voice in Asia and to project what is happening in Asia back to Australians through its government corporation, the ABC. It has also funded a network, called Australia Network, that is available throughout Asia on most of the cable platforms and so forth.
If you like, the comparison might be that it is along the lines of an Australian BBC. It is interesting to note that China is doing exactly the same thing with its new English-language platform, which projects China's voice.
Canada has been absent. It is unfortunate that the gap has not been filled to the extent that one would wish by the Canadian private sector. I guess the market speaks in that regard. Without the voice of Asia and without the direct interpretation back, it is not surprising that Canadians' views are filtered through those of others, or else they just find that information crowded off the front page. Equally, the projection of Canada's voice is increasingly drowned out by those of others.
[Translation]
Senator Fortin-Duplessis: My second question is for Ms. Goldfarb.
In your opinion, where in Asia should Canada strategically direct its foreign aid to better allow for security risks and economic needs in recipient countries, in order to strengthen the economic context for Canadian businesses?
[English]
Ms. Goldfarb: I just want to ensure I understand the question correctly. Could you clarify, so I ensure I answer your question?
[Translation]
Senator Fortin-Duplessis: Certainly. CIDA is now back with Foreign Affairs, and Canada usually provides aid to countries which need it. I asked you where in Asia should Canada strategically direct its foreign aid to better allow for security risks in recipient countries, and also better meet their economic needs, in order to strengthen the economic context for Canadian businesses?
Are the countries that receive aid taken into account? Is it more profitable for Canadian companies to do business in countries that receive Canadian aid?
[English]
Ms. Goldfarb: I am not an expert on security risks and some of the political dimensions that you asked about in your question. However, I guess I could briefly comment on aid, how we decide what the right criteria are for aid and what the relationship is between Canadian commercial interests and foreign aid, which I think is what you are getting at.
We have to think more broadly about development policy as going beyond simply foreign aid dollars. My own research has looked at the question of how we can best help poor countries. How we can best do so is not necessarily a question of how much aid we give to poor countries, because we know that flows like investment, trade and remittances, which are private sector flows, are all much more significant in terms of both their volume and their impact on poverty alleviation, and even on the growth in these countries. They are not perfect tools, but they are certainly ways in which we can help economic growth, or have an impact, both on the business strategy side of things and also on the policy front in terms of removing barriers to trade with those countries. Is it better for Canadian companies that go into those countries where we have an aid relationship? One would probably say there would be an opening door effect where you have a relationship with that country and then you can get better access to their leadership. However, we need to think about aid dollars going into areas where there is a need and where we can improve people's outcomes.
We also need to think about other policy tools we can use that go beyond aid that can help us improve our commercial relationships. The DFAIT-CIDA merger may help aid specialists within the Department of Foreign Affairs to have a better understanding of how the world economy has changed and what that means and the relationship between development and trade and investment. Conversely, I think it is important for those people who deal with trade and investment to think also about the impacts on poverty reduction. They are not unrelated, but I would not say you want to develop your aid policies specifically based on commercial interests. I would not recommend that as the way to develop a foreign aid policy.
If you are thinking more broadly about a development policy, there may be ways for you to have trade policies that can help with both poverty alleviation and Canada's commercial interests.
If you take Indonesia, which is one of Canada's most important future markets, it is a poor country and a difficult country to do business in. We have commercial interests in that country, and there are probably ways that Canadian policy can help, aid policy can help in that country. There may be ways where those two things coincide, but I do not want to say, without doing a full analysis, where specifically we should send our aid. Hopefully that addresses your question.
Senator Ataullahjan: When we talk about trade, we will invariably bring up the issue of human rights, such as labour conditions. Yesterday our witnesses said that the link between trade and human rights is not working. When we talk about issues, we should talk about them but not mention human rights. When we mention human rights we are perceived as lecturing, and that does not seem to work. How do we ensure that when we sign trade agreements, human rights are not violated?
Ms. Goldfarb: That is a very important question. The recent case of the disaster, the devastating factory collapse in Bangladesh, illustrates how important thinking through these issues is. Canadian policy-makers eliminated tariffs on goods coming from the poorest countries about a decade ago, and that led to a huge increase in Bangladeshi imports to Canada, Bangladeshi clothing. Of course, we all know that Joe Fresh is connected with working in that factory. There are two issues here. The first one is a real question of Canadian business leadership. It is not necessarily a policy question, but that case in Bangladesh demonstrates the responsibility Canadian companies have to ensure their supply chains are in line with the same set of values that their company or Canada has with minimum labour and safety standards.
I think we will see some movement to more company leadership to ensure those risks, along with supply chain. When we are engaged with countries that have different human rights, different labour standards, for example, than we do, our companies need to ensure they have the right relationships — I talked before about the importance of relationships — with a trusted local partner. They cannot assume everything is going fine without being on the ground and knowing what is going on there. I think there is responsibility on the part of the Canadian private sector — and their own self-interests — to ensure these supply chain risks are mitigated, and when they are engaging in trade with countries with different standards, that those standards are kept in line with what we would consider reasonable in Canada.
In terms of the right policy tool for addressing if we want to include human rights standards in trade agreements that we are negotiating, one thing governments can do — this is a very tricky question — is work with companies on the ground to address the supply chain risk issues I just talked about by helping set them up with trusted local partners and establish relationships with markets. This is a way in which the government can have a positive impact.
There is one line of thought that argues that you should put human rights conditions into trade agreements. Another line of thought says that you need the right policy tool to address each issue, that trying to mix up those two would put environmental and labour standards into trade agreements and it will make it difficult to achieve trade ends, and that you should use the right policy tool for each specific issue. This line of thought says that you should have different ways to address labour conditions, whether through international bodies and elsewhere. I am not an expert specifically on that issue. We have not done research in that area on the question of what the pros and cons are of putting human rights conditions specifically into trade deals.
The Chair: I have a long list, so I will encourage shorter responses. We can follow up with written responses so we can get everyone's questions in.
Senator Nolin: My first question is directed to Ms. Goldfarb. As you know, last October Canada joined the Trans- Pacific Partnership negotiation, and Japan joined the group last April. According to DFAIT, excluding Japan, the TPP market represents more than 658 million people with a combined GDP of more than $20 trillion.
My first question is general. Which sectors of industries and which region of Canada will likely gain or be affected negatively as the result of such a huge trade negotiation?
Ms. Goldfarb: We have not done a study specifically on the TPP and which sectors and industries would gain or be affected negatively. However —
Senator Nolin: If I may interrupt, if you want to send the answer to the committee in writing — because my question is quite large, the answer could be quite large — you could follow up with a written answer. I think we would benefit greatly from a written answer.
Ms. Goldfarb: I would say since we have not done a study on it, the impact would be across the country.
We cannot say specifically without doing an analysis, but we expect there would be benefits not only for trade in goods, but trade in services. Trans-Pacific Partnership is supposed to be a leading edge agreement going beyond what we have in our existing trade agreements. It is going to be focused on issues related to trade in services, movements of people, issues that go beyond our traditional trade agreements. One area that could benefit are all the regions of the country that sell services to the world, and that is one area where there could be a major benefit or impact. The idea is that we must be around the table at those talks because it has the potential to be one of the world's largest trade deals.
Senator Nolin: Mr. Stephens, complementary to that, what specific barriers to trade and investment should be addressed in the FTA among the TPP countries?
Mr. Stephens: On the part of the TPP, there are two dimensions to it of course. There are the current 11 partners, including Japan. Canada has good trade relations with some of them, free trade agreements with some. The important thing about the TPP is that it took a while for Canada to get into this game. As we know, we were latecomers; we are now part of that process. However, it is part of a larger, longer-term game, so the TPP is proceeding. It could well expand beyond Japan. At the same time, there are other regional trade groupings forming, the Regional Cooperative Economic Partnership, that does not include Canada, the Pacific Alliance, other things. This — the TPP — gets Canada into the game.
Eventually, these would ideally be brought together through some kind of much broader free trade agreement of the Asia-Pacific.
Specifically with respect to investment, the TPP is a high-standard agreement. Investment commitments will be required in the area of government procurement, et cetera. I am not privy to the detailed negotiations, but Canada has already crossed the bridge on many of these things. Obviously the United States and Mexico, through NAFTA, are now rolled into the TPP. We have agreements with Chile and others.
While additional commitments will no doubt be required, I think we need to look at these investment commitments as being very much a two-way street. Whereas we may be required to reduce or open up investment in certain areas where we already have very few restrictions, these could obviously be a benefit to Canada, but reciprocally, we will get more opportunities for Canadian investment. Investment is the path that helps not only trade in goods but also trade in services, and this should provide a good foundation for expansion of our goods and services exports to this growing part of the world.
Senator Dawson: We have had many witnesses come before us and speak to us about the issue that as we go east, fewer and fewer people are interested in Asia-Pacific issues, whether trade or politics. One of the objectives of these committees is to expose, debate and try to get coverage on these issues. What recommendations would you make to us to try to find ways to raise the profile and convince the politicians? We need to convince the people because politicians react to needs of the population. How do you we convince Canadians that this is an opportunity we need to seize? We cannot go back to benign neglect. We have to convince Canadians this is worthy of investment both from the political perspective and the perspective of encouraging our companies to realize these markets must be explored and exploited by Canadian companies.
What can we do to raise the profile of the Asia-Pacific and Asia-Pacific growth? We are far from B.C., as you know. We cannot see Russia from here.
Mr. Stephens: I take it the question is for me. Working with the Asia-Pacific Foundation, which you have already heard, you will be aware that the foundation, which was established to raise the profile of Asia in Canada, has various activities under way, including this National Conversation on Asia, which has taken place in various parts of the country. The idea is to try to raise profile; we speak and we write about it. You have asked specifically what governments can do. One of the things is exactly what you are doing, senator — putting the spotlight on these issues by holding hearings, by conducting studies. Of course, government is not just Parliament and the federal government. It involves three levels. I think it is helpful to also involve the provincial and municipal governments in this. We see trade missions from time to time from various municipal and provincial administrations as helpful. They bring their companies to Asia, but it also raises profile back in those communities.
A supportive environment is really one of the key elements. I would note that the Asia Pacific Foundation of Canada has an office in Toronto, so it is not just a West Coast organization. It has a board composed of people from all parts of Canada, both linguistic groups. We do what we can, and the foundation is ultimately a creation of Parliament and so government has played a role in that regard. This requires continued effort. Attention is easily distracted. This is not just a short-term, one-year or two- or three-year exercise. This is something that will require a generational change, and that is where we get into the younger generation and the raising of awareness of Asia and Asian languages in the schools. That is a provincial responsibility, obviously, but something that could be given encouragement at all levels.
Senator Demers: This is for the witness or witnesses. Some analysts have argued that Canadian foreign policy in Asia needs to encompass a broad range of issues and not focus primarily on commercial relationships and emerging markets: ``A comprehensive connection including political and security processes is needed to demonstrate Canadians commitment and capacity.''
Mr. Stephens: I am happy to speak to that, senator. I fully agree with the proposition. Trade is extremely important. Out of the old expression about trade following the flag or the flag following trade, I am not sure which is true today, but it is a given that you cannot have a unidimensional foreign policy. Basically, to address this issue of benign neglect, we have taken the first step; we have started to show up: We have had ministers go now more frequently, and the Prime Minister has made a couple of visits to important partners and so forth. However, this needs to be sustained and needs to be long-term, and for that to be the case, you need to take — I know it is an overworked word — a strategic approach.
We have always had a strategic approach to the United States. It is part of our DNA. We understand why it is important. We look at the full range of our dimensions with our relationship with the United States, and we need to do the same with Asia. Asia is a very disparate place, of course, but we need to take a holistic approach.
You mentioned, for example, security. We need to look at what assets we have. We are not going to project security assets in the Asia-Pacific as the United States does, but there are many areas of security where Canada has a role to play. I am talking more about what we could call human security or soft security issues, the whole range of human smuggling, disaster relief. There are many forums developing where Canada could play a role. We used to play quite an active role back in the 1990s in the South China Sea issue by providing a forum for the facilitation of dialogue. Those are the sorts of things that would help because simply having a trade mission periodically is not going to cut it. We need to be there in all our dimensions. I mentioned the Track II dimension where we need to have a role, we need to be present. People notice whether you are engaged or simply chasing a quick return on the dollar or when you appear to be committed. It involves security, trade and a commitment to cultural exchange, et cetera. I would agree with the proposition.
Senator Wallace: Ms. Goldfarb, you mentioned that you felt we should focus our Canadian efforts to develop trade and economic opportunities with countries close to our sweet spot, as you referred to it. I believe in the Asia-Pacific area you said there were 24 countries on that list. When you say that, I am wondering what your comment would be on the approach that the Canadian government is now taking to developing these relationships and opening these doors with emerging markets, in particular in the Asia-Pacific.
Do you feel that we are being focused enough as a country? Are we focusing on countries where the greatest opportunity exists or could exist to match what we have in Canada in terms of our services, materials and opportunities to develop? Are we matching those properly, or are we taking a broad, sweeping approach to it, without the necessary strategic focus to develop real opportunity? Again, the government can only do so much. It can establish the framework, set the table, open up, through policy, develop opportunities for Canadian industry and private sector to step in, but that is what must happen. That is where the trade and activity occur. It is a rambling question, but it comes back to the point of focus. Are we being focused enough in our Canadian approach in developing these economic opportunities needed in this country?
Ms. Goldfarb: Thank you for that question. I want to clarify that the 24 countries we listed in our report as the most important future markets to Canada are not all in the Asia-Pacific region. Twenty-four countries are the overall list. Many of these countries are in Southeast Asia and include South Korea and countries like India and China.
Are we being focused enough? It is a very good question. Certainly the officials at DFAIT, the limited number of trade negotiators we have, are working overtime. We are negotiating with everybody, everywhere. There is definitely scope for Canadian policy to be more focused. In the last Global Commerce Strategy that the government produced, we came up with a number of priority regions, but those regions were essentially everywhere in the world. There is more scope to be more focused. I think a key issue is that Canada has not really been successful at negotiating a large free trade deal since the Canada-United States deal. We are apparently close to negotiating one with the Europeans and we are negotiating with Japan, India, the TPP and others. We have not actually signed a deal with a big one. It is critical that we sign an important deal with an important future market for Canada that will set a precedent for signing deals with other large important markets to Canada. That will send a signal to the world that we are capable of doing this, we can negotiate in good faith and make concessions on so-called sensitive sectors and issues that are sensitive on the Canadian side.
We talk about Canadian strengths, and we should negotiate deals where there is an industrial alignment and so on. I think that is important, but we should also keep in mind that our strengths have changed dramatically in the last 10 years. We have moved more towards services trade than we ever were focused on in the past. Services are leading our trade growth. We have a huge growth in our resource exports, so there has been a dramatic shift in what we have traded over the last 10 years. We cannot think of trade deals as just focusing on our current areas of strength. We need to be able to negotiate as ambitious agreements as we can, as comprehensive agreements as we can. That will get into areas of strength that we do not even know about that Canada will have 10 years down the road. We want to ensure we are focused on the largest, most important markets that will have the greatest growth potential for us. We also need to think about having the widest potential opportunities within those markets.
Senator Wallace: Thank you for that. It is that connection between government policy and private sector investment that I am interested in, and we are all interested in. Mr. Stephens, you commented that Canadian industry has not responded to opportunities in Asia-Pacific to the extent that I sense you thought would be adequate. We have heard from other witnesses that the Canadian private sector seems to be very much risk-averse, compared to the approach in some other countries. Perhaps it is as a result of the traditional U.S., EU markets; we have become comfortable with those and it is difficult to move out from that.
It is one thing to establish new trade arrangements for policy to open up the opportunities, but in order for the Canadian private sector to move in and take advantage of those, what will it take? I understand we have trade missions, and that is typically what has happened over time. Are there any initiatives that we should take to better connect Canadian trade policy with Canadian private sector investment in these markets?
Mr. Stephens: Senator, I do not disagree that the Canadian private sector could do more. It is very easy for someone to criticize the private sector. Obviously there are bottom lines to be considered. It is not all a bad-news story. I was talking more about the government presence in Asia rather than the private sector. If we look at some sectors, the financial sector is good example, some Canadians companies have been extremely active for many years in Asia, and they are the standard bearers. If we look at the IT sector, formally Nortel was very active. That is a story of the past, but of course for RIM, BlackBerry, its largest markets today are in Asia. There are plenty of examples, engineering services and so on. It is interesting that it is primarily services but also, of course, resource companies, resource exports.
The real issue for companies that have not taken the plunge or have and stepped back is what will it take? The standard response is that it is easy to export to the United States. We have had this market right next door, and it is familiar and comfortable. As Ms. Goldfarb pointed out, our exports to the United States will decline, so companies will have no choice but to look at some of these markets where the hurdle rate is a little bit higher. It is a bit more difficult. It is not quite in the same comfort zone.
To come back to your question, trade missions are important in terms of raising profile and opening doors, and frankly I think we all know that many of the so-called deals supposedly sealed by these trade agreements had been worked on for many years. Perhaps the mission helped push it over the top; maybe it was a photo op. This is where the free trade agreements can be helpful because they can raise the comfort of companies against unreasonable expropriations, to know that there are procedures for arbitration, that there is due process and the barriers will be coming down. If the local market you are exporting into starts playing games, you have some recourse on the part of your government to go back and invoke some pressure and mechanisms and so forth.
There is no question the government can play a role in raising the confidence of business. At the end of the day, however, business has to look at the return on investments for its shareholders and the risk and so on. While there will always be a risk in unfamiliar markets, as has been pointed out, there will be a greater return. I think we will start to see more companies look abroad. There is no one single formula, but the door is opening. However, more than opening doors, I think setting the proper policy framework through government-to-government agreements is a very important role for governments to play to raise the confidence of the private sector.
Senator Oh: My question will be for both of you. Recently, an envoy from an ASEAN country came to my office and we talked about trade issues. I was very surprised that Canada's trade with Singapore was only 0.5 per cent of their annual exports, which is far below any trade happening in the world. I travel frequently to Asia and to China. I noticed that the biggest comment was that the Canadian private sector, or Canadian trade, was very conservative. They are probably not aware of how to deal with Asia or with any country over there. For instance, with respect to the BlackBerry, the biggest user in the world of the BlackBerry is Indonesia. There is a big electronics market over there for the BlackBerry, but, for Singapore and the other ASEAN countries, they lag way behind.
The EU countries are very aggressively into every sector in China, from the auto industry to food, business, exports and timber. In what ways could the Canadian government help the private sector to venture into ASEAN or the Asia- Pacific rim?
Ms. Goldfarb: Like Mr. Stephens suggested, I think that the dramatic change in the world economy, the slowing of growth in the European Union and U.S. economies — particularly the U.S. economy — and also Canada's increased competition in the U.S. and Canadian markets from China and other emerging markets have already set in for Canadian companies. They are already looking for alternatives in some of these fast-growth markets. I agree with what Mr. Stephens said, that it is not all a bad-news story. Many of our companies are already active in these markets, and we are rapidly growing our involvement in these markets. Small businesses, in particular, are actually growing their involvement in these markets. That said, it is still not happening enough.
I think there is a huge role for government in terms of education, really raising the profile of opportunities in this region. I think there is a really important signal that signing a free trade deal with markets in this region would send about the importance of the region and how the door is open. There is kind of a signaling effect. If you sign a free trade deal, Canadian companies, as we have seen in the past, immediately have an interest in these markets as a result of that deal being signed.
Also, we do not pay a lot of attention, behind the scenes, to a lot of the work that the Trade Commissioner Service, Export Development Canada and a lot of our business councils do behind the scenes to create networking and matchmaking opportunities for Canadian companies. I think that those kinds of below-the-radar policy activities that the government can engage in are quite important when we are dealing with markets with which Canadians are much less familiar. I think the economic realities are going to force Canadian companies. The economic reality is that, even if you want to stay local and not to think about fast-growth markets outside of Canada or the U.S., you will be forced to, or you will go out of business because companies across most Canadian industries are facing increased competition from Chinese and other markets that are cutting into our traditional U.S. market share. We will be forced to look elsewhere.
Mr. Stephens: To respond to your question, I will talk about ASEAN and about China. You mentioned a very small share of the market — Singapore. Singapore, of course, is a very small market, with 3 million people, although it is an entrepôt.
Of course, ASEAN is moving to a common market by 2015. You pointed out that Indonesia is an important market. Malaysia and Thailand are increasingly important markets. ASEAN, as it becomes more of a unified block, will become an extremely important potential market for Canada. We have restarted our dialogue with ASEAN. We have been a dialogue partner for some years. That has sort of been left to wither on the vine to some extent. I guess we have now picked that up. I know there is the new Canada-ASEAN Business Council being formed in Singapore, which should help. It is based on Canadian businesses currently in the region. Canada has recently appointed an ambassador to ASEAN. We need to strengthen institutional ties with ASEAN as a group. I think that will definitely help.
There are, of course, a couple of ASEAN countries within the TPP negotiations, but there are a number that are not. At some point, I think that Canada needs to look at coming to grips with ASEAN as a whole. ASEAN, as a whole, has negotiated trade agreements with most of its major partners. It has become a hub of a whole series of trade agreements, with India, China, Japan, Korea, Australia and New Zealand. These agreements are now being rolled into one big — I could use the word — ``competing'' agreement with the TPP. It is not clear whether it is complementary or competing. At the moment, it is one of sort of two visions for trade in the Asia-Pacific region. A couple of ASEAN countries have a foot in both. Canada has a foot in one. No country in the western hemisphere is involved in this new RCEP. If it develops, it is something that Canada will need to take note of it.
With respect to China, it is not just the EU. Every country in the world is trying to penetrate China. It is an extremely difficult market to get into. I am aware of only one OECD country that has an agreement with China, which is New Zealand, a very small market. I understand that China has made an offer to Canada to commence discussion of a free trade agreement. There is the issue of trying to do too many things at once, but this is something that I think should be looked at seriously. The Chinese do not make this offer to many people. I do not think it would be easy. We have not been able to bring home any of these trade agreements yet, but this is an opportunity where Canada could get a leg up on some of its competitors in the Chinese market if we were to take this seriously. This is something that I understand the government is studying and has not formally responded to, but maybe it could be moved up the agenda a little bit.
The Chair: Thank you. Mr. Stephens, you said, if I understood you correctly, that some of the growth into the newer markets was from small and medium-sized companies. We have heard, over the course of many studies that we have done here, that large business perhaps does not need the same kind of support from governments in opening doors that the smaller and medium-sized ones do. Can you elaborate on the opportunities for small and medium-sized businesses in the Asia area? Is there something we need to do to assist them in a very special way that we could pursue in this study?
Mr. Stephens: I would be happy to address that. However, I believe it was Ms. Goldfarb who said that, so perhaps I should allow her to respond initially.
Ms. Goldfarb: I said that most of the export growth to these markets is actually from small and medium-sized businesses rather than large businesses. That is to India, Thailand and other small markets in Asia.
I think the first thing that we need to recognize, as I mentioned in my initial remarks, is that not all small businesses are going to make it in these markets. We know from other research that only about 545 small businesses in Canada account for 70 per cent of our exports. It is a really small number of small businesses that are actually succeeding in fast-growth, emerging markets. I think we need to think about being strategic about those small businesses that we do have. It is not going to help if someone comes to you and is clearly not interested in developing a deep knowledge of another market and in investing the time and resources to get to know that market. However, if we focus our resources on companies that provide leading-edge technology and that are able to develop a global reputation where they have got a niche in a particular technology, business or product, it is really important for us to help them to understand the local markets, which we do through our Trade Commissioner Service and in other ways.
However, we should also look beyond that to more creative arrangements. We found, in some of our research, that some companies in Britain, for example, have been helped a lot by twinning arrangements between a small region in Britain and a city that they are twinned with in China. That has given them access to a Chinese market that has an industrial base complementary to their own market. We need to think creatively about establishing relationships with markets that we do not know as much about and seeing if we can build on those relationships. The role that we play in terms of helping to nurture relationships and helping companies to understand is not just government policy. A lot of the companies that we see succeeding in fast-growth markets, when we look at case studies, are companies that are able to piggyback on small companies in those markets and give those other small companies an innovative technology to be able to sell. It is helping people to connect to each other that will be one of the most important things the government can help to do.
The Chair: Ms. Goldfarb, I will ask another question. I thought it was equally balanced, but both questions are to Ms. Goldfarb.
You talked about aid in an answer to Senator Fortin-Duplessis. One of the issues that hit the Canadian press, at one point, was that we were still giving aid to China while China was giving rather large sums of aid to Africa and elsewhere. This is something that, in some quarters, did not sit well with Canadians. I am not going into the area of whether we should be giving aid to countries who are, in turn, giving aid to others and, perhaps, then having a competitive edge on us. I think we have explored that before.
What I am interested in is the new discussion around the new type of aid, which is aid in assistance of businesses and economies. For example, if we are going into a trade agreement with some smaller country, they do not have the capacity to fully understand trade agreements, the World Trade Organization, et cetera. They need technical expertise and support.
Do you think that this type of aid is of more assistance and greater benefit to the country receiving it and a better role for Canada to play?
Ms. Goldfarb: That is a good question. We do know that trade leads to better living standards. There are a lot of different mechanisms by which this happens. If Canada is having difficulty spreading its negotiators across all of these agreements, you can imagine the challenges that poor countries have to deal with.
I think that policies that help countries to ensure that they sign trade deals that are going to be to their benefit and that, not only before the trade deal is signed but also after, help to ensure that countries are able to take advantage of the provisions in the free trade deal to enable them to export their goods to particular countries are important. It is not just before but also after. It is critical that companies are able to take advantage.
We have not done an analysis of where the economic benefit would be greater, whether aid would be better spent on that or on traditional forms of development assistance. I cannot comment on that. All I can do is to reiterate my earlier point that we know that trade, investment, remittances and all of those private sector flows, and anything we can do to open up those private sector flows, do have huge impacts on poverty reduction. Anything we can do to help countries to take full advantage of engaging with the global economy and reaping the same benefits that Canadians get from being involved is positive. However, I would not tell you that you should necessarily take away aid from something else to do this before doing a proper analysis.
Senator Robichaud: You have mentioned that big companies, such as RIM, are doing good business in that part of the world. You also mentioned other businesses that are somehow finding their way.
Ms. Goldfarb, you mentioned that one of the things that you should do first is to find a trusted local partner. For small and medium-sized enterprises, how much of an investment would that represent? I know the big guys have all the money, and they can use their money and time to go out there and find out what the field is like. However, for medium- sized enterprises, where would I start if I were one of those companies?
Ms. Goldfarb: Is that a question to me? I can respond to that.
You have hit the nail on the head. These are small companies. They are not the same as a large, established Canadian company that can go into an Asian market and have all of the expertise and tools at its disposal to be able to access that market. It is very difficult. Most small businesses do not export because, as I mentioned, it is a small number that accounts for most of the exports. It is a huge investment, and I think that that is why, when we are thinking about policy that can help these companies, we have to really focus on helping them to establish those relationships.
Where do we start? As I mentioned, one of the strategies for success is piggybacking on another small company that is already in a fast-growth market and needs to differentiate itself, or piggybacking on a U.S. or other multinational that is active in a fast-growth market and trying to sell into their supply chain. There are ways to do it, such as getting involved in business councils like the Canada China Business Council. There are all kinds of business councils affiliated with that region.
There is the Trade Commissioner Service and Export Development Canada. All of the different services offered by the various governments that exist right now are part of how you access these things.
However, it is very difficult from a small business's point of view. There are so many different programs, and I have been told by some small businesses that they need to hire someone just to manage those relationships with the programs that we have in Canada. Some kind of single window that could help them to do that would be beneficial. There are also new arrangements growing up, like mentoring groups, where you have businesses successful in fast- growth markets mentoring businesses that are just getting into those markets. Some of them involve large businesses mentoring small businesses, which can be valuable. However, it is really important to recognize that, as you mentioned, the problems, issues and resources that a small business has are very different from those that a large business has. Anything the government can do to help successful small businesses that have managed to access these markets to help other small businesses to understand these opportunities would be beneficial as well. Without question, it is very challenging for a small business to do that, especially when we have all of these diverse services and they do not know how to get in. It is important to make it as easy as possible for them to access people who can give them local connections and contacts.
Mr. Stephens: There are just two points I would like to add to that. In terms of the readiness of small and medium- sized enterprises, I am no longer with Foreign Affairs and International Trade. I was for many years, but it has been quite a while since I have been there. However, I am sure that they still have a series of export-ready programs to qualify small and medium-sized businesses to ensure that they are ready to take that plunge and to provide some hand- holding when they take that initial foray into the market. At the end of the day, the government can only do so much. It is up to the person to have a product that is competitive and so forth. It might not just be exporting something. It could be reciprocal and part of something larger.
That is the second point. Ms. Goldfarb mentioned the multinationals. As we get increasing investment into Canada from Asia, this presents some great opportunities for small and medium-sized enterprises. One recent and fairly controversial example was the China National Offshore Oil Corporation, CNOOC, takeover of Nexen. CNOOC is establishing its western hemisphere presence in Calgary. It is one of the largest global oil companies. It will be dealing with a range of companies in Canada, some large, some small. There is a great opportunity for companies with a niche product. If they can sell to CNOOC, they can open up more markets just through their affiliation. Of course, there are others that are coming into Canada — Petronas from Malaysia, in the energy sector; Japanese manufacturers; Chinese manufacturers, et cetera. Again, that is how investment and trade work together.
Some people are concerned about this inward investment and what it will mean. It not only expands production in Canada but also offers a great back channel for expansion of global markets for Canadian exporters, both large and small.
Senator Nolin: My question is for Mr. Stephens, but you will be welcome, Ms. Goldfarb, to add anything, in writing if you feel the need to do so.
Mr. Stephens, you mentioned a few countries that are already trade partners with Canada. You mentioned the U.S. and Mexico, but we can add Chile and Peru, which are also part of those TPP negotiations.
We have trade and investment barriers between Canada and some of those countries. Do you think the TPP will help to alleviate those barriers?
Mr. Stephens: Well, I certainly hope so. If it does not achieve that, one wonders what the purpose is. This is a very complicated negotiation, and, ultimately, for many of the TPP countries, the interest is better access to the United States market, which we have. That said, some of those countries already have free trade agreements with the United States. If you look at Singapore, Australia, Chile and Peru, they already have free trade agreements with the United States. As you pointed out, we also have free trade agreements with some of those partners. It becomes a very difficult issue to harmonize all of these existing arrangements.
In fact, that is one of the greatest difficulties for exporters. Now, you have this so-called noodle bowl of trade agreements, and you have components that come from different places. Which rules of origin apply? One of the goals of the TPP and, indeed, of some of the others is to smooth out and bring to a common standard all of these various factors so that, when you are exporting into this group, you know that you are exporting into this group and we do not have to jump through all kinds of additional hoops.
Again, I am not privy to the negotiations. They have been extended longer and become more complicated as new countries join. Japan has just joined, and of course Canada and Mexico have done so more recently. One would certainly hope so, for the stated outcome is that this is a high standard, 21st century agreement that deals with investment barriers, IP issues, procurement and the so-called behind-the-border issues. Tariffs are the easy part. Once you get your product into the market, how do you get it to your customer without different people putting up different barriers?
If that is achieved, it will have been a good step forward, but it is not the final step, of course, because it is just one group of 12 countries. There are other competing trade organizations out there, and, ultimately, we need to move forward and, ideally, bring them all together.
Senator Nolin: Ms. Goldfarb, maybe you want to add something?
Ms. Goldfarb: Basically, I agree with what Mr. Stephens said. The point is that this goes beyond tariff barriers. Our previous global and regional trade negotiations focused on more limited areas. The idea here is that we will be able to address some of the more opaque barriers, like regulatory and other areas, barriers to movements of people and issues related to investment, services and trade. I think the key thing is that, if this deal does get done — and it is a difficult deal and will be a very difficult thing to achieve — it will set the standard for the potential to achieve in other negotiations. People are watching that negotiation closely.
Senator Nolin: Thank you, Mr. Stephens, for mentioning that expression. Maybe we can use that in the title of our report — the ``noodle bowl.''
The Chair: I think someone else has already coined that, so we will have to find another one.
[Translation]
Senator Fortin-Duplessis: My next question is for Ms. Goldfarb.
You mentioned some markets in several areas, and you said we should not underestimate other markets. You said that, in India, the auto sector was open. When we prepared our report on China, we noticed that when an auto manufacturer wants to enter a market, it starts to build factories — we saw for example a Toyota factory, and then a Honda factory, and so on. Here in Canada, we manufacture only some American models.
In your opinion, would India be interested in manufacturing cars in Canada, or would they be more interested in exporting Indian Tata cars to Canada?
[English]
Ms. Goldfarb: We did a recent study of India called Hottest Prospects for Canadian Companies in India. India is not a major exporter in general. In fact, it mostly imports energy and other goods.
In terms of what India can import from Canada versus what it can export to Canada, we are finding in our analysis that it is starting to import a lot of auto parts. There is, as you mentioned, a lot of investment in that market that then feeds into the auto industry in that market. I think there is a lot of potential for us to not necessarily sell complete cars to India but to sell a lot of our products and expertise in the auto sector.
For example, there is a Canadian company that sells plastic mufflers that reduce the weight of the car and are therefore more energy efficient and reduce energy use. That company, when it found out that its North American corporate prospects were slowing down, went to India and has now been successful in selling its product to the Indian market. In India, there is a real demand for anything that is energy efficient, and it is just a booming industry.
We need to think about how we can leverage our auto sector expertise, and I do not think that we should limit it to importing cars. It has got to be about where we have expertise, where we can find a niche in their value chain, where we can be price-competitive in that market and where we can find a pocket of openness. Again, there is a lot of openness in that market for environmentally friendly products, so anything we can do in the auto sector that will reduce energy use in India will have a more likely degree of success. We can say, ``What are Canada's strengths?'' However, I think the key thing here is to think about what India, China, Brazil or any of these other markets need. Where are they open to bringing our expertise and products in, and where can we be a global leader in specific products and services? We need to think about where the needs are elsewhere and how we can adapt some of the strengths we already have to new markets that we have not been involved in before.
[Translation]
Senator Fortin-Duplessis: Thank you, I was under the impression that you were suggesting Canada should export cars, but you had not specified it could be auto parts. Thank you so much for clarifying this.
[English]
Ms. Goldfarb: Sorry if that was initially unclear.
The Chair: Thank you. We have come to the end of our time and our questioners. I want to thank Ms. Goldfarb and Mr. Stephens for participating this morning. As you noted, our reference is extremely broad. It covers many countries, and we were very interested in having witnesses who could come and give us basic information about the situation at the moment, perhaps in areas that we could bring some new policy discussion to. You have certainly done that today, and I would encourage you to reflect on what this committee could bring in value added, as you have called it, to the broad discussions about the Asia-Pacific region and Canada's foreign policy in that region. If you have any thoughts, please convey them to us. Otherwise, on behalf of the committee, I want to thank both of you for participating this morning. Thank you.
Mr. Stephens: Thank you very much for the invitation.
Ms. Goldfarb: Thank you very much.
The Chair: Senators, I have two announcements. One is to say that there will not be a meeting on Wednesday, so you can have other plans or attend other committee meetings. The second is to remind you that we have set, it seems, the best date for all, after our meeting at 12 o'clock, June 6, for a luncheon with our colleague. Just for the record, it will be at your own cost. With that great announcement, I will adjourn the meeting.
(The committee adjourned.)