Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 18 - Evidence - Meeting of November 6, 2014
OTTAWA, Thursday, November 6, 2014
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:29 a.m. to examine the potential for increased Canada-United States-Mexico trade and investment, including in growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable members, we're ready to start the Standing Senate Committee on Foreign Affairs and International Trade, which is continuing its study on the potential for increased Canada-United States-Mexico trade and investment. This includes: growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key areas and sectors; and opportunities for deepening cooperation at the trilateral level.
We are very pleased and honoured to welcome to the committee His Excellency Francisco Suárez, Ambassador of Mexico to Canada. Your biographical notes have been sent to all senators, so we are well aware of your academic and your professional accomplishments prior to being appointed here. I'm not going to take the time to restate them, as we have them.
We're very pleased that you have responded and that you are here to share some of your thoughts, with respect to our study. We know that it will be helpful in our report.
Your Excellency, welcome to the committee. The floor is yours to make any opening comments you would like to make. Welcome.
His Excellency Francisco Suárez, Ambassador, Embassy of Mexico in Canada: Thank you very much, Madam Chair.
[Translation]
Mr. Suárez: Let me begin by expressing, on behalf of the Government of Mexico, our solidarity following the great tragedy and the grave events that took place a few steps from here. Sincerely, you have the warm friendship of our government and of your friends in Mexico.
[English]
It is a privilege for me to make a presentation to the members of the Standing Senate Committee of Foreign Affairs and International Trade, and as you pointed out, for the great potential and actions needed to deepen cooperation, at the trilateral level, in North America.
I will start by making a few brief personal comments.
I have been Mexico's Ambassador to Canada for a year and a half, and have visited all your provinces, except one; the last one was your province of Saskatchewan, Madam Chair. I have watched a hockey game. I understand Canadian football and it's much faster than American football. I had elk for Christmas, instead of turkey. And from a gondola I saw a grizzly bear that was close-by. I like ice-wine, but I'm totally confused which is better: the Ontario or the B.C. wine. My two sons studied here: one at Ashbury College, the other took an MBA at the University of Toronto, and he now works at Scotiabank. I have two Torontonian grandchildren. Speaking as a good friend of Canada, in some cases, I can be less diplomatic, which might be useful.
Although we share 20 years of North American Free Trade Agreement and 70 years of established diplomatic relations, it's clear we know very little of each other — although many Canadians have enjoyed our sun, sand and margaritas.
I have undertaken, as a personal task, to help remedy this. The embassy has prepared a time chart of both our histories. I will submit that to you, in case you are interested.
This historical journey is full of surprises. For example, in the 18th century, Mexican sailors, who were still under the flag of Spain, were the first westerners to map out Vancouver and trade with the Haida Nation. At the end of the 19th century, we both rejected a reciprocity trade treaty that was proposed by the Americans. We both rejected it. Around 1905, a Canadian trade commissioner was appointed to Mexico. A Canadian investor — the Bank of Montreal — was the first to establish an electricity system and tramways in Mexico City. Recently, I found out that Mexican charros — cowboys — were present at the first Calgary Stampede in 1912. In the 1920s, Canadian Mennonites were given asylum in Mexico. In 1955, the first trilateral summit took place in Virginia, at the invitation of President Eisenhower, with the presence of Prime Minister St. Laurent. Prime Minister Diefenbaker was the first Canadian Prime Minister to make a state visit to Mexico in 1959.
The first Canadian Ambassador to Mexico was Mr. Turgeon, who is from your province, Madam Chair. He had retired as Chief Justice of Saskatchewan and was a distinguished lawyer. Earlier, he had been the first Attorney General of the province. He went by train to Mexico, which at the time took four days to get there.
Anyone who looks at the 20 years of NAFTA will see that it is most impressive. I will not repeat it all because you have had a number of hearings and have commented on that. I want to highlight that trade is popular now. There is $35 billion of bilateral trade with Canada and that makes us your third-largest trading partner after the United States. It's about a third larger than the trade with Japan. It's several times that of Korea and four times that of France.
You have a hearing later on, but I want to highlight one of the best cases of foreign direct investment, which is the case of Bombardier, that developed a veritable air space growth pole in the city of Querétaro. First, it was Bombardier and then there were something like 30 companies. Now, there is another air space program in the state of Chihuahua. At the beginning of what I think is a new trend, you have an important company, called Grupo Bimbo that acquired Canada Bread, which is a $2 million investment. It will be a new trade.
What's important is that we are not just buying and selling. We're not just traders. The significant change is having value chains across North America. I had an opportunity to visit Palliser Furniture in Winnipeg. Furniture parts are going back and forth between Winnipeg and Mexico and that is an important value chain.
This is a very timely meeting. It's a meeting at the crossroads for North America. I'm happy to witness it. It's a veritable wave — a renaissance — of very ambitious and fresh ideas. Some of them are expressed by our very distinguished officials, businessmen and academics; David Morrison, Colin Robertson, and Eric Miller. There's also North America: Time for a New Focus, by the Council on Foreign Relations; the studies by Laura Dawson; the announced Canadian Council road map; and, of course, the conclusions — the so called liberals — of the bilateral and trilateral summits held in Mexico; and recently the Mexico-Canada Partnership held in Calgary.
In 2015, we must start a new stage for a dynamic and competitive North America, with a long-term vision sustained by three strong bilateral ties and with a view towards reinforcing the trilateral relationship. It has been said, trilateral where we can and bilateral where we must.
There are of course lingering obstacles. For some, Mexico is not even part of North America. They put us in a geographical limbo, because we are not Central America and we are not South America. There is the 1994 syndrome, which is where some believe that it is better to have a special relationship with the U.S. Mexico is a nuisance. And bilateral is always better than trilateral. There is also the view that Mexico is competing against Canada. I think we are working together. There is obviously an amount of good competition, but basically we are complementary and working together.
In terms of the mandate for this meeting, I will first talk about the huge new opportunities for dynamic trilateralism. I would submit that North America is one of the brightest spots in an otherwise very bleak world economy. If you look at the last page of the Economist, where they put the yearly and quarterly figures, in the last quarter, the United States, Canada and Mexico have growth rates of 3 or 4 per cent. This is not only vis-à-vis advanced countries, but also against many of the emerging countries. If you compare that with a very stagnant Europe — and they just revised for the third time the figures — all of them are below 1 per cent. Japan is in a sort of steady, secure stagnation state. Brazil and Russia are in recession. Only countries like China and India stand out.
I think the North American prospects are extraordinarily bright. It's a bright spot in a bleak picture. There are four pillars which sustain that: energy-led development, related industrial competitiveness, trade, and innovation.
My second point is that there is a veritable North American revolution that is based on technology and new discoveries. Mexico is opening its energy sector. We have a good energy starting point, not as good as Canada, but it's a strong starting point. After you and Saudi Arabia, we are the third largest supplier of oil to the U.S. market. We're the ninth largest producers of oil in the world. Pemex is the fifth largest oil company. Mexico's new reform is a new energy model — a paradigm change — as has been mentioned by scholar Duncan Wood. It opens up the entire production chain upstream and downstream to the private sector. After 70 years, there is elimination of the state monopolies: Pemex in oil, and Federal Electricity Commission in electricity.
We are proud of this energy reform in Mexico, which is called the mother of all reforms. It took place within a year. Nobody expected that. It's one of the 11 structural reforms.
In oil exploration and production, the private sector can participate through profit sharing, output sharing, contracts and partnerships.
The process has slowly started. There is the so-called Round Zero, which is devoted for mature wells. Pemex has invested a large amount. It can partner with foreign companies. The idea was that through this Round Zero, to give Pemex, who has already invested heavily and mapped the territory, would stay at its current production of 2.5 million barrels a day. What's interesting is Round One, which is starting with something like 120 lots, in which about 90 are for exploration and 30 are for initial exploitation.
It's clear where our reserves are. You just draw an invisible line in the Gulf of Mexico and that is the same reservoir. The difference has been up to the energy reform. The Americans were drilling at the level of 100 wells per year and we only had six wells. South of the Rio Grande, in the Texas basin, you have 9,000 shale gas drillings and in Mexico there are only three. I think that offers a significant perspective. In light of this, in oil and gas, we should not be seen as a competitor to Canada.
This is because the drilling in the Gulf of Mexico or the drilling of shale gas inland, in our northeast corner, will take for a well, five to ten years to develop. We should not, in any way, be competing with you. I think you could rest assured of that.
We will be investing heavily in a large amount in areas, where clearly Canadian and American companies have a great amount of expertise. These large investments will drive Mexico's growth upwards and this will mean that we will be requiring increasing amounts of energy.
Investment in shale gas will be significant. We have to catch up with Texas and we have to have 9,000 wells. That lends itself to small, medium-sized and larger companies. Mexico, Canada and the United States have three of the six largest potential reserves in gas. This entails huge geopolitical changes. You are already doing it, but we will be producing gas at $4 or $5, in sufficient amounts, so we can disconnect the supplies of Russian gas to Europe and provide Europeans with gas. That's a huge geopolitical change.
Currently the pipelines are completely saturated. We have difficulties to even transfer gas from the border with the U.S., to a very large industrial area in near Guadalajara, in Jalisco. The pipelines are saturated. We need to invest heavily in pipeline and do so rapidly. It would not be insignificant amounts. We started with 1,200 kilometres and TransCanada is already involved in five of them. We will go up to 10,000 kilometres to have a full grid. We need that. It's relevant if we produce gas in the next five years. What's relevant is that we can import gas from our North American partners, so we can support this 4 to 6 per cent growth. We're importing 50 per cent of our gasoline requirements. We need refineries. We are importing 60 per cent of our petrochemical requirements.
Often electricity is forgotten. There is a great reform in electricity. For example, a crown corporation, like Hydro Quebec, will retain control of the transmission and distribution, but electricity generation is open to the private sector. We have to convert the state plants — which are to some extent dependent on expensive and dirty fuel oil — to clean gas, at $4 or $5. This will enable us to bring down electricity costs.
This is not only a new energy model, but it is a new economic model. These investments are taking place. Mexico, with all its advantages — like in all of North America — is already strong in manufacturing. It will be a reindustrialization process with lots of possibilities for the automobile, the air space or the manufacturing sectors.
Another pillar is infrastructure. Even the IMF has recently recognized that there is a need for a global push for infrastructure. For many countries that's where most of the growth potential is. This was acknowledged by the IMF and in Lawrence Summer's recent article. A $1 increase in infrastructure investment means a $3 increase in output capacity. We're embarking on the largest program in history in transport infrastructure. It will be something like $600 billion over four years. It involves railroads — the Mexico-Toluca suburban train. I am told that Bombardier already bid on it. There is a fast train that goes to Central Mexico and the Chinese are already there. There are electric trains in two big cities: Guadalajara and Monterrey. There is a new mega airport in Mexico City, which entails a Norman Foster design.
If you measure in market terms, Mexico is somewhat smaller than Canada. The new purchasing power figures would put the Chinese economy number one, followed by the United States. According to the Purchasing Power Parity, Mexico is already a larger economy than Canada.
With these investments, as we move from a 3 to 6 per cent rate of growth, in 10 years, most forecasts anticipate Mexico will be the eighth or ninth largest economy in the world. We will be a market driver, right in your own neighbourhood.
It is quite clear that this is a complex implementation process. The devil is always in the details. We have to deal with issues of organized crime obviously, areas of inequality, poverty, et cetera. In terms of the future agenda, what does this mean for North American policy action? I would venture that we have a very broad agenda in terms of scope. For all the three countries, North America should be considered the engine for growth. That is where the strength lies. Internal trade is over $1 trillion. Between us, we trade double what North America trades with China; double what it trades with Europe; and several times what we can trade with Trans-Pacific Partnership. Colin Robertson, in an article, said that Comprehensive Economic and Trade Agreement is very nice, but don't forget your neighbours.
Our countries are engaged in historical and significant trade agreements, which as you know are CETA, TPP, the North Atlantic Alliance, and the Pacific Alliance. We feel these new treaties will serve as vehicles to upgrade NAFTA and to adjust it to new world circumstances, including the new e-commerce world. However, the new treaties should not undermine what has been accomplished. Particular care should be made to protect North American value chains in automobiles, to establish favourable rules of origin and move towards greater trade policy harmonization.
Trade policy shows the importance of what Canada and Mexico can achieve. This is a better balance with our good neighbour in between us. With the World Trade Organization, we jointly — on the same day — took action against the U.S. protectionism on the Country of Origin Labeling meat certificates. We have recently won the second WTO resolution.
We were surprised to find, by chance, at one of these North American meetings that Mexico and Canada had not been invited to the table to negotiate TPP. We joined forces and now we're sitting together in the club.
In energy, it goes through a chain. We have to have a common energy outlook; a long-term energy vision, with policy harmonization; interconnection of this important pipeline grid; and a convergence of best regulatory practices to protect the environment and social interests of the communities. We are already working with the Alberta Energy Regulator on this and there will be a meeting of energy ministers.
Our competitiveness and our common borders have to serve to facilitate movements of goods and people. To reduce transaction costs, there are two commissions that exist for border and regulation harmonization. Some of these are clearly bilateral and others are not. Fortunately, one of the decisions of the leaders was that we should have Canadian observers in the U.S.-Mexico commission and Mexican observers in the U.S.-Canada commission. It's slowly taking place, so that we can work on common issues. There is a vast list of things that we can do. I think it's very difficult to move some of the layers of bureaucracy. We need the leaders to shake the bureaucracy to make them move in things that are essential.
I was speaking with Palliser about these trucks that are going backwards and forwards. Mexican trucks travel from Monterrey to the frontier and then we have to change to American trucks. Then they take another truck to go to Winnipeg. We lose a lot of time. These are the other silly things that we are encountering.
The mobility of people is difficult, but necessary. Mexico has a young population with western cultural values, which are adapted to local conditions. It's clear that there are serious shortages of manpower in some Canadian regions and sectors, particularly in the West. There is unemployment in the other regions. How can we reconcile this? There are some best practices programs for labour mobility, like the Seasonal Agricultural Workers Program. It's in its fortieth year. There are approximately 20,000 workers who contribute to agricultural development in Canada. The number of Mexicans in Canada is really very small. Including the 20,000 agricultural workers, there are not more than about 100,000 Mexicans, which is about the same number of Canadians living in Mexico. There are probably more double nationality Mennonites in Chihuahua than there are Mexicans in all of Canada. There is a vast scope where we can work together, underlying these common values and being adaptable. It will have to work both ways because with this energy boom, we will need Canadian engineers very quickly.
I have not referred to what I call the bad four-letter word, which begins with a little ''v.'' I think you know which one it is. Because of this sensitivity, I will speak of this, off the record, and I will be very careful. I fully respect this is an issue of Canadian sovereignty and there is no doubt about it. It is the very last item in this impressive agenda and as your trading partner, it is a single irritant. It hurts our relationship and negatively affects business. I have been speaking with all the tourist associations, the hotels and the airlines. There is so much that we can do. Fifty-thousand Mexicans went to the World Cup in Brazil. I would like and envisage that for the Pan American Games that will take place in Canada, so that you could have more than that, but one has to facilitate these things.
The following programs were achieved: There is CanadaPlus and multiple-entry, which for many years provided fast tracking for tourism business. The problem was largely solved when your new immigration law tightened the loophole for several refugees from other countries, including Mexico, which were sustained at taxpayers' expense. You made a good gesture of putting those in designated countries of origin. We are working on that. The leaders have agreed to have a convergence of trusted traveller programs, like NEXUS and SENTRI. We have reviewed the arguments against eliminating visas for Mexico. Some of them are valid and we're working on those points. There are others that range from the highly subjective to the irrelevant and the absurd. I will mention one that is particularly absurd. I was told by a minister that one of the issues concerning visas was that you were worried about the infiltration of Somalis through Mexico. I told the minister that there are 500 Somalis who have gone through Mexico in the last five years. If we have number 501, we are going to extend him a certificate saying that he is the number 501 Somali to visit Mexico. You have more Somalis in the U.S. and in Canada than have passed through Mexico. In the interests of both our countries, I hope that there would be an intelligent solution beyond the regrettable status quo. I think we have acted very prudently in not trying to raise the issue.
Innovation, technology, research and educational exchanges are new and basic objectives. When everybody speaks about innovation it's difficult to say we want more innovation, more exchanges and more educational exchanges. But it's difficult to make it concrete. We take lots of photographs and have signed MOUs. When it comes to action, it's very difficult. There is a very small number of Canadians going to Mexico as students, or Mexicans going to Canada. It requires many more scholarships.
We still have to find a mechanism for co-operation, at least an institutional mechanism, which does not mean bureaucracy. It means a way to include outreach to stakeholders.
In conclusion, I will go back to our shared history. In 1905, there was a great boom in the Canadian and Mexican relationship. In 1906, A British minister to Mexico wrote that the Canadian colony in Mexico is not a numerous one, but its members make up in enterprise what they lack in numbers. They seem to combine the push of the Yankee with the recognized commercial integrity of the Englishman.
Your contribution could not be better stated. In the joint statement by our leaders, in the last communiqué, one statement sums it all up: We, the leaders of North America met today in Toluca, to recognize the strength of the relationship and open a new chapter in our partnership.
Thank you, very much, for your attention.
The Chair: Thank you, Your Excellency. You've covered a lot of area with humour, with a lot of facts and history. Thank you.
I have a list of questioners. I'm going to start with Senator Johnson.
Senator Johnson: That was a comprehensive presentation. Thank you, for doing it and for coming here, this morning. It is now 70 years that we've had a trading relationship with Mexico. It's our anniversary, isn't it? I know you're doing a lot of work in the provinces and in Manitoba. I know what you're doing with Palliser. Going forward, what role do the provinces and territories as well as the U.S. and Mexican states have in increasing trade and investment in the United States, Canada and Mexico? I know you're doing a lot of work now.
Mr. Suárez: I think that's a very important and new issue. I've mentioned education. There are many partnerships between Canadian provinces and Mexican states. Unfortunately, they have not become institutionalized. There is a lot of variation. For example, there's engagement between the State of Querétaro because of Bombardier in Quebec. There's an active involvement between the State of Jalisco, again with Quebec, because of the cultural industries.
Although there's strong agricultural trade between Saskatchewan and Mexico and between Manitoba and Mexico, they have not become institutionalized. We're going to open a consulate in Winnipeg. We'll be the third country to do so, after the United States and Iceland. It's U.S., Iceland and your initial home country, which is Mexico. We're choosing somebody who is not doing the usual consular paperwork. It's somebody that can do the promotion of activities.
From Winnipeg, the office will also take care of the agricultural province of Saskatchewan — that is very strong technologically — we can work with both provinces. To go from Regina to Toronto is like going from Regina to Mexico. It's very difficult.
We have to work to make these things institutionalized. The Western provinces meeting with the U.S. is very useful. Politically it would be to promote the Western provinces of Canada so they are able to meet with the Western provinces of Mexico. I know you've championed this, and it's been very difficult. There's going to be a bi-parliamentary meeting in Ottawa on the 23rd and the 24th. We're both trying to get our American friends to the table in the hopes of setting up a trilateral parliamentary-congressional relationship. It can be done in two years. It doesn't have to be done within a year. We have to institutionalize it. That's the next stage.
On the subject of universities, we are setting up joint chairs with the University of Saskatchewan and with the Agricultural Department of Mexico. At the University of Regina and the University of Winnipeg, we are setting up joint chairs as a starting point for scholars.
The Chair: Senator Fortin-Duplessis.
[Translation]
Senator Fortin-Duplessis: First of all, Excellency, let me welcome you and the members of your team to our committee. I would like to thank you for your presentation, which I found very interesting.
The 20th anniversary of NAFTA has led some observers to call for a renewal of the kind of trilateral cooperation that gave rise to that accord. For example, in a joint letter to North American leaders in October 2013, business organizations from Canada, the United States and Mexico made the case that our governments could do more to create a more integrated and competitive economic space.
Of the measures that you would like Canada to take in order to stimulate the growth of trade and investment between Canada, the United States and Mexico, which would have the highest priority? To reciprocate, what measures would you like to see your government take to stimulate growth and investment between Canada, the United States and Mexico?
Mr. Suárez: Thank you very much, senator, for that very important question. Personally, I think NAFTA has achieved that goal. It is about trade and investment, and that is good. A lot has been done and now I feel NAFTA has allowed us to achieve a stage of development between the three countries. Now, I feel, we have to get to work. If we do what we have to do, we will, in the next 20 years, have to focus on three things.
First, there is energy, of course. You have a strong bilateral relationship with the United States. We also had a strong relationship with the United States in that regard, but now, we three must work together. I feel that cooperation in a network of pipelines has to be very important. We really must have a large network, not just for oil, but for gas as well. That requires some effort in planning so that we can do it together.
The second thing, I think, is technical interchange and investment. I feel that Mexico needs investment and technical support from Canada and the United States. There must be an increase in exchanges between the three countries.
Also, we need some harmonization of rules. You have gained considerable expertise in reducing water contamination and we must not make the same mistakes. So we need some harmonization of rules in order to prevent contamination and protect the rights of communities.
I feel that energy is a huge area and that there is a lot of work to do. The energy ministers will meet in Washington in December. They will be working on issues around pipeline networks, investments and technical exchanges, and, of course, they will be negotiating agreements so that the three countries can eventually become exporters to other regions.
I also feel that the private sector has a very long list of proposals about our borders. We have a lot of problems with our borders. There is a long list of points which must be seen in the light of common sense, and I feel that we have a lot to do in that area.
Take, for example, the idea of ''cleared once, accepted thrice.'' It is ridiculous for us to have the same way of making one digital form in English and French, but one for the United States and Mexico and one for Canada and the United States. There is a lot to be done.
Border infrastructures are a problem; they are still at 19th century levels, I feel.
One idea merits attention, an idea put forward by the Canadian Council. You have an institution with resources, the North American Development Bank.
[English]
It could be a true North American Development Bank and if it's given the possibility to invest in infrastructure and environment, it will be a very powerful tool.
It does not require resources from the governments. It requires collateral capital. It can provoke many PPP investments, and I think it can get most of the resources from the market. I think that's one of the ideas that could be good to promote this issue of frontiers, which I think is very bad, and to work on all the non-tariff barriers to trade, such as phyto-sanitary measures. We've been working on that. Eliminate these questions of protectionist measures like the Americans are taking. It's like dead cows have to acquire citizenship. It's a bit absurd that that is happening. That's the second area. Those are specific things.
You cannot shake the bureaucracies, with all due respect, dealing with border immigration. It is power and bureaucracy. You need the leaders to say, ''I want results in a year's time.'' Otherwise, it won't happen. The private sector is really pushing for that. It's a great help.
[Translation]
The third thing, I believe, is labour mobility. I feel that there are labour limitations in some provinces. You do not have semi-skilled workers.
[English]
I think we could help there in Alberta, British Columbia and Manitoba. We have qualified, semi-skilled workers. If we come to an agreement, whatever you want — what do you prefer, temporary or permanent? For us, the best system is temporary but with renewal. The agricultural workers come here for eight months. They go back to Mexico and they bring savings. They get in touch with the family. If the manager likes them and they want to go back, they come back. It can be open to temporary.
I think there's a lot of work to do in labour mobility, with the Americans as well. Our population will be up by 50 per cent by 2026. It's a vast reservoir, a population that is hard-working, with western values. I think we can do something. You have to cut the tape. Again, there is the issue between the provinces, the federal government and even at the local level. With human mobility, there's a lot we can do.
We could also strengthen the relationships between the universities in terms of researchers and to get cooperation between firms and universities. Querétaro and Bombardier are doing well in working with universities in Canada and the United States to get technicians to work in Bombardier across the border. Of course, I won't mention that little ''v'' four-letter bad word. That's ridiculous.
Turning to the subject of tourism numbers. Mexico, as I've mentioned, has a very large middle class. We are very heavy spenders. The tourist commissioner in Vancouver said, ''Ambassador, you have no idea of the figures. Mexico has discovered Whistler. There are so many people coming to British Columbia and Whistler.'' The favourite route to go to the east was stopping over in Vancouver. When you started this people said you have to use other ways. It's very important in terms of business promotion. Tourism could be a very strong driver of growth. I think it's energy, energy, energy.
So education, human capital, labour mobility and eliminating very limited obstacles in border trade is more or less where I think we're starting to work. In 20 years from now, I hope we will say that North America has become a veritable new re-industrialized, manufacturing-oriented area. I frankly feel that nobody can compete with us. All the manufacturing, cars, airplanes with $4 gas is unbeatable. You have the technology. We can provide some of the labour force. You have the highly skilled workers. Obviously North America is a strong powerhouse, the largest economic powerhouse in the world. It can be even better.
The Chair: Your Excellency, we're running into a time problem. I'm going to move to the next senator. If we can shorten the questions and answers, we'll get all of the senators in and they'll have equal time. They all want to question you.
Mr. Suárez: I'll be quick.
Senator Eaton: This is a very quick question, then. We've often heard, and I'm sure you've often heard, about a security perimeter that would start at the Mexican border and go through to the North Pole. That would encompass energy and many things. Is that in the cards? President Obama doesn't seem very keen on trade, or hasn't been up until now. Do you see that changing now that the Republicans have taken back the Senate? Is there a will there to make a security perimeter between all of us?
Mr. Suárez: Mexico would support the idea of a security perimeter. I think it's easier for us to the extent that this security perimeter encompasses a broad range of issues. That's the way I think we should work towards it, as a security perimeter involving trade and security issues.
Senator Eaton: A common market.
Mr. Suárez: A common market. I think we should work towards that. In Mexico, at present, after the success of NAFTA, there are no problems.
The United States always has many interests, but Obama in Mexico was very much in favour of a trilateral approach. I think they like the idea of a trilateral approach. The trilateral approach will be useful in negotiating with other areas, such as Europe and the Pacific. I think it's in the cards. As a concept, there's no problem. The devil is always in the details, and then you get into things like Buy American and that sort of thing. I think it's in the cards, and that's part of this new vision.
Senator Raine: I don't have to ask my question because you've already answered it. It was with regard to tourism being a strong driver of growth. I agree with that. I'm looking at tourism from Canada to Mexico. I think your image is probably suffering a bit with regard to crime and the security of people. Might you comment just briefly on how you work together with the U.S. and Canadian authorities to improve that?
Mr. Suárez: I would say that's something we're extremely proud and happy about. We receive 1.8 million Canadians per year. When our tourism minister was here, she was absolutely flabbergasted that three Canadian cities — Vancouver, Toronto and Montreal, and just about Calgary — sent more than 300,000 tourists to Mexico. That's the whole of the number that come from Spain, with whom we have very strong ties. That is three Canadian cities.
The problem is the airlines. There was a new airline agreement to open it up to the fourth sky. You have many charters, but we have to do more than that, as I mentioned, to increase the two-way trade.
Fortunately, the violence, which is obviously the most serious issue for Mexico, is, I would say, highly localized. It does not affect all of our basic tourism centres except for one, which I will say with frankness is Acapulco. Acapulco is a very large city with lots of poverty, and it's in one of the complicated states, which is the state of Guerrero. From Zihuatanejo upwards, Puerto Vallarto, Los Cabos, that's not a problem. The Mayan Riviera is not a problem. I was in Detroit, and it was more dangerous to be in Detroit and Chicago than Mexico City. I think it's not a problem in those areas.
I know you have new sites, because we want to go beyond sun and sand and margaritas to our cultural sites. Guanajuato and San Miguel de Allende are rapidly becoming attractive for Canadians. With tourism, we want to go the other way, with Mexicans coming here.
There are bound to be problems. We have consular warnings, with yellow and red signals. Whenever there is a problem, the consuls have to be advised so we can act properly, but it is still a problem.
The border cities with the U.S. are where you have a significant two-way trade of drugs versus weapons. That's a big problem. We have 10,000 weapon stores along the U.S. border with Mexico, and they don't sell shotguns. They sell AK-47s and bazookas. That's where the problem is, drugs versus weapons and the border, particularly Tamaulipas. Tijuana has improved substantially. Juárez is starting to improve. Then you have Guerrero and the mountains. That's where the problems are.
The Chair: Something keeps coming up that is of concern to many Canadians is the disparity between some of your regions, particularly the south to the north, and what you're prepared to do in those areas that need to catch up to the rest. Is there an opportunity for Canada and some of our resources in those areas?
Mr. Suárez: That's a very good question, senator. One of the criticisms that has been voiced against NAFTA, and I think it has also been voiced in the United States and to some extent in Canada, is that NAFTA created overall a huge area of prosperity, but it was very unequal. It's very unequal because, in Mexico, who benefited from NAFTA? Basically, it was from Mexico City upwards, and it did not reach where we have the problems of poverty and crime, et cetera, the poor south. It favoured big companies, large companies, to some extent suppliers to big companies, but not medium- and particularly small-sized companies. That's a problem. Trade is concentrated on the large companies.
That was a problem in that NAFTA did not have a mechanism such as the Europeans had in correcting for regional inequalities, although in that case they did it for country inequalities. I think we have to develop some instruments to develop industrial and regional policies to correct these regional inequalities.
For some years now we have had focalized programs to combat poverty and that now encompasses 5 million people. That's focalized for the poorest people. Our view now is that that's not enough. Mexico, from 1980 to 2000, had an abysmal growth record. It was a 2 per cent growth record. That was very low. I don't think those issues will be resolved until we work with infrastructure, et cetera, and grows to 4 or 5 or 6 per cent. I would venture that where we can work together, with this growth pattern, I think we can manage an increased rate.
Where I think we have a very serious problem, senator, and it's a problem certainly for Mexico but to some extent for the United States, to a lesser extent for you, is the serious problem in Central America. That goes beyond our borders. They have serious difficulties in Guatemala, serious problems in El Salvador and serious problems in Honduras. All those children are coming to the Mexican border and travelling all the way north because those three countries have very low levels of growth and very low institutional levels. There we have to make an effort with the United States. That problem will not be solved by training more policemen and soldiers or even working with the judiciary. You have to work out a common approach to help those countries step up. Panama and Costa Rica don't have those problems. Eventually, we have to work with Cuba, but that's where the most problems are, senator.
The Chair: I wanted to touch on one other area. Traditionally, you said you had your relationship with Spain, and that continues. Of course, that's Spain writ European Union. You also had a strong relationship south with Brazil. Can you comment on that relationship at the moment? It is the subject of much discussion. I'm wondering about the cooperation between the two large countries.
Mr. Suárez: Again, a fantastic question. I would say that now in Mexico we are envisaging that we are suffering the re-conquest of Mexico by Spaniards. Why the re-conquest of Mexico by Spaniards? Unfortunately, because of the very bad economic situation, a very large number of Spaniards, including highly qualified people, and particularly young people, come back to Mexico, in tens of thousands. We have a very close relationship with Spain.
We're very worried, because I think the whole of Europe is going through a period of secular stagnation. We spoke about a certain country as the sick man of Europe. I think we have a sick Europe, and that's not good for the world economy.
On the other question, I think we're fortunate to be working with what we see and we would hope that we could solve problems so that Canada could join us. Canada already has a free trade agreement with four of the countries of the Pacific Alliance. That's working extremely well. I would venture to say that the Pacific Alliance is probably the trade agreement that has been advancing quicker and more successfully than any trade agreement in the world.
In negotiations in one year, Chile, Colombia, Peru and Mexico eliminated 92 per cent of trade barriers. It was fantastic. Mind you, there are some difficult countries there. They would say we're a difficult country. But in the area of drugs, Colombia is a very complicated country.
We eliminated visas. What happened? Security people handled security risks through information. What happened? The level of tourism from Colombia, Peru, Chile to Mexico increased four times with the elimination of the visa. We did that also with Brazil.
We have linked the stock markets of the four countries. Now we have a combined stock market that's larger than Brazil, and it stands to reason that since we're only involved in mining with a type of Canadian membership, we could link up with the Toronto Stock Exchange, which is the most important in mining. Canadians are very interested and the Canadian government is very interested. One of the issues is the mobility of people. We're working on it, and we hope Canada joins us.
Now, with respect to Brazil, we have very close ties with Brazil. We have tried to recompose. It's not only football, but there's sort of a difficult relationship because of mutual jealousies, a giant to the south in Latin America and a giant to the north. That's always a difficult relationship, except for football — including football. I think we're trying to work with them, and I think we are working with them.
We're saying now that the Pacific Alliance is not against anybody, but it's an alliance for something. Who can join the Pacific Alliance? Like-minded countries that pursue the same type of development approach. All the Pacific countries are pro-market, liberal, forward-looking, non-protectionist, democratic countries. Even with changes of government, centre to left, left to centre, we're still working with them.
We're turning to our friends on the Atlantic side of the continent, and it's delightful, but we don't want to make the mistake that happened when we had an agreement that encompassed all of Latin America, the Latin American ''free trade,'' which was never free and probably not even involving trade either. The problem was that it was a melange of very heterogeneous countries, and it only worked in name.
So we said, ''Okay, by all means, join us, provided we share the same policies, particularly freedom of trade, an open approach to investment and a democratic system.'' I think that's a stumbling block to go to the other side. We hope that with the new government in Brazil we will be able to do it, but on those terms. It's not an agreement for the sake of an agreement.
The Chair: We're virtually out of time. I know Senator Johnson wanted to ask another question.
Senator Johnson: It's been very comprehensive. I wanted His Excellency to comment on Minister Fast's visit and the contract in Calgary with ATCO, as an example of the excellent progress we're making at provincial levels. It was the partnership with Grupo Hermes, the second ATCO project in Mexico. Do you know about this one, which is valued at US$50 million? It's going on in Calgary. It was just announced —
Mr. Suárez: Could you —
Senator Johnson: It was for ATCO, a Calgary-based structures, logistics, utilities and energy company, being selected by Pemex to begin this project in Hidalgo, Mexico. Is this not an outstanding example of the regional work we're doing?
Mr. Suárez: Absolutely. TransCanada is already involved. We have to share experiences. I heard that TransCanada, which is working on five pipelines, over 1,200 kilometres, already a problem because of the usual suspects — environmentalists joining together with local communities — and sometimes local leaders taking advantage of the local communities for their own benefit. We're happy that ATCO is not TransCanada; it's ATCO and there is another company.
It's ATCO and another Canadian company that are already involved. I think the possibilities for the service industries of Canada, including pipeline builders, are enormous.
Senator Johnson: Is it Grupo Hermes, the partnership?
Mr. Suárez: Yes. A high level group of officials from Pemex, the Ministry of Energy and CFE will be visiting Calgary as soon as a first stop to promote Round One, which is the round not for the mature wells but for Gulf of Mexico and shale gas. I think that will be extremely useful because there are quite a few opportunities.
I was present at the meeting of Minister Fast, Secretary Pritzker and Secretary Guajardo in Toronto. It was an extremely useful meeting. We did not solve the country of origin labelling, but on the other hand, working together with TPP, the idea is difficult depending on what happens with the U.S. Congress and what their approach is. But we are hoping to try and complete TPP by the early part of next year. By the way, sometimes we fared better in trade deals with the Republicans than the Democrats. The Republicans are more pro-trade, pro-business and less protectionist.
Senator Johnson: We are in the same boat with that one.
Mr. Suárez: The trade ministers got on fantastically well on all of our bilateral issues. One issue was what the earlier question that was posed in terms of getting rid of those problems. We agreed; we had to move the bureaucracy that deals with borders to eliminate this and to relate well to stakeholders. It's important to get along well with the private sector to know what we are all doing.
The Chair: Your Excellency, thank you for coming. Your enthusiasm for our relationship and country is certainly welcome. It has been helpful for our study to know that there is interest on the Mexican side to continue to improve our relationship from strength to strength. We won't talk about the others. We always know there are impediments. We will look at both, but we're really trying to look at some new initiatives and new ways that we can relate on this hemisphere. Your input today has been very valuable. We appreciate that you have taken the time to come with all of your officials.
You made the comment that there have been impediments at some bureaucratic levels, and it takes political will. Sometimes we say it's bureaucratic because we don't have the political will. We're trying to see where we can maximize and how we can unplug those less-than-enthusiastic systems. Thank you very much for input, and I hope you will continue to follow our study with interest. If there is anything else you wish to add, please feel free to do so at any time with our clerk, if you have some information or even historic facts, which I found very interesting today. I'm going to take that one back about Mr. Justice Turgeon being the first Ambassador to Mexico. If I knew it, I've forgotten it. Perhaps I wasn't as good a history student as you are.
Honourable senators, for our second session we are continuing our study and we have before us Mr. Pierre Pyun, Vice-President, Government Affairs of Bombardier. The floor is yours to make any introductory statements.
As you can see, senators love to ask questions. We have limited time so we're going to ask you to proceed with your statement, however long you wish to take, with some opening remarks about our study.
It is about the potential for increased Canada-United States-Mexico trade and investment, including in growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
Welcome to the committee. The floor is yours.
[Translation]
Pierre Pyun, Vice-President, Government Affairs, Bombardier Inc.: Good morning, honourable senators. I am extremely pleased to join you today. I would first like to thank you for this opportunity to share with you our views and perspectives about the possibility of growth in trade between Canada, the United States and Mexico, and to describe how we at Bombardier have experienced, are experiencing and have taken advantage of the free trade zone and the regional economic platform.
[English]
Thank you for the opportunity to share some views and perspectives with you on the Canada-United States-Mexico trade and investment relationship and the potential to expand this very important trilateral relationship. I'm going to say a few words about the company overall before focusing a bit more on North America, our operations and views on the North American platform, the regional integration and the potential to do more.
Bombardier is a global firm, headquartered in Montreal. We have over 75,000 employees in the world. We have 79 production and engineering sites in 27 different countries, as well as a worldwide network of service centres.
As you may know, we manufacture planes and trains, so, on the aerospace side, we manufacture business aircraft and commercial aircraft. On the rail side, we have the broadest portfolio of rail equipment in the world. We produce everything from high-speed trains to locomotives to mass-transit technologies like metros, monorail systems and lightrail trains to regional trains to commuter trains, as well as key components going into those systems, like signalling and propulsion systems.
The company is currently heavily invested in research and development. By some measures, we are the largest R&D spender in Canada. It is an unprecedented period of research and investment in our history. We have a number of new aircraft programs on the go, like the C-series aircraft, which is a commercial, mainline aircraft. We have new business aircraft platforms that we are developing as well, the Learjet 85 and the Global 7000 and 8000. I will come back to these products because the North American platform and our operations in the U.S., Canada and Mexico play a critical role in delivering those projects.
On the rail side, we are also heavily invested in research and development. Currently, we are testing our very high-speed train technology. In China and Italy, we call it the ZEFIRO 380, trains that can go up to 380 kilometres per hour. We also have a new inductive energy-transfer technology that we call PRIMOVE for trains, buses and truck applications. There is no question that, for us to be competitive in our industries, we have had to develop and engage in global value chains. So we are distributing our business functions around the world, leveraging the competitive strengths and the comparative advantages that various locations can offer to us, all from a very strong base in Canada.
In that context, regional value chains are critical to our success. For us, from an investment-decision point of view, it's not so much what countries can offer that really matters, but it's what regions can offer and how competitive they can be in allowing regional value chains to thrive and develop. North America, in that context, is a case in point. This is our strongest and most developed value chain and network of expertise, not only to seize opportunities in the North American market, which remains the largest market for us in aerospace and one of the largest markets for us in rail, but also to have a strong base, from a value chain point of view, as I mentioned. Fifty-one per cent of our employees are located in North America, so we have, in total, 39,000 employees in North America. That includes 26,500 employees in Canada, 8,500 in the U.S., and 4,000 employees in Mexico.
This network that I was describing is composed of 22 production and engineering sites in North America, and we have a large supplier base in North America, over 550 direct suppliers to Bombardier. Every year, we spend more than $4 billion on products and services from North American-based suppliers.
In aerospace, we have production sites in the province of Quebec, in Dorval and Mirabel; in Ontario, Downsview and North Bay; in the U.S., in Wichita, Kansas; and, in Mexico, Querétaro. The ambassador was referring to our site in Querétaro.
In rail, we have production and engineering sites in the province of Quebec, La Pocatière and Saint-Bruno, which is our headquarters for the Americas. It's also a design, engineering and prototyping centre. We have production and engineering sites in Thunder Bay and Kingston, in Ontario; in the U.S., in Plattsburgh and Pittsburgh; and, in Mexico, two sites Sahagún, in the state of Hidalgo and Huehuetoca, in the state of Mexico.
I'm just going to comment about the market because it starts from there. North America is a significant market for us, as I mentioned. Canada represents around 7 per cent of our total revenues, but North America, overall, represents 39 per cent of our revenues. That's around $7 billion last year, to take last year as an example.
Aerospace and rail, as I mentioned, are very significant markets for us in North America. There are transit projects in Canada: Vancouver, Edmonton, Montreal and Toronto. We have been awarded contracts to deliver metros for San Francisco, New York and Chicago recently. We are also bullish about the prospects in Mexico. I think the swiftness and resolve that the government has demonstrated in building consensus with the main opposition parties to push through economic reforms to liberalize some sectors like telecommunications and energy have been very impressive. More directly relevant to our business, they have also announced major public infrastructure investments, including passenger rail projects, something that we had not seen in Mexico for some time.
There are a number of passenger rail projects, like a new train link between Mexico City and Toluca, to give you an example.
On the aerospace side, North America, in our market forecast, represents, for business aircraft, 40 per cent of deliveries over the next 20 years, so that represents around 8,600 aircraft, 40 per cent of total deliveries worldwide. For commercial aircraft, in the segments in which we compete — so that means below 150-seat aircraft — North America represents around 30 per cent of deliveries in the next 20 years. That represents around 3,650 in the next 20 years.
Just to come back to value chains, network efficiency and effectiveness are critical to our success. Global firms increasingly must think and operate in terms of global networks, global value chains, somewhat independent of countries and borders. It's really a matter of survival for companies like us. In our industries, we compete against large companies from developed countries and, increasingly, from developing countries.
For us, developing global value chains doesn't mean a zero-sum game. We can do it and grow our operations here because it's all about being more competitive globally and growing our market share and, by the same token, benefiting our operations in Canada.
North America, in this competitive landscape that I just described, cannot rest on its laurels, from our point of view, as the world's largest and the most desirable marketplace to be. Other regions are closing the gap and have been enhancing their ability to attract investments in various sectors, including the sectors in which we do business.
I mentioned that our sites in North America are numerous but interconnected in many different ways into a regional value chain. For us, it's nowhere more advanced than it is across Canada, Mexico and the U.S.
I will give you quickly two examples: For the C series program I was talking about, the aircraft are designed and assembled in Montreal at Mirabel. We have a large number of U.S.-based suppliers, including for some of the key systems like the engines of the aircraft. Some of the structural parts come from our site in Mexico, where they are made; and from other parts of the world as well, from our suppliers, or our site in Belfast, Northern Ireland. The program is currently undergoing the flight-test program. We have two flight-test centres, one in Wichita, Kansas; and one at Mirabel, which we recently established. The aircraft go back and forth between the U.S. and Canada using different sites for different testing conditions, like hot weather, cold weather, natural icing and steep approach. We use different environments in the United States, for example the Florida testing centre for extreme temperatures.
Another example of regional interconnectedness is the Learjet 85 program for a new business aircraft. The centre of gravity of this program, so to speak, is Wichita, which leads in the engineering of the aircraft, the final assembly of the aircraft, and the testing. Structural components come from our site in Querétaro and there's a lot of engineering and design input from our teams in Canada. Of course, our global sales force will support the marketing of the Learjet 85 and our global service centre network will provide aftermarket maintenance and repair services.
We have other examples in rail. For instance, we are working on a metro project for New York and we're delivering a large number of cars for San Francisco. The cars are final assembled in Plattsburgh, New York, with components coming from Mexico, La Pocatière, Quebec, and Thunder Bay, Ontario.
We recently established a prototype centre in Saint-Bruno, Quebec, to support all those projects in North America. Our engineering resources there have grown from 600 to 1,000 employees in the last year to support those projects. The design and engineering of our San Francisco and New York metro projects are conducted in Saint-Bruno.
I'll conclude with a few thoughts that I wanted to leave with you going forward on how to enhance the North American platform strategically. We believe there is scope to refocus our efforts on North American competitiveness and seek further integration. One suggestion is to look at North America, as I was mentioning, from a global value chain perspective to strengthen this platform from the point of view of what companies are trying to realize, deriving or leveraging the competitive strength of different locations to form a whole that supports our competitiveness worldwide.
Concretely, some initiatives like the RCC and Beyond the Border are very much welcomed by the private sector. But we feel there is scope to go faster and do more to broaden the magnitude of those initiatives. For a company like ours that constantly ships across borders between Mexico and the U.S. and the U.S. and Canada, we also feel that there is scope to harmonize some of the measures, like cargo security certification. For cargo security certification, the U.S. has Customs-Trade Partnership Against Terrorism, C-TPAT, Canada has Partners in Protection, PIP, and Mexico has NEEC. Some of the requirements, if not the vast majority of them, are very similar; so why not have a single system for North America? This would go a long way, in our view, to further strengthen the North American platform.
Another thought for you is that as we negotiate free trade agreements, one has to be cautious not to undermine or dilute the advantages of NAFTA. Would it be advisable to try to negotiate some of these agreements as a bloc, enhancing the North American platform using those negotiations to find ways to strengthen this platform instead of going at these separately? I think it's a question for consideration.
The ambassador mentioned the Pacific Alliance. Is there an opportunity for NAFTA to link in with the Pacific Alliance? There are already bilateral free trade agreements that connect NAFTA with the Pacific Alliance members.
Another suggestion would be to look at manufacturing from a holistic point of view, including services. Service is an important component of manufacturing in different ways. For us, certainly it's a business segment because we can maintain and operate rail systems, for example, and that's a growing part of our business. We have a number of service contracts across North America. As well, there's the engineering input that goes into manufacturing. Testing work needs to be done for our products to enter the market, and I mentioned the flight test centres. In that context, business mobility is also important. We feel that there is an opportunity and scope to modernize NAFTA to improve business mobility.
I'm going to leave it at that, chair. Of course, I welcome any questions you may have.
The Chair: Thank you.
Senator Ataullahjan: I have a two-part question. You said you have 39,000 employees. Do you know how many women are employed in manufacturing?
Mr. Pyun: Off the cuff, I don't know the ratio, but part of our corporate social responsibility strategy is to promote gender equality. We have made commitments with respect to UN instruments that also encourage gender equality. We have some measurable objectives to try to increase the number of women in various positions within the company. Our focus has been on management positions to increase the number of women in executive and management positions. However, off the top of my head, I couldn't mention a specific percentage.
Senator Ataullahjan: You have a very good social responsibility program. What work have you done in local communities, specifically with Mexican universities?
Mr. Pyun: We don't see a corporate social responsibility as a public relations or fringe activity. It's really integrated into the core operations of the company. It has many different facets, from health and safety of the employees to developing environmentally friendly technologies. Our aerospace and rail products now come with environmental product declarations. We take a whole life cycle approach to the development of our products, going from design to reuse at the end. It also includes investing in the communities where we are present. In Mexico, with our plants in Querétaro and our main plant on the rail side, in the state of Hidalgo, in Sahagùn, we have worked closely with colleges in the area. For instance, when we invested in Querétaro, a university was created for aerospace specifically called the Querétaro Aerospace University. We provided assistance as they were developing curriculum to ensure that their programs would be aligned with our needs, because we are constantly taking a lot of interns from the university, but also assisted to make sure that some of the expertise we have in Canada would be connected with the university. For instance, Le Collège Édouard-Montpetit and L'École des métiers de l'aérospatiale in Montréal have provided technical assistance to the University of Querétaro to develop their curriculums for the aerospace technicians that are needed by us.
Local roots are part and parcel of our strategy, so developing local roots and hiring locally. We have been involved in a number of initiatives, not only with universities but also on the environmental front. For instance, there's an initiative that we support in Mexico with an NGO called Sierra Gorda that promotes reforestation in Mexico and also the revitalization of watersheds. We have provided support to this initiative. That's one example among a number of examples.
[Translation]
Senator Robichaud: How can you compare the average salary in a plant like the one at La Pocatière with one in Mexico? I am not talking about the senior managers; I am talking about the people working on the production lines.
Mr. Pyun: Without giving you exact figures, there is a difference when we look at the hourly rate, even including the extras, between the average salary of technicians in Canada and technicians in Mexico.
For our industries in the developed markets in Canada and the United States to remain competitive, the connection with Mexico is critical to keeping our competitive position globally. This is because, more and more, we are facing competition that has access to an environment where costs are lower than ours, by which I mean in the base of our operations here in Canada.
I am talking about competition from China. We work in partnership with China, but we are also in competition with them internationally in other developing countries around the world.
The key is to make sites specialized. The type of work we do here in Canada involves the final assembly of our products. We want to steer our sites more in that direction, towards engineering and highly value-added work, for example. I mentioned our new aircraft programs. Most of our innovating engineering work comes from our operations in Canada.
For us, the idea of global value chains means a way of finding and comparing the advantages of different sites, including Mexico, which produces high quality aircraft or train components at a lower cost while our operations in Canada are less competitive. However, it is all put together by engineering and final assembly work here in Canada, and we continue to employ a large number of technicians who are highly specialized in those areas. However, there is a difference.
Senator Robichaud: Speaking of technicians, are you in the process of training them in plants outside the country precisely because you can take advantage of the salary difference there might be?
Mr. Pyun: Certainly we have exchanges because, when we have new employees elsewhere, we want to train them in our methods to make sure that the quality meets our standards. We also enter into partnerships with institutions, in Mexico and elsewhere, in order to further the improvement in skills locally and in order to sustain the viability of our foreign investments.
So, for example, the University of Querétaro, in Mexico, is one of our partners, probably our major partner for training. We have also brought other players to the table, but, here again, this is no game. If you look at the development of Bombardier Inc. in recent years, what we are doing abroad is not being done at the expense of growth here in Canada. It allows the company to continue to grow. Our operations here are specializing more in specific areas, but they are also growing because we are becoming more competitive globally. It is a matter of survival for the company.
Senator Robichaud: Do you have programs that allow workers' families to benefit from things like education, family services, and so forth?
Mr. Pyun: We have established programs to help our employees and, by extension, their families, throughout our entire organization, including in Mexico. I mentioned some initiatives that are intended as investments in the community. It is important for us to do that, because we are there for the long term. We hire local workers too. So it is important to create a solid basis of loyalty with our pool of workers and to demonstrate our long-term commitment. In some countries, like India, we support local schools. We provide funds to schools so that they can grow and develop, for example. There are different methods, corresponding to our strategic direction, which is to put down local roots in the places where we invest.
Senator Fortin-Duplessis: We appreciate you being here at our committee, Mr. Pyun. As a Quebecker, I must tell you how proud I am of the success of Bombardier Inc. It is a feather in Quebec's cap, and Canada's too.
I have two completely different questions for you.
When you cut positions in Canada, do you also do so in your 70 other sites, where 39,000 employees work for Bombardier?
Mr. Pyun: Unfortunately, sometimes we experience periods of budget-cutting in order to refocus the company on our immediate priorities and on the reality of the business climate. This summer, we announced a restructuring of Bombardier Aerospace in order to make the organization simpler and more agile in seizing opportunities that presented themselves to us and to deal with the challenges associated with our major aircraft development programs, for example.
That context unfortunately creates a climate of uncertainty for employees. We had to announce that about 1,800 jobs would be cut in what we call indirect functions. We were very clear: the cuts went across the entire organization, including our foreign sites and, unfortunately, those in Mexico and Northern Ireland.
But certainly, given our substantial presence in aerospace in Canada, the value chain is more centralized, with a substantial presence in Montreal. I would say that, in general, the cuts are being made proportionally. However, our presence in Montreal was certainly affected, because, basically, that is where we started out with the most employees in the aerospace division.
I would say that it depends on the positions affected. But, in this case, it was throughout the organization. We also have to put things in perspective. Since the beginning of the recession in 2008, we have hired 5,000 people. We do not issue press releases when we are hiring people because the process is gradual. In this case, perhaps, we grew a little too quickly and we had to adjust to our business reality. Clearly, though, in the last five years, we have continued to grow.
Senator Fortin-Duplessis: In your area, how can the Canadian government help you to stimulate economic growth and investment between Canada, the United States and Mexico?
Mr. Pyun: For our part, as I mentioned earlier, we feel there is an opportunity to further integrate the economy of the region. This is also an opportunity to strengthen the NAFTA platform, if it is seen from the perspective of developing global value chains. Very concretely, as the Mexican ambassador also referred to, I think about the borders and the processes we have to go through to ship our goods. The example I gave was a safety certification program. We feel that there is a lot of room, a lot of opportunity to further harmonize the rules to make the transportation of goods easier, with all the suppliers and links between the three countries that I was describing earlier.
As for the mobility of experts and of workers, we feel that there are good reasons to modernize the present framework. I mentioned the example of test flying, which requires extremely specialized skills in a relatively small pool around the world. For us to conduct test flights between the United States and Canada requires a framework that allows not only mobility but also speed of mobility. At the moment, we are experiencing administrative delays that may be a challenge for us in terms of delivering our programs on time.
Senator Fortin-Duplessis: So we have to cut down the delays.
Mr. Pyun: We have to cut down the delays, but, more generally, we have to start with the business climate here in Canada and in each of the countries: tax policies, policies on innovation and labour development. Good policies clearly attract investment more readily.
[English]
Senator Johnson: Thank you. It's a pleasure to listen to you today. I think Bombardier is a remarkable company, especially in the transportation sector. I know you've been in Mexico for over 20 years.
Given their recent liberalizations, what opportunities do you see in Mexico? Does this present your company in Mexico with new opportunities, in terms of the development of the infrastructure and other projects you're involved in?
Mr. Pyun: Yes, we're very keen on the growth prospects in Mexico, including in the infrastructure space. Infrastructure investment has been made a priority by the Mexican government. They plan on spending $300 billion U.S. in the next six years on infrastructure projects — public and private investments — because some of the projects will be carried out through a PPP model. They have been very specific about the rail projects that they want to carry out. So we have a number of them on our radar screen.
I mentioned, as an example, the Mexico City to Toluca line, but there are others, like the trans-peninsula train from Merida to Cancun and the suburban train from Chalco to La Paz, in the state of Mexico. In Mexico, we haven't seen that level of investment in rail passenger projects for many years. At the site in Mexico, in the last years, although they participated in some local projects, they've been focused mostly on export opportunities. We are well positioned to be able to be competitive in relation to some of those upcoming projects. The fact that we have a local presence is no guarantee that we're going to win those projects. We need to be very competitive in our technological, price and commercial offerings, and we also expect very strong competition from other companies.
You may know that just a few days ago, Mexico announced that the high-speed train from Mexico City to Querétaro has been awarded to a Chinese company. We certainly expect strong competition from China, for the other projects, in the future.
Senator Johnson: Is China now your biggest competitor in this area?
Mr. Pyun: China is now emerging as a competitor in our traditional rail markets. They've been focused on markets that in the last few years we're not really focused on. In our more traditional and developed rail markets, like in Europe and North America, we compete against — and sometimes we partner — with companies like Siemens, Alstom and others. These are large companies. We are starting to see Chinese companies competing and bidding on projects in our traditional markets, like in North America. Recently they were awarded a contract to supply metro cars for Boston in the U.S.
I should point out that we also frequently partner with the Chinese. In China, we have joint ventures with the two large Chinese conglomerates, CNR and CSR. The Chinese government announced recently that they are being merged. Two days ago, we announced a new joint venture with a subsidiary of CSR in China for manufacturing of monorail and automated people movers in the city of Nanjing. We have been active and present in China for some time. We are partnering with Chinese companies as well.
Senator Johnson: How would you describe your presence in the United States in terms of your other companies and your success going forward?
Mr. Pyun: We have a large presence in the United States. The United States remains a very important market for us. They are one of the largest aerospace and rail markets. We have over 8,000 employees in the U.S. and a number of production sites: Wichita, Pittsburgh, and Plattsburgh, which is for rolling stock and it is one of our main plants. We have a large number of service centres — over 20 — for business aircraft and commercial aircraft. Services are a very important and integral component of manufacturing. We have a large number of service relationships and contracts. Recently in New Jersey, we were awarded a 15-year contract to service a New Jersey train system.
We have a substantial presence and a comprehensive one in the U.S., which includes: design, engineering, manufacturing and services.
The Chair: Senator Downe, you had a supplementary question?
Senator Downe: Yes, thank you. How big a problem is corruption in Mexico compared to some of the other countries you work in?
Mr. Pyun: In Mexico, we don't see corruption as a significant problem in the centres in which we operate. I would say that corruption issues around the world — in developing markets — but in some cases in developed markets, could be a challenge for a company us. We have the highest ethical standards, a living and breathing code of ethics, a training program and a compliance system to make sure that, in the way we conduct our business, we minimize, if not eliminate, risk.
Corruption in Mexico has, perhaps, in some industries, been an issue, but, in our industries, on the rail side, it's primarily a government procurement market. It's not an issue that we have faced as a serious issue in Mexico. The issue, certainly globally, is there. In some parts of Latin America, it is an issue as well.
Any government initiatives on the development side, to reinforce the rule of law in some of the developing countries, are very welcomed by global firms like us because it helps in creating the right kind of environment for global firms to consider investing over the long term in these countries.
[Translation]
Senator Rivard: Have the CS100 test flights started again?
Mr. Pyun: You are probably aware of the problem that we had with the engine in the CSeries. It caused a delay in the test flight program. However, test flights have started again and they have been going well since September.
Some of our test aircraft are currently flying. You may be aware that aircraft have to fly a certain minimum number of hours before receiving their certification. The CS100 schedule called for delivery in the second half of 2015 and that has not changed.
Senator Rivard: I am aware that, because of delays and incidents that have occurred during the trials of the CS100, some customers have cancelled firm orders. Did the contracts contain clauses to address delays in the timeline or were those unilateral decisions on the part of those customers?
Mr. Pyun: The problem with the engine has been completely solved. The problem was with the lubrication system: because of the extreme heat, a leak occurred. Both a short-term and a long-term solution were found and we have taken delivery of modified engines.
That is why test flight programs exist, to test the aircraft in conditions beyond normal operating conditions, in order to eliminate all risks to safety.
Currently, we have 243 firm orders. No order was cancelled. What made the news, however, was that our first customer for the CS100, Malmö Aviation in Sweden, publicly withdrew. But they did not withdraw their order. The negotiations are rather about the delivery date. Another customer will become our first. There have been no cancellations and we have constantly kept our customers informed of the developments. I would say that our customers remain very confident about the future of the program and about our ability to deliver the aircraft according to the established schedule, in the second half of 2015.
In addition, as you perhaps know, after the flight trials resumed, we received a firm order for 40 CSeries planes from a company called Macquarie AirFinance, with an option for 10 more. That is a very clear demonstration that the market is maintaining, if not increasing, its confidence in the C series.
Senator Rivard: Thank you, and good luck.
Senator Robichaud: With global warming and with the large number of forest fires reported last year, we have been able to observe the undoubted capability of Bombardier Inc. and, more specifically, of the CL-415. Do you have any plans to produce aircraft with greater capacity?
Mr. Pyun: That is an interesting question because there is indeed increased interest from around the world for our CL-415. Perhaps that is because fires are more frequent in some regions. We have well-established customers in Spain and in Greece and a significant fleet in Canada. The planes in Canada are often lent to other jurisdictions on a temporary basis for fighting fires.
The CL-415's platform can be adapted to our customers' specific needs, but, generally speaking, the aircraft already has a very large capacity, using a template that is quite flexible, which is an advantage for that type of aircraft. In general, when our customers need more capacity, they get more planes.
I should point out that, in terms of environmental impact, the C series has a lot of advantages. For example, its fuel consumption is 20 per cent lower than the current average and its CO2 emissions are also 20 per cent lower. I would say that one of the engines of innovation is to reduce the environmental impact and meet the challenge of climate change.
[English]
The Chair: Mr. Pyun, you can see from the questions that there was great interest in your work. Wherever we study trade issues, Bombardier is always there for our consideration and your officers have been very responsive to our requests. You have been added to that list of very responsible businesses that have come to dialogue with us.
Your suggestions have been very helpful in our study as we look at how we can improve the relationship between the United States, Mexico and Canada. Thank you for taking the time and for your thoughtful replies to all of our questions.
Mr. Pyun: Thank you for the opportunity.
The Chair: Senators, I have filed a notice of motion for the Tuesday we come back to be able to sit in order to hear Minister Fast on our Canada-Korea study. This is subject, of course, to whether the chamber will approve our request for Tuesday. We are anticipating 3:30, Tuesday, November 18, to continue our study. Should we not get it, then we would reconvene on the Wednesday.
Senators, with that, I adjourn the meeting.
(The committee adjourned.)