Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 10 - Evidence - Meeting of June 9, 2016
OTTAWA, Thursday, June 9, 2016
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:32 a.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, this is the Standing Senate Committee on Foreign Affairs and International Trade.
This morning, we are authorized to examine such issues as may arise, from time to time, relating 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, as the committee knows, we have had several meetings on this topic, hearing from academics, experts, government officials and stakeholders.
During our first panel this morning, by video conference, we will have the opportunity to explore parliamentary involvement in trade policy and during trade negotiations, and we will receive a presentation from two experts — although I see three people in front of me — who recently published a paper on the role of the European Parliament in shaping the European Union's trade policy.
I'm pleased to welcome, from Brussels, Mr. Roberto Bendini, Principal Administrator at the Policy Department of the European Parliament and Ms. Marika Armanovica, Administrator at the Secretariat of the Committee on International Trade of the European Parliament.
The floor is yours. I trust you can hear us. We will work in our two official languages, and you are welcome to use either one as you wish. After your presentation, I know the senators would like to ask some questions. Welcome to the committee. Who would like to start?
Marika Armanovica, Administrator, Secretariat of the Committee on International Trade, European Parliament, as an individual: I will start. Thank you for inviting us for this study. For us, the officials in the European Parliament, it is a true honour to speak before the senators.
Our presentation today is based on a study that we conducted in 2014, and it was done for two main reasons. One is the obvious fact that the way trade policy is made in the world has changed over the past decade. It's less technocratic, and there's much more role for the Parliament to play.
The second point is that, in 2009, a new treaty, the Lisbon Treaty, which is sort of basic law of the EU, entered into force, empowering the European Parliament a lot with regard to international trade policy. That point, which was five years later than the entry into force of the Lisbon Treaty, also coincided with the end of the legislature, so it was a good moment for evaluating how the Parliament has done in international trade policy and with its new powers.
We haven't done final conclusions yet because it's been a short time, and the shaping of trade policy by the Parliament is still in the making, but we have some observations and probably even some lessons to be learned.
The new treaty has two important changes. Concerning unilateral trade legislation, the European Parliament became a co-legislator on equal footing with the EU Council, which represents the EU member states. In the case of trade, it usually represents the ministers responsible for trade policy.
At the same time, the second point was that its powers regarding trade agreements, on which we are focusing now, were enhanced. Parliament was entitled to be informed about trade negotiations on an equal footing with the other legislative branch, the EU Council.
In general, the European Parliament does have the power of consent, which is a binding yes or no vote, to trade agreements. Even before, the Parliament had the right to be informed, but now it is codified in the treaty.
Did it actually guarantee that the Parliament had greater say on trade agreements? Yes and no, because it actually depended on the way Parliament would interpret and use its new powers.
The fact is that there is still a delicate and challenging balance between the institutions. Even though we do have a common commercial policy, common customs tariff, common trade agreements and common trade instruments, it's true also that the EU is not a federation and that the EU Council represents sovereign member states. That's reflected in the EU setup, and the policy-making might not be as cohesive as in a national state.
In the end, the Parliament's role is more limited than the Council's role regarding trade negotiations. Unlike the EU Council, the Parliament doesn't have the right to issue a negotiating mandate nor to state on the negotiating mandate.
Also, the Council has a specific expert committee, which, according to the treaty, has the right to assist the executive in negotiating trade agreements. This is not something that the European Parliament has. Instead, the European Parliament has been adopting ad hoc resolutions in the beginning or in the course of the negotiations, stating its wishes and concerns, which can give an indication of whether the Parliament will or will not give its consent at the end of the negotiations. However, it still remains a limited power if you cannot influence the content of the trade agreement.
The central question here is how to use the weight of power to influence the content of international trade agreements. We have further analyzed and concluded that the Parliament has been rather resourceful and assertive in assuming its powers through interpreting the treaty and also using several instruments. I will pass the floor to Roberto, who will give concrete examples.
Roberto Bendini, Principal Administrator, Policy Department, European Parliament, as an individual: Many thanks, Marika. The second point we were analyzing in the document concerns the way we will analyze trade agreements because, as was said, before the entry into force of the Lisbon Treaty, the European Parliament had no power in scrutinizing international trade agreements that were concluded by the European Commission.
In a way, we already profited from what was done by the European Commission in terms of impact assessment or as far as international trade agreements are concerned. This is either an internal piece of analysis by the commission or external status mandated by the European Commission to a group or consortium of experts.
These studies are relatively useful but unfortunately have proven not to be always very reliable because an international trade agreement may take up to 20 years to be fully implemented into a country, and secondly, because changes in economic circumstances have proven that some predictions were not always accurate.
One example is the European Union-South Korea free trade agreement in which the increase of exports by Korean counterparts was much lower than what was expected before they entered into the agreement, and this was essentially due to the lower demand in the European Union in the first year after the entering into force of the treaty.
We were trying to analyze other elements that were important. I would say that this is a process because the commission tends to produce something that supports the opening of negotiations and is increasing the oversight and the scrutiny role of Parliament.
What we did was develop internal expertise to analyze what the commission or other sources provide to the European Parliament, and essentially whether or not they correspond to the political mandate given by the Parliament via the resolutions Ms. Armanovica mentioned before, and that they also correspond to certain elements that we believe are extremely important for international treaties.
First of all, in general terms, international trade agreements should provide a benefit to the economy of a country, or in our case, of the Union, but there are winners and losers. The point is how to analyze the winners or losers and the sectors or regions inside the European Union that may have a negative impact as far as entering into a trade agreement.
The other element for which the European Parliament plays an important role is with respect to human rights, social rights and environmental issues. This is also a point that Parliament fought to include in an evaluation by the commission. We also tend to be assertive in asking that an evaluation and a cross-evaluation is made to verify that these agreements are not being impacted in a negative way on these three elements.
I can mention, for instance, the agreement we signed with Indonesia on illegal logging and the trade agreement with Colombia and Peru where certain social rights were included to shelter some trade unionists that were having trouble in these countries. We insisted that the treaty had a positive impact from a social viewpoint.
In terms of foreign direct investments, for instance, we also had certain elements looking at social and human rights clauses to be respected.
In the short term, the impact of these evaluations has been positive. I think what is important for a Parliament is to be able to take a decision based on evidence and not based on allegations. I believe you have the same situation as in Europe, and there are a number of solicitations from civil society and from the business community.
It's also important to have elements that could enable the Parliament to take a final decision. To do that, the European Parliament has developed their own independent services, so we have a unit that is in charge of impact assessment. We have other units that monitor to ensure follow-up of decisions.
We believe it's also important that not only does the evaluation have to be made before an international trade agreement has been negotiated, it's also important that this evaluation is made after the treaty is put into force and to see to what extent the predictions made in the studies were respected.
I will be concluding shortly. I have a few recommendations that we made in a separate note that I can provide to you. I think it is important to take into consideration the role of Parliament in scrutinizing international trade agreements.
The first point is that the European Parliament should try to be more proactive in dictating the political agenda, in the sense that any international trade agreement is a large agreement, and it has choices, such as which sector you want to defend or put forward and which other sectors may be affected by the decision, so a debate on the final goal of the trade policy is very important.
It's important to verify whether this political guidance provided by the Parliament is respected by the executive bodies, in our case the European Commission. To do so, we need to invest, and this is what the Parliament is doing by creating new services.
Finally, a point that is becoming very important in Europe, but also I guess in Canada, Parliament should have a pivotal role in becoming a reference for public opinion. The public also needs to know what is going on. There are a number of discussions on big international trade agreements that are under negotiation now. On top of this evaluation process that is intended for internal use, we also developed an instrument at workshops where citizens and civil society representatives were invited to the committee and were able to have direct discussion with the committee, the commission representatives and, in some cases, with experts that were invited to testify in front of the committee on international trade.
This concludes my presentation. Thank you very much.
The Chair: Thank you. Could I have a clarification? You say human rights development and the environment are issues that you look at. The debate always is that there are some negatives on environment in most trade agreements, some positives; there are some development issues that are positive and negative. On human rights, I don't think any country can come out unscathed. We all have some shortcomings. How do you draw the line that the negatives are acceptable enough to move on with the trade agreement?
Mr. Bendini: Thank you very much. I would say this is a fundamental question. It is a sort of a conundrum in the sense that the more we insist on having these points included in international trade agreements, the less chance there is to have international trade agreements concluded quickly. So this is important.
As I said earlier, we started two years ago at this point. The Parliament insisted on having this evaluation, which, in my opinion, can be done in two ways. The first was to evaluate whether there were specific impacts on a certain sector or region. The other point was setting up institutions that could enable an evaluation or scrutiny of the agreement in between, in your case, the Government of Canada and the other counterparts which evaluated the impact of the agreement on these three markers. I must say that it is not very easy to assess them, and these elements are quite complicated.
The only example I can give to you is the one in Indonesia, illegal logging. In this case, there are very strict rules that prevent illegal loggers from exporting these logs to the European Union. It is a specific case or example where we were able to reduce the export of illegal logs from Indonesia to the EU. This was mainly by checking licences or the origin of these products shipped to Europe.
The Chair: Just to clarify that: in Indonesia, that wasn't in the trade agreements; that's the interpretation from the collective saying, "We will not license the logging.'' Am I correct?
Mr. Bendini: Yes. The purpose of the agreement was to stop deforestation in Indonesia by putting an end to illegal logging and exporting illegal logs to Europe.
The Chair: Right inside the agreement?
Mr. Bendini: Yes. This is the scope of the agreement, yes.
[Translation]
Senator Rivard: I had some questions about confidentiality as to the European negotiators, about the information conveyed to members of the commission and so forth. You provided a clear explanation in your presentation. For our part, both houses of Parliament, that is, senators and MPs, enquired about the status of negotiations while they were ongoing, primarily to find out if there were any stumbling blocks.
Québec was very involved in these negotiations, as were other provinces. It was not until end of the process that we found out that the agreements had been concluded. For this kind of negotiation, I think it is impossible to give a progress report to Canadians and to parliamentarians as to what is going well or not. So it is agreed, it is a question of confidentiality.
I have another question: would you say that the greater role played by the European Parliament led to more emphasis being placed on certain matters that are usually not part of trade negotiations? If so, can you give us a few examples?
Ms. Armanovica: I will answer in English since it is easier for the terminology.
[English]
Yes. In fact, there are two points regarding the mandate. It is the council, as I mentioned, that has ownership over the negotiating mandate, and the European Parliament has long insisted that these negotiating mandates should be open. At the same time, the Parliament accepts the idea that the negotiations need a certain level of confidentiality.
So what is happening inside the doors of the European Parliament? The European Parliament has achieved a binding agreement with the European Commission on the working methods of the commission. They include the exchange of information and also the exchange of confidential documents between the commission and the European Parliament, and there is also a separate agreement with the council.
Concerning the negotiations, the European Parliament has the right to be informed on all stages of the negotiations, according to this binding agreement with the commission, so the commission actually comes and gives members of Parliament the same information it gives to the council of the EU. That's one point.
Then in recent trade negotiations, confidentiality has become a very big issue. One of them was during the trade negotiations with the United States. After big pressure, at one point the council decided to make the negotiating mandate open.
On the other hand, the commission is already giving position papers, not only to the Parliament but to the public. So there has been an effort. After the publication of the negotiating mandate on the TTIP, the Transatlantic Trade and Investment Partnership, other agreements have followed.
But this is the decision of the council now. This is not so much in the hands of the Parliament.
[Translation]
Mr. Bendini: To complete the answer and to answer the second part of your question, this is the inter-institutional part. The part pertaining to civil society is indeed problematic for us because the agreements are very complex. They are complicated for the experts and sometimes, civil society, whether intentionally or not, mentions what is written in the agreements. Moreover, the negotiation mandate is a very short and concise document, just two or three pages, which does not really explain the objective.
The most important thing is to provide the information to Parliament and to the public, which we do. Even it is considered insufficient, significant progress has nonetheless been made compared to the past.
It would be interesting if the commission and other reliable bodies could explain the results, such as progress in the negotiations. What is missing ultimately and what we are trying to do at the end of the evaluations is to completely analyze the treaties, as concluded by the European Commission, in respect of the negotiation mandate and the objectives and resolutions of the European Parliament.
In other words, we follow the course of negotiations quite closely, as my colleague noted, and sometimes hold closed door meetings about very specific matters. Ultimately, though, what we have to evaluate and what Parliament must accept or reject are the treaties that are concluded. This requires additional effort, because these studies have hundreds of pages with many details which, in some cases, highlight the points not accepted by the commission.
Since these are international agreements, it must be said that compromises are made, so the Commission makes compromises and decides whether it can make concessions in a given area. This is quite complicated because sometimes concessions are made and the member states are not necessarily all in agreement, and the same applies for groups in civil society.
To answer the other question briefly, it must be remembered that, up until a few years ago, European Union treaties were commercial treaties pertaining almost exclusively to the free trade of goods. There were provisions relating to service, but the European Union did not have jurisdiction over direct foreign investments. We started by establishing new negotiation formats consisting of three pillars: goods, services and investments. Initially, the commission did not want to include non-commercial factors in the negotiations but, in the end, the Parliament supported this and agreed.
A number of questions have been added because the new international agreements do not pertain exclusively to tariffs. Above all, they pertain to rights under regulations and sections of laws that have to be harmonized, which raises new questions and which can call into question the role of a parliament.
In those cases, therefore, we have invested a lot in evaluating aspects of domestic policy, domestic aspects of trade policy. As we mentioned earlier, we have insisted on specific chapters, on sustainable development, for example, or the protection of human rights, to allow for follow-up. There are committees and sometimes also parliamentary bodies that evaluate agreements from a long-term perspective.
[English]
Senator Oh: Thank you, witnesses. How would you describe the relationship between the European Parliament — and by extension its Committee on International Trade — and the European Commission with regard to trade negotiation? Would you say their relationship is constructive or conflicted?
Mr. Bendini: You must consider that there are three actors in our scene. The commission has the right to negotiate international trade agreements with the mandate of the council, and Parliament can say yes or no. So in this case, the commission has the obligation of keeping good relations with the council, which represents the member states, and the Parliament.
On past occasions, we have seen that the Parliament and the council do not always share the same views. Despite the fact that our members come from the same member states represented in the council, sometimes the positions between council and Parliament are extremely different, which also makes the work of the commission complicated.
My personal recollection is that the commission needs the political support of member states, so they tend to favour a good working relationship with the council because they believe it to be more important.
On the other hand, the Parliament, after having gained the power of consent after the entry into force of the Lisbon Treaty, has shown it is not always ready to just say yes to what has been discussed and negotiated by the committee. I can give the example of the anti-counterfeiting trade agreement that was rejected by the European Parliament a few years ago.
From this viewpoint, I would say the relations between Parliament and the commission are good and are improving. The commission understood that the Parliament can also be a mindful ally in making international trade issues better understood, better accepted by the public, but they also have to accept that the Parliament has an interest that is more democratic and less technocratic than what was traditionally done by the council.
In a way, the council was acting as a group of governments, with a real focus on the economic result, while the Parliament tended to have a wider range of interests that it had taken into consideration. This, I think, is a useful dynamic. It's very important, but, again, my personal opinion is that relations between the commission and the Parliament may even increase if the role of the Parliament becomes stronger in the coming years.
Senator Poirier: Thank you for the presentation and for sharing some thoughts with us. It's greatly appreciated.
Since 2009, the European Parliament has played a bigger role when it comes to trade agreements for the region. For CETA, if I understood correctly, the commission is waiting for a response from the Justice Court, in July, to know if they have the power to ratify a free trade agreement with Singapore. Therefore, they could ratify CETA. Is that correct?
Mr. Bendini: Yes. May I perhaps make a comment on that?
I will be very candid. We believe, after the entry into force of the Lisbon Treaty, that most of the international trade agreements were becoming, let's say, an exclusive competency of the European Union, meaning that the ratification process is only done via the European Parliament and the council.
In fact, the member states tended to realize — this was well before the start of negotiations on the TTIP, but the TTIP was certainly one of the reasons why member states realized — that it's very important, that these are issues that were not so much debated in past years but now have become a really important political element in most member states.
It is a tendency by member states to insist on including elements that are not falling under the full competence of the European Union, which means that, if this is the case, agreements are no more exclusively under the competence of European Union but become mixed agreements that are supposed to be ratified also by all of the 28 member states.
This is a big problem because, as you see, there are some member states that are not very happy to ratify agreements for various reasons. So, if this point is taken into full application in the coming agreements, we may risk having a sort of blockage, a stalemate in the ratification process in the trade policy, because one member state may be enough to reject the whole negotiation. As you can see, it's a bit risky.
Senator Poirier: If the court recognizes the power of the commission and the European Parliament, in your opinion, how long do you think it would take for CETA to be ratified?
Mr. Bendini: From that point, once the legal process has been done, in theory, the ratification process can be relatively quick. I can give you the example of Korea. I think it was more or less one year for the part belonging to the European Union.
Senator Poirier: If the court does not recognize the power, what would be the next step?
Mr. Bendini: In this case, the agreement becomes a mixed agreement. We can say that it may set a precedent for future trade agreements. In this very case, what happens is the following: For all parts that belong to the full competence of the European Union, so the trade part, the council may decide to provisionally let the agreement enter into force. For all other parts of the ratification process, this is going to be submitted to all member states' parliaments for ratification, and this may take a while. But it's difficult to predict how long it may take. As I say, for Korea, the whole package was four years in total.
Senator Poirier: The recent polls have shown the leave side gaining momentum for the upcoming June 23rd referendum in Britain. Could you tell me what the effect would be on the EP if Britain leaves, and how would it affect our relationship with the EU?
Mr. Bendini: This is the million dollar question, million euro.
The Chair: If you have a crystal ball, you can answer that.
Mr. Bendini: The only thing I can say from a technical viewpoint is that, if the United Kingdom leaves the European Union, first of all, they have to apply to the WTO. They have to sign new agreements with all other countries that were once covered by the European Union because these agreements were negotiated by the European Union, not on behalf of each of the member states.
This is, from a trade viewpoint, opening an interesting perspective for the United Kingdom. There would be, let's say, probably an interesting time for them to renegotiate all of the agreements, including the one with the European Union. Because leaving the European Union would put them in a position that corresponds more or less to, let me see, maybe Russia. Certainly, there is no legal instrument between the U.K. and Europe if they leave the union.
Ms. Armanovica: At the moment, before the referendum has taken place, it's true that the institutions and officials are cautious and are avoiding any speculation about the results at the moment.
Mr. Bendini: That goes without saying. From a technical viewpoint, as I said, the U.K. should renegotiate all of the agreements on its own.
The Chair: I can assure you that you haven't fallen over into the political arena. You've given us some technical information as to if it goes ahead and if it doesn't go ahead. We appreciate that.
Senator Ataullahjan: Thank you for your presentation. I've just been reading some articles, and there's some talk and concern against unfair trading practices, especially in the food supply chain. I know that there was a resolution voted on, I think the first week of June, urging the EU Commission to put forward a proposal against unfair trade practices.
The EU already has legislation to combat unfair business-to-consumer commercial practices, but there are no EU rules to combat unfair practices between different operators in the agri-food chain. I know that some of the farmers can't compete with some of the larger food chains. I know that the rapporteur said that all players in the food supply chain should enjoy the same rights, but that's not what's happening.
Ms. Armanovica: This is a question that rather refers to the internal trade within the EU, in the single market, and we are now speaking about the Common Commercial Policy, which is the EU trade with the third countries.
Mr. Bendini: In one way, what I would say is that the question is not whether or not to impose measures on illegal food trade; the question is ensuring that all of the parties are treated in an equal way, irrespective of the source of the food. This is the question, I think. This is what we try because this was one of the elements that was enshrined into the principle of the single market, that all of the operators that are placing their products in the single market should be treated in the same way, so they should comply to the same sets of rules.
Senator Cordy: Thank you very much for your comments today and for being with us from across the ocean.
You spoke about a trade agreement that's being worked on by the commission and said that you actually would bring forward resolutions to put forward your perspectives on the trade agreement or the prospective trade agreement. Do members of your international trade committee have any dialogue or any discussions with members of the commission during the process of the negotiations of a free trade agreement?
Ms. Armanovica: Yes. There are established mechanisms for how to do it. It takes place in the regular committee meetings, when the trade commissioner comes to report, or it also can be at the director level. Often, actually, these meetings are in camera.
Another way to discuss it — it's more on a technical level — is within the monitoring groups. There are monitoring groups for the most important ongoing trade negotiations, and a meeting is called more or less after each important breakthrough negotiating round. This is the oral discussion, even after the negotiation part, when the agreement is already being implemented.
Now, there is a great focus on the implementation of trade agreements to see whether the demands of the European Parliament have been put into practice, so these monitoring groups can continue their lives after the entry into force of a trade agreement.
We are now developing something new, and there will be a first report on the implementation of a trade agreement. It will be a pilot case, notably the agreement with South Korea.
Mr. Bendini: Maybe I can add a few quick points. First of all, of course, there are also relations between the commissioners because others may have an interest on these matters, such as the commissioner of agriculture, with political groups represented in the Parliament, because, of course, the commission needs to secure certain majorities.
The current situation in the Parliament means that traditional majorities have been a little bit shattered by new groups. Finding a majority in some cases can be difficult also because the political groups within the Parliament sometimes represent very different positions from different member states and sometimes do not have exactly identical interests.
It's also important to keep this political dialogue alive and to try to put forward these matters, because in the end, the political groups dictate the line and decide whether or not to back the policy proposed by the commission.
One point to show that this result was successful, in some cases — this was never seen before — the commissioner in charge for trade decided to come and speak in front of the Committee on International Trade to announce the conclusion of agreements or some other breakthrough in the trade policies, so we really appreciate that.
Besides that, I think what is important is that, as Marika said, these meetings we have in camera with the commissioner really provide a lot of information that is not available on the public side. It's more or less the same level of information that has been transmitted to member states. For the Parliament, bearing in mind what was the situation before 2009, this is a great achievement.
Ms. Armanovica: If I could add one additional point, there is this binding agreement between the European Parliament and the commission on how exchanges take place. For example, there's even one point that says the European Commission has to take due account of the European Parliament's comments throughout the negotiations.
The Chair: We are running out of time, so Senator Johnson and Senator Ngo, please put your questions on the record and the witnesses can answer all at once.
Senator Johnson: Thank you, chair. WTO members in late 2013 signed the Agreement on Trade Facilitation. As WTO rules, the agreement will come into effect once two-thirds of the member countries have submitted their articles of acceptance, which is 108 countries. What is the current status of the ATF in the European Union?
Senator Ngo: The implementation of human rights standards and commitments is an enormous challenge, as human rights concerns continue to spread throughout trade policy. Can you explain how the EP and the European Commission have been successful in promoting these non-trade issues during trade negotiations?
Canada has just signed the CETA. What happens if the EP rejects that trade agreement? Can that agreement rejected by the EP be re-negotiated and brought back for approval?
The Chair: Senator Ngo, we covered the ground on human rights previously in the testimony, so I'm going to ask the witnesses to perhaps restrict themselves to Senator Johnson's question and Senator Ngo's second question. Our witnesses can answer quickly now, or you may wish to respond later.
Ms. Armanovica: Concerning the Trade Facilitation Agreement, sorry, we do not have details on the state of play, but we can come back to you, to our contact point.
Mr. Bendini: On CETA, first of all, I think the agreement itself was very popular. The only problem I see in ratification by the Parliament is that some parts of European civil society believes that CETA should follow the same course as the TTIP. So if the opposition to TTIP becomes stronger in Europe, that might be a possible point.
But all in all, I would say the discussions that took place in the Parliament concerning relations with Canada, both political and trade relations, are very good, and I have never seen any kind of criticism in the same way as has happened for other kinds of agreements that are under negotiation.
I would be, personally speaking, very surprised if the Parliament decides not to bestow its assent to the agreement itself.
The Chair: To our witnesses, thank you for all of the information you have given through the broad array of questions.
On the last points, if there's anything you wish to add, we certainly wouldn't mind receiving that later, or on any of the points. We may wish to call you at some point as we are studying specific trade agreements and we continue our broad study.
You have been extremely helpful on the issues that the European Union is looking at, like human rights development and climate, and how you incorporate them into the studies. Rest assured that your time has been well spent with us and we very much appreciate it.
Honourable senators, we have now convened our second panel on bilateral, regional and multilateral trade agreements: prospects for Canada, under our general mandate to study issues relating to foreign relations and international trade.
I'm very pleased to welcome to the committee representatives of Innovation, Science and Economic Development Canada, who appeared before us in April. The focus at that time was on intellectual property provisions and trade agreements. This second appearance is to have the opportunity to learn more about how other components of the department's mandate help Canadian business to benefit from international trade opportunities. I do not say that this might be the last time we will call you, but we're very pleased to have the panel back.
Today, before us, is Mr. Gerard Peets, Director General of the Manufacturing and Life Sciences Branch. Accompanying him is Ms. Colette Downie, Director General of the Automotive and Transportation Industries Branch; and Ms. Krista Campbell, Director General, Information and Communications Technologies Branch. Added to my original list is Mr. Mark Schaan, Director General, Marketplace Framework.
We have quite an array of topics and directors here. Welcome to the committee. I understand, Mr. Peets, that you will lead off. Will your presentation be the only one, or are you splitting your presentation?
Gerard Peets, Director General, Manufacturing and Life Sciences Branch, Innovation, Science and Economic Development Canada: It will be split. I'll just ask folks to introduce themselves in the course of my remarks.
The Chair: Welcome to the committee.
Mr. Peets: Thank you very much, chair and honourable senators, for this chance to talk about trade, productivity, innovation and global value chains, which is what we work on, today as it relates to international trade.
[Translation]
International trade is at the heart of the economic well-being of Canadian industry. Manufactured products represent 71 per cent of or nearly three quarters of good exported, meaning that our trade relations and competitiveness in the manufacturing sector are inextricably linked.
[English]
First, I'd like to introduce myself and my colleagues and then give you a sense of our role within the department of Innovation, Science and Economic Development, which we tend to call ISED.
My position within ISED is Director General for Manufacturing and Life Sciences. My colleagues and I work with Canadian businesses on how to develop a deep understanding of their productivity, innovation and growth challenges. We then try to provide advice to the government on policies and programs so that these businesses are ready to compete in global markets.
I'll turn to my colleagues to introduce themselves and speak to their areas of responsibility.
Colette Downie, Director General, Automotive and Transportation Industries Branch, Innovation, Science and Economic Development Canada: Good morning. I'm Colette Downie. As the chair mentioned, I am the Director General for Automotive and Transportation Industries at ISED. It's great to have the opportunity to participate this morning. Thank you.
[Translation]
My branch works in partnership with other departments, provincial governments, unions and universities to make Canada's automotive and transport industries more competitive. We provide policy advice in a range of areas, including strategies to attract investors, promote innovation, and innovation in new technologies and skills.
[English]
My branch administers two programs, in particular the Automotive Innovation Fund, which is really aimed at and used to attract large-scale R&D and assembly mandates to Canada, and the Automotive Supplier Innovation Program, which is intended to help automotive suppliers bring their R&D to commercial success.
As you can appreciate, the establishment of trade agreements is of particular importance and interest to the automotive industry in Canada. Globally, in the industry, the supply chains are highly integrated across national borders. That's particularly true in North America and particularly true for Canada where, with automotive as the second largest export industry, those exports make up 13 per cent of total merchandise exports. Over 84 per cent of Canada's automotive manufactured products of both vehicles and parts are exported, but 96 per cent of those are exported to the U.S.
[Translation]
Krista Campbell, Director General, Information and Communications Technologies Branch, Innovation, Science and Economic Development Canada: Thank you for inviting me to speak today. I am the director general of digital policy. My branch also works with a range of stakeholders such as business, provincial governments and universities to understand and support a strong digital market and a robust information technology and telecommunications technology sector.
[English]
We provide data, analysis and policy advice in a number of areas, including privacy and digital security, which are critical to ensuring confidence in online transactions; on the ICT sector itself and Canada's strengths and challenges; and on adoption of digital technologies by businesses and consumers. We examine how these issues underpin innovation in the ICT sector and across the economy.
We also deliver a couple of small programs, including Computers for Schools and the Youth Internships program, which are aimed at addressing digital divides by providing access to refurbished computers and giving interns opportunities to develop digital skills.
Trade is a cornerstone of both e-commerce and the ICT sector. The ICT sector exports reached about $19.6 billion in 2014, with software and IT services accounting for almost half of that.
[Translation]
Bilateral and multilateral agreements such as CETA and the TPP are important to give Canadian businesses the tools they need to access international markets.
[English]
ISED supports the work of Global Affairs Canada, particularly with respect to the electronic commerce provisions. These chapters contain important disciplines to address impediments faced by consumers and businesses that trade in the electronic environment, such as the protection of consumers and personal information online and the movement of information across borders.
With that, I look forward to our discussion, and I'll pass over to my colleague Mark.
Mark Schaan, Director General, Marketplace Framework Policy Branch, Strategic Policy Sector, Innovation, Science and Economic Development Canada: I am Mark Schaan, Director General for Marketplace Framework Policy at Innovation, Science and Economic Development Canada. I'm pleased to return to the committee to offer additional perspectives, as they may get raised, on marketplace framework policy issues, which may come up in our discussion today on manufacturing and technology.
Mr. Peets: With that introduction to the automotive and ICT sectors, I want to note that Canada is also home to dynamic aerospace, space, defence and marine industries. These are highly R&D-intensive, competitive industries, and Canada has world-class capabilities in a number of key niches, including simulations, small engines, landing gear and remote sensing.
Canada is host to numerous other areas of manufacturing excellence. We have diversified advanced manufacturing companies operating in Canada, like Siemens and General Electric, as well as niche and emerging industries in areas like fuel cells, advanced materials, wearable technology and many others.
We also have a thriving community of life sciences companies that build on our strong science base, including companies like Medicago in Quebec and Apotex in Toronto, and innovative and forward thinking manufacturers of medical devices and health technologies. We are leaders in the areas of clinical trials, drug manufacturing, regenerative medicine, which is technology related to stem cells, and vaccines.
I'd like to touch on some of the key issues and trends in manufacturing and how they relate to international trade. The first for me is technology.
Manufacturing is becoming more and more technologically advanced, in part through the influence of new disruptive technologies like advanced automation and robotics, artificial intelligence, additive manufacturing, or 3D printing, and smart machines. Canadian companies, to be globally competitive, need to be adopting the latest in digitally-enabled manufacturing technology.
The second major trend is innovation. It's not enough to just adopt technology; Canadians have to drive it as well. Competitive manufacturing firms are constantly innovating. They're improving products in ways that better respond to customer demands, and they're examining their manufacturing processes to make them better more reliable, less wasteful and faster. This is also partly a technology issue but it's partly a question of strategy. Successful manufacturers place innovation at the forefront, they make it a value and have systems to manage it.
The third trend that I'm going to point to is global value chains. The organization of manufacturing production has really changed fundamentally in the past few decades because production now takes place in the context of global value chains. Activities are spread around the world where it makes most sense to do them — research, prototyping, fabrication, assembly, after-market services — and they're all done where it's most competitive. Canadian businesses need to find the right niches where they can leverage their competitive advantages.
These trends are all linked and mutually reinforcing. Technology is an enabler of innovation, and innovation and technology are the table stakes to participating in global value chains.
These are areas where the government, generally, and ISED, as a portfolio, has put in place tools, programs and policies. I'd like to touch on some of them.
First we have a number of programs aimed at building innovation partnerships. These include the business-led Networks of Centres of Excellence program; the National Research Council's Industrial Research Assistance Program, or IRAP; and we have some specific bodies that focus on specific technologies, such as Sustainable Development Technology Canada, which was recently moved into the ISED portfolio, as well as Genome Canada.
Second, we have programs that support innovation in technology development with businesses themselves. The Strategic Aerospace and Defence Initiative, the technology demonstration program for aerospace, defence, space and security, the Automotive Innovation Fund and the Automotive Supplier Innovation Program, as well as the Advanced Manufacturing Fund, in southern Ontario, are all examples.
To help businesses grow and scale up, our portfolio includes the Business Development Bank of Canada, which offers financing and specialized business advisory services to growing small- and medium-sized businesses.
Looking ahead, the Minister of Innovation, Science and Economic Development has been asked as a major mandate commitment to bring forward an innovation agenda. The innovation agenda is going to come up with ways to ensure that Canadian companies and workers are at the forefront of technology and global trends. It will be partner- driven and inclusive. It will rely on collaboration amongst multiple players, and it will involve private and public partnerships, recognizing the importance, as well, of the international dimension to innovation.
There are two budget initiatives in the recent budget that I can also touch on that are directly relevant to Canada's manufacturing and technology industries, broadly defined. The first is a commitment to strengthening innovation networks and clusters to support strategic collaboration between the private sector, post-secondary institutions, governments and other stakeholders. The second is the creation of an Internet-based, Canadian cluster mapping portal to identify and build on regional strengths and support investment and collaboration.
There are a number other initiatives that are under way throughout the department.
[Translation]
In closing, I would like to return to my main message. In order to grow, Canadian businesses need be involved in trade and global value chains. Thanks to the efforts of Global Affairs Canada, our companies can access new markets in better conditions than before.
[English]
At ISED, we are working with Canadian businesses here in Canada, trying to put the pieces in place that will support our companies being competitive, being at the forefront of technology and making innovation a central part of their culture.
Thank you very much. My colleagues and I look forward to your questions.
The Chair: Just for clarification, you said that the government, in its budget, introduced two new measures in innovation. We've heard that other countries target certain industries or certain innovation strategies that benefit certain companies and businesses, and that targeting is the issue. Has Canada changed, with the new government, its perspectives in approaching industry and businesses across Canada?
Mr. Peets: That's an excellent question. I think. for starters, I can answer that, and then perhaps my colleagues will jump in.
We have excellent services and frameworks that support businesses and manufacturers across the country. I mentioned a few of the programs we have in place — the BDC, the IRAP program — that are active in every part of the country. We have tax measures such as the accelerated capital cost allowance and tariff reduction for machinery and equipment. All these things are things that benefit companies from coast to coast.
What is new in Budget 2016 is language around supporting innovation networks and clusters. Essentially, that's introducing the idea that where we have high concentrations of successful industry, those are areas where we can really look to double down, to strengthen what we have and to create better linkages within those communities. As well, we can make them centres of networks so people around the country can link in with true centres of expertise that are globally competitive.
Senator Downe: Mr. Peets, you said you provide advice to government on policies and programs so businesses are ready to compete in the global market. Can you explain that process to us? Who do you advise, and how does it get into their final policy initiatives?
Mr. Peets: I'll say two things on that. The first is that we are part of ISED, and we're all departmental officials who report to the deputy minister of Innovation, Science and Economic Development. We develop advice, then, within the context of the department, within the context of the portfolio, which has recently expanded, and then within the context of the public service as a whole. I think it's safe to say our groups are the centres of excellence for manufacturing in that internal policy discussion on the economy.
When we talk about the portfolio, the ISED portfolio now includes the regional development agencies, who all now report to the Minister of Innovation, Science and Economic Development, and they all bring that critical perspective of the regional economic context of all of the regions of Canada.
We work together with them and we try to bring that national perspective. We interface with national stakeholders like the Canadian Manufacturers & Exporters. We interface with provincial and territorial governments across the country, and we use that to develop policy advice.
Now, that advice, within the federal government, we exchange regularly with our colleagues in Global Affairs Canada. We talk about support for what is the industrial perspective on elements of the trade agenda. We interface with our colleagues at Finance Canada in advance of priority setting exercises and budgets, as well as our colleagues at Privy Council Office and with other colleagues. There are other departments that have responsibilities for agriculture, et cetera. They're all part of the economic picture, and we form a community of practice to try to give the government the best advice possible on economic policy.
Senator Downe: Thank you. I assume one of the groups is Export Development Corporation as well? Are you in touch with them?
Mr. Peets: We are in touch with Export Development Corporation from time to time in specific cases.
Ms. Downie: We work closely with them in a couple of different ways. They're on the ground, and they have many offices and officers across Canada so they're a really great source of information and intelligence on what's going on and what the trends are, say, for auto suppliers, for example, or OEMs.
They're also really good partners, so when we try to attract new investment to Canada, say new assembly investment, they've been part of the package. They have a number of financing tools and things that they can offer to potential investors in support of an investment in Canada as well.
Those are kind of the two key areas that Export Development Canada, at least, works with us on in automotive.
Senator Johnson: Good morning. We've had many witnesses talk about Canadian innovation. We still keep hearing that, despite our human capital, Canadian businesses do not innovate as much as businesses in other countries. You've talked to us this morning about how we are going to drive technology, find niches, do all these things that we should be doing to improve this. Can you tell us about this weak performance in innovation, or do you consider it a weak one? Is it attributable to corporate Canada's poor record in R&D investment?
This week, GM Canada hired a thousand engineers for automotive development. They are, I think, an exception.
Your department's priorities expect to help to improve this performance in Canada in innovation. How will they do this as we are essentially developing a 21st century industrial strategy, and are we doing so?
Mr. Peets: Again, I'll start and perhaps allow my colleagues to jump in.
First, my job lets me basically interface with Canadian manufacturers and technology companies across the country. It's an incredible job. It's fantastic to see the kind of innovation and the kind of business leaders that we have in this country, so when we talk about our innovation challenge, I'm definitely convinced that, certainly, if we have a problem, it's not in the people.
I think one of the things that we are seeing — and the Council of Canadian Academies did some work on this — is that our firms that are having trouble scaling up are having trouble reaching that phase where they can really become highly productive innovators. We know, statistically, that firms that have reached scale have more resources, they've developed systems to manage innovation, and they get better results out of their R&D. I think that that scale-up piece is very key.
The last comment that I'll make is that the linkage to global markets through global value chains is really that connection. There are great people who come out of, say, universities or accelerators and incubators or start-ups who go through a process of scaling up and learning how to manufacture. One of the ways you do that is by going through the hard process of learning how to do business with a global company. You have to have the right technology. You have to have the right systems. You have to have the ability to produce reliably and the ability to produce on time. All of these things are learned, and they're things that are learned by interacting with companies that are already established and globally competitive.
Senator Johnson: I'm really concerned about our young entrepreneurs in this sector and others in Canada. I don't feel we give them enough support in terms of developing, whether it's R&D or other kinds of businesses. Can you comment on that, please? I think it's the key to the future, of course, what they're trying to do, but I don't find that we're giving them a lot of support that they need to be competitive and even financing what they want to do.
Mr. Peets: I'm monopolizing. Would you like to speak?
Ms. Campbell: Thank you. Yes, it is a perennial issue that we're struggling with. For the ICT sector in particular, it is a very R&D-intensive sector, with a significant footprint. The R&D work done by the ICT sector defines its very role here in Canada.
We would say it needs three inputs. Gerard had spoken to the idea of the growth of companies being critically important. For the ICT sector, for example, we have a significant number of micro firms, firms of one to four people, and the stereotype is a couple of hackers in a garage somewhere. That's a very challenging firm. They have a great idea, and, especially if it's something like software or an ICT-related service, those can be traded relatively easily because you don't need to get a widget into another country. You can be disseminating things, often, electronically. The mechanisms are there. It's the pathways to understand how to actually find a consumer that's of interest in another country, especially a very foreign country — most of our firms, if they do export, tend to just go to the U.S — so encouraging them to go further afield.
I would say a couple of things that we've seen as challenges and are struggling with are on the talent side, specifically for C-suite talent, the CEO, the CTO, the CIO, finding those individuals who have 10 years' worth of experience, have helped a company grow, have developed an international trade strategy and have done it all before and can bring those young entrepreneurs on board who might be really good at the technical, "I've developed this widget, and I'm great with the coding and software, but I have no idea how to start with going to India.'' How do you find and grow that C- suite talent. It's a pressure for us.
You had raised the idea of capital. I think the government has invested a significant amount in venture capital in the last couple of years. The programs have been quite successful. The trends show that venture capital is back at about where it was at its peak in 2002. The ICT sector, in particular, tends to get about half of the VC. There's money flowing. There are still gaps in that entire chain, but the money is starting to flow to help some of those entrepreneurs get their ideas out of the garage and into somebody's production chain.
Senator Johnson: Our universities, like Waterloo and others, of course, are factories we need, producing these people that are doing this. How do you think they're doing now on a global scale?
Ms. Campbell: There are some incredibly impressive initiatives. Waterloo and their co-op program is world renowned, and graduates from there are able to find jobs anywhere in the world. How do we encourage more of those types of factories for plug-and-play, ready-to-go students?
The other thing that's happening — and this is with Wilfrid Laurier University — is that Mihal Lazaridis, one of the co-founders of BlackBerry, RIM, has endowed a new faculty to start to work on that C-suite issue, getting people who have been out working for a while to come back and do some kind of executive training program so that they are more ready and enabled to help those smaller entrepreneurs, but not taking the individual that has just graduated from their MBA or whatever. They want somebody who has a bit of experience.
We're starting to see some of the efforts of the senior statesmen in an ICT sector coming back and saying, "This is how I can contribute,'' and government has a role in helping to promote and support those kinds of initiatives.
Senator Johnson: That's excellent. You know we're doing really well in video game making, right?
Ms. Campbell: We're the third largest in the world.
Senator Johnson: It's incredible. It's a huge industry going forward.
Ms. Campbell: Yes. All based on talent.
Senator Johnson: Thank you so much.
Senator Cordy: Thank you very much. I didn't know that about the video games. It's nice to learn new things every time.
Ms. Campbell and Ms. Downie, you both spoke about working with various stakeholders, and you mentioned specifically the provinces. I'm just curious: What type of relationship do you have with the provinces? Is it regular consultation to discuss upcoming policies, or is it just consultation on a needs basis, when a problem occurs?
Ms. Campbell: We have informal mechanisms to discuss with provinces some of their initiatives. After budgets, for example, we'll look for an update. If they are providing funding for a new initiative, similarly, we provide information on some of our initiatives, especially if there's overlap.
I would say my most regular contact with provinces would be more on policy files, such as privacy, that there is an interoperable privacy regime with federal legislation and provincial legislation and ensuring that there's a good understanding of where one starts and one stops. Businesses want certainty in how they would treat personal information or data in a commercial transaction, for example. So trying to ensure that we have regular, open communications on some of these policy initiatives so that Canada is able to speak with one voice and that there's clarity for businesses in what they need to do.
Senator Cordy: Is it a two-way street? Do the provinces also get in touch with you?
Ms. Campbell: Yes, the provinces would get in touch with us, and, for something like privacy legislation, there's actually a formal mechanism. If they want to have their privacy legislation deemed substantially similar to federal legislation, those kinds of processes have a very rigorous, well-documented process behind them. Others are very informal conversations. For example, maybe there's an event at the OECD coming up, and we want to ensure that we've discussed and that provinces are aware. Those can be more informal and two-way for sure.
Senator Cordy: Mr. Peets, I was surprised when you said that Canada was a leader in the area of clinical trials. I was on another committee that studied pharmaceuticals a couple of years ago. We heard that the number of clinical trials in Canada had dropped dramatically. Has that changed?
Mr. Peets: Canada's strength in clinical trials relates to the robustness of our health system, the fact that our population is diverse and reflects the global population, and the fact that we have science expertise and key opinion leaders who are incredibly valuable to the global pharma industry.
There has been a lot of great collaboration between industry, governments and other actors within the system to put in place things like a clinical trials asset map. Certain companies, including Roche, have established major mandates for their clinical trial work here in Canada.
There's always more to be done. As part of Canada's investment proposal to global pharma companies, we'd love to see more of that kind of business in Canada.
Senator Cordy: But the numbers have dropped, haven't they?
Mr. Schaan: It depends on the phase of trial. There has been some decline in overall numbers of clinical trials being pursued. We're still a leader in areas like phase I trials. We're very early adopters and very easy for companies to be able to enter.
Mr. Peets pointed to some important points about the ways in which the turn is shifting. The reduction in the Canadian dollar has made Canada increasingly attractive, and partnership opportunities have been provided where companies can gain earlier access and understand what assets we have in our health facilities, which has started to help to stay that decline and ensure that Canada can take comparative advantage where it has clear strengths.
Senator Cordy: One thing we kept hearing was that we had to have a better environment for encouraging clinical trials within Canada.
Senator Ngo: Canada has bilateral and multilateral trade agreements. There's CETA and an agreement with South Korea, and there's the TPP negotiations. Do you have any role in these negotiations? If so, what kind of role do you play?
Mr. Peets: I'll start by going back. When Mr. Schaan was here before, he discussed a little from the intellectual property side. In terms of its responsibility for advising the minister for implementing those things, our department has a significant role in those areas, as well as in other areas of marketplace frameworks.
Global Affairs Canada has excellent mechanisms for talking with and understanding industry and what they want from trade agreements and what their interests are. We support that. Also, we have channels with the same groups of companies and industries. We engage in discussions to try to support an understanding of the potential impacts of trade agreements on Canada's businesses.
Ms. Downie: On automotive, to give an example, as trade agreements are progressing, we would be working with Global Affairs to make sure they were hearing representative views across the industry — they have a complete list of folks that they're consulting with — to ensure that the right issues are coming out as they're consulting. We're kind of there as a bit of a facilitator often.
As Mr. Peets mentioned, we're there as centres of expertise and excellence on particular agreements and their impacts on firms. We provide data and our own advice to ministers about what we think the impacts could be so that it's all taken into account by the government when it makes its decision on how it's going to conclude negotiations and then whether it will enter into a final agreement.
Senator Ngo: You mentioned automotive. I've heard that in terms of the trade deal with South Korea, the auto industry in Canada complained a lot about that trade agreement. You said you would provide input and data. Did you consider the complaints from the auto industry in Canada?
Ms. Downie: Absolutely we were there and active, making sure that the government was fully aware of industry's views and the details of those views. Just like every other trade agreement, we were making sure those were fully understood by the government.
Senator Ngo: How about intellectual property and the TPP? What do you do?
Mr. Schaan: With respect to intellectual property provisions and trade agreements, they're obviously often one of the more contentious issues because with intellectual property there are folks who have varied views as to its role in trade.
Our goal and role in the negotiations was, as my colleagues have indicated, to ensure that the government had a robust understanding of how stakeholders would perceive the projected rules and that we ensure we have a strong understanding of its impacts on Canadian industry. Where necessary, we advised on mechanisms by which to potentially mitigate any particular challenge that a trade agreement would provide.
In a number of instances, we've actually been able to ensure that trade agreements have reflected Canadian nuance, whether it's the continued maintenance of our notice provisions in copyright or the generic export exemptions in pharmaceuticals with respect to the Canadian-European Union Trade Agreements.
Our role in negotiations is a robust one, working closely with our Global Affairs colleagues while ensuring there's a real understanding of the industrial dimensions.
[Translation]
Senator Rivard: I would like to thank the witnesses, as you have answered most of my questions, including those pertaining to free trade consultations. I would like to return to a point that I have discussed with other witnesses over the months: the impact of interprovincial trade barriers and the extent to which those barriers can hurt businesses that want better access to international markets. At the same time, I remember that, a few months ago, when James Moore was the minister, he had promised to resolve this. I understand though that this falls under provincial jurisdiction and that the provinces will have to agree to remove the barriers.
First, do you think this is a problem and, secondly, could the minister of trade or some other federal minister require the provinces to remove the interprovincial barriers?
[English]
Mr. Peets: Perhaps I'll begin by saying that barriers to interprovincial trade are certainly raised by companies, often in very specialized contexts related to the movement of specifically qualified people across provincial boundaries or in relation to specific laws that prevent the movement of a particular kind of good across provincial boundaries. We continue to work very hard as a department with the provinces to advance this issue. I'm going to look to my colleague to give an update on that.
Mr. Schaan: It's important to note that this government has been seized by the challenges with respect to internal trade. As you indicated, it's important for our companies to have not only access to export markets but also to internal markets. Towards that end, the negotiations with the provinces on the Agreement on Internal Trade continue to advance. I believe that important progress has been made. We allow those negotiations to continue with the hope of real progress to ensure that Canadian companies have access not only to those markets in foreign jurisdictions but also to the free flow of goods, people, talent and excellence across the large country we have in Canada.
The Chair: I want to thank you for coming before the committee. As we reach out to the public, we trust that these hearings on a broader trade issue elicit more responses to us so that we can make the kinds of recommendations to the government that Parliament is required to. We trust that you will get more inquiries and Canadians reaching out to you for assistance. It's incredibly important that Canada continue to be competitive.
It's also important that our younger people stay here and see the opportunities that we have, but they can't do it alone. We have to provide a supportive environment, so the question we need to answer is: Where do we point the government in assisting the new ventures that may be on the road? We haven't had time to explore everything. It's not a threat; it's an invitation for you to come back as we continue our studies.
Thank you very much.
(The committee adjourned.)