Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade

Issue 4 - Evidence - Meeting of February 13, 2008


OTTAWA, Wednesday, February 13, 2008

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:05 p.m. to examine such issues as may arise from time to time relating to Foreign relations generally.

Senator Peter A. Stollery (Deputy Chair) in the chair.

[English]

The Deputy Chair: Honourable senators, I see a quorum. There is an important committee meeting taking place, and Senator Di Nino asked me to chair this meeting as the deputy chair of the committee.

I would like to welcome everyone to this meeting of the Standing Senate Committee on Foreign Affairs and International Trade. This committee is currently examining the emerging economic influence of China, India and Russia, and Canada's policy response.

I caught our committee this morning on television. Normally, we have a reference that specifically directs us to conduct investigations. At this point — and I would like to make that clear — we are working on our reference. However, in the meantime, we are asking questions about the subject that I have just outlined, which is Canada's policy toward the emerging influence of China, India, and Russia. The emerging Asian century has been described to the committee as the most important event of the last many years, and it is something that this committee believes that Canada should engage strongly with.

I would like to introduce our guests. Appearing before the committee we have Mr. Stewart Beck, Assistant Deputy Minister, Investment, Innovation and Sectors. With him, we have Mr. Robert Ready, Director, Investment Trade Policy Division; and Mr. Robert Clark, Director General, Economic Policy Analysis and Consultations Bureau.

[Translation]

Welcome to the Senate. I invite Mr. Beck to make some brief opening remarks, after which we will go to questions and answers.

[English]

Mr. Beck, if you would like to lead off. We have been somewhat broad in our questioning over the last few weeks, because it is a very broad subject, as you know, and we are now focusing in.

Stewart Beck, Assistant Deputy Minister, Investment, Innovation and Sectors, Foreign Affairs and International Trade Canada: Thank you very much. Good afternoon. I would like to introduce a few other people who are with us today, who will speak if we get into some specifics on the various countries that you discussed.

We have Richard Bale, the director for North Asia division on the trade side; Audri Mukhopadhyay, the director for South Asia, which would include India; and Louis Marcotte, the director for Europe, which would include Russia.

If we get into some specific questions, we can lean on them to give you some ideas of what we are doing from a trade perspective there.

I am pleased to be with you today to discuss the government's Global Commerce Strategy — which will include issues we will be discussing — which is a strategic framework for enhancing Canada's international competitiveness in today's integrated global economy.

As you know, the Government of Canada has set Afghanistan, the United States and the Americas, and emerging markets, such as China and India, as key to its foreign policy and international trade agenda.

Furthermore, committee members will recall that in 2006, the government launched a strategic, long-term economic plan called Advantage Canada. Advantage Canada outlines a blueprint for achieving economic growth by creating Canadian competitive advantages that will boost our productivity growth and equip us to succeed in the changing global economy. The Global Commerce Strategy, led by the Minister of International Trade, Mr. Emerson, with the close cooperation and support of other departments and agencies, forms the international component of the Advantage Canada framework and plan. The shared aim is to build domestic and international competitive strengths that are mutually supportive and complementary.

In the new global economy, businesses compete with businesses and governments compete with governments to create conditions that will help their private sectors to invest, innovate and succeed globally. The direction and coherence provided by the Advantage Canada and Global Commerce Strategy policy frameworks aim to position Canada to meet these competitive realities.

[Translation]

The Global Commerce Strategy has three strategic priorities and an action plan that calls for the following: making Canada a preferred partner in global affairs by leveraging and building on Canada's North American advantage; deepening Canadian access to global markets, capital, technologies and knowledge; and better connecting Canadian companies to global opportunities by re-aligning Canada's international commercial network around the needs of modern, internationally engaged business.

[English]

Budget 2007 provided $60 million spread over the current and next fiscal year for the implementation of the Global Commerce Strategy.

We talked about the three pillars: first, to reinforce Canada's North American advantage by facilitating greater exchanges of foreign direct investment, innovation and talent between Canada and the rest of the world.

This will be achieved through a variety of initiatives that focus on proactively reaching out to potential investment and innovation players — particularly those in the United States — to deliver strong commercially relevant messages tailored to those players' specific commercial needs and interests. These initiatives include the Investment Champions Program; aftercare services, which I can describe if you would like; Global Value Chain initiatives; Innovation Missions; the enhancement of the Going Global Science and Technology Program, which is a program that will allow people in the science and technology space to get together in a workshop environment; and the launch of Edu-Canada to promote Canada to international students.

The second pillar is to deepen Canadian access to global markets and networks through a renewed international negotiations agenda.

To address this, the government is making strategic use of the entire suite of international policy tools including free trade agreements; Foreign Investment Promotion and Protection Agreements, FIPAs — this is something that Mr. Ready is negotiating with China as we speak — science and technology cooperation agreements; air services agreements; double taxation agreements and regulatory alignment and cooperation, which also includes Export Development Canada and the Canadian Commercial Corporation; all these to secure competitive terms of access for Canadian businesses and investors.

On the margins of the World Economic Forum in Davos in January of this year, Canada signed a free trade agreement with the European Free Trade Association, EFTA, and announced that negotiations had concluded on an free trade agreement, FTA, with Peru.

These are the first new agreements to be concluded in more than half a decade. Negotiations are underway with South Korea; Singapore; the Dominican Republic; Colombia; the Caribbean Community and Common Market, CARICOM; and the Central American Four countries, CA4 — El Salvador, Guatemala, Honduras and Nicaragua — and we plan to launch FTA negotiations with Jordan in 2008.

Canada has concluded FIPA negotiations with Peru — which has entered into force — India and Jordan, and we are negotiating with China and Kuwait. Negotiations will begin shortly with Tanzania, Vietnam, Indonesia, Mongolia and Madagascar. Exploratory discussions are underway with a number of countries in Asia and Africa, including Malaysia and Kazakhstan, and we are in discussions with Russia on possibly upgrading the existing Canada-Russia FIPA. Negotiations to update the existing FIPAs with six EU countries that have recently acceded have all concluded, except with Hungary.

There are Science and Technology Agreements, S&T, now in place with India and China, and we have recently launched discussions with Brazil. Since January 2007, Canada has negotiated or updated Air Services Agreements with 9 countries and launched negotiations with the European Union and its member states, which, when concluded, will open a 27-country market.

The third pillar is connecting Canadian companies to global opportunities. This includes expanding the Trade Commissioner Service and ensuring that we are equipped to support Canadian businesses where, when, and how they need to achieve global commercial success. There will be a greater overall emphasis on promoting two-way flows of investment and technology, a continued focus on the U.S. and an enhanced presence in rapidly expanding markets such as China, India and Brazil. We have already reallocated some of our existing positions abroad to emerging markets, such as China and India, to take advantage of business opportunities in these regions.

Working closely with a number of Canadian partners, client groups and stakeholders, we are developing market plans that specifically identify priority sectors and opportunities based on Canadian company capabilities and interests in different parts of the world. These market plans will integrate all components of international commerce and will be continuously adjusted to ensure that they keep pace with new commercial developments. Market plans for the United States, Mexico, India, China, Brazil and Europe have all been completed, with Latin America and the Caribbean, Russia, Japan, South Korea, Australia-New Zealand, the Association of Southeast Asian Nations, or ASEAN, and the Gulf Cooperation Council slated for completion by March 31, 2008.

The Canada-based global commerce network of regional offices will be expanded and strengthened to ensure that, as a frequent point of first contact for Canadian businesses, they are able to respond to the myriad needs of our Canadian companies. Information sharing and cooperation between the regional offices and other federal agencies, such as Export Development Canada and the Canadian Commercial Corporation will help us maximize our value to Canadian enterprises.

[Translation]

That concludes my overview of Foreign Affairs and International Trade's Global Commerce Strategy. The GCS is an ambitious program designed to help Canadian companies meet the ever-changing challenges of today's global markets.

Thank you for inviting me here. I look forward to our discussion.

[English]

The Deputy Chair: For the benefit of the public who may be watching this meeting, to quote one of our witnesses, we are talking about the fact that the changes that are taking place are the equivalent of what happened in Britain in the 1800s and in the United States at the end of the 19th century and into the first war, to put it in historical terms. The suggestion of one of our excellent witnesses was that we are dealing with something much bigger, and for a historical analogy we need to look at another great power, the United States, about 100 years ago when it became the shop floor of the world.

If there is a change in the financial architecture, which there is bound to be, will Canada be a member of the G8? Will we actually qualify?

Mr. Beck: I believe we would, because at our level of development, we are at least equal with the other members of the G8 still.

The Deputy Chair: It is not lost on members of the committee that Australia, for example, which is no closer to China than Canada, seems to have geared itself more effectively than Canada to what they see as their markets in China. This is happening now. When it finishes, will we qualify as a major industrial power?

Mr. Beck: There are some important issues that we must address in the short term in order for us to maintain the competitiveness and productivity to allow us to stay in that club. We have to work hard at it. One reason we have the Global Commerce Strategy is to begin to bring Canadians into a much more competitive position so that we can be there 10 or 15 years from now. You are right that it will be difficult for us to stay in that class, particularly since, as was recently indicated in the press, China will probably surpass us as a leading exporter to the United States. We have to be well aware of our competition. As I said in my opening remarks, it is governments against governments in this context, and we have to be prepared to meet that challenge.

Senator Corbin: I believe the debate is still ongoing about the ultimate real value of all these trade negotiations with various countries. The United States is very much engaged in it, as is the European Union. Canada is awakening to this. I believe that is what the debate is all about. What net positive advantage will we get out of an agreement with South Korea or India when they have separate agreements with the United States, Germany, or whatever nation you wish to pick? It may build up into some sophistication, but, in the end, we are still competing against each other. India may give trading advantages in some of its produce with the U.S. and vice versa, which it would not grant Canada, and so on. We can multiply that ad infinitum.

I am not convinced that this drum beat of getting as many trade agreements as we can will be a net gain in terms of our exports or imports. You would have to convince me of that.

Mr. Beck: If the world were a perfect place, we would wish the World Trade Organization, WTO, would come to some sort of resolution, and we would have our level playing field and would be able to move forward with other countries on the same basis. We are hopeful that something will conclude with the Doha Round. It does not seem to be on the imminent horizon. We will be at a disadvantage if South Korea negotiates an agreement with the U.S. We want to be able to say that we have the same sort of access to the South Korean market that the Americans have.

Senator Corbin: Is that what you are asking for?

Mr. Beck: We are trying to negotiate a level playing field so that if the Americans have access in certain areas, then we have that same sort of access so we do not have a disadvantage in terms of our companies versus American companies; and the same would be true in other marketplaces. Look at Colombia, for example; not having the type of agreement with Colombia will disadvantage certain types of companies in Canada.

I work closely with the minister on his small- and medium-sized enterprises, SME, advisory board. One of his members is a fairly large pulse company from Saskatchewan. For them, the fact that the U.S. has an advantage going in to Colombia, a 15 per cent tariff differential, has an impact. They have to think about how to compete in that context. It used to be a large market for them. Now they do not have the same access that American companies have at that rate. It is important for us to be able to measure ourselves against the competition. If we will not have the WTO, we have to think about other ways to arrive at the level playing field. It is important for us to have those bilateral agreements in place, particularly in markets that are important to us.

Senator Smith: On the Korea situation, I know the views of the Canadian Auto Workers, and I do not always agree with them, but last time I heard, Hyundai and Kia had not invested anything here in plants, whereas Toyota and Honda have. Why would we let them come in and sell cars at $6,000 a vehicle less than they are selling them now and further erode and shrink the Canadian auto market, when getting any of our produced stuff over there is mission impossible? Why would we do that? What is the quid pro quo?

Robert Ready, Director, Investment Trade Policy Division, Foreign Affairs and International Trade Canada: I believe speak for Stewart Beck as well. The autos issue in the Canada-Korea negotiation is complex. Unfortunately, I do not believe we have a representative from the department here today who is in a position to give you the type of detailed answer that you are looking for. We would have to undertake to get back to you. It is a complex issue.

Mr. Smith: The Canadian auto industry is hurting badly right now. I remember Mr. Pattison, who owns dealerships for virtually every manufacturer, saying that, dollar for dollar, we cannot beat Hyundai. If they are suddenly selling them for $6,000 less than they are now, the Canadian industry would take an even bigger pounding. I have been to Korea a dozen times. It is inconceivable to me what the quid pro quo is.

Mr. Beck: A broad range of sectors are under consideration, and certainly the automotive one is a very important sector to Canada. Our chief negotiator is very aware of the sensitivities around the sector. We are now into the thirteenth or fourteen round of negotiations. This is a very complicated process, and one in which we are very sensitive to the issues of keen interest to Canadians.

If you want to get into the specifics of the negotiation and what is involved, I would perhaps encourage you to discuss that with the people who work with it more closely.

Mr. Smith: That one seems more like a fundamental as opposed to detailed specific.

[Translation]

Senator Dawson: It is a lost cause, as far Canada's shipbuilding industry is concerned. The industry was beginning to see a modest recovery in the face of competition from Korea.

As the Deputy Chairman said at the start of the meeting, we are looking to target and prioritize our efforts. We cannot be everywhere. We are looking at Asia, Russia and India and we are asking ourselves where we can help the government to simplify relations and communications. One of the roles of Senate committees is to initiate debate and to make issues interesting. Certainly, in a minority government situation, interest in foreign affairs wanes somewhat. Over the course of the next few weeks, we want to look at ways of prioritizing aid. You have a budget envelope of $60 million. How is spending allocated between China, Russia, India and other countries? What can we do to help you?

Several Team Canada missions have been organized in the past. The government targeted certain countries, the same countries to a certain extent, and took some concrete initiatives. As a committee, how can we, through the testimony presented to us, help you target those countries in which you wish to invest?

If I understand correctly, China accounts for 2 per cent of our exports, and India, for 0.5 per cent. We want to see how we should be setting our priorities.

I am member of the Standing Senate Committee on Transport and Communications. Last week, we travelled to Prince-Rupert. The level of development is phenomenal, the goal being to boost imports to North America. Perhaps the flow is a little too much toward the United States than it is toward Canada. What type of transportation infrastructure initiatives are required to boost our exports and increase our global market share?

Last week, the committee travelled to Halifax, which is increasingly become the gateway to India. What can we do together to prioritize governments' efforts over the next few years to capture a bigger share of this market and ensure that containers arriving from Asia and India do not leave empty, but rather full of goods for export?

Mr. Beck: I will start by answering the first question about targeting the Indian and Chinese markets.

[English]

Money in the Global Commerce Strategy will go to expanding our representation in both those marketplaces. We have already gone through the process of realignment or reallocation from Europe and other markets to China and India to bolster our representation there. Part of it is being able to create the contact that is necessary to build the business.

We have solid representation. I was consul general in Shanghai, so I have an understanding of the market in China. Before that, I was in Taiwan. Both markets are important to us. From my perspective, where do we add true value in this process? We will be selling commodity-based products. We were selling them, are selling them now and will sell them into the future. How Canada, as a country, builds its knowledge-based industries and uses those as we go into those important marketplaces is key. We do that by expanding our representation in growing markets. When I was in Taiwan and Shanghai, the eastern seaboard of China was growing rapidly; the Pearl River Delta, the Yangtze River Delta and Qingdao, right up to places north. The Chinese realize that it gets more and more expensive. Therefore, just as Taiwan realized that 10 years ago and started moving their manufacturing, operations and their wealth-generating capacity to the mainland, the Chinese government has built phenomenal infrastructure to take manufacturing and business into the interior of China. We need to have representation in other parts of China so that we can grow that envelope.

The same is true in India. We know that just by the news that it is not just New Delhi and Mumbai anymore. Other parts of India are growing rapidly. It is about having representation and making those introductions and those business contacts.

When I started as a trade commissioner 25 years ago, our job was to help companies sell their products. We looked for reps and distributors; we were out there trying to make the contact on that basis. Now, we are trying to introduce the global opportunity to Canadian companies. It is more than just selling our product. It is how we insert ourselves into the global value chain. We may have to invest in a manufacturing facility in China so that our product comes back to Canada at a cheaper price, is integrated here and then sold to other markets around the world. We have to be able to deal with companies and explain to them why it is important for them to look at a particular manufacturer in Hangzhou, which is two hours from Shanghai. They have products and the quality so that we can compete globally. Having that representation, we are changing our mindset away from just being a facilitator of export contact to becoming now a facilitator, an intermediary, in the process of building our business and understanding our global opportunity.

In my job, I am quite fortunate, I handle investment and innovation. Many companies, to be competitive, have to know and understand what technology is out there that they can licence and incorporate into their product to help them sell.

We are moving and changing as an organization from strictly helping companies sell their products to helping companies grow in a global environment. In China and India, we are expanding representation so that we can do that in a larger area.

On the question of the Asia Pacific Gateway, I am responsible for that in our department. We have money to promote the gateway in international marketplaces. That is our value added. We are the ones that will introduce the gateway to potential clients outside of Asia. I am very familiar with the Asia Pacific Gateway and becoming more familiar with the Atlantic Gateway. When we talk about back-haul opportunities — taking containers back to Asia or to India — this is one area we will be working on because we will be developing a variety of different economic, for want of a better word, business cases so that people understand that there are opportunities.

I will give you an example. Consider the wood pellet industry in Canada. There is a tremendous amount of forest that has been affected by the Asian longhorn beetle. At Ridley Terminals Inc. in the Port of Prince Rupert, B.C., there is a wood pellet facility. If we think a little differently, we fill containers with wood pellets and ship those containers to Southern China. Wood pellets can be used in coal-fired electrical generating plants. Maybe this is one way we could substitute. That is part of what we are doing in my area. What are ways that we can create wealth around the gateway? We think of different ways to approach it.

Yes, it is thinking outside the box. Maybe one has to examine the economics around putting wood pellets in containers. The advantage of having Prince Rupert is that the containers come off the ship, are put on the railcars, and then they go straight to Chicago. It is not in the economic interest of the rail line to stop. If we come up with an economic reason why at some place in that process — maybe at Prince George or in Alberta or Saskatchewan — there is a reason for them to stop or slow down and not dwell for a long period of time, we can build some wealth around that. That is what we are trying to do. We are focused on it. It is a very good question.

Senator Dawson: You talked about the changing environment. Our commercial representatives abroad have been used to working business-to-business. With our representatives in the United States, governments do not have to get involved; we represent Canadian businesses and have officials there. As you know, in Asia and Russia, it means government partnership. We need a different type of relationship or activity from our commercial people. I am not sure that we have necessarily adapted our system to recognizing that. Whether or not it is wood pellets, whoever is doing it will have to deal somewhere in the chain with the provincial government of that state or with someone who is buying, but it will not be a traditional private business that is just buying pellets. They will get something in exchange.

How we are changing the role of our commercial representatives to recognize that they are not just helping two businesses get together but having one business get together with a government and a business somewhere in Asia?

Mr. Beck: In certain places in Asia, it works easier than others in terms of the government-to-government relationship. Certainly in China, from my own experience, being a centrally planned economy, for want of a better way to describe it, the government plays a bigger role. Whether it is the city of Shanghai, which has provincial status within the central government, or whether it is a city in the province, having the title of a trade commissioner, a diplomat working for the Canadian government, gives us the entree at the level we want to succeed.

In China, the private sector now has grown astronomically. One does not necessarily have to be a government employee to realize the economic opportunity that exists in a particular city. I spent the first half of my career in the United States. It did not mean anything to anyone that I was the vice-consul. However, I could come with a good business proposition. If you are Apple Computer, why would you want to come to Canada and set up an investment fund to build software development? As long as you had a good business case they would listen to you. It helped to a degree to be able to say that I represent the Canadian government, but at the end of the day I had to have a good business case.

The same situation is true in China. With the businesses that are there now, a good business case is what they are looking for. The diplomatic designation helps with the provincial and central governments, which make many of the decisions. The same is true in India. There are countries where the diplomatic designation does make a difference, so we have to maintain that. However, at the same time, the people out there working have to understand what is important to sell to business, and businesses have to understand.

The Deputy Chair: We had discussed this amongst ourselves. Senator Dawson has been on a committee looking at what is happening in Prince Rupert. I saw a map yesterday in The Globe and Mail, in the business section, about our facilities for transporting all this stuff. I also read an article on Sunday in the Financial Times about Australia's facilities for export. I believe it was coal and iron to China. We are competing, after all, and so are the Russians, for this market.

I have not looked at the number. I do know we had testimony here where someone said that there are 20 million 40- foot containers, or 40 million 20-foot containers.

I looked at the map. Modernization of the Port of Prince Rupert has been going on, and people have been talking about it since the grain terminal. Have we really kept up in all of this? Vancouver looks not much different to me now from the last time.

Mr. Beck: We have added quite a bit of capacity in Prince Rupert recently.

The Deputy Chair: What about compared to Australia?

Mr. Beck: It would be difficult for me to say. Without the numbers in front of me, I would not want to say how we would compare. It is fair to say, and I am sure you have heard our minister say this — he says it quite frequently — that for us to be globally competitive, we have to have the necessary infrastructure around that to be successful. That means having the ports. Quite frankly, the ports and container ports are important but so is also having the airports and the throughput of people to be competitive globally. Our many upgrades on air agreements and the ones that we are negotiating are fundamental to our success in a global environment.

We have done a tremendous amount in the last two years upgrading the infrastructure and adding infrastructure on the port side. It will only assist us as we go forward into expanding our global presence in that area.

Again, without knowing exactly what Australia has, it is hard to say how we compare. I am quite confident that we are adding good capacity, and we should hope that it grows in the next little while.

[Translation]

Senator Nolin: Thank you for accepting our invitation to join us here.

No doubt when we take a closer look at our history, we quickly see that international trade has played a major role in the evolution of our ability to adapt. This country was created because collectively, we needed to engage in trade. We adapted to the changing trade environment on the continent and in Europe.

We succeeded in overcoming the challenges in our path. I think we can feel confident that we have succeeded in this endeavour.

I have been listening to your comments and I have come to the conclusion that we now have new challenges to overcome.

In your opening remarks, Mr. Beck, you spoke of national challenges. There are activities that must be mastered here in Canada before full advantage can be taken of your strategy.

My first question may be very complex and very broad — and, Mr. Chairman, with your permission, the witnesses could provide us with a more detailed written answer if they prefer: What exactly are these national challenges that you alluded to in your opening remarks? I believe you mentioned ``improving productivity.'' Could you elaborate on that for us?

[English]

Mr. Beck: This is a very good question. It is a timely question.

Senator Nolin: That is why I am inviting you to send us something in writing if you want.

Mr. Beck: We can provide you something in writing that will give you a bit more.

Senator Nolin: Please, just to set the base. It is all good to have all those strategies outside. What should we do from within to have full access and enjoy those strategies?

Mr. Beck: I will talk a little about my world because there are many different factors that impinge on this, and it cuts across a number of government departments. First and foremost, we have to look at the productivity gap that we have with the United States. We have to ask ourselves how to address that as we go forward.

The fact that we have invested as much money as we have over the last 10 years in research and development, we really do have a world-class way of bringing research and development through the public sector. We have not done a wonderful job in commercializing that research and development.

Therefore, one of the challenges we have to face — and one of the ones I am looking at from where I sit — is to do a better job of taking the wonderful research and development that we have been generating, whether it is in the life sciences sector, clean technology, wireless or digital media. These are all knowledge-based sectors where we have made a big investment on the part of both governments in the last little while. It has been successful. We have not been able to translate that, so we need to do a better job of that.

We have a number of different programs being examined. Industry Canada has come up with a science and technology strategy. The Senate was discussing that not too long ago. We are looking at a global innovations strategy. We have Science and Technology Agreements with China and India, and we are in the process of negotiating with Brazil. They are wonderful agreements, but our real advantage is having the relationships with the EU, the U.S. and Japan, where we can get something from them on a commercialization perspective. We do not have the tools in place to do that; other governments do.

The Dutch, for example, have a $10-million fund targeted at Canada for commercialization purposes, which will allow their companies to enter into those types of agreements. We need those matching funds to take us forward, if we are looking at where we want to be in 10 or 15 years to be competitive. Innovation is quite fundamental in terms of how we approach that.

Another issue — and this is domestic in nature — as the person responsible for attracting foreign direct investment into Canada, is the internal trade barriers that exist in this country; that is a big problem. Foreign investors ask why it is so difficult that if they invest in Ontario, there are problems doing business in other provinces in Canada. We have these artificial barriers.

In relation to the SME Advisory Board, when we talk to them about the thickening border, which is another issue, we have a company in Alberta that says that they have less trouble moving their product into Montana than moving it to the Northwest Territories. They have to go through British Columbia, they have this tax and such, and they have to put a police car to take it up. There are different regulations that impinge on them being able to do business. In addition, of course, the United States is fundamental to our success going forward. Therefore, we have to work on the various agreements to ensure that we have access to that marketplace.

People talk about the thickening of the border. It is difficult to define exactly, when we talk to a company, what it is that creates a problem for them. It is a problem in the automotive industry because cars move back and forth as cars are assembled. When we talk to other small- or medium-sized enterprises, such as one that exports guitars out of Newfoundland, for him the thickening of the border meant he had to set up a warehousing facility in Plattsburgh so that he could have the just-in-time delivery that he needed to be successful.

The border is an issue. Innovation is an issue. These are all issues that cut across a number of government departments. However, for us to think about how we want to succeed in the future, we have to succeed as a country against other countries that are bringing some sort of resolution to those issues that are facing us. This is a big, complex challenge.

Senator Nolin: I believe it would be appropriate for the witnesses, collectively — and I understand that you have many of your colleagues here — to write to us extensively. It is important for us to understand what those famous challenges are. We are always referring to those provincial barriers.

[Translation]

I am trying to get a clearer understanding of the issue. I am thinking here about the whole issue of the labour force — a labour force that is aging and that will need to adapt. I am sure it is not news to you that we are hearing a lot today about the need for the manufacturing sector to adapt to change. The federal government has invested billions of dollars to help bring about change in this sector.

What are some of domestic challenges that you face in your quest to implement these brilliant international trade strategies?

[English]

The Deputy Chair: Not to disturb the conversation, but may I point out that the internal barrier issue, which is obviously a very important issue, is Industry Canada, and we have Mr. Prentice, I believe, from Industry Canada coming before the committee shortly. We are looking into this, just for your information, Senator Nolin.

Senator Nolin: I would like to get it from those who have the challenge to sell Canada abroad. How do they see those challenges from their point of view?

The Deputy Chair: Absolutely. Without laying a huge number on you, if you could help us that would be very useful.

Mr. Beck: As you know, the government has a competition panel that is reviewing many of these issues. I would be happy to provide our submission to the panel, with some background material for that. In that way, you can understand exactly our view on some of these issues around how we become more competitive as a country.

The Deputy Chair: Senator Nolin, we will pursue this.

[Translation]

Senator Nolin: I have a second question for you. Canada's success is tied to the fact that it has built a federation. We have provincial partners.

Where do these provincial partners fit in with your broad international strategy?

Mr. Beck: In the investment world in particular —

Senator Nolin: You can answer the question in English.

[English]

Mr. Beck: For us to succeed in terms of attracting foreign direct investment we provide the chapeau; our organization, the Invest in Canada Bureau provides the chapeau. We cannot succeed without having a very close relationship.

[Translation]

Senator Nolin: That is exactly what I was getting at.

[English]

Mr. Beck: A month from now, I will be meeting with my colleagues at the federal, provincial and territorial levels, where we discuss our combined strategies. They need to know that we have a very well-defined investment strategy, have targeted 25 key markets and have 9 key sectors with subsectors underneath. We are deploying our network to go out proactively after companies we know are in expansion mode.

We can sell the concept of coming to Canada, why Canada is a good place to be, the quality of our labour, the knowledge base and a variety of other incentives. We used to be able to sell it on cost, but we cannot anymore; therefore, we have to sell it on the other areas. At the end of the day, we do not close the deal. The deal is closed at the provincial and municipal level. If we do not have those close relationships, it makes it difficult.

In the context of our international footprint, a number of provinces co-locate with us. Having the provinces selling Canada and selling what they do in their own economies is important to our success.

Also, Mr. Ready is just reminding me that we meet quarterly with our provincial colleagues on trade policy issues; it is called C-Trade. Last week, our deputy minister met with her deputy minister colleagues at the provincial and territorial level. I will meet the minister at the end of this month; we will be meeting his ministerial colleagues, and in March, I will be meeting my ADM colleagues at the provincial level to talk about investment and how we collaborate on our trade programs internationally.

Senator Grafstein: The Banking Committee has studied interprovincial trade barriers for a year. Talk to your chair, Senator Angus. That study has not been completed. Several more meetings were needed to complete that report. We called on all of the agencies of government, and we found that we got no cooperation from the provinces, although they were moving to do specialized agreements of labour — that is, British Columbia and Alberta, and now Quebec and Ontario. The federal government is falling behind the provincial initiatives on this. Read the transcript. It is all there. It might be useful for you to read the transcripts as well, because that was one of our issues several years ago. Nothing has happened in that committee since.

I would like to come back to several issues. I will raise a series of questions to make it easier for you.

Having looked at the Australian approach, I agree. The Australian approach combines many things that we did for the North American Free Trade Agreement, NAFTA, and the free trade agreement, FTA: first, a strategic approach to target a certain country from the governmental standpoint and to involve the various authorities within the federal and state jurisdictions and municipalities in some sort of organization; second, the development of specific agreements on a staged basis, starting with exchanges and then foreign investment promotion agreements or similarities to that. They then moved forward with respect to moving to a pre-FTA, which Mr. Mulroney did quite well. In conjunction with that, they set up the Sectoral Advisory Groups on International Trade, SAGITs, which were very active.

Many senators were involved in that, and Senator Eyton, in particular, was very much involved in the Mexican side of it. There was a combination of government policy, tools to work within the provinces and municipalities, agreements and then involving, in a very detailed way, the business sector. The Australians went further, adding student exchanges, language training and university twinning. It was almost a complete package on which to focus, as they have with their adjacent markets.

That was all done as a result of the fact that they had lost their Commonwealth preferences and had to seek other markets. We have not done that as coherently as they did, but the template for both the FTA and the NAFTA is there, and it worked successfully.

When you are responding to Senator Nolin's excellent question, tell us what the tools are that you feel you need from the government's perspective to implement it as it applies to the three countries — I call them the CHIR countries — China, India and Russia. Again, if you did a bit of homework on Australia, you would find that they are farther advanced. It was an act of desperation for them. They did not have the United States' market beside them to offset their diversity, so they had to move much more quickly. We have relied on the American marketplace in a way that makes us very complacent.

In the memorandum responding to Senator Nolin, could you tell us where we are with respect to the various agreements we have with China, Russia and India? That is, what is the status with our various agreements? What are they? What do they say? What do you hope to accomplish? Where are they?

Mr. Beck: When you talk about ``agreements,'' are you talking about some sort of process with a free trade agreement or not?

Senator Grafstein: His question is open-ended, and I agree with him. Let us know what we are doing.

Senator Nolin: I was looking at the domestic side of the equation, and you are looking at the other part of it.

Mr. Beck: Yes, at the financial side. We can have an update in a moment.

Senator Grafstein: What is the department's position with respect to investments by sovereign companies? Do we have a policy with respect to that? I do not believe we have a policy. We have a foreign investment review policy, but we do not have a strategic policy with respect to allowing state-owned corporations to come in and compete with Canadians or with the private sector. What is our actual policy about that? I am confused about it.

You have raised it, chair; Senator Corbin has certainly raised it in the past. We are confused about what our Canadian position is with respect to state-owned corporations and how to react. What is good and what is bad? We can all tell you what we believe is good or bad, but I would be interested from a government standpoint.

Finally, I urge you to talk to the people at MaRS in Ontario. They have done exactly what you said. They are working on a public-private organization to integrate innovation. It is supported by the provincial Government of Ontario. Members of our caucus have attended several times. It is a fascinating place. I do not know if the federal government will parallel that or do the same thing, but this organization is with the private sector and small businesses to incubate innovation and to commercialize innovation, which is what you were talking about. If we have already invented the wheel, I do not know why we have to invent another one to run in parallel. It is working quite well. They are doing a $350-million project right on University Avenue, in Toronto. It is quite fantastic.

Finally, there is the global chain. Last week, I talked to our people from China. That is the global chain. I will use the iPod as an example. Your argument is: If we want to develop Canadian businesses, one of the best ways to do it is to look at a Canadian piece of technology and then figure out what parts can be produced inexpensively, and where; and where they can be assembled, provided Canada has the proprietary rights to expand that. I was surprised to discover that when we break down the component parts of the iPod, which is a hot item from Apple, we will find, to the surprise of the Americans, that two of the major component parts that add value in the system to the American chain are the chips, which are made in the United States. There are also the batteries, which are made some place else. The assembly is done in China, and then they are essentially rubber-stamped back to the United States and are then sold worldwide. That is an example of how the global value chain works.

Can you tell us a little more about how you will investigate that so that you can tell Canadian companies how they can improve their product?

The Deputy Chair: Thank you, Senator Grafstein. There are many questions there. We could be here for quite a while.

Senator Grafstein: Senator Nolin inspired me.

The Deputy Chair: I would like to give the witnesses a chance to do the best they can.

Mr. Beck: On the agreement, I take your point. Maybe Mr. Ready will give you an update on China, Russia and India, but there may be other agreements that we can talk about.

When it comes to state-owned enterprises, SOEs, you are right; that is covered under the Investment Canada Act. You will be meeting with Minister Prentice. I would encourage you to ask him at that point because it is his department that has responsibility for SOEs, and they have just come out with guidelines on that.

I am looking at it as a person trying to promote investment into the country. When I was in Kuwait, Abu Dhabi and Dubai, the question was: What is Canada's position on SOEs? The fact that we have guidelines that are well- enunciated now help us to explain that process.

I am a big fan of MaRS and of Dr. Ilse Treurnicht, who runs MaRS. We see this as a really good model of bringing together the intellectual dimension with the academic dimension, the business dimension and the governmental dimension. We currently use that as an example for other countries to come and see what we do well in Canada, which is the convergence of technology.

As an aside to your question, part of that ecosystem to success in commercialization is money or venture capital. For us, we believe it is important for Canadian companies to understand that. We have a bit of a problem bringing venture capital in from the United States because of section 116. It is an issue with Canada Revenue Agency, CRA, and we have discussed that with them. It is more perceptual in nature because it is a question of how they can cash out. There are other dimensions around that. If you are interested, we can talk a little more about it.

The point is that because venture capital is important, I have taken one of the positions in my branch and have inserted it in Canada's Venture Capital & Private Equity Association in MaRS, so we will be able to go out and bring more capital into Canada in order to do some of the commercialization that is important.

With respect to global value chains, Mr. Ready's group has done good work on trying to understand global value chains and the different dimensions of them. We can talk about this now but, instead, I will send you information so that you know where we are and what we are thinking.

Mr. Ready: I can update you on the status of Foreign Investment Promotion and Protection Agreement, FIPA, negotiations with the three countries you mentioned.

First, these are agreements that should not be confused with free trade agreements. These are much narrower in scope. They focus on direct investment abroad. They provide a level of stability and protection for, in our case, Canadian investments in foreign markets.

We have been negotiating several of these agreements, as you may know. Mr. Beck went through a list. There are three countries that you mentioned: India, China, and Russia. We have recently concluded negotiations for a FIPA with India last year. That is going through a legal scrub and ratification process at the present time.

With respect to China, we have been negotiating for probably more years than most countries with respect to a FIPA. It is a complicated negotiation with China, but I believe we are seeing the end in sight. Only a relatively small number of issues are left. We will be meeting a Chinese delegation in a month or two to carry on those negotiations.

Russia is an interesting case. It is a country where we had probably our first FIPA. In fact, it was with the former Soviet Union at the time. It is a very early model. It does not have a number of the features that our current model agreement does.

The Russian prime minister was here a few months ago, and during that series of meetings, there was an agreement with the Russian delegation to examine updating that FIPA. We will be meeting with the Russian delegation in the next couple of months to start that process.

Senator Downe: I am intrigued by your comments about the negotiations with the Chinese. As you know, they have not been reacting in a positive manner to many initiatives advanced by Canada, and they give no indication of moving on most of them. There are detailed discussions happening on a host of files with little or no resolution to any of them.

We have had witnesses to this committee that have indicated it is because of the frayed relations between our two countries on a number of senior files.

I am intrigued by your figure about the amount of exports that Canada currently has with China. Less than 2 per cent of our total exports go to China; is that correct? I have a briefing note here from the Library of Parliament that indicates it is currently less than 2 per cent.

Mr. Beck: I would imagine it is in that area. Mr. Bale is more closely associated with that.

Senator Downe: Is that historically consistent? Is it normally in that range, or has there been a dramatic increase; for example, 1 per cent, and now we are up to 2 per cent? Or has it been constant at 2 per cent?

Richard Bale, Director, North Asia Commercial Relations, Foreign Affairs and International Trade Canada: Exports to China from Canada last year went up 27 per cent. The growth has been dramatic. We would expect it to continue to grow not necessarily at that rapid rate, but we would still expect it to grow over the next five years or so.

A very good study came out in November by Statistics Canada on the impact of trade with China in which they pointed out two phenomena. One was the rapid increase to China and another was that the second-round impact, as Chinese demand for natural resources drove up the price of those exports, caused the value of our exports to other markets increase significantly, not because of a volume increase but because of a price increase.

We also saw a reduction in the percentage of our exports that went to the United States. That is again because of this second-round increase, where the price of our commodity exports to every other country around the world went up. This is something we have not seen for a while, but we saw a drop in the export dependence, if you will, on the U.S. market.

Senator Downe: I am guessing that of the 27 per cent increase, it is almost all commodities as opposed to research to which you referred earlier in your presentation, investments we have made in research.

Mr. Beck: Basically, the statistics capture goods-related activities. It would probably not capture research and development.

We are having success with the Chinese in terms of Science and Technology Agreements and the treaty we signed with them. We had a call for proposals. I can give you the exact number; it was over 140 requests for proposals that came through for projects that would be between Canadian and Chinese researchers. It is a very active program in its first year. There are those connections.

Senator Downe: When did we sign that agreement?

Mr. Beck: The agreement was signed in 2007; in January, I believe.

Senator Downe: In that time period, no deals have actually been signed?

Mr. Beck: There is a process called the International Science and Technology Partnerships Program. That program, in fact, has a steering committee for China, and they put out a call for proposals. Those proposals came in about a month ago. I can provide you with more information on that probably six months from now.

Senator Downe: You indicated as well that you are moving personnel around from other postings to China and India. How many positions did we have in these countries before you started the move, and how big is the increase percentage-wise?

Mr. Beck: Since 2005, we have moved 17 positions into China and India.

Senator Dawson: Compared to what number previously?

Mr. Beck: We have not added positions. We are taking from Europe and other places and putting them into China and India.

Senator Dawson: How many were there before they arrived?

Mr. Bale: This is a ballpark figure, but in terms of professional-level people, both Canadian and locally employed, we would have gone from around 50 to 60 in China.

Senator Downe: What are our numbers in India, roughly?

The Deputy Chair: If you could tell us who you are, for the record.

Audri Mukhopadhyay, Director, South Asia Commercial Relations, Foreign Affairs and International Trade Canada: I am Audri Mukhopadhyay, Director of South and South-East Asia Commercial Relations at Foreign Affairs and International Trade Canada.

Trade-side staff in India is less than 50. I would estimate it is close to 30 people. We are represented in six cities in India now, with trade staff: Kolkata, Delhi, Mumbai, Chennai, Chandigarh and I am missing one.

Senator Downe: I am hearing you say that we have not increased the budget; we are simply moving people around. From where did we move these people?

Mr. Beck: We are moving people around. The Global Commerce Strategy will allow us to add people.

Senator Downe: These people come from countries where I suspect we are doing more export trade than we are currently doing with the two target countries. India is less than 0.5 per cent and China, I have just confirmed, is less than 2 per cent.

Mr. Beck: We would be deploying from more traditional markets such as Tokyo, Berlin and Tehran.

Senator Downe: I cannot understand why the government is not putting more money into the whole area and keeping people in the established markets, where we have a higher percentage now, and increasing the emerging markets. I cannot understand why people are being moved around.

Mr. Beck: We are trying to address the issue and the opportunity. In the more traditional G8 markets, such as Tokyo and Berlin, our focus is becoming more on the investment and innovation side and less on the trade development side. We are moving the trade development people into markets where we believe trade development will have a larger impact. That is what we see in India and China. We look at where the opportunity is and how we can maximize on the opportunity.

Senator Downe: In the current state, our largest trading partner is still the United States, even though it has declined. We have fewer trade officials in the U.S. than Mexico has. Now I am hearing that we are taking people from established markets where we have a higher percentage of export trade and moving them to emerging markets. I appreciate you do not set the budget for the department. However, it is more than strange to me, if this is so important for the government, that they have not given you the resources to continue what you were doing and to service these emerging markets.

Mr. Beck: We always welcome more resources because we know how we would deploy them effectively. The Global Commerce Strategy goes a long way to defining how we are becoming an organization focused on integrated trade and how we effectively and efficiently use the resources we have. It is important that we look at where we are being the most effective. If it is not the most effective for what we want to deliver in a place such as Berlin, maybe those resources would be better deployed into China.

It is a question of how we first look at our organization. It is similar to any business. Where do we allocate our resources versus where we will get the biggest gain? The opportunity is awfully large in China, Russia and India — and Brazil at some point in the future — as we define our agreements and where we will go. It is a huge opportunity. As a business in a sense, we have to be able to move those resources where they will be most effectively deployed. If we had more, I feel we would do a good job.

Senator Downe: I believe you are right. However, I want to be clear on my point. We are in established markets. We have a high percentage of exports from our country going there. We have a foundation to expand. We have relations. We have companies that have been working there for a number of years, in many cases decades. We are going to where we believe we can do better, which may be the case.

However, if it is not the case, someone can backfill where we were and come in and steal those markets, and then we are further behind, not ahead. It is a matter of investment. I will not belabour it. We will ask the minister.

On your point about merging resources, that raises my final question. Why is much of this funding not done through the Export Development Canada, EDC? Is there not a merger of your and their role somewhere?

Mr. Beck: Minister Emerson is very strong on this point about how his portfolio — which is ourselves, EDC and the Canadian Commercial Corporation, CCC — function together in that marketplace. This adds to the point you were making. What is the value added of the Trade Commissioner Service in this process? As I said earlier, it is introducing companies to the opportunity.

In a traditional market such as the U.K., it is not that we do not work with companies in the U.K.; we do. In terms of the value added on an export development perspective, as a Trade Commissioner Service, it may not be as great as the value added that we would have in China because it is a more complicated market. As we were discussing earlier, government to government, there is a role for a trade commissioner in that perspective. There is still a role for a trade commissioner in London. However, maybe it is introducing Canadian companies to technology. Therefore, it is a different type of role in this integrated trade model that we are assuming.

Then from EDC's perspective, they provide the tool kit to Canadian companies as they go into the world. To give credit where credit is due, EDC is looking at what Canadians companies need to be globally competitive now. They are coming up with a suite of different tools that will help Canadian companies succeed.

One tool that was brought forward at the last SME Advisory Board meeting is quite innovative. If Canadian companies are setting up warehousing with inventory in the United States and are having problems with the border, they cannot get financing for that inventory from Canadian banks. Therefore, EDC has come up with a program that will finance 50 per cent of that inventory. That is a very innovative type of program and very helpful to Canadian companies as they go into that marketplace.

Working together with them, I would like to say that we as a Trade Commissioner Service provide consulting services to companies in the international marketplace; EDC provides the financing tools.

Senator Downe: I appreciate that. The three could be merged together into one Crown corporation or agency and work closely together rather than having three separate entities. However, that is something we can pursue at a later meeting.

The Deputy Chair: It sounds to me as though we are heading back to the old Department of Industry, Trade and Commerce.

Mr. Beck: I wanted to add that we have quarterly meetings with the executives of the three organizations now to bring closer integration of our activities. The types of programs we have been talking about and the cross-fertilization of ideas has been quite successful. It does work quite well.

Senator Mahovlich: I have one question. A few years ago, I was in Moscow. My wife and I went for dinner in a hotel, which was run by Canadian investors. It was a fairly good hotel; the meal was good. I came home and the Russians had taken over. It was quite a problem.

This happened quite a few years ago. I am sure the problem has been solved by now. When we make these agreements that you are discussing, can our investors feel confident? Is there enough protection for our investors?

Mr. Ready: I am somewhat familiar with the specific case you mentioned.

Senator Mahovlich: I believe the investors are from Halifax.

Mr. Ready: The obligations of the agreement are pretty straightforward and well-understood internationally. They talk about treating people on a national treatment basis and ensuring that the most-favoured-nation treatment is provided to ensure there is no discrimination between investors from other countries. The key element of the protection that investors are provided under these treaties is the ability to pursue investor-state dispute settlement arbitration. That is a core element of these treaties. It is one of the issues that we will probably want to examine with the Russian delegation with respect to this FIPA that we have.

It is certainly a core element of the agreements that we currently negotiate and is very important to Canadian investors.

I do not have figures at my disposal today, but it has been a feature of several international treaties of which Canadian investors have availed themselves.

Senator Corbin: I have read, with great interest, the opening paragraph of this paper that outlines your department's global strategy, your three priorities.

I will quote the first paragraph.

Without a doubt, the North American continental partnership is an important competitive advantage that Canada must nurture and grow. Forging even stronger commercial linkages will not only help improve Canada's performance in North American markets, but also build a more competitive continental platform . . . .

I am sure that would be the case. However, if you have been following the U.S. primaries, as I have with great interest, you will have noticed that the various candidates' positions, including those who remain in the races, have disturbing comments with respect to NAFTA, for example. We have heard them say that they will bring overseas jobs back to the U.S.; they will stop borrowing their own money from China and put an end to enriching the Arabian princes and sheikhs and so on.

I am not speaking so much as a politician but as a realist because even during Canadian electoral campaigns, platforms are set out and the goods are delivered by whomever forms the next government. I feel we have to take some of these utterances very seriously.

The U.S. is undergoing a sea change, a profound groundswell that is expressed by their dissatisfaction with the current administration. Every time I hear the applause, I can feel the vibrations.

As much as I would like to subscribe to it blindly, I am not sure that the utterance in the paragraph that I quoted will remain with the next administration, irrespective of which party forms the government down there. I feel it is your job to keep an ear to the ground. I am sure you get daily reports from Washington and elsewhere as to how matters are developing. Does that bother you? Does that make you anxious?

Mr. Beck: Absolutely. Quite frankly, our bread and butter, in many ways, is based on the relationship we have with the United States. They are our best friends at the end of the day and the largest market.

Senator Corbin: I forgot to mention the tensions with Mexico and illegal immigration, et cetera. The voice has been growing louder every day.

Mr. Beck: These are all issues that we have to understand. One of the reasons that we went into the enhanced representation initiative with the United States was to build our platform there, to have more access particularly into the southern part of the United States where traditionally we have not been because our focus has been on the Northern States. The nexus of power is moving into the Southern United States. Having a much broader representation there is very important.

To have influence in Washington is key, However, the way Congress is operating now, being able to get close to congressional representatives and understanding what is happening there is fundamental; having representation in those areas and going out and meeting and advocating on behalf of Canada is quite important. We have to maintain that base, that foundation. That is critical to our success.

The only way we can do that is by essentially letting those people who are in Congress know why Canada is important to them so that when it comes time to put up those barriers, or they talk about doing something such as that, there will be some rational voices in Congress saying that is not such a good idea because it is not in our interest to do that.

This is basically what our department is working very hard to do, whether it is on the commercial side, to maintain the flow of traffic and goods back and forth between our two countries, or advocating against policies that will be damaging to us as we go forward.

Yes, I agree with you. It is fundamental. The department is investing a large amount of time, energy and manpower into maintaining the relationship however we can do it because, as you know, it is rhetoric; maintain that relationship which has been established over many years. We have shared common interests for a long period of time. It is important. It is in our collective global competitive interest to maintain that platform.

[Translation]

Senator Nolin: On that note, I think it important for Canadians to appreciate how trade between Canada and the United States is a fundamental consideration for both countries.

I want some assurance that you and your colleagues are treated with respect. When you deal with your US counterparts, are you treated with the same respect that you have for them? Do you feel that you are operating on a level playing field?

[English]

We are among ourselves here. It is key to capture those nuances.

Mr. Beck: It is fair to say that the United States is the most powerful country in the world.

Senator Nolin: We all know that.

Mr. Beck: It is hard for any country to be on a level playing field, from that perspective. We do very well relative to many other countries. There is at least a general understanding of who we are as a country. I spent five years in California. To be honest with you, people in California do not know anything about people in Minneapolis or Minnesota. That is the way they are in that part of the world. When they said: ``I do not know anything about Canada,'' it never really bothered me. However, it was in my job to go out and let them know what Canada is all about and why Canada was very important to them.

When we tell people in California that all their gas imports come from Canada, we have to frame things so they understand it. The fact that we are in Afghanistan has a major impact. Again, not many people know that. Part of the job that we do as a department is getting out there, informing those people in the United States. The larger representation we have — and now we have a larger representation — the more people we connect with and let them know how important our country is to them.

It is tough to have a level playing field with the United States, but I believe we do a good job.

Senator Nolin: My question was more raised in the environment of regulators talking to regulators, and I believe we need to satisfy ourselves that you have an honest and respectful relationship with your colleagues in the U.S.

Mr. Beck: Depending on the agency, there is much respect because we are in constant contact. It has been difficult — I will be honest in this context — with the Department of Homeland Security, for example.

Senator Nolin: The Americans have a problem with Department of Homeland Security.

Mr. Beck: My point exactly. I was in Vancouver last week meeting with Canada Border Services Agency, CBSA, and they have a good relationship with the Department of Homeland Security. It allows for good communication. It will be very important, as we go toward the Olympics, to have the right flow of traffic back and forth across the border and sharing information. It is a good relationship. In fact, they are using it as a model for other ports between Canada and the United States.

At the working level, at all levels really, it is important that we maintain that communication and connection. I am not the ADM responsible for our relationship with the United States, but if he was here, I would say that it is really a fundamental part of his job and his people's job to maintain those open lines of communication between the two countries.

The Deputy Chair: We have had a wonderfully interesting meeting from listening to the questions.

Before I adjourn the meeting, this committee had studied and reported on the free trade agreement in depth some years ago. We are very aware that the main element in trade with the U.S. is the exchange rate. The U.S., of course, is our biggest customer, even though it has dropped about 10 per cent. I believe we were told a couple of weeks ago that our trade is down about 10 per cent with the U.S., but the main factor is the exchange rate. The exchange rate when the free trade agreement was signed, if I am not mistaken, was about 82 cents and our exports rose dramatically as the exchange rate dropped to 62 cents. Now, it is at a dollar.

We can all read the newspapers and the financial papers, and we know that the expectation is that the U.S. dollar will decline some more. That will affect our exports to the United States. That is why the committee has embarked on what many of us find a very interesting and important investigation into our relations and trade prospects with this new emerging giant world on the other side of the Pacific. Senator Grafstein's question about comparing our situation with Australia was very appropriate.

On behalf of the members of the committee, I want to thank you for having given us an extremely informative session.

The committee adjourned.