Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 4 - Evidence - Meeting of April 13, 2016
OTTAWA, Wednesday, April 13, 2016
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:17 p.m. to study foreign relations and international trade generally (topic: bilateral, regional and multilateral trade agreements: prospects for Canada).
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Honourable senators, the Standing Senate Committee on Foreign Affairs and International Trade is authorized to examine such issues as may arise from time to time related to foreign relations and international trade generally. Under this mandate, the committee will continue to hear witnesses today on the topic of bilateral, regional and multilateral trade agreements: prospects for Canada.
To date, the committee held several meetings on this topic and heard from academics, experts and government officials. The committee is pleased to continue its study and receive further presentations from stakeholders this afternoon.
On behalf of the committee, I welcome two representatives of the Canadian Agri-food Trade Alliance: Mr. Martin Rice, Member of the Board of Directors, Executive Director of the Canadian Pork Council, and Ms. Claire Citeau, Executive Director. Members of the committee have received the brief that was submitted by CAFTA. Without further delay, I'm going to invite Ms. Citeau to make her presentation. Mr. Rice, will you be answering questions?
Martin Rice, Member of the Board of Directors and Executive Director, Canadian Pork Council, Canadian Agri-Food Trade Alliance: Yes.
The Chair: We would like your opening statements. Senators like to ask questions, so I'm sure we can accommodate everyone, and allow to you make your full presentation. So welcome to the committee. Please proceed.
[Translation]
Thank you for inviting me today to speak on behalf of the Canadian Agri-Food Trade Alliance, or CAFTA. As you mentioned, I am joined by Martin Rice, a member of our board of directors. The ACCA, in French, or —
[English]
— CAFTA in English, the Canadian Agri-Food Trade Alliance, is the voice of Canadian agriculture and agri-food exporters. We're a coalition of organizations that work together to seek a more open and fair international trading environment for agriculture and agri-food. Our members represent farmers, producers and exporters from the major trade-dependent sectors, including beef, pork, grains, oil seeds, sugar, pulse, soy bean and malt.
CAFTA members account for 90 per cent of Canada's agriculture and agri-food exports, roughly $50 billion in exports annually. The economic activity generated by our members supports hundreds of thousands of jobs across this country.
CAFTA has worked primarily on multilateral and regional trade agreements. What I would like particularly to impress on the committee today is the importance of competitive access to global markets for the future viability of our export-oriented sectors. The world is not standing still. Why should a food processor from Manitoba get less than a processor from North Dakota? Why should a farmer in Quebec get less than a farmer in Australia? Competitive access means that Canadian exporters and producers have at least the same access as those agriculture exporters from Australia, the U.S. and other of our competitors. Competitive access depends on trade agreements that eliminate tariff and non-tariff barriers.
Because Canada enjoys such favourable conditions for food production that far exceeds the needs of our population, the Canadian agriculture and agri-food sector is primarily export-focused. We export over half of everything we produce. That includes half of our beef, 65 per cent of our soybean, 70 per cent of our pork, 75 per cent of our wheat, 90 per cent of our canola, 95 per cent of our pulses and 40 per cent of our processed products.
Ninety per cent of farmers across Canada depend on exports. They either sell their products directly internationally or sell them domestically at prices set by the international marketplace.
Export opportunities help us grow. Over the last 10 years, our exports have grown by 77 per cent. This means more income and growth for everyone involved in the agriculture and agri-food trade in our country.
In the global context now, the World Trade Organization continues to serve as the foundation for international trade. Even though the Doha Development Agenda is not progressing as we had hoped, the WTO remains the best forum for achieving fair, global and reciprocal gains in international trade. It remains today the only avenue for addressing domestic subsidies and export competition, and it also sets the rules and remains the primary dispute settlement body.
However, the global trade policy regime for agriculture remains uncertain today. Agriculture has always been a very sensitive area in international trade liberalization because of its importance for national food security, rural development and its dependence on climate and nature.
Agriculture tariffs on average worldwide are much higher than tariffs on manufactured goods. Agriculture accounts for a disproportionately large share of trade disputes, increasingly in respect to SPS and TBT complaints.
Today we have entered an era of competitive trade liberalization by which countries compete for preferential access through bilateral and regional free trade agreements. There are no less than 620 regional and bilateral trade deals which have been notified to the WTO. and over 400 of them are in force.
This is probably one of the most significant developments in global trade in recent years that we have observed. Trade liberalization is coming in at different speeds and sizes. The result is a myriad of free trade agreements that vary in scope and that are being negotiated even with countries that are traditionally known to be free traders. That's the case of Japan that is part of the TPP, the Trans-Pacific Partnership Agreement.
What does this mean for our trade-dependent sectors? It means that being competitive in international markets for us is not a choice; it's a requirement. Today, the competitiveness of our sector depends on the timely negotiation and implementation of preferential or equal trade access to the markets that we are after.
We have lived through this before with South Korea when a billion-dollar market was cut in half virtually overnight, when our competitors had access to this market and we did not. That was, namely, the U.S., the European Union and Australia.
Today, the priorities for Canadian agriculture and agri-food exporters are as follows: First, it is paramount that Canada ratifies the Trans-Pacific Partnership Agreement quickly. CAFTA strongly supports the TPP and believes it is integral to the future viability of our export-based agriculture and agri-food sector.
The TPP region absorbs 65 per cent of our exports. It includes some of our major traditional markets: the U.S., Mexico and Japan — that is the big prize in this deal — but also includes some of our largest competitors: the U.S., Mexico, Chile, Australia, and several signatories already have free trade agreements, FTAs, with each other. That means the longer the TPP drags on, the further we fall behind.
Ultimately, if we're not part of the TPP and other signatories are, we will lose many of these markets. The best chance to implement the agreement quickly is to ratify it quickly.
In addition, a number of countries in the important Asia-Pacific region have expressed interest in joining the TPP. The TPP presents an excellent opportunity to negotiate the terms of entry of future potential entrants such as South Korea, Thailand, Taiwan, the Philippines, Indonesia and perhaps China.
Second, we strongly encourage the completion of the respective legal and political processes related to the Canada- Europe Free Trade Agreement, CETA, while simultaneously completing the technical discussions so that the stated benefits of the agreement can be realized in the form of commercially viable access for all Canadian exporters.
In closing, the growth and sustainability of the Canadian agriculture and agri-food industry depends in large part on competitive access to global markets. Implementing concluded free trade agreements, fostering new trade agreements and expanding existing trade relationships in target markets will be critical to enter more predictable and competitive access to the world's largest markets for our exporters. Thank you.
The Chair: Mr. Rice, is there anything you want to add, or shall we go to questions?
Mr. Rice: Go to questions, please.
The Chair: Thank you for the information and particularly the statistics. I think we have talked about them, but we talked about it in one product, if I may call it that, and not the other. You have given us some interesting insights that we haven't had before on this committee. I thank you for that.
Senator Oh: According to Agriculture and Agri-Food Canada, nearly half of the value of Canadian primary agriculture production is exported as raw and processed products. Some witnesses identified that Canadian agri-food companies should produce more fully packaged and ready-to-sell food for the export market so that value-added can be reflected in the sales of their products, and that's good for Canada. Would you be able to comment on how much we have of this kind of product being exported on value-added from Canada?
Mr. Rice: I guess all of our meat would be considered value-added in the sense that it's taking product from live animals and converting it into food, but I think you're probably thinking of things that are packaged products, things that are more retail-ready and so on.
One of the reasons why the Trans-Pacific Partnership is of interest is that some CAFTA members say that it will reduce the tariff disadvantages for exporting processed products. Right now, there is a low tariff on the raw product and a very high tariff on the finished product or on further-processed products. That's one consideration, in that we will have more common terms of access for raw versus processed products.
Secondly, I think there is going to be more opportunity to have things like retail standards, processing requirements being more — well, we're always looking for opportunities to have greater harmonization in these aspects of food trade such that we're not at a disadvantage vis-à-vis the domestic market. So one important aspect of the trade agreements is that they do seek to have greater harmony on those.
I think Canada will need to be advancing where it can, having those changes take place, but the industry also has to respond to it. The opportunity is one thing; it's another to respond to it.
Just looking at my industry, we are now looking at much more differentiation between products. At one time, everybody produced the same product. Now we are looking at markets which cater to specific market interests such as a certain feed regime or a certain way of housing the animals for the food production, and industry is increasingly responding to those opportunities. I think the trade agreements will enhance the opportunities there.
Senator Oh: Do you think this ready-to-use market is available in Asia?
Mr. Rice: The retail-ready is certainly available in Japan. We are shipping increasing amounts of controlled atmosphere packaging products. These are products that have never been frozen. They are just at the point of freezing, but they are still fresh and in an environment which has eliminated all the conditions that would lead to spoilage. Those are very much oriented to that ready-to-put-on-the-shelf type of sales opportunity.
Ms. Citeau: On the issue of raw versus processed products, what free trade agreements do in general is help reduce reliance on traditional markets and open markets where companies can get better value for similar products. That's the case in Japan. It's a high-value market for a lot of our companies. That is the case of the CETA agreement as well. It's a way to reduce reliance but also encourage incentives to produce to the needs of that particular marketplace.
The Chair: You have been using Japan as an example. We were entering into bilateral negotiations, and now they have turned into TPP. Are the same principals in both? Is there a decided difference, other than you get more market? When you were targeting through TPP or targeting through bilateral, was it the same objective, into Japan?
Mr. Rice: Same objective, I guess, but maybe less leverage. So we saw the Japanese provide much greater market access improvement in the TPP because of the combined opportunities for Japan to get concessions from other countries than they would have received in a bilateral with Canada. We would certainly look at bilateral with Japan as being a very important thing to resume if it looks doubtful that TPP will pass, maybe after this year, in U.S. Congress, if it hasn't passed. However, if we look at our other competitors that have free trade agreements with Japan, the results are much more modest.
The Chair: Thank you.
Senator Poirier: Thank you for being here and for your presentation. First, beyond the CETA and the TPP, which other countries should Canada, as far as you're concerned, pursue trade talks with specifically for your sector?
Ms. Citeau: Currently the TPP and the CETA agreement are the biggest deals ahead of us right now. There are talks about China. India as well is important for a lot of our companies. We are not saying that Canada needs to pursue an agreement, but it is certainly something that our board is considering at this time. In principal, expanding market opportunities, trade opportunities, can only be beneficial.
Senator Poirier: From the agri-food sector point of view, what are the weaknesses in these agreements? How can they be addressed? On the other side, what aspects are the most important for your sector?
Ms. Citeau: One of the most important aspects is tariffs. The elimination of tariffs is certainly one of the first trade barriers. What we have seen in both the CETA agreement and the TPP agreement as well is a number of committees that are to address SPS and TBT measures. Those tend to build upon WTO commitments, but a number of mechanisms are to be put in place to address some of these non-tariff barriers that tend to come up as soon as free trade agreements are implemented. Basically tariffs go down but non-tariff barriers come up. These agreements are to address some of these non-tariff barriers, and that's what makes those agreements more modern than what we have seen in the past.
Mr. Rice: The matter of government support is not something that any trade agreement really addresses. It's more of a WTO multilateral interest. That's one of the reasons why we still look at WTO as the foundation of our trading system and the avenue for addressing that kind of issue. Governments don't put those issues on the table other than in a multilateral discussion.
Senator Cordy: Thank you for being here today. We export a significant amount in the agri-food business. That's a positive thing. When you talk about processed food products, is that frozen foods like McCain's? What would you consider a processed food product that is exported? It says 40 per cent of our processed food products are exported.
Ms. Citeau: It can be anything from bakery products to processed meats, packaged meats that are going either as fresh or frozen. Canola oil is a processed product as well. It is anything that gets transformed and is not in a raw form right from the field.
Senator Cordy: Oven-ready. We have heard conflicting presentations by witnesses about TPP and the CETA. Some have said it's the greatest thing that could ever be. Some have said it is not so good for their industry. You have said that both agreements would be very positive for the agri-food business. What would be the main benefits to both of these agreements for Canada to have them signed?
Ms. Citeau: In terms of the CETA agreement, if you're asking about specific numbers, CAFTA has evaluated that the potential benefits for our export-oriented sectors would result in $1.5 billion incremental exports, which is significant. One of the important things about this agreement is that it was negotiated before our competitors, the U.S., completed their negotiations with Europe. They are currently continuing the negotiations. It's a 500 million people market for us, which is a high value market for a lot of our products. That is just for the European market.
For the TPP, we do have some values as well. I could cover each of the sectors, if you wanted, and list the specific benefits for each sector. We can look at the benefits. What is most important about the TPP overall, if you look at the global context and if you look at what we lost in the South Korean market, is that if others are in it and Canada is not part of this agreement, we will certainly lose a lot of market share in that very important region. What happened in Korea could be repeated just in Japan solely. Japan is currently our third top export market, a high-value market. Who knows what could happen? But it would be very, very negative for our sector.
Senator Cordy: They are high-population areas.
Ms. Citeau: Absolutely.
Senator Cordy: In your presentation, you said 90 per cent of farmers across Canada either export their products directly or sell them domestically at prices set by international markets. It sort of surprised me that the prices would be set by international markets. How does that work?
Mr. Rice: Certainly beef, pork, grains and oilseeds, probably a lot of the horticultural crops and so on, would be having a price which, even if they sell it to a domestic processor, would be a price that reflects where that processor sells their product. For example, if a meat processor is buying Canadian cattle or pigs, they will pay a price that reflects their own export markets and keeps them in a competitive position with their U.S. suppliers or competitors. If our producers do not get a price from our processors that is as attractive as what would be available in the United States, they would export to the United States. Likewise, if our processors didn't get a price from the domestic market that is competitive, let's from a food retailer, if that price is not as attractive as what is available from the Japanese purchaser, again, they would choose to go to the Japanese purchaser.
It's a bit like oil and other internationally traded products. If a country is in a trading environment, their prices do tend to very much follow or get calibrated by the international market conditions.
Senator Cordy: It's not an agreement. It's just common sense and what the market will bear.
Mr. Rice: Exactly. The more similarity there is between prices in different countries, the more open the trading system is.
[Translation]
Senator Rivard: One of the benefits of a committee like this is being able to hear from witnesses. Some witnesses will support a measure, while others will oppose it. It's up to us to strike the right balance, as they say.
The witness who will be appearing after you does not share your view. According to Mr. Stanford, an economics professor, signing the TPP agreement is not in Canada's best interests because a number of the governments in the region make use of trade-distorting strategies, such as South Korea, Japan, Malaysia and Vietnam. He wrote about it in an article that appeared in The Globe and Mail on February 11, 2016. Have you read the article? If so, I'd like to hear your thoughts on it. If not, he talks about countries that cheat, if you will.
[English]
Mr. Rice: It depends on what industry you're working in, if you could survive being left in a disadvantageous position for exporting to countries like Japan and so on.
Now, I believe he's bringing to this discussion a perspective of an auto industry, which is primarily North American in its trade flows for at least the North American-based industry. Over half the GDP of the Canadian economy, I believe, is based on trade, in large part to the United States for sure, but increasingly to other countries. For example, we exported to the United States about 85 per cent of our exports in 1991, and we are now more like 25 to 30 U.S., 70 in the rest of the world, and 70 per cent of our production is exported.
As happened in South Korea, which Claire mentioned, in 2011, we were on the same terms as all other exporters into South Korea. It was a quarter billion dollar export for us that year. Two years later, we were down to $70 million. We'd lost 75 per cent of our exports, and what was left was very low value-added. It was products that had very little alternative markets and went to Korea regardless of how high the tariff was compared to what others were experiencing.
So if one is in an industry that can either manage with just its home market, the Canadian market, or just the U.S. and Canada, the attractiveness of TPP, obviously, is going to be a lot less because there is just not that much opportunity for them, or losses if they get put in a position where they don't have the same terms of access as their competitors.
Senator Housakos: Good afternoon to our guests. The first question I have is in regard specifically to your industry. Are there certain global markets in the world that we haven't exploited as a government that would be of interest to your sector?
Mr. Rice: Certainly, the European Union is the one that we currently do not yet have important access to, and the CETA will provide us not unlimited access for sure, but it does provide us quite meaningful access if we can assure ourselves of the European technical requirements accommodating our exports, and we are wanting to believe the Europeans will be faithful to the objective of removing all impediments to trade where we've negotiated these excess amounts, and thus we are pushing ahead on the basis of good faith.
Beyond the European Union, I think we are very much interested in China, but a lot of the considerations that affect our access into China probably aren't going to be completely or even directly addressed through free trade agreements. Sometimes it is a matter of whether or not they'll use an international standard versus their own kind of decision to go to a different standard that which is not accommodating our exports. That probably isn't going to be addressed in an FTA. That's a matter of the Canada-China dialogue and reaching a political agreement.
I think China is a hugely important market for us, but I think Canada still has a lot of potential yet to find ways to make the trade more predictable and transparent.
Senator Housakos: The other question I have is in regard to the role the WTO plays from your perspective in terms of a body that monitors trade agreements and tries to make sure fair trading practices between the countries that have made these agreements are executed properly. I'd like to have your perspective from your industry's point of view if the WTO has been effective in serving its guiding objective and principles.
Mr. Rice: Well, we've just recently succeeded in having a United States labelling rule removed because of a long- running dispute called "country of origin labelling,'' COOL. The WTO dispute resolution process, while it took a long time, was very effective, and the United States was totally compliant with its determinations. It stretched it out as long as it could, and Canada has done the same in trade disputes through the years. Every opportunity to appeal was used, but in the end they respected that WTO decision and came into compliance with their obligations. That is something we really cherish.
When the trade negotiations fell far short of its goals, for example, the Doha round, I at one point kind of wondered whether the whole GATT system and the WTO trade framework was going to stand up to that falling confidence in the WTO's ability to negotiate trade deals, but I think the rule system is pretty sound and absolutely vital to our interest. Then I mentioned it is the only place we can effectively address domestic support like subsidies.
The Chair: Just on a slightly different track, let's take the pork industry. It's fresh. It was "butcher cuts,'' as I call them, and then frozen products, and now you've gone into not only the value-added products up market, but your technologies are different. To what extent is Canada keeping up with the new technologies in the food service industry in agriculture where that's been part of your success?
Mr. Rice: Certainly, there is nothing like having to be internationally competitive to be kind of driven to look at taking advantage of all the technology opportunities that exist.
We do have smaller plant scale than say the United States, and that's something that we have to make up in other areas. It's not as easy to install equipment that is built for a plant that is just too big for the scale of production in Canada, and we do so by being, I think, in our systems, perhaps a little more oriented to differentiation and separating processes. Rather than everything going through a single processing line, we are more able — or more, say, nimble — to process our pork in a certain fashion for a certain market where the customer has different specifications. Our technologies, rather than scale of output, are perhaps more suited to meeting fine distinctions in standards and consumer tastes and so on.
I'd say robotics is coming into the industry. It's not as advanced as in, say, the automobile industry. There is still a certain amount of that, but I think it's more about making more productive use of labour and all of our other resources in our plants.
The Chair: If I understood you, you said that was driven by having to go international as opposed to national.
Mr. Rice: Exactly, yes. We export to almost a hundred countries. Every country has its own particular requirements and product preferences, and indeed we have to be able to compete with all the other pork exporters to satisfy those markets.
The Chair: To what extent are you relying on the countries that you go into to have partners there? In some of our studies here, we found, geographically and country-wise, if you are going to break into a market, you had better have someone on the other side that's reliable, lives according to the standards that we adhere to and can give you insights into the country. Is that true about your industry?
Mr. Rice: Yes, for sure. I think the only country where our companies do it on their own is the United States, because the Canadian and U.S. markets are so similar in how they operate, and the scale of the sales justifies them having all of the required expertise on staff.
Certainly in all the other markets, they would have a local importer, and a local office of their own where they'd hire people from that country, people who have an understanding of how governments work in those countries. That's often the case. The way a government approaches a technical issue is quite different in China than it is in North America, less transparent. It's also a matter, too, of different government agencies not connecting in a way that we're used to here in North America.
Certainly in terms of import financing, foreign exchange and the logistics dealing with different shippers, they do need partners and allies and associates in these different countries to prosper.
The Chair: We've heard in other testimony, both on this study and previously, that it is very difficult for small- and medium-sized businesses that may have a niche market and want to go international. They can't seem towork the regulations and systems within Canada or those in the other country. That's where they rely more on getting assistance, and that's where our focus should have been, on SMEs. Is that true in your industry?
Mr. Rice: We have seen an unfortunate decline in the number of people we have in some of our posts abroad. These people are essential, really, to deal with a smaller company that may need someone in the market to which they're shipping that they trust, as they do with our diplomatic staff abroad. Some of the staff that have been let go in the last few years were locally engaged. I know in the cases of the U.K. and Denmark, there were people who had been there for well over 20 years, so they really did know a lot about the local market and did already have a program available for, say, a mission of small or medium-sized companies. Virtually all Canadian companies are small compared to the giants, like JBS in Brazil and Cargill and so on. They do need to have support for them to be able to learn these important aspects of these import markets before they even talk to a buyer in those countries so they know what they're getting into.
The Chair: I come from Saskatchewan. That's well known on this committee. Agriculture has been the mainstay, and agriculture was always equated to families and family farms, and then the movement was to more business- oriented farms. There may still be families operating them, but they're more business-oriented and larger. That has driven some out,but it has made others more competitive, using new technologies and new skills.
More recently, I have been trying to find statistics, because women are coming to me saying that they are operating the agriculture business, that they're going into agri-business, and I can't find any statistics about whether this is a trend that women are entering the business field, et cetera. Is it also true in your businesses that they're not just the supportive member of a family but they're actually heading the operation or the business or the manufacturing? Do you have any statistics?
Mr. Rice: I don't know if the census, for example, has gender for the head of the farming operation. I certainly see more women coming into the organizational structure that I've dealt with.
I certainly don't think we're quite as advanced in terms of having equal numbers of women and men as in some of the other professions that we see now, but there's no question there are more women involved. I wouldn't say that there are any programs that intentionally or proactively encourage them to come in, but I do see now, for example, that the chair of Ontario pork is a very successful producer, and she has been in that position for a record five years and enjoys a high level of confidence in the industry. They, as a family business, do have production in both Canada and the United States. I'd say that's not a unique situation at all.
The Chair: I think we've come to the end of the questions. Ms. Citeau and Mr. Rice, thank you for coming here. We often say we're a trading nation. Your statistics at the start proved that in your industry, you certainly are assisting and are integral to us being a trading nation. Even coming from Saskatchewan, I found it staggering that some 90 per cent of pulse crops go out of the country. I understand why, now, the pulse crop growers are saying, "We need to sell this product in Canada because of immigration and the trends to healthier eating. We have markets here we have to produce for.'' They're almost saying, "We've succeeded overseas, and now we need to succeed here.''
It's reassuring that you're contemplating new markets and working on it. Thank you for your perspectives on trade agreements. We appreciate that for our study and report. Thank you very much for appearing before us.
We are now proceeding to welcome by video conference Mr. Jim Stanford, Harold Innis Industry Professor of Economics, McMaster University and Economic Advisor, Unifor. Mr. Stanford worked for many years as an economist with Unifor. Members of the committee have received the biographical notes.
Thank you for accepting our invitation. We know it is difficult. I have no idea what time it is in your neck of the woods. You might tell us that, and we might be kinder to you. Thank you for accommodating us within our normal times. It certainly makes it much easier for the technical staffing here. We appreciate your presence here, by video conference from in Sydney. Welcome to the committee and the floor is yours.
Jim Stanford, Harold Innis Industry Professor of Economics, McMaster University and Economic Advisor, Unifor, as an individual: Thank you very much senator and to the whole committee for the opportunity to join you. It is 7:15 in the morning here. That's not bad. I know you senators are usually up long before that.
Luckily, here in Australia one thing they do very well is espresso coffee. They are very famous for espresso coffee. I have had a good one already. So it's just fine here. I'm very glad to be able to participate in a key debate in my home country, even though I'm watching it from the other side of the world.
Thank you also to the committee for undertaking this inquiry with a broad mandate to study not just the terms of any particular trade agreement. Of course there are some big ones out there that we Canadians have to review carefully and consider what they are going to do. I really appreciate that you have taken a step back and you're looking at the broader impact of bilateral or regional preferential trade agreements more generally and what we're trying to accomplish with those agreements and whether or not it's working.
I hope the committee has seen the notes and accompanying tables that were submitted. I'll be speaking to those. I'll have some more comprehensive research on this very topic published later this week through the Institute for Research on Public Policy based in Montreal that has been undertaking a thoughtful and eclectic review of Canada's trade policy. They will be publishing a longer and more detailed piece from me on the same terrain.
The basic starting point of my remarks, senators, is the seeming contradiction, if you like. By any measure, Canada's export performance has been terrible since roughly the turn of the century — by any measure: quantitative, qualitative, historical comparisons, international comparisons. Canada's exports have performed very badly. We have seen the emergence of substantial chronic trade deficits, in part because of slow export growth combined with very rapid import growth. We have also seen a damaging qualitative shift in the composition of our trade, whereby our once important foothold in a few high-value, technology-intensive sectors has been eroded since the turn of the century in favour of a growing and, in my view, dangerous reliance on the export of raw or barely processed resources.
For all of those reasons, Canadians should be concerned about trade. I believe strongly in trade. I understand how many jobs in Canada depend on trade. Often the identification is automatically made that if you believe in trade, you must believe in free trade agreements. That is the source of the paradox. Ironically, Canada during exactly the same period — the 15 years roughly since the turn of the century — has pursued a more aggressive and broader trade liberalization and investment liberalization agenda than ever before. During that same period, we implemented 10 new free trade agreements and 25 bilateral investment agreements. Of course we negotiated but have not yet implemented two major multilateral agreements — the CETA with Europe and the Trans-Pacific Partnership.
So at the same time as our trade was becoming freer in terms of the policy and legal context, our trade performance was getting worse. That leads to a question: Should our response to Canada's poor trade performance be to double down, if you like, on that general direction or not?
Let me briefly run over some of the main findings in that handout. I have documented the deterioration in Canada's trade performance. Beginning around 2001-02, our exports began growing much more slowly than they had in the past. Our imports growth was still rapid. We went from a situation of traditional merchandise trade surpluses to the situation we face today, which is of a merchandise trade deficit, which is unusual for Canada, combined with a services trade deficit and investment income deficit, therefore creating very large deficits in our current account.
This means every year Canada is becoming more indebted to the rest of the world, to the tune presently of about 3 per cent of GDP per year. That is a large current account deficit. There is no doubt that Canada's poor trade performance has contributed importantly to it.
Internationally, our performance has been near the bottom of the entire community of industrialized countries. Table 3 in my package compares Canada's export performance to those of the other members of the Organization for Economic Cooperation and Development, the OECD. We rank very near the bottom, 33 out of 34, in terms of real growth of exports in the period since 2001, and similarly negative by other measures.
If you decompose our international trade performance according to our trade partners, it turns out that we do worse relatively with our free trade partners than we do with the rest of the world. That data is summarized in Table 4 of my handout. Here we break down the change in exports and the change in imports according to whether the country is a free trade partner, including the United States, of course, which is our major partner, whether they are countries which we do not have free trade agreements with, and then the overall world population. As you see in the table, since 2001, our exports to countries we do not have free trade agreements with have grown by more than five times as quickly as our exports to FTA partners, including the United States. Our imports from those countries have also grown faster, more than twice as fast.
The point is that there is a much closer relationship between our exports and our imports with the rest of the world, than there is with our free trade partners. Our exports to the rest of the world grew faster than our imports from the rest of the world, whereas with our free trade partners, the imports were growing faster than our exports. The result has been I think a refutation of a claim that, in order to create trade, we must sign more free trade agreements of the sort modelled on NAFTA and the other bilateral agreements that we have signed.
The most recent example of a free trade agreement in practice, of course, has been our bilateral agreement with Korea, and my submission provides some detail on the first year's experience with that. It is consistent with the experience of our other FTAs, namely that imports grow much faster than exports. You see an emergence of bilateral deficits, and you also see erosion in the quality of our exports. Of course, in the Korea-Canada case, they are primarily interested in resource-based products from Canada, whereas they are a very successful exporter of technology-intensive manufactured products. We are seeing with Korea exactly, I think, a confirmation of the same trends we have seen with other FTA partners.
Let me conclude with just what the policy implications of this are. It would be a stretch to say that the free trade agreements themselves are the only, or dominant, cause of the deterioration in Canada's trade over the last 15 years, but the correlation is strong. It would take further study, I think, to decompose some of the other factors that contributed to Canada's poor trade performance.
It is certainly the case that pursuing a bilateral trade liberalization agenda more aggressively is not necessarily going to solve our problems, and could certainly make them worse.
In my judgment, I think the crucial factor behind the failure of Canadian exports has been the failure of us to develop a business ecosystem that nurtures globally-oriented and technology-intensive companies and boosts their own innovation activity — of course, as you know, Canada is a relatively poor performer in research and development, product innovation and so on — and thereby sell value-added goods and services to the rest of the world that command a premium price.
Instead of business, government and other stakeholders succeeding in that, what we have seen instead is the doubling down of our historic, traditional reliance on the export of unprocessed or barely processed resource commodities. When commodity prices were high, of course, that seemed like a lucrative direction to go in. My title — the Harold Innis professor at McMaster — is named after an economic historian, the famous Harold Innis, who developed the theory of staples in Canadian economic history and showed the risks of overreliance on resource exports.
Instead of focusing on signing even more bilateral trade agreements, I think we need a deeper study into the deeper causes of Canada's trade failures, and top among those, I would list, is a failure of Canadian companies to innovate and develop high-value goods and services for export to the rest of the world.
Senators, perhaps I'll leave it at that with the opening remarks, and I await your questions with great interest. Thank you again for having me.
The Chair: Thank you. You have generated a list of senators who want to place questions.
Senator Downe: Thank you. There is obviously something seriously wrong here. Canada seems very good and very effective at signing trade deals. We hear, of course, before every deal, about tremendous benefits and opportunities, but when we try to implement those opportunities in our economy, we have this failure that you highlighted and that others have noticed as well. You indicated high-tech and value-added and so on, but what is the problem with the governments? What role does the government have in this, if any?
I met earlier this afternoon with some officials from what is now called Global Affairs — most people know it as the Department of Foreign Affairs — and they were telling me they were in New Brunswick earlier this week talking about the benefits of the deal. EDC was also there talking about the benefits of the deal and urging business people to seize the opportunities, but there seems to be nobody in charge. It's a multi-headed monster within the government. I'm just wondering if you have any views on what the Canadian government can do to try to accent what are supposed to be these positive benefits.
Mr. Stanford: I think you're really getting to the nub of the question. Traditionally, when the government signs a free trade agreement, they then invoke a theoretical economic model, and sometimes the model has numbers attached to it. The term often used is computable general equilibrium model. Believe me, that's a tongue twister, especially at 7:15 in the morning. These economic models are based on the theory that trade liberalization in and of itself will spark a two-way increase in trade that benefits both sides and leads to a mutually-advantageous specialization.
That is in the world of theory, but in the world of reality, trade occurs because real businesses that are fighting for their lives develop goods and services that they can sell better than other businesses. If you don't automatically succeed in that, as the theory predicts, what you end up with is business failure, plant closures and unemployment. Those things don't exist in the economic models, but they do exist in reality. Simply going around trumpeting that, "We have signed a free trade agreement, now go out and take advantage of it,'' misses the concrete task of actually building industries and companies that can sell goods and services to the rest of the world and command a good premium.
The main barrier to us doing that is not an absence of trade agreements. The main barrier to us doing that is a failure to develop the sort of business and innovation ecosystems that you see in other countries. Those include Korea, as I mentioned, or Germany and some of the other European countries, which have successfully combined the efforts of all of the stakeholders to build businesses that work.
We have some concrete examples of Canadian businesses and industries that have the potential to do that. Aerospace is a traditional and unique success story for us. We have some strengths in the information communication technology area. We have a financial services companies that have good opportunities and good brands abroad. The auto industry has traditionally been a source of strength for us. Those are industries we can focus on with support for innovation, concrete business investment and clustering, which trade theorists have recognized as an important way of developing critical mass in key industries. Those all fall within the realm of business development, innovation strategy and industrial policy.
People who believe fervently that the free market alone will do the work don't support that direction. They label it picking winners and say government should just get out of the way. In practice, what we really need is recognition that government has to be an active player in developing globally oriented sectors, and as we build those, we will build our exports more successfully than just signing trade agreements, as you noted.
Senator Downe: What about the impact of the low Canadian dollar? Should it be a consistent policy of the government to try to keep the dollar low in the absence of other initiatives?
Mr. Stanford: There is no doubt that the high dollar, between roughly 2002 and 2013 — that would be the decade and a bit during which our dollar was trading well above its true fundamental value — absolutely contributed to our trade failures during that period. Now that the dollar has come back down to levels that are consistent, or even advantageous with competitiveness of our goods and services, we are seeing some rebound.
For example, in the package I distributed, one of the figures shows the evolution of our resource exports compared to our value-added exports. When the resource sector was booming, our value-added exports were declining, but that relationship has shifted a lot within the last two years and the decline of the Canadian dollar is a key reason why. We are now seeing, I think, some very encouraging recovery in our value-added exports.
Now the question is: What do we do about the Canadian dollar? Right now, we have a policy regime in which interest rates are set by the Bank of Canada operating at arm's length from the government so, in that sense, the government itself doesn't have direct control over the dollar. There are things the government can do to influence the value of the dollar though, and the Bank of Canada, of course, has a role to play. Even simply by stating that the government and/or the Bank of Canada view a lower dollar as consistent with sustainable trade performance in and of itself helps to shift the expectations of the financial traders who determine the value of the dollar on a day-to-day basis.
Other measures such as, in my judgment, some restrictions on foreign takeovers of resource assets in Canada would also help to ensure that we don't go through an episode of over-appreciation as we experienced in the previous decade.
In my judgment, the high dollar was one of the crucial factors behind the downturn in our value-added exports. Now that the dollar is lower, a lot of companies should be investing in Canada. Some of them are, but a lot of them are worried that we'll just experience the same roller coaster in the currency that we did last time the next time oil prices rise to high levels. In that regard, I think it is important for both the government and the Bank of Canada to send a signal that they don't view the high dollar as consistent with Canada's trade interests.
Senator Poirier: Thank you for the presentation. From reading your commentary published in The Globe and Mail on February 11 this year, you don't seem to view the TPP as a great opportunity for Canada to grow its economy through export. You compared with South Korea, where our trade deficit is significantly high since free trade came into place and warned on other countries from the same region, such as Japan and Vietnam. I was wondering, what are the big issues here? How can Canada overcome them?
Mr. Stanford: Thank you. Yes, we are going from the general to the specific by talking about the Trans-Pacific Partnership and both the opportunities and the challenges that it will present to Canada.
I'm not of the view that a trade agreement is automatically good or bad just because it's a trade agreement. I think we have to take a more pragmatic and empirical approach to examining each trade agreement and adding up the potential opportunities for export and looking at the damage that it is going to do in terms of import penetration and reducing some of our industries that are not strengthened by a trade liberalization initiative. I know that we have a process underway now in Canada to hopefully do that — to gather information from different industries, different firms, different regions and different stakeholders about how they view the TPP increasing or decreasing our opportunities.
I will say that the evidence of our other free trade agreements, as I have discussed here today, is not encouraging. Simply removing trade barriers with another country does not guarantee that our industries will grow. In fact, the experience has been more the opposite.
If we look at some of the specific features of the TPP itself, I think the largest direct impact will be felt by including Japan within a free-trade zone with Canada. Japan is very similar in economic structure to Korea. It has a very innovative and sophisticated manufacturing sector that accounts for almost all of the country's exports. They are interested in Canadian resource inputs. If you look at our major sales to Japan, they consist of things like coal, wood products, mineral ores, et cetera. Those mineral exports are not going to be substantially strengthened under a trade agreement. The Japanese do not levy high tariffs on those products. In terms of manufacturers, I think there is very modest potential for Canadian exports to Japan to grow.
Another issue about the TPP that I'm familiar with and that's attracted a lot of concern is some of the provisions around the auto industry and the fact that the TPP would rewrite the rules of origin and other technical measures that we have been living under in North America under the NAFTA. In particular, they would weaken domestic content thresholds or regional content thresholds, which would allow auto companies to source more of their parts purchases from not just outside of North America but even outside of the TPP altogether.
I think on first blush, there is a lot to worry about in terms of the TPP reinforcing the sorts of trends that I have summarized in my submission to you today, but it is going to require a more empirical, pragmatic case-by-case study of what is likely to happen. In that regard, I think the process that the government has undertaken now is an important and essential one.
Senator Poirier: From certain exporters' points of view, they see the TPP as way to protect what they have. At the same time, they don't want to fall behind their competitors from the new markets in the Asian region. It's almost like a lose-lose situation. How can Canada turn it into a win-win situation?
Mr. Stanford: Yes. There are certainly downsides to imagining an agreement going ahead without Canada being a part of it. That's where I think the most optimistic course of action would be to try to get engaged and fix some of the features of the TPP that are the most egregious or potentially the most damaging to Canada's industries, such as some of those aspects of the auto provisions in the agreement.
The outlook for the TPP, I think anyone would concede, is quite uncertain, particularly given the political developments in the United States. I think it's almost inevitable that the specific terms of the TPP are going to be renegotiated at some point.
In that regard, I think that what we could do is identify the areas where the initial drafters of that agreement made mistakes, where we were not realistic in thinking through how this agreement is going to affect Canada's industries, and then go in there with an agenda of key things that we want to change in the course of the subsequent renegotiations. Given how the U.S. political situation is unfolding, I think that course of action seems quite probable.
Senator Poirier: In other countries where the TPP is involved, is the reaction negative or positive?
Mr. Stanford: Well, you hear a range of reactions from different countries. You're probably quite familiar with the intense debate that is occurring in the United States.
Down here in my part of the world — in Australia and New Zealand — they are both partners in the TPP negotiations. There has been a lot of debate as well, including over some of the issues like the investor-state dispute settlement courts, which are very controversial and with good reason. Different countries and different stakeholders within those countries will see what side their bread is buttered on, in essence, and try to advance their interests accordingly.
I will make one note, Senator Poirier. The fact that a particular company says a trade agreement is good does not necessarily mean the trade agreement will be good for the country where that company is based. We have seen situations, even with Canadian multinationals, where they are endorsing a trade agreement precisely because it allows them to take advantage of lower cost sourcing, lower cost supply chains coming from, again, not just outside North America but outside of the proposed trade zone itself. Companies that do have plants or supply chains in places like China and India that are not even going to be in the TPP, from a corporate perspective may decide this is something that benefits them. But from a national policy perspective, we have to step back and say, "Well, it may be good for that company in terms of reducing the cost of some of the inputs that it has to purchase, but what are the impacts going to be on our actual national economy?'' In that regard, there can be a distinction between what companies say and what countries need.
Senator Poirier: Economics seem to have more issues with the TPP than the CETA. Can you explain to us what, from your point of view, is the main difference between the TPP and the CETA that makes the latter more accepted?
Mr. Stanford: That's a very good question. I'm not sure if I have exactly the right answer. I have looked at both agreements, I have written about both agreements, and I have concerns with both agreements. It's not clear to me that the CETA is a less controversial or less risky option than the TPP.
I guess the TPP is probably more controversial perhaps because of its complexity, and the range of countries that it involves. When you go to the TPP, you're looking at countries like Vietnam and Malaysia, which are developing countries with much lower labour costs, so that raises a set of issues that you don't necessarily see with CETA. Although even in Europe, of course, because of the enlargement of the EU, you do have countries in eastern and southeastern Europe which are very low cost competitors and which would create the same kind of challenges for Canada as we've experienced under NAFTA with the flow of investment and manufacturing activity towards Mexico.
Iin my judgment, I think both of them require a very serious look, a very empirical, pragmatic, industry-by-industry analysis, rather than just running a computer model predicated on the assumption that free trade is always mutually beneficial. Let's go through, roll up our sleeves and do an industry-by-industry catalogue of what actual export opportunities are going to be opened up, what are the chances of Canadian businesses being able to take advantage of those opportunities, what do Canadian industry need to prepare themselves for successful export to Europe and Asia, and trade all of those off against the risks that we'll face because of greater import penetration to Canada and the dismantling of various regulatory tools that we've traditionally used. That's the sort of analysis that I think we need to do on both the CETA and the TPP.
Senator Johnson: Thank you. My colleague covered a lot of TPP. By the way, good morning, Australia. It's not snowing here, but it's close to it.
Mr. Stanford: We were surfing on the weekend.
Senator Johnson: I don't want to hear it. You just answered with regard to TPP and going industry-by-industry. Would you like to elaborate a bit on that because what do we do if we don't enter these agreements like the TPP? I know that the United States is problematic now. We were just in Washington with our Canada-U.S. group last month, and they're talking about it a lot, and it will affect every nation that's involved. Can you add anything further to what you answered in terms of that, especially with the labour and environmental provisions and why you think they're not sufficient or effective?
Mr. Stanford: Perhaps I'll start with the last part of your question, senator. In general, the so-called side agreements or side chapters that address labour and environmental standards by and large are implemented with the aim of selling the trade agreement to a skeptical public as opposed to actually seriously regulating labour and environmental standards within the free trade zone. That is certainly the case in North America. In North America, the labour and environmental side chapters were established clearly by the U.S. government, which was trying to sell the agreement to its public back in the mid-1990s, and have had no impact whatsoever on labour standards or environmental regulations within North America.
I know that different trade agreements have tried to revise and extend the wording of these provisions, but in general, they miss the point, which is that intense international competition for investment and jobs, as is unleashed by a free trade agreement, is going to push all the participants in that free trade area to try and reduce anything that adds to business costs. So it's that economic logic, not some formal policy setting in the labour and environmental areas themselves, that leads to challenges in the labour and environmental areas. In my judgment, those labour and environmental side agreements are generally cosmetic in nature.
In terms of the industry-by-industry comparison that you asked about, there are some industries under the TPP formula that I think face particular challenges. There's been a lot of discussion about the auto sector in Canada, but there are other sectors such as the food manufacturing, dairy and poultry sectors that we also have to take a sort of pragmatic industry-by-industry review of. At the same time, of course, I recognize there are sectors that would indeed achieve new potential export openings in a comprehensive trade agreement such as the TPP.
That's where I think we could all benefit from sort of a non-religious approach to these debates. Both the supporters and the critics of trade agreements should recognize they're never either all good or all bad. What we need do is evaluate them very pragmatically in terms of whether they are going produce a net added benefit for Canadian exports or not. It can go either way. We've seen enough examples of free trade agreements that clearly undermine Canada's net export performance to realize that this is a risk when you sign these types of deals.
Senator Johnson: How would you describe our trade performance now, because in your remarks you've called it abysmal since 2001? Is it still abysmal?
Mr. Stanford: No, partly because of the decline in the Canadian dollar and partly because of better economic conditions in the United States, our major trading partner, we are seeing some signs of a very important turnaround in our trade performance. The handout that I distributed shows the increase over the last two years in exports of value- added products from Canada. This includes automotive products, aerospace products, industrial machinery, electronics and so on. These are really the things that we do want to be producing in the long-run because they embody more innovation and higher productivity. They generate higher incomes here at home. We are seeing some signs of a turnaround.
I think this is consistent with my general view that there's all kinds of things determining our trade performance other than the nature of our trade agreements, and, in a way, focusing so much on yes or no to the next trade agreement distracts us from the more concrete realities of trying to build Canadian industries, nurture them and build our exports. It may be that we don't need free trade agreements in order to do that. It may be we need to do other things, including, as we've already discussed, keeping an eye on the Canadian dollar.
Senator Johnson: Excellent. Thank you so much.
Senator Housakos: My question is in regard to the barometer that you use for judging a trade agreement to be successful or unsuccessful. Is your measuring stick strictly the trade surplus or deficit with a particular trading partner? Could there also be some consideration given to agreements where we have a deficit but nonetheless might have some kind of a net benefit on the Canadian economy? At the end of the day, there must be somebody in the Canadian economy that's obviously purchasing those goods and services from a particular trading partner that we have a deficit with. I would like your point of view on that.
Mr. Stanford: I think that's a very fair question, senator. We obviously cannot have a perfectly balanced trade relationship with everyone in the world. Your overall trade is going to consist of buying more things from certain places and selling more things to other places.
At the same time, our overall trade balance is indeed the sum of all of our bilateral balances. Without thinking that a trade deficit with any one particular trading partner is a bad thing necessarily, you do want to worry if you see a pattern of trade deficits across the board arising, and that is exactly what happening. The only major trading partner we have a trade surplus with is the United States, and that, to some extent, is offset by our services trade purchases from the U.S. and the flow of foreign investment income, which goes to the United States from their investments in Canada. I think the Canada-U.S. relationship is a genuinely mutually beneficial one, and it is fundamentally two-way in nature.
If you are signing a bunchy of other agreements or opening up partnerships with other countries where you see time after time deficits that exists and get bigger over time, then that's where you have a concern, especially because they do add up to an overall trade deficit for Canada that is extremely damaging.
I'm always interested that we tolerate without hardly even being aware of it a current account deficit equal to 3 per cent of our GDP. That's twice as big as the federal government's deficit that everyone has been debating since the budget earlier this year, and if anything, it's worse because it's money that we owe to the rest of the world, and when we pay it, the money leaves the country. That is less true with a government deficit because most of the interest is paid to other Canadians.
You're quite right that there are other ways to examine the overall impact and other factors to keep in mind when examining the overall impact of a trade agreement, not just the deficit. However, I do think the bilateral deficits and the patterns we see — bilateral deficits that get wider with our free trade partners — are important.
Even without getting to the deficit calculation, just looking at the growth of exports in and of itself, I could tolerate a bilateral deficit if it was associated with a situation in which our exports were growing strongly. With the free trade agreements that we have signed, we do not see the positive stimulus to exports that we were hoping for, and our exports have performed better with other countries.
Deficits are not the whole story. You're quite right on that point, but I think they are important.
The Chair: I have had some chance to look at the material we received from you. Are the tables and statistics your own research, or are you drawing from Canadian or international sources? Our committee would like to document it properly in our report.
Mr. Stanford: Certainly, senator. There should be a source note under each table showing exactly what the database was that the original data came from. To construct the tables, I did my own research and calculations. Most of the data is from official Canadian sources — Statistics Canada and Industry Canada. The one table that shows Canada's comparison to other countries, the OECD comparisons, comes from their OECD stat database. When it comes time to write your report, I would be very glad to liaise with your researchers to provide directions to the precise sources that I used.
The Chair: Thank you. We've had witnesses recently who talked about what happens if we had not gone into some of these trade arrangements, and particularly if we had not exported goods, and I'm thinking particularly of agri- foods. We produce, create jobs, bring in money for the economy, particularly in certain regions, by the fact that we export. That spurred innovation and technology that made them more competitive in the international market. Is that one of the spin-offs? If we do it right with a trade agreement, can we become more competitive? Does it force some of our industries and our sectors and stakeholders to become more innovative? There's been a lot of talk that we need not only R&D now, but we need more innovation. People do make a distinction between the two.
Mr. Stanford: It is certainly the case, senator, that exporting is associated with many of those economic benefits. I'm a big believer of government policies to promote more exports. There is a lot of evidence that companies that export are more productive. The wages in export industries are higher than in domestic industries. Export is associated with innovation because you have to be on top of the latest technology globally if you're going to sell anything globally.
I agree with you completely that exporting is a goal that generates benefits for the whole country, not just for the company that is doing the exporting. Government policy should be oriented around the promotion of Canadian exports.
My point is that that phrase, "the promotion of Canadian exports,'' is not necessarily synonymous with signing free trade agreements. They have come to be treated synonymously in our discourse in Canada over the last 30 years, perhaps because we spend so much time debating free trade agreements. When it comes to trade policy, we can't think of anything else to do, and that is a mistake. There are all kinds of concrete, pragmatic measures a government can be taking to help Canadian firms improve their innovation performance, identify export markets, provide infrastructure that allows them to sell to export markets and otherwise encourage Canadian exports. In that regard, I think we may have been distracted by these debates over the latest blockbuster deal.
Now, market access is an important part of exporting, but there are very few markets in the world that are closed to Canada and our products. The tariff reductions and other liberalization associated with trade agreements are generally quite modest — not in all cases, but generally. It could be that there are more important things we could be doing to promote those exports. I agree whole-heartedly that export success generates enormous economic benefits that spread right through the economy.
The Chair: In previous testimony, we heard a lot about global value chains. There was some comment by some witnesses that our statistics are misleading, at best, because they don't take into account what might be made here, shipped elsewhere to a third country, fourth country, and comes back. Who claims the product? Who documents it in their statistics? We're still very much driven by statistics. We are very simple on trade and manufacturing. We did it here. We exported it out. It's not happening that way anymore, particularly in IT services and the service industries. So perhaps we're not capturing the activity in Canada appropriately by the statistical models that we're using. Do you have any comment on that?
Mr. Stanford: It's certainly true that this so-called global supply chain phenomenon makes it more complicated to measure what the imports and exports are. The error is biggest on the export side. When we present data on gross exports in Canada, we are including the value of components that we imported and then put with something else. The best example is an automobile. We're very strong on the assembly side in Canada, but we import a lot of parts that go into those assembled vehicles. When we export a vehicle, we count the whole vehicle, not just the parts that we made. So there is an issue about the accuracy of the statistics.
If we actually got to that problem, our situation would probably look even worse, because some of our gross exports have a lot of import content in them. I know that Statistics Canada, Global Affairs Canada and Industry Canada are, along with academic researchers, trying to grapple with and develop better ways of measuring the impact of those supply chains.
I find often, senator, that people throw out the phrase "global value chain,'' or "global supply chain'' as if it is a cure-all for something. What it really means is companies finding other places to produce some of their input, other places that do it generally cheaper. In some cases they're doing it for quality reasons, but usually they're doing it to save money.
The fact that global value chains or global supply chains have become more developed, more complicated, further reaching, if anything I think it makes these problems worse, because it makes it even harder to try and define and defend what we do in Canada as we go forward. It certainly does complicate the situation, but in some ways it could mean it's actually worse than we think it is.
The Chair: So are you suggesting that we stay with the statistical patterns we have now, or is it time to modernize? I'm hearing that phrase a lot. Our governmental systems haven't caught up with the realities out there, whether people are going offshore for cheaper labour or they're going for a certain expertise. There is a mobility both of workers and goods that we should be taking into account if we're serious about really tackling the future needs of Canada economically.
Mr. Stanford: I am a big believer in knowledge. The more knowledge and information and data that we can gather about these processes, the better the chances are that we'll make an informed decision. My only caution is simply don't assume that because of the jargon that gets thrown around, that we're somehow part of a brave world that everyone benefits from in hidden ways. There are as many hidden costs lurking in these value chains as there are hidden benefits.
I agree that we need more information on them, but it's not at all clear that that information is going to make us feel better about the situation that we're in. Quite likely, that the more we understand about it, the more we'll realize how badly Canada has fallen behind in our trade performance.
The Chair: My point was on statistics. I'm neither saying it's going to make us better or worse, but that what we want to do in research is to rely on the data that you're getting. If we're hearing that the data is not helping us, perhaps that's one of the reasons why we're not getting the policy direction that we need from our government. I'm pondering — I don't know if the rest of the committee is — whether we need recommendations so that we have an easier way to identify the true facts in Canada, and particularly regionally, so that we can do a better job at the national level of making the policies that serve our industries, workers and communities. That's where it's at. I'm not sure if global value chains are good or bad; I just know they are there and they are different than they were 40 years ago.
Mr. Stanford: We need to understand them better if we're going to make the best policies for Canada. I agree with you completely.
The Chair: Thank you for getting up at the hour that you did. Senator Johnson pointed out it wasn't such a hardship because you went surfing, et cetera. We feel somewhat guilty for dragging you out that early, but not completely, as we sit here waiting for spring. Thank you for taking the time, and certainly for contributing to the debate and providing a reflection in directions that we need to look at to keep all avenues open. This committee is looking, as you said, more broadly on trade before we come down to TPP or CETA. We want to really contribute to the dialogue in Canada about our economic future. Thank you for being with us.
(The committee adjourned).