Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 3 - Evidence, March 10, 2009
OTTAWA, Tuesday, March 10, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4 p.m. to review and
report on the 2008 Legislative Review of Export Development Canada, tabled in the Senate on Tuesday, February10,
2009; and to study on the rise of China, India and Russia in the global economy and the implications for Canadian
Senator Consiglio DiNino (Chair) in the chair.
The Chair: I would like to inform the minister that a vote has been called in the Senate for 4:40 p.m., so we will be
ending this session at 4:35.
Minister, I am sure you can use the extra time, particularly during these hectic periods in Parliament.
I also remind you that today we have a Senate photographer who will be taking some pictures from time to time for
Welcome to the meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The
committee is currently examining the document entitled The Legislative Review of Export Development Canada —
The objective of the legislative review is to asses how Export Development Canada, EDC, is evolving and should
continue to evolve in the future to address the competitive dynamics and demands of international trade on behalf of
its stakeholders, and to make recommendations where appropriate, including possible changes to the Export
We are pleased to welcome the Honourable Stockwell Day, Minister of International Trade. He is accompanied by
Louis Lévesque, Deputy Minister of International Trade, and Robert Clark, Director General, Economic Policy
Following the appearance of the minister, we will hear from Eric Siegel, President and Chief Executive Officer of
Export Development Canada on the Export Development Act as well. He will also give us his wisdom on the
continuation of our special study on the rise of China, India and Russia.
Let me welcome everyone to the Senate. The minister has agreed to make some brief comments, after which time, we
will invite our colleagues to ask questions.
Honourable Stockwell Day, P.C., M.P., Minister of International Trade: Mr.Chairman, thank you for your warm
reception and your word of welcome. It is an honour to appear before you today. I hope you will have comments,
questions and advice regarding our concerns in the present fiscal situation.
We have before us the Report on Export Development Canada. As you know, of course, this is a time of global
fiscal crisis. That is why it is so important to have policies and projects to improve the situation, not only for our
exporters, but also for our workers.
My speech will be brief so I can have maximum time to seek your advice and enable you to go vote in the Chamber.
Democracy is important.
I will respect that. I will try to keep my comments short. You want to vote, and we have a vote right after that as
The report that is before you, as I am sure you are aware, is required by legislation every 10 years. This report covers
the state of affairs and the work done by EDC; there are recommendations as well. The report will go for consideration
as it is right now here at the Senate. It will also go to a parliamentary committee. We will then, as government, look at
the suggestions that you and the parliamentary committee bring forward. We will report on the report and, hopefully,
take into account many of your suggestions and recommendations.
The scope and the size of the work of EDC is something to keep in mind when we realize just how important this
particular review is. In a time of fiscal contraction, in a time where all countries are hurting, it is very important that, as
government, we are able to do the things that are appropriate — and there are some things a government should not do
— to make the situation more tolerable for our workers, investors and business.
If you keep the view from 35,000 feet, we can drill down as detailed as you want, but think about the fact that last
year some $85 billion worth of business was actually facilitated by EDC. I do not know about your vocabulary, but in
mine that is a lot of money. It comes out, as the report notes, that approximately 4.4percent of our entire GDP is
activity that is governed or financed by EDC.
We can point directly to somewhere in the region of 575,000 jobs. Those are the people who work within the
businesses that are financed by EDC. This has a phenomenal impact on our economy.
Last year, over 6,800 customers — that would include businesses and individuals, but mainly businesses — were
working with EDC. I am happy to note that over 80percent of those, about 6,800, were small- and medium-sized
enterprises, so you can see the impact that this has throughout the economy. The themes and recommendations that
emerge from the report are important. We have noted them, and you will, too. We will take them all under
The theme of cooperation among the lending institutions, EDC, Business Development Bank of Canada, BDC, the
banks, etcetera, emerging in the report was interesting to see. In the previous report 10 years ago, there were
reflections on environmental assessment, but now there was the emerging notion of corporate social responsibility,
which we take seriously in the government, and which many of our companies, and most of the companies in the
Canadian extractive sector, also take seriously.
Then there is a theme relating to customer satisfaction. EDC is constantly charged with seeing if they are hitting the
right notes — and sometimes that includes the right bank notes — in terms of customer satisfaction; we see the levels
there are fairly high. However, there is always room for improvement.
With those brief remarks, I look to you for your advice and questions, knowing that we can work together for the
betterment of Canadians, realizing that men and women in this economy are facing extreme challenges the likes of
which we have not seen for decades, and that this particular organization, EDC, is able to help through this difficult
Thank you for your interest, and I look forward to your comments.
The Chair: Thank you, minister.
Senator Stollery: Minister, thank you for taking the time to come before the committee and giving us a briefing on
the review of the EDC.
I would like to assure you that some of us on the committee have been involved in the international trade area for
many years. We are quite aware of the EDC. Speaking for myself, I strongly support EDC, which, for those who might
be watching, is basically a government insurance scheme to assist Canadian exporters.
When Senator DiNino brought to our attention that there is a 10-year legislative review process, we thought that if
we have to do this, then we had better do it and get on with it.
We have had several witnesses. One of them was Ms.Diana Smallridge, hired by the department to review EDC.
There seems to be an issue here with the EDC. As I said, it is a government insurance scheme to assist Canadian
exporters. It is not a government scheme, as far as I understand, to work in the domestic market in Canada.
Ms.Smallridge, before the committee, said that she did not think they should be in the domestic business.
I have not decided whether they should or should not be. This has all happened within the last day. We did not
know a week ago that on page250 in Division 3 of BillC-10, the budget implementation bill, there is a section about
the Export Development Act that seems to make any work that we do irrelevant because it changes the Export
Development Act by legislation.
The proposed subsection10(1)(a) says that the Export Development Canada Corporation will be permitted to
engage in domestic trade. This is all before the review has taken place and, as far as I can make out, contrary to the
view of the consultant who was hired by EDC to look into the management and the operations.
I do not see how the committee can make a comment on something with which we have just been seized when we
have not heard sufficient witnesses. Although I have certainly not talked to all the private insurance companies, I know
they have questions about the domestic market that they serve in Canada.
Did you know that this was in BillC-10 and that our study is not particularly relevant? What are we doing here
looking at it if it has already been done in BillC-10?
Mr.Day: Senator, pertaining to your observations, first, I have no fear of lack of comment from this Senate
committee. I have never known any Senate committee to be restrictive or prohibitive in its comments. I am sure we will
get more of those.
In terms of the mandate of the report, remember that the report was mandated, made and studied before the
revelation of the advent of the present global fiscal crisis.
The 2009 comprehensive economic update says that for a period of two years there will be the opportunity, should it
be deemed appropriate by EDC, to engage in domestic financing. Guidelines are in place for companies whose goal is
export or whose present operation is export with some domestic capacity and domestic operations. The two are not
totally related. Keep in mind that this report was done in a previous environment. That is just how things work.
In addition to the small portion in Budget 2009 that you mentioned, a number of large and comprehensive actions
are being taken by the government to assist the business community and workers. They include lowering taxes,
lowering the business rate, being on track for the lowest and most competitive corporate taxes in the Organisation for
Economic Co-operation and Development, OECD, and providing $12 billion in infrastructure funds over the next four
years. In total, some $40 billion of overall stimulus has been put in place that was not contemplated even six months
ago when this EDC report was made.
I appreciate you raising it, but you need not take umbrage at an apparent difference of reporting, because the two
were reporting in distinctly different eras.
Senator Stollery: We are not opposed to the stimulus package at all; we encourage it. BillC-10 is 500 pages, and it
seems to us that many of the items in the bill, the so-called stimulus package, although they are undoubtedly
important, should not be in the stimulus package.
The Chair: We are talking about EDC.
Senator Stollery: EDC is in BillC-10, which is why I am talking about it. It is part of the 500-page, closely-written
package. The book that is provided to explain those 500 pages is also 500 pages.
Senator Fortin-Duplessis: Assigning Export Development Canada (EDC) staff outside the country is something
essential, I think. That practice should continue and even expand. So I am pleased to see that the report on the 2008
Export Development Canada Legislative Review has been amended to enable EDC to establish foreign offices.
However, I also believe that EDC staff should be established wherever it is most useful and efficient for Canadian
companies, not to be limited to diplomatic facilities. What is your assessment of the feasibility of accommodating EDC
staff outside diplomatic institutions, if there is a need for that?
Mr.Day: Thank you for your question; it is very important. If the situation required that individual offices be
established to improve operational performance, we could meet that need, but there are cases where there is an
advantage in having common space, in sharing offices, particularly in foreign cities where Canadians concerned with
business can come together. We will be considering this question based on the situation. I agree with you.
Senator Dawson: Thank you for agreeing to appear before us. You will understand that I am echoing my colleague,
Senator Stollery, with respect to BillC-10. Situations change. I understand that. Crises make us do things differently,
but our dilemma is this: while we are examining you on a report, during that time, the Minister of Finance is appearing
before another committee on BillC-10. The minister may have different opinions, and amendments can be made to
BillC-10. Our committee must assume that the report that has been presented to us reflects the current analysis and
that the government may not have taken that report into account in developing BillC-10. I have reservations about the
fact that we are having two parallel parliamentary discussions on the same topic. This may not be the best way to act.
In a second line of thinking, and it is somewhat ironic that I am the one to ask you a question on the fact that one
senses very clearly in this report, based on the remarks that we have heard from private businesses, that the majority of
private businesses say that EDC has an extraordinary reputation and an outstanding mandate, but that it prevents
private businesses from acting in Canada as it does in other countries; that EDC, because of its power, the government
protection that it enjoys, because of its lack of transparency, has a strategic advantage over all private lenders, whether
it be in the banking field or that of international reinsurers.
It is somewhat ironic that it is a Liberal like me who is putting the question to someone who is recognized as being
somewhat more to the right of centre than I am, the question: how is it that I am defending the presence of private
enterprise in the loan guarantee field and that the report and the government seem to be saying not only that EDC is
doing a job that replaces private businesses, but that we are going to increase their budget and their sphere of activity
to include even the domestic market?
Mr.Day: You are asking a lot of questions. I do not agree with you. We requested a report for a period of time in
which the situation was different from today's situation as a government in 2009. And there is a portion of this report
that you do not agree with — that is life, but we are in a crisis situation.
That is why there are measures in our budget to permit activities with domestic businesses, particularly if there is a
connection to exports, for only a two-year period. I do not understand why the fact that we have a budget and a report
like this one is such a major problem for you. In my opinion, we have increased the capacity for cooperation to make
loans and to have a lot of capital. Once again, the economic situation requires it.
If I can say also, some businesses may say that they feel displaced, but, in fact, the record does not show that because
EDC is there to take a higher level of risk tolerance traditionally than banks would do and certainly, in a contemporary
sense, much higher than banks would do right now.
As you know, banks are severely contracting their credit capability. In Canada, I know we are all pleased to see our
banks have been accorded the value of being the most stable in the world, but that did not happen by accident. Certain
provisions and certain restraints on banking are in place. Canadian banking used to be called boring. Now, it is called
the best in the world because of the provisions we have in place.
At the same time, if banks are contracting and credit is withdrawing, then there needs to be a facility in place where
the operators of that facility, in this case being EDC, still have to operate with due diligence. They still have to take risk
into consideration, but, as a matter of policy, they have a higher degree of risk tolerance. I do not believe that that
higher degree of risk tolerance is showing itself to be a liability on some $30 billion of activity last year. There was $830
million that is being perceived as loans being impaired. That is a pretty good ratio for higher risk loans that need to be
On the credit side, in the report, a couple of companies were concerned about EDC displacing them when it comes
to credit insurance. However, we have looked at those cases, and in those cases, the companies themselves have
withdrawn from the field. With a major exporter that has the goods loaded on the container ship and is ready to go but
cannot get the credit insurance because the private sector, for reasons of their own — which I do not go after them for
at all, that is a private sector decision — have withdrawn, we cannot leave that exporter, if it is a credible exporter,
without that credit insurance. When we look at the figures, the percentage that EDC has been involved in credit
insurance so far this year is actually even less than it was last year in terms of taking other areas of credit.
I understand the concern from the private sector. However, I would like them to bring forward cases where, unless
they were charging usurious rates, they felt they generally had lost out to EDC. I do believe one of the important
themes of this report is cooperation. EDC has always had a forum and arena where they will talk to other financial
institutions. However, we have mandated that at a higher level, so we understand exactly what is happening.
Senator Dawson: With the very notion of usurious rates is the fact that since the Canadian government is behind
EDC, they can lower rates, which makes them non-competitive and which gives them predatory possibilities. We will
be hearing witnesses telling us that it is nice to have EDC, and I am like Senator Stollery, I believe in EDC. The reality
is that we still have to be sure that we do not put in place, by raising the limits and by raising their activity, more
predatory practices that will keep private enterprises out of this business.
Here I am the Liberal saying that private enterprise should be protected, and on your side you are saying that they
are using usurious rates if they charge 0.5percent. That is not usurious, but people will go to that 0.5percent and say
that they will go to the lowest bidder because it is a better rate, and it is guaranteed by the government.
I am just not sure that this crisis justifies using this as an opportunity to even raise the level of EDC's participation
in the market.
Mr.Day: Well, that is a difference of opinion. You would be on the other side of most economic forecasters in the
world that talk about this being the most severe crisis, in their opinion in the last few years; that changed to since 1981,
then since 1971, and now they are saying since 1931. We are clearly of the view, and I would dare say that you could
look at any economic indicator, that we are in a severe financial crunch.
If private sector lenders are vacating the field, which we have all the evidence that they have — and that is their
business decision to do so — then EDC will be there, where appropriate, without intolerable rates and certainly not at
predatory rates to assist that company.
I do not think you can call rates predatory if you consider the short-term EDC rate, less than a year, is the London
Interbank Offer Rate, LIBOR, minus 75 points, I believe, and one to three years is LIBOR plus up to anywhere from
40 to 50 points. These are not predatory rates, but it is showing that EDC is in the game and will be to help Canadians
Senator Grafstein: Welcome minister. Thank you very much for this and for responding to our colleagues' questions
about the Export Development Canada amendments in BillC-10. I am a bit confused, as some of my colleagues are,
on this side. The EDC is now seeking to change its mandate from just dealing with exports to also dealing with the
domestic market. You quite rightly say that we have a credit crunch in Canada, and I agree with that.
Having said that, I believe we have a greater problem not just domestically but also with our external trade. For the
first time in 35 years, we have a trade deficit. We have not had a trade deficit since I can remember. Domestic credit for
domestic business is important, but we have other vehicles for that; we have the Small Business Development
Corporation. The government has a whole arsenal of other financial institutions. I do not disagree with changing the
capitalization from $30 billion to $45 billion. It is a great idea because that says that this is a crisis, that we want to
respond, that we want to have a lot of money and that we want to get out more money. However, I cannot understand
why you would want to divert some of that money to domestic purposes as opposed to spending all of our time and
energy developing true wealth — to my mind — from exports. We are not a wealthy country unless we export. That is
how we make our money. We do not make our money by domestically doing business here; individual householders
do, but the country does not make any money unless we export and are profitable. Why would we not take that money
and even more? By the way, Mr.Obama is being criticized now that he has fallen behind; his stimulus package is not
even big enough because he is falling behind. I am on the side of saying that we need a bigger bang, I do not disagree
with that, but why not do it all with respect to the EDC on the export side?
Mr.Day: If you want to focus on that narrow point, I certainly appreciate that, but you are using phrases such as
"focus all our money.''
A narrow provision within our budgetary process allows, where appropriate and necessary, some domestic
That is a narrow provision. We are talking about $85 billion worth of activity last year. We are talking about
increasing the statutory limits of the Canada Account from $13 billion to $20 billion. We are talking about increasing
the contingent liability from $30 billion to $45 billion. That is a huge amount of money.
Some small portion of that may — and I use the word "may'' very carefully — over the next two years be deflected
into a company that has domestic as well as outside interests.
You are quite right in terms of the deficit on trade. When our major partners — the United States, China and others
— are spinning downward in their economies, their ability to consume and buy from us drops. That is why we have
had a trade deficit.
People are asking how long will that continue. If I could predict that, I probably would not be here; I would be a lot
wealthier somewhere else. I cannot predict that, nor can anyone else.
We can have some glimmers of the future. When we look at our trade deficit, a huge part of that is because of less
demand for energy. That would be oil and gas, primarily, and then other commodities that go with growth.
At the start of the month — I have not checked the figures today — the futures on oil for April delivery were $42.
Futures on oil for July delivery were $49. You can see the market is anticipating upward demand and therefore upward
growth. I do not know if that will turn out to be a 100 per cent predictor or how long we will be in this, but while our
major customers are in a colossal downturn they are simply buying less from us, hence the trade deficit.
Senator Prud'homme: I read the report, and among your desires is to extend free trade and commercial interests into
new parts of the world. On the long list, I noticed that you had the Gulf countries. The United Arab Emirates, UAE,
are still doing very well, regardless of the difficulty they are going through. You know this because you spoke at the
Canada-Arab Business Council gala dinner before all the ambassadors, Arab businessmen of Canada and Canadians
of Arab and non-Arab origin. You were highly applauded. I was there to witness it.
They want to have more flights. They still do not understand why Australia, which started with two flights, now has
65 flights a week. They cannot get over the fact that they are at 85 to 98percent capacity and cannot get more flights.
Would you tell us if you still have the same feeling that you had at that time, and will you pressure your colleagues
from transport so some success will result from your representations and the strong representations from the Canadian
Mr.Day: Thank you, senator. We are looking at it, transport is looking at it and international trade is looking at
extending the number of air agreements — Open Skies or Blue Sky — that we have. The present three flights weekly
from UAE is not many. We are looking at that, along with other air agreements, to see what the expansion possibilities
Senator Wallin: The minister has made the case for the EDC to supplement the credit-hungry Canadian
marketplace, and that when you talk about domestic activity it is because Canadian companies do export. I will forfeit
my question because you have dealt with it. Thank you.
Senator Andreychuk: Our report and our analysis are necessary in the long run, but it will certainly be offset now
with what you are doing in the budget. Would it make sense that we come back to review this? As I understand, what
you are allowing EDC to do in the budget has a limited term.
Do you anticipate, as a result of this economic crisis, making different choices about which countries you go into as
a priority? For example, the choice of going heavily into China, would it have been different if we had chosen Brazil?
Mr.Day: We are doing both. As you know, we are pursuing a number of free-trade agreements and more
comprehensive trade agreements with a number of countries, China being one. I will be there in April, which will be the
fourteenth ministerial visit of our government, announcing the opening of six new trade offices.
Visitors to and from China were increasing until this downturn. Imports and exports have increased. All the
indicators are upward related to China. We can and need to do more, and we recognize that. That is why we are
We have a clear focus on the Americas. When I was in Brazil, we signed a science and technology agreement. They
are not as open right now to a fully comprehensive trade agreement, so we are working with them sector by sector and
having some success.
We have just announced that we have finished what is called a scoping exercise with the EU. We are just about to
announce the beginning of the formal negotiation process. That will open up trade with 27 more countries.
You will see free-trade agreements with Peru and Colombia, and the implementation legislation very soon in the
House of Commons. We are being as aggressive as we can on a number of fronts: trade, credit, lowering taxes,
providing stimulus on a number of different levels, the likes of which we frankly have never seen in the Canadian
economy. I believe that will help us through this difficult time.
The Chair: Minister, thank you very much. We hope to see you again soon at some other opportunity.
(The committee suspended.)
(The committee resumed.)
The Chair: Honourable senators, we still have two or three other colleagues who will be here shortly.
I have to absent myself in a few minutes for another commitment. Therefore, I will ask the deputy chair of the
committee, Senator Stollery, if he would be so kind as to chair this part of the meeting. Once I absent myself, I will
return in 15 or 20minutes. Can I turn the chair over to you, Senator Stollery?
Senator Peter A. Stollery (Deputy Chair) in the Chair.
The Deputy Chair: We have Mr.Eric Siegel, the President and Chief Executive Officer of Export Development
Mr.Siegel, if you would like to make a statement and then senators will ask you questions. You may proceed.
Eric Siegel, President and Chief Executive Officer, Export Development Canada: Mr.Chairman, thank you for the
opportunity to appear before this committee.
Access to credit is vital for companies of all sizes. That was a critical issue for exporters in the last review in 2001.
The private sector's risk appetite in many foreign markets was shrinking, reducing the availability of export credit to
Canadian business. It will no doubt be just as important in this current review.
As a Crown corporation, Export Development Canada plays a key role in helping Canadian companies access credit
and protect themselves against a variety of risks. That is our mandate. It is what the Government of Canada created us
to do nearly 65 years ago.
How do we do that? Briefly, we provide commercial financing and insurance solutions to Canadian companies to
export and invest internationally. This includes loans to foreign companies looking to buy goods and services from
Canada; working capital loans to Canadian companies to help them fulfill their export contracts; loans and insurance
to help Canadian companies invest abroad; guarantees to banks making it easier for them to lend; insurance to protect
Canadian companies against a variety of risks, including non-payment; bonding services to help Canadian companies
guarantee their performance; and equity participations.
We do all of this both directly and in partnership with Canadian and international financial institutions. We also do
it on commercial terms without annual appropriations from Parliament. Canadians have invested about $1 billion in
EDC over the years, and in return have seen the benefits of approximately $800 billion in trade facilitated by the
We have been profitable in every year but one. That was back in 1989 — where our need to greatly increase
provisions to cover some sovereign loans, in some highly indebted developing countries, triggered a $198 million write-
down resulting in a loss.
Our auditor is the Auditor General of Canada. Our board of 17 members, drawn from across Canada, offers
significant financial, management and business experience to guide EDC's strategic direction and to ensure its
compliance with the government's guidelines on corporate governance.
The last legislative review confirmed that EDC's self-sustaining, commercial model has served Canadian exporters
well. It also found that a major strength of EDC is its flexibility to adjust its operations to meet changing international
Since then, our contribution to trade has increased significantly. Today, our business volume is roughly double what
it was in 2001. The number of Canadian companies accessing our services has grown by 35percent. Much of the
growth comes from steps you asked us to take.
You told us to increase our efforts with the private sector — particularly Canada's banks — to leverage greater
private involvement in trade financing; to be more accessible and responsive to small- and medium-sized enterprises,
SMEs; to do more to help Canadian companies diversify their markets; to be more transparent; and to strengthen our
practices on corporate social responsibility, especially with respect to the environment.
You also had the confidence to entrust us with all of that, to consult and work with our stakeholders to make those
improvements. I would like to recap what we did as a result.
We strengthened our efforts with Canadian banks and sureties to increase the financial capacity available to
Canadians. We are doing it through loan and contract bonding guarantees, shared financing and insurance programs.
We enhanced our export guarantee program to provide greater coverage for a broader range of client needs,
particularly for SMEs. In 2008, over $14 billion of our business volume was conducted in direct partnership with banks
— the product of 4,450 transactions. We restructured to increase access to SMEs, with 82percent of our 8,300 plus
customers now doing nearly $18 billion in business with EDC. We increased our presence across Canada and put
underwriters in the regions so that we are able to do business where business is done.
At the same time, we established a network of representatives in 14 major cities in high-growth, emerging markets to
increase our contact with foreign buyers and introduce them to Canadian capabilities. Our business volume in
emerging markets grew to $22 billion in 2008, a 31percent increase over 2007.
On corporate social responsibility, CSR, and transparency, we implemented a comprehensive disclosure policy. It
proactively provides more information on our transactions and ex ante notice of our potential involvement in projects
that pose or could pose potential adverse environmental impact.
We are now subject to the Access to Information Act. We are the only export credit agency where environmental
review is a legal obligation. Our environmental policy covers all of our business. Finally, we signed on to the Equator
Principles, an international financial industry benchmark for assessing and managing social and environmental risk in
project financing, that guide most of the world's major banks.
We have come a long way, and today I appear before you on a new report commissioned by the government to help
frame discussion during this current review. Some 82 industry associations and exporters participated in the
consultation phase of the review last year, and we were gratified by the very supportive comments made on our efforts
to meet, in partnership with the private sector, the trade, finance and insurance needs of Canadian business.
The report reflects many of those comments and goes one step further: It says that EDC is very much a model for all
of the world's export credit agencies. That says a lot because export credit agencies are taking on even greater
importance in the current economic climate. Trade is critical to Canada. Just like in 2001, it is access to credit that
keeps trade flowing. The breadth, scope and impact of today's credit crunch, however, is far greater than anything I
have witnessed in my career, and I have been in this business for 30 years.
At EDC, we have always said that we help to grow trade in good times and bad, but that we are particularly
important when times are rough. Our 2008 business results show that. Canadian trade was drastically hit by the U.S.
recession and global slowdown. Today, we are working with more companies on more business in more markets than
ever in our history.
Last year, as the minister pointed out, we worked with 8,300customers, an 11percent increase, which is the largest
one-year increase in our history. Our business totalled almost $86 billion, a 26percent increase, done in 184 markets
around the world.
Our business grew because more Canadian companies turned to us to close market gaps, to pick up where others
pulled back and to help see them through extraordinary times. Our ability to step up and meet this surge in demand
underscores the wisdom of the government's model for EDC: a self-sustaining Crown corporation operating on a
commercial basis. That model gives us the capacity to respond to today's needs and to help grow Canada's trade in a
truly difficult period.
In 2008, that capacity helped to generate $57.4 billion of Canadian GDP, which, as the minister said, is about
4.4percent of total GDP sustaining 575,000 Canadian jobs.
Last year, during the public consultations held by the International Finance Corporation, IFC, we provided our
submission on what EDC must do to meet customers' needs: To partner with the private sector, we have to be able to
make decisions and act at their pace, which will mean more flexibility, delegation and faster approvals. As companies
blur the distinction between their domestic and international business, we must provide clarity around our regulations
and powers on domestic finance, exports, imports and trade development. We must help Canadian business more with
the investment side of trade, building global supply chains and participating in those of others. We have to grow
Canada's credit insurance market in partnership with the private sector to the benefit of customers. We have to be
present in key markets to build our network with buyers and bring that demand back to Canada.
These are all critical to future trade growth. The current financial situation has simply brought them even more
starkly into relief for discussion during this review. We know that there will be discussion of our continuing
involvement in credit insurance. We believe Canadian business is best served by competition and choice. We believe
that the current credit crunch underscores that EDC must be more than a lender of last resort. I would like to
categorically state that we are prepared today, as we have been in the past, to work with the private credit insurers to
grow the market in Canada as the interests of Canadian exporters are well served by a vibrant credit insurance
The IFC report spends some time on greater EDC involvement in the domestic market. In the January budget, as
you know, the government proposed an extraordinary broadening of EDC's role for a two-year period, well beyond
that IFC discussion, so that EDC can better fill market gaps in a highly volatile period. This broader role will be
carried out through the Business Credit Availability Program, another budget initiative designed for EDC and the
BDC, and to add credit capacity to the marketplace by complementing our efforts with those of private financial
If the Senate passes this proposed legislation, we will receive new powers, but, in exercising them, we will be guided
by two principles: to focus on domestic business that also contributes to growing Canada's trade and to act in
partnership with the private sector.
We know that we can contribute so much more if we partner effectively with the private and public sectors. We want
to increase market diversification and get more Canadian companies involved in the investment side of trade. We want
to leverage our capacity with that of the private sector to the benefit of Canadian companies. We want to get more
Canadian companies involved in trade.
We have a long-term vision. It is to be a trusted partner for Canada's exporters and investors, the financial industry,
and Canada's customers worldwide.
We believe that we have the financial and human capital to help more Canadian companies to compete, succeed and
grow their business internationally.
I welcome your questions.
The Deputy Chair: First, I advise honourable senators that Mr.Siegel appears later today on China, India and
Russia as well.
Senator Downe: Mr.Siegel, who commissioned the report and set the frame of reference for it? Was it EDC or the
Mr.Siegel: It was Foreign Affairs and International Trade Canada.
Senator Downe: They paid for the review.
Senator Downe: Why did EDC officials sit in on the town hall meetings?
Mr.Siegel: We participated in the town hall meetings to know what concerns Canadian exporters, financial
institutions and others would raise. Certainly, we are very interested in the review and take it seriously. Such meetings
were only one part of the consultation process. As you know, the consultations involved town halls, direct interviews
by phone and face-to-face, as well as an Internet exchange. We participated in the town halls so that we would
understand the kinds of issues that might be of interest or concern to exporters.
Senator Downe: I would be concerned that the report might be slanted. For example, in Atlantic Canada they had
one town hall meeting in Halifax. Only 11 people attended the town hall meeting, excluding EDC officials, and 5 of
those 11 were from government agencies. I would imagine that a client of EDC would not be very comfortable
criticizing EDC in a room with EDC officials present. I would think the discussion would be hindered, but you do not
share that concern.
Mr.Siegel: I do not share that sentiment, senator, because the town hall meetings were only one part of the
consultation process. In advance of the consultations, as well, the IFC advertised extensively across the country the
upcoming consultations and venues available for interested parties, exporters or others to contribute.
While the town hall was one way for an exporter to make their remarks known, they were free to approach IFC
directly right after the town hall in private, to ask for a one-on-one meeting with the consultants or to supply their
comments by way of the Internet. There were myriad ways for them to participate in the strictest of confidence, if that
was their preference.
Senator Downe: We heard from one of your private sector competitors last week that they lost an account in
Atlantic Canada because of the AAA rating held by your agency, which the private agency cannot obtain. They alleged
this was a long-time customer of their business. When they went to the bank to refinance, the bank insisted that they go
with EDC because the bank had a higher comfort level with its AAA rating than with the lower rating of the private
Why would you be in direct competition with that private company when the private company had held that
account for years?
Mr.Siegel: We are not in direct competition. We are one of a number of providers of credit insurance. Five major
private sector credit insurers are available to exporters, as well as in EDC.
We do not compete on the basis of our credit rating. From a funding perspective, our credit rating is germane with
respect to our lending program, but this is contingent liability we are talking about. Insurance is contingent liability.
To be fair, I can understand that a bank may look at any insurance company and, in a deteriorating market, may
express concern with dealing with that insurance company if there are options available to them. AIG would be a case
in point; and EDC is an option available to exporters.
I would stress that the price for that insurance is not influenced by our rating. The price that the insurer would pay
would be no more favourable than that available elsewhere — and probably even more expensive. Brokers tell us that
EDC's insurance tends to be more expensive than the private market.
EDC is doing nothing to induce the insured to change their insurance. The decision of the bank is based on what
they think will be most beneficial to the exporter, who is the insured party.
Senator Downe: I am not quite sure what the answer is to that company that lost the business to you that they held
for years. If you were not there doing that, the bank would have stayed with their private insurer.
Mr.Siegel: I cannot determine that. I can tell you that the bank will advise an exporter on their various insurance
options. The private sector is an insurance option. I do not know the transaction itself, and therefore whether EDC
was perceived as being a more secure option. However, I can assure you that EDC is not inducing a shift to EDC
insurance from the private sector by virtue of price or the like.
The Deputy Chair: Thank you, Mr.Siegel.
Senator Corbin: You will have to acknowledge the senators who have not had the opportunity to ask a question.
The Deputy Chair: I do not know whether Senator Fortin-Duplessis asked a question in the last round.
Senator Fortin-Duplessis: I asked the minister a brief one.
Senator Corbin: Mr.Deputy Chair, what is the point in remaining seated here for hours without being able to ask a
Senator Fortin-Duplessis: Welcome, Mr.Siegel. In your presentation, you referred to the disclosure policy. The
report states that, since 2007, EDC has been subject to the Access to Information Act. Unfortunately, any application
of that act is subject to a very broad exception under paragraph24.3. According to ECD's disclosure policy, EDC will
seek to have all sponsors of Category A projects located in the G7 countries consent to EDC disclosing basic
information on the transactions, such as country and project name.
Consent to this type of disclosure is not a precondition to EDC's support. For projects located outside G7 countries,
EDC will require that the client agree to disclose this kind of information and release available information from the
environmental impact study. However, EDC can make an exception to that requirement. Apart from these
circumstances, EDC's disclosure policy is silent on the disclosure of privileged information.
The effect of the statutory provisions is to characterize all information received by EDC from its clients as
confidential. This includes information that would not cause prejudice to EDC clients. Those provisions also treat as
confidential documentation developed during project evaluation and the approval and monitoring phases since those
documents necessarily contain information received from clients.
Consequently, it is impossible for Canadian taxpayers and their parliamentary representatives to know how EDC
makes its project categorization decisions and how EDC assesses compliance of projects underway, the results of
monitoring activities and any penalties that EDC applies for non-compliance. In short, EDC's discretionary authority
is out of all proportion to transparency requirements.
Do you not believe that those provisions are a barrier to application of the Access to Information Act?
Mr.Siegel: No, I do not think that they are inconsistent or obstruct. I would like to first describe the environmental
review process to which EDC is committed.
As I said, EDC is the only export credit agency in the world, but most notably among all of the OECD countries,
that has a legal obligation to undertake environmental review with respect to its project-related activity. The EDC goes
further in having an overarching environmental policy; even if it is not a project, we still have a policy of evaluating the
environmental impacts of the business that we undertake. That is the framework under which we operate.
It is important, as well, to understand that that is not something that we can take lightly. We can be challenged
legally by anyone who seeks to do so as to whether we have lived up to the requirements of that environmental review
directive. As a consequence, we could have an injunction against our being able to go ahead. We have not been
challenged, and I think it goes to disclosure, which I will come to in a second.
I also want to point out that that environmental framework is not one that we can operate in secret. The Auditor
General has been asked specifically to audit both the adequacy of that framework and our adherence to it. We are in
the midst of our third audit in this regard, which will be made public probably by the middle of this year. We fully
expect that the results of that audit will be consistent with the results of the previous audits, which were that EDC has a
well-designed framework and is adhering to that framework.
EDC deals in the commercial realm; the business that we do is with commercial institutions. Many of these are
publicly traded institutions, so our ability to engage with them is a function of our ability to ensure that, where
necessary, they are able to protect the commercially confidential nature of the information that they are supplying to
The process EDC has followed is, first, to educate the stakeholder community as to not only what our requirements
are, but how we go about doing an environmental assessment so that there is confidence in the quality of the process.
The information that is of a commercial nature is kept commercially confidential within EDC. Often, however, that
information is in the public domain.
I will give you two areas: One is that EDC, when conducting a review of, say, a category A project, requires that an
environmental impact assessment be conducted. EDC does not do that environmental impact assessment; the sponsor
of the project does.
I mentioned ex ante disclosure. We then provide advance notice to the public that we have been approached to be
involved in this project. Following that, we direct them to where that information is publicly available to them so they
can read the environmental impact assessment, EIA, through the sponsor. They can contribute commentary or raise
any issues with EDC that they choose so we can take them into account in the course of our assessment.
It is using the avenues that we have available to us to make the information as publicly available as we can.
Finally, EDC's disclosure policy is that EDC discloses on its website the details of all transactions, all lending
transactions, all lending-related transactions and all equity transactions. To obtain that information, we must first
have the approval of the commercial parties who are participating. We have on our website a further measure of how
many transactions have not been disclosed because we have not been able to receive that approval. The number is zero.
We have been at this now for six years or so, and we have been successful in obtaining the right to make public the
information in every case.
Therefore, the public are notified not just in advance that we are looking at a project and where to go to get access to
the information and be able to contribute, but also post-commitment EDC discloses that we have done that
transaction. Also, if the project requires an environmental assessment, we disclose the categorization of the project, as
well as the international standards that we use to evaluate the project.
This is done to further provide confidence to the public that we are not using a standard that would be considered
inappropriate but are, in fact, using a standard,in most cases, that is either the IFC or the World Bank standard.
I also mentioned that we are a signatory to the Equator Principles. Therefore, when we engage in our project
activity, we are engaging with the banks and also the IFC performance standards as it relates to all of our project
activity. In fact, they like to see us there because we have the capability to do that kind of analysis.
It is an evolutionary matter, but we strive to have a balance between open, transparent disclosure of information
while protecting information that is in the commercially-confidential realm.
Senator Corbin: How many reviews is the corporation subjected to in the course of a five-year period?
Mr.Siegel: Can you give me a second to add it up? There is an annual financial audit.
Senator Corbin: Who does that audit?
Mr.Siegel: That is done by the Auditor General of Canada.
Senator Corbin: Every year?
Mr.Siegel: Yes, every year. Our financial statements are audited in accordance with generally accepted accounting
principles, GAAP, and with the assistance of outside professional services.
Currently, every five years, the Auditor General is required to conduct a special examination of Crown
corporations. We are right in the midst of our special examination, and that report, which is made public, will probably
be released in the latter part of this spring or by mid-year.
I also mentioned that every five years, under current legislation, the Auditor General is required to conduct an
assessment of our environmental framework, the adequacy of the framework, as well as whether we are implementing
it in accordance with that framework.
We are required to make a series of reports in addition to filing our corporate plan on an annual basis. We have to
report to the Department of Finance Canada with respect to all of our borrowing activities and our liabilities. Other
reports and audits include official languages, diversity, etcetera. We have a number of very special audits.
Senator Corbin: What do you mean by "diversity''?
Mr.Siegel: That is auditing the corporation for its population with respect to diversity in our work population —
women, Aboriginal peoples, visible minorities, etcetera. A series of audits take place, but the ones I outlined would
form the major audits that go to either the financial integrity of the organization or to its plan and its strategic
Senator Corbin: This committee is new to this exercise, so you will understand that we are asking rather primitive
questions, if I may use the term.
You referred to the previous review as the 2001 review. This is 2008. That does not add up to a 10-year review. What
Mr.Siegel: The review started in 1998 but was completed in 2001. It took some three years.
Senator Corbin: When was the current review started?
Mr.Siegel: It was started in the spring of 2008, and we are now in 2009. It can take anywhere from eighteen months
to, in that case, three years. It was the first time such a review was conducted, and it took three years to fully complete.
Its completion actually ended with amendments to EDC's legislation, which is one of the reasons why it perhaps went
Senator Corbin: Do you consider this review essential to the health, welfare and good conduct of your corporation?
In other words, could we skip this review in light of all the other reviews you have to undergo periodically or annually?
Mr.Siegel: Perhaps elements of the review now do not have the same importance they once had, or elements of
other reviews may not have the same importance. For instance, the Auditor General's review of our environmental
practices was initially introduced because, at the time, the legislation was changed to give us a legal requirement to do
an environmental assessment at the time of the last review. The government wanted to ensure that we were
implementing and wanted to see progress, so they asked the Auditor General to do a series of reviews.
Today, we live in an environment where we are part of international agreements; where other means are in place to
assess whether EDC is operating appropriately and in a best-in-class fashion in that environment.
Therefore, there is potential for that. At the same time, there may be potential for the review to not necessarily be
eliminated but to be narrowed in its scope. That would be a function of what we see at the time.
On the flip side, though, trade is an evolving matter. The world does not stay still, so the advantage of the review is
that it does provide an opportunity to take stock of how the world has changed and whether EDC's mandate and the
legislation and regulations that surround it are adequate to allow it to do what it is supposed to do. This review does
that; it points to limited areas where additional flexibility is viewed as important in order to ensure that in the next 10
years, EDC will still be able to keep pace. In that sense, I would say the review is useful.
Senator Corbin: I am sure we could spend a whole session on the environmental aspect of the legislation.
How many bosses do you answer to? I know of the Minister of Finance and Foreign Affairs and International
Trade Canada. Who else is there?
Mr.Siegel: Formally, I respond to the board of directors, to be honest, and the chair is accountable to the Minister
of International Trade.
The departments, however, that are perhaps most concerned with EDC, and where there is the most interaction,
would be Foreign Affairs and International Trade, the Department of Finance, Industry Canada, Agriculture and
Agri-Food Canada, as well as Treasury Board, but it can extend to others. Those would be the ones where EDC is
interfacing most often because of the underlying business we support.
Senator Corbin: From where do you get your environmental expertise?
Mr.Siegel: We actually have an in-house environmental team, which is the largest amongst export credit agencies.
We hire environmental assessment specialists and maintain that as in-house capability. Then if we need to augment
that with specialists, we go to outside consulting firms and hire them on a contract-specific basis.
The Deputy Chair: Honourable senators, we are suspending but I am getting conflicting messages here. The vote, I
am now told, is taking place at 5:45.
Senator DiNino: It is at 5:53 I believe.
The Deputy Chair: I am told that it is 5:45.
We should suspend now, and we will reassemble right after the vote. We apologize, Mr.Siegel. Honourable
senators, Mr.Siegel is on the agenda; he will be here for a while.
We will not be long, so we should err on the side of caution and suspend now. Senator Dawson is next on my list,
and then Senator Andreychuk.
(The committee suspended.)
(The committee resumed.)
Senator Consiglio DiNino (Chair) in the chair.
The Chair: I thank Senator Stollery for doing a wonderful job as deputy chair.
For about 10 minutes or so, we will continue with the study of the report with Mr.Siegel. Then we will change
witnesses and go on to the next item, which I will appropriately describe at that time.
Senator Stollery: I think they are the same witnesses, Mr.Chair.
The Chair: Yes, some, but there will some additions.
Senator Dawson: My first question concerns EDC's administration costs since 2000. I will cite my example based on
bonuses. In 2000, out of $92 million, there was $37 million in administrative expenses. In the past few years,
administrative expenses have represented nearly 50percent and even 60percent of EDC's revenue. I can understand
that there can be growth in administrative expenses, but I find it hard to believe that a company that operates in a
competitive environment can double its administrative expenses, when its revenues grow by only 20 or 25percent. My
question is this: With respect to the growth that has been imposed on you by the government, which gives you new
operating areas, are there any responsibilities in your environmental studies that are increasing your administrative
burden to such a degree that it is causing competitiveness problems for you, not in Canada because you have a strategic
advantage here, but internationally? Does the fact that your administrative expenses are so high prevent you from
being internationally competitive?
My other question is more about the question we asked the minister. There are two tracks of debate now, as we
speak. While we are here discussing EDC, the Finance Committee is discussing the budget bill. I am just concerned that
somewhere down the road, we will be discussing issues that have been addressed by the other committee. We will have
to address the fact that maybe our timing is off, and we should delay our study, or we should try to get clarification on
what will be said in the other committee.
The Chair: Was that question addressed to me?
Senator Dawson: It was a comment to Mr.Siegel and a question addressed to you.
Mr.Siegel: Thank you for the question. Let me address the question of administrative costs and revenue that goes
with that; the relationship between them.
The bulk of the EDC's revenues are derived from the lending program not just insurance premiums. When you look
at the actual lending revenues, about 80percent of that comes from the activities of our lending program, while
20percent comes from premiums, whether it is receivables insurance or bonding or foreign investment insurance or
the like. They reflect the administration expenses of the overall operation.
Keep in mind that our revenues are driven very much by the value of the U.S. dollar versus the Canadian dollar. We
transact primarily in U.S. dollars, and contracts internationally are denominated in U.S. or foreign currencies, so we
are required to insure or to finance in those.
Now, we are seeing a reversal. However, in the last few years, with the Canadian dollar at par, we have had less
revenue coming in when it is translated back to Canadian dollars. Our administrative expenses are in Canadian.
Therefore, you would expect to see that the relationship between revenue and expenses would look higher in the last
couple of years, and that is primarily an exchange issue.
The other factors that drive EDC's expense ratio now relate more to pension obligations and investments that we
have made in systems, and the depreciation associated with those systems. The corporation has not been growing its
head count significantly over the last few years and has actually been leaning out its operation to get higher levels of
Finally, when you put all those administrative expenses into perspective, they run about 25percent on average of
our operating income. Our premium plus our net interest revenue is our operating income. The administrative expenses
represent about 25percent, which is probably the leanest among financial institutions. We do not have a retail
operation, but banks would typically be in the area of 50percent, and even a wholesale bank without retail might be
in the area of 35percent. We are running at about 25percent on average.
Senator Dawson: Thank you.
The Chair: The minister has already answered it, but I wondered if you had any comment on why we are studying
the report now when, in effect, certain changes to EDC are contained in the budget bill. I see it as two separate things,
but that is not the issue. Do you want to make a comment on that?
Mr.Siegel: I would, thank you.
In my view, they are two distinct things. The timing of the legislative review was set well in advance, and its purpose
is not just to look at the immediate situation but to look out into the future. Therefore, it was examining a number of
things. One of them was whether EDC should continue to be writing export credit insurance, and it also revisited the
issue of whether EDC should re-enter writing domestic insurance, as it had in the past but had exited that on the advice
of the government.
The recommendation in the report is that with respect to export insurance, the view is EDC should not exit that
market; it is a competitive market and Canadian companies are well served by EDC being in the market alongside
With respect to the domestic market, the recommendation is that there did not appear to be a reason for EDC to
enter at this time, but if there were to be a material, significantly adverse change in the marked and gaps emerged, the
government should reconsider that.
As the minister said earlier, the report was conducted over the course of 2008, but late in 2008, we saw just that: a
material, significant erosion in the market. We saw and heard from Canadian companies saying that they could not get
domestic insurance when they needed it. There is a capacity issue here. The government has decided to address that on
a temporary basis by giving EDC the ability to come back into the market. How we will do that is very important.
EDC's intent — and this has been in discussion with the private insurers — is that we are not coming in as a direct
provider of insurance in competition with them; we are coming in as a re-insurer. That is our desired approach. They
will be the insurer of record; they will be the ones who will be interfacing with the customers, and we will be providing
them with capacity by way of re-insurance or some form of indemnification. The only way we would ever come in
directly would be if they just run out of capacity and the need is there for us to fill gaps. However, that is not the
intention. In fact, discussions with the insurers over the last few weeks have been quite favourable. They welcome that
approach and are quite willing to work with EDC's capacity in that manner.
The Chair: Thank you, Mr.Siegel, that was a very useful clarification.
Senator Andreychuk: You are getting special powers for two years, and you will do business differently, may I say, in
that two-year period. This review is based on your previous activities and responsibilities. There is some room there for
improvement, changes and flexibility — I believe was the word throughout. Once you have this added capacity for two
years, how will you judge that you were successful in carrying that out without jeopardizing all your other mandates?
Would the conclusion not be after two years, that you would say that it was successful, helpful; maybe it was needed in
the economic recovery, but it may be needed in the field anyway, so we should continue these capacities? How will you
judge future performance and needs for Canadian business with this additional power that will be added on? I do not
know what a fair evaluation would be.
Mr.Siegel: It is very important that in this period, despite the additional powers that are being proposed for EDC,
that EDC not forget what its core business is. We are focused, and our advice to the shareholder throughout has been
that that core business is as important today, if not more important today. At the end of the day, it is about creating
contracts, creating revenue through exporting and through foreign investment. That is what will help with the
EDC is as committed, in fact more committed. I can give you many statistics that show that EDC, over the course of
2008, has been stepping up on its core business to fill the gaps that have emerged where the banks are not there, where
the insurance companies are not there, and we will continue to do that.
Even in the first two months of this year, before we have had any new business through legislative powers, EDC's
core business is writing $230 million of business every business day — $9 billion of business in just two months; 419
new customers; 500 new transactions with banks, etcetera. There is a lot there to say that we are not abandoning that.
In fact, it is very important for us to be able to operate that side of the business just as we did, but with anticipated
increases in demand. We had already started actually determining where we would need additional resources, and we
were recruiting those additional resources in order to be able to do that.
We have also, in a sense, looked at our financial capital and taken a somewhat bifurcated approach to ensure that
we have the capital to support the core business. EDC, at year end, had $9.4 billion of capital against $30 billion of
loans and $28 billion of contingent liabilities. We see that capital continuing to be available to support that core
The government, on the other hand, paid in $350 million in early January, which they had announced back in
November, and we are notionally allocating that capital toward the domestic business that we would step up to do if
and when the legislative powers are in place. We want to ensure that we are not robbing from one side of the business
to feed the other side of the business. As you can see, within EDC, we now have a way to track the business across what
we will call core, or what we would have called new domestic powers, extraordinary domestic powers. We will actually
track that business and what its capital implications are because we do anticipate that, at some point, the government
will tell us they no longer want us to do that. Therefore, we have to be able to exit that business and know what its
financial impact might be.
Combined with that, there is the bank credit availability program, and this is, again, Crown's working with the
banks to step up and provide additional credit, primarily in the domestic market. Both independently and through that
body, we will be reporting the actual results of that to Parliament — how much business is being done, numbers of
transactions, the volume of business, etcetera.
We are working hard to be able to track the business separately, even though it will be one organization that will
underwrite it. As I said, we were hiring more resources just to deal with our core business. We have now identified that
we will need to take on between 30 and 40 more resources to ensure that we can handle the domestic power as well.
My final comment is that that is why we also feel it is important to partner with the financial institutions in the
domestic space, with these new powers, so that we are, in a sense, using their resources, and they will also track the
business for us. That way, we are not just doing something that is incremental and would be very hard to disassociate
I hope that answers your question.
Senator Andreychuk: I can get a written response to my question. It is more of a question about markets that EDC
has not worked in for one reason or another; for political issues, we have not been in some countries justifiably. I am
being told by some businesses that by the time they arrive, other countries, our competitors, are already there
positioned. They wondered why EDC is not looking more globally and more position-ready — if I can call it that —
into some of these markets, which are not global markets such as China but are niche markets for particular provinces
or particular industries.
The Chair: That is question number one and can be in a written form, if you wish.
Senator Downe: I want to take advantage of having the president of EDC here to ask what is EDC's policy in
financing companies that do business in countries with repressive military dictatorships, for example in Burma?
Senator Grafstein: Welcome Mr.Siegel. I am looking at the recommendations in the report, which is supposed to be
the subject matter of this hearing although it seems to be sliding all around, but I will return to it for a moment.
Could you tell us in writing which aspects or recommendations you violently disagree with and why?
The Chair: Thank you. We only have one question you have to answer now, Mr.Siegel, and that is Senator
Mr.Siegel: We are not open to do business in Burma, and that is because we follow the position of the Canadian
government. If the Canadian government is not prepared to issue export or other trade certification, then EDC cannot
Beyond that, EDC gets advice from Foreign Affairs and International Trade Canada as to human rights issues in
countries, which we can use to assess an individual transaction or project that we are undertaking. We look to the
Canadian government to determine where EDC can or cannot engage.
Senator Downe: Are you financing companies that are doing business in Burma or with the Burmese government?
Mr.Siegel: I could not answer that.
Senator Downe: Could you send me that information? I do not want to know the specific names of the companies,
for privacy reasons if that is a problem, but if you are funding Canadian companies doing business there, I would like
to know that.
Mr.Siegel: Canadian companies doing business in Burma? I do not believe so, but I will check, because Canada
does not allow Canadian companies to engage in trade with Burma.
Senator Downe: Will you send me that in writing?
The Chair: Mr.Siegel, please send your answers to the clerk, and we will ensure that members of the committee
I will now invite Benoit Daignault, Senior Vice-President, Business Development, Export Development Canada, to
switch gears. I understand Mr.Siegel will be staying.
Mr.Siegel: I will stay with you.
The Chair: You are more than welcome in case we want to ask you questions, but if they ask you questions on EDC
as it relates to the study, you can tell them that I told you not to answer.
Honourable senators, we will continue our ongoing study on the rise of China, India and Russia in the global
economy and the implications for Canadian policy. I understand that Mr.Daignault will make some comments, after
which we will have questions from our colleagues.
Benoit Daignault, Senior Vice-President, Business Development, Export Development Canada: Thank you,
Mr.Chairman, for inviting EDC to appear before this committee. We appreciate your interest in EDC's activities
in support of Canada's trade agenda.
I will present the first half of my remarks in French and the second in English. Feel free to ask questions in your
language of preference.
What a different world we live in since EDC met with you last year to look at trade developments in China, India
and Russia. The credit crisis and world recession have affected every economy — including the emerging markets we
are looking at today.
Still, some things do not change. Trade remains vital to Canada's future prosperity and standard of living. Emerging
markets remain crucial, not only to provide new buyers, but also for businesses to create or participate in global or
regional supply chains. And, lastly, access to credit is what keeps that trade flowing.
These immutable facts about trade, combined with the recession in the U.S., only reinforce the need for Canadians
to look to emerging markets such as China, India and Russia.
Certainly, the challenges and risks in those markets remain, and have even deepened over the past year — it is
precisely EDC's role to help Canadians overcome those risks and seize the new opportunities that exist.
Before I talk about how the landscape in China, India and Russia as changed since last year, I would like to tell you
how our own experience in those regions has evolved since we last met. In 2008, EDC's volume of business in all
emerging markets grew by nearly a third to reach a record of $22 billion; that is more than a quarter of the total
business volume EDC facilitated.
China, India and Russia still figure prominently in the top five emerging markets where our customers are trading.
All together, EDC served well over 1,000 Canadian companies in those markets, mostly SMEs. Strong growth
occurred in our volume of business in China and India last year, even as economic growth everywhere had started
declining. We also saw real leaps in our client base. In Russia, market conditions were more difficult, but EDC's
customers managed to maintain similar volumes of activity as in 2007.
Given the importance of those three markets, we added a third member to our on-the-ground team in Russia in
2008, a third representative in India and a fourth person in China.
We work closely with the Canadian Trade Commissioner Service. No matter how or where our business grows,
corporate social responsibility is an integral part of EDC's operations and risk management practices. Our
commitment to transparency does not waiver.
I would now like to offer some remarks specific to each market. As you know, China has been accustomed to
double-digit annual growth for most of the past 15 years. While growth was still high in 2008 compared to our more
mature economies, China was showing signs of weaker export orders in 2008. It should continue its growth in 2009. In
2008, China was our second largest emerging market based both on volume of business and number of customers.
The top three sectors for Canadian exports and investments in China in 2008, by volume, were extractive (mining,
oil and gas), information and communications technologies and infrastructure.
We served nearly 75percent more customers in the Chinese market last year than in 2007.
The majority of Canadian exporters sought out for EDC for insurance against the risk of non-payment by their
Chinese buyers, which also helps them secure more working capital.
EDC's business development strategy hinges on creating financial capacity by using its existing financial partners in
China as well as Canadian financial institutions to increase access to appropriate solutions.
In 2008, for the first time, we posted a senior equity manager abroad — in Beijing — to develop investment and
trade opportunities for Canadian companies in Asian markets, especially China and India. We are focusing on mid-
sized and smaller companies that do not have the size and influence to make contacts in Asia alone.
India is another top-five priority market for the Canadian government and EDC. It is the third most important
emerging market to our clients. Eighty more companies turned to EDC for services in India in 2008 compared to 2007.
Like China, India offers a market that is predicted to grow modestly this year. We see most of this activity in
information and communications technologies — ICT — light manufacturing and infrastructure sectors. Industrial
output is down. A marked pullout of foreign investment and a drop in the rupee has happened. Bank credit has been
restricted, so commercial and consumer spending will suffer.
In this environment, EDC's strategy focuses on deepening relationships with Indian private-sector companies that
are respected globally as well as creating capacity with financial partners such as ICICI Bank Canada and Canadian
banks in the market.
More focus is being directed toward promoting investments both at the company level and with Canada's
institutional investors — mainly in major Indian infrastructure projects using Canadian expertise. For example, EDC
invested in an infrastructure fund in India in late 2007, in which we can involve Canadian companies interested in
exploration, transportation, telecommunications and social infrastructure opportunities.
In reference to the India private-sector companies, Reliance Communications is a major EDC customer. We
organized networking sessions in Canada to introduce Reliance Communications to potential Canadian suppliers. The
event attracted more than 130 Canadian ICT companies, many of which met one on one with Reliance
Communications financing and procurement executives to promote their technologies and services.
Canadian companies trading around the globe still tell us that India presents unexpected challenges. Trade deals can
be bogged down by Indian trade and financing rules, which are more time consuming that many exporters expect.
As far as Russia is concerned, EDC has facilitated a significant part of Canadian exports to Russia.
Despite global troubles affecting Russia last year, our own client's activities still made the country our fifth-largest
emerging market in 2008. It was fifteenth five years ago.
The current weakness in the Russian economy masks the progress that has been made over the last few years to
connect Canadian investors and exporters to the Russian market. Agricultural products and equipment exports
remained strong in 2008. Other key sectors include transportation, mining, and ICT.
Our external partners underpin our strategies in the Russian market. Among our trade development partners are the
Canada-Russia Business Financing Group, composed of Russian and Canadian companies as well as government
In conclusion, although Canada's exports and investments are diversifying into China, India and Russia, our trade
is not growing at the same pace as these emerging markets. Canada will need to work diligently to position itself in
these three emerging markets to ensure it remains competitive globally.
EDC remains committed to helping Canadian exporters and investors. To do so, we continue to develop the
following key strategies: leverage financial partnerships; deepen relationships with key reputable buyers and borrowers
in those emerging markets; focus on Canadian investors, including institutional investors in the market; and implement
specific initiatives in priority sectors.
From our experience, I can think of 10 factors that will provide the right conditions and reasons for a Canadian
company to dedicate resources to international trade; reasons that will bring focus, desire and a willingness to go out
and be successful in a given market. They are somewhat intuitive, but I would like to share them with you today.
The first one is competitiveness. It is not about pricing but about having access to resources, technology or expertise
that are in demand in that given market. The second is the quality of information available: the transparency in
accounting, taxes, duties and the like. The third is logistics in that it is not just about goods, it is about people as well; is
it easy to get in and out? The fourth is the legal system: What are your rights? What kinds of arbitrage opportunities
are available? The fifth is the banking system in that country: Can they support trade and foreign exchange? What is
the availability of credit? The sixth is foreign investment capabilities: As an investor, are you well protected or not?
Seventh is political dialogue: A deeper engagement makes a huge difference for corporations. The eight is the presence
of major integrated groups: Do you have visibility on the industries and do you have visibility on supply chains?
Obviously population is the ninth: If it is a big market, it is not just a place to produce but also a place to sell. The tenth
is a true partnership; a partnership that works and that can remove culture and language barriers.
You can think about these factors in the context of the three countries. As you can tell, many of these are way
beyond our collective control. However, some are not, and they can make a big difference.
Thank you for this opportunity.
The Chair: Thank you, Mr.Daignault.
Senator Fortin-Duplessis: In your view, should Canada post more trade commissioners or EDC representatives to
tier 2 and tier 3 cities in China, India and Russia? Because countries like the United States, the United Kingdom,
Germany and Australia have a much greater presence in those countries than we do. What is your comment on that? I
have seen that, in China, there is a representative in Shanghai and a director in Beijing, in India, there is one in New
Delhi and another in Mumbai and, in Russia, there are two in Moscow. That is not a lot to cover countries as large as
Mr.Daignault: There is a difference between trade commissioners and EDC people who are in the market. I do not
have any figures on the number of trade commissioners with me, but I understand they have a substantial presence in
terms of their numbers everywhere, if you compare them with EDC's presence.
Senator Fortin-Duplessis: It is mainly the EDC representatives I am talking about.
Mr.Daignault: Yes. EDC's representatives do not work in isolation. As you noted, we work extensively in
partnership with the financial institutions and trade commissioners. The market dynamic is such that companies
wishing to be active in those countries first of all go knocking on the trade commissioners' doors and the case will be
referred to EDC as the transaction comes together. So there is an incredible leverage effect that occurs with the trade
commissioners' service and with EDC.
As to market coverage, one of our strategies is to establish partnerships with local financial institutions. An Indian
company, for example, wishing to buy goods or services, because the Canadian supply seems promising, can go to its
bank to get a program with EDC, and EDC will support the bank so that it supports the foreign Indian buyer. This
gives us a program that works through a single transaction with the bank. That generates a multiplier effect that
supports Indian companies buying Canadian goods and services.
Is there a need for greater EDC presence in the market? The answer is yes, but you also have to understand that, in
the financing field, there is a very broad variety of ways to seek out levers, and the results we wind up with in terms of
numbers have nothing to do with the trade commissioner service, because that would be building additional
infrastructure, not using existing infrastructure that we can rely on.
Senator Stollery: It was a very interesting presentation. Of course, these markets are very important for Canada's
future. One could certainly say that we do not have enough people in China and Russia, with 12 time zones and for all
kinds of reasons.
Explain one thing to me. This is Export Development Canada, but when you say you have your office — you have
your officials — that is not the same thing, I do not suppose, as the trade office. We are opening trade offices, but that
is different. You are there to facilitate credit insurance, I presume — tell me if I am wrong — but you are there to
facilitate insuring exports. It is an insurance business, after all. That is separate.
I lost the thread a little bit because you are there for export insurance. You might like to enlighten me where that
becomes export promotion because export promotion is a little different in my mind. Maybe it is not. However, would
you enlighten me a little on that?
Mr.Daignault: Absolutely. The corporation is involved in insurance but also in lending. It can be working capital
lending, but also term lending.
Now, lending happens in two different areas. In Canada, when a Canadian company needs support, they can access
EDC financing through their bank but also in market when there is a foreign buyer of Canadian goods and services.
Looking at the foreign representation model, we actually open a representation in a market to establish a
relationship with the main buyers in country so that we can put some financing in place for existing procurement from
Canada or try to create procurement. This is something we do where we knock on the doors of those major Indian
corporate entities; for example, I was mentioning the example of Reliance Communications. We knocked on the door
of Reliance Communications, and they needed some money. They were in a financing round. We essentially told them
that we would be part, with their other bankers, of their financing round, that we would be there with the same
conditions and such of all their bankers with just one additional condition. They were to promise that they would —
and promise, it is on a piece of paper — work with us to identify companies from Canada that can become part of their
We have a portfolio of these transactions. Obviously, we are creating a long-term relationship with that. It is one
thing to knock on the door of a company and say that we want to do business with them, but after a while, you know,
unless you put something real on the table they will stop opening the door.
To give you a sense, we have about a $10-billion portfolio right now of those loans with foreign companies. EDC
gets a return because it is similar to a typical loan, so we get the normal market return on these loans and obviously
make money with that. This is how we generate income. It is a big piece of our income that we can re-deploy back to
help Canadian companies. In addition, we actually invest in a match-making effort because now we have their
attention and are able to create procurement in certain Canadian companies in their supply chain.
To give you an example, we have been tracking this portfolio for five or six years now. It grew significantly in the
last couple of years. However, on average, the first year we sign a deal with a company, for every dollar that we make,
they buy about 10 cents from Canada. After three years, it is 50 cents, and after five years, it is more than a dollar. It
just illustrates that when you actually set the table and you have a good reason to invest in a relationship that
relationship, long term, pays big dividends.
This is what we do with our foreign offices. We basically have targeted or identified about 200 companies
worldwide. Many of them are in India, China and Russia, but we identified about 200companies and our goal is to be
able to establish a relationship with those companies.
Senator Stollery: Chairman, I will let other people ask further questions, but the proof of your success, or certainly
an indication, is that you produce a profit with all of this. This is not some airy-fairy operation where nothing actually
happens because you produce a profit on your business.
By the way, I suppose when they say a Canadian trade office, it probably includes your people as well, is that
The Chair: I just have a clarification. Is this promise that you spoke of contractual or an expectation?
Mr.Daignault: We try to make it contractual. We are typically not successful, but at the end of the day, I would say
you can refer to it as a comfort letter. We try to make it as robust as possible. This being said, the engagement is likely
around one or two years. The terms of the transactions are likely one or two years, maybe three, but we do not have to
In a case where we are not working well with the company, or if we see that they do not participate, then we simply
do not renew.
The Chair: Fair enough. You expect something in return, and if the business does not come the other way, then you
may not deal with them again.
Mr.Siegel, did you want to make a comment on that?
Mr.Siegel: I want to add that of our lending operation, Mr.Daignault has described one part of our lending
operation, and this is a business development effort that we take on. Many loans that we enter into are in respect of a
very specific contract. The loan is going to a foreign buyer; there is a very specific contract that it is financing.
Therefore, it can take a very structured and contractual role to this more of a business development-type role. EDC is
somewhat unique in doing the latter as a credit export agency and has been very successful in there by being able to
create more Canadian presence in those markets, which ultimately leads to more direct contracting in the future.
Senator Andreychuk: You have your own business strategy based on the EDC limitations — that is not the right
word — but anyway the corporation has set up what it can or cannot do. We will amend some of it in BillC-10 if it
comes to the chamber.
You also receive, as I understand it, the statement of priorities and accountabilities from the Minister of
International Trade. To what extent do you take that into account and adjust your own business strategies? The reason
I ask is because you were focusing in Russia, China, India, Mexico, Brazil, and the government has recently announced
that there would be greater emphasis on the Americas.
I would be interested to know how you would adjust what you are doing to that, bearing in mind that you did not
get this statement of priorities and accountabilities, if I understand, for 2008; you were working off the one for 2007.
The government has announced the Americas. How do you then incorporate the government's expectations of the
support for the business community?
Mr.Daignault: We were co-chair of the Committee for the Americas. In terms of looking at our business
development strategies, there is a very strong relationship with DFAIT where we engage and take into consideration
our respective agendas to actually come up with not a common strategy but a strategy that takes into consideration the
priorities of our shareholder.
As I mentioned, we are connected not only here in Ottawa but also in the market. That connection supports both
day-to-day businesses and the strategy. As a result, I would say that even when there are activities or visits from the
Government of Canada in market, EDC is leveraged to participate and to contribute to the effort and results of those
Senator Andreychuk: When you say "leveraged,'' does that mean you get additional resources? Is that what you
Mr.Daignault: No, sorry.
Senator Andreychuk: Do you move your mandate to accommodate? What do you mean?
Mr.Daignault: No, we provide our connections, our existing resources toward that common goal.
Senator Andreychuk: Okay. At the end of your presentation, you pointed out the principles of what you were
looking for. It seemed to be like rule of law, a judicial system that works or some political relationship that strengthens.
Although you said it broadly, I was curious you did not mention that good relationships build good businesses.
However, you did not say anything about building on our base in Canada of businesses that have connections by virtue
of their heritage into the areas such as China, Russia and the Americas come to mind, as does the Ukraine, from my
perspective. If you have some roots and language capability, I know that there is a tendency to go back to do business
there. You did not put that as a strength or an issue. I would like you to comment on that.
Mr.Daignault: You are absolutely right. People with natural connections — the diaspora and such — are a very
important piece of the explanation of why trade happens between countries and why those strong connections do
In my mind, these are included in the partnership piece; it is the connection and the capability to remove the culture
and the language barrier. You are absolutely right in that it is a very important dimension.
The Chair: Does that also include the staffing of offices in the countries that EDC has represented? Do you engage
the diaspora — the Canadians who come from those areas? Would that be a consideration at all?
Mr.Daignault: Absolutely. We must consider the skills of the individuals. The first skills are obviously their
capability in the financial sector or in the financial world.
The Chair: I understand that.
Mr.Daignault: This being said, our people need to have the language skills and so on before they go on market.
If you look at the way we staff our offices, it is a mix of Canadian-based staff and locally-engaged staff. In our case,
the locally-engaged staff makes a huge difference because they have the local connections. They obviously have the
language skills. They have the business community understanding, as well. This mix makes a big difference.
However, we are also heavily involved in business associations and such. Obviously, we connect with the diaspora
and the people that have natural connections with the connections.
The Chair: If you can, do you hire people to represent EDC when you send them to countries? I am thinking of
people who originate from those countries or who are first-, second- or third-generation who would have some natural
connection and likely some understanding of the culture as well as some of the language.
Mr.Daignault: I do not recall a specific case where we did it.
Actually, the answer is, yes.
The Chair: It sounds like the answer is, yes; a person by the name of Claudio something.
Mr.Siegel: Our representative, Claudio Escobar, originally from Chile, is now going into his ninth year in Brazil.
He brought that experience with him, and he had a familiarity with the Brazilian market. Interestingly enough, we
opened a representative in Santiago. We got a locally-engaged person there, but that person did their business degree
here in Ottawa. Those are examples.
We are looking for people who, ideally, have familiarity with the Canadian market and what the Canadian
capability is, although we provide much of that. However, it is most important, as Mr.Daignault was saying, that they
need to be understood and respected in the local community because it is the network and the connections that they
have that are paramount.
The Chair: Expect to have a comment on that in the report because I think we do a very poor job of that. I am not
only speaking of EDC but also throughout our foreign engagement, including the public service.
Senator Grafstein: Tell me how Germany penetrates the Chinese marketplace.
Mr.Daignault: I do not have any details on that. I know Germany is a substantial partner in Russia, but I would
not be able to give you any details.
Senator Grafstein: Then tell us about Russia. I would ask the same question about Germany with respect to Russia,
China and India. I want to know how they penetrate the marketplace differently from us.
Mr.Daignault: There is substantial ongoing presence of Germany in Russia. I was talking about their
competitiveness. It is a big piece because they are very strong in certain sectors, such as transportation, equipment
I was looking at the 10 points from a logistics perspective, and they are very present. They have direct connections
and a great deal of history exists between the two countries. There is a lot of ongoing presence.
Senator Grafstein: Is that not the key? In other words, if we cut to the chase here and we can set up people, it is not
just proximity but also participation and activity at a number of levels. I recall that I was in China, and all of a sudden,
there was Germany with their political parties having conferences on trade and exchange.
If I made a comparison between Germany and Canada, put aside our size, and our respective presence in Russia and
China — I am not familiar with India, but I am with China and Russia — I would say one of the key differences is
Germany's presence. The Germans are there at every level: cultural, business, banking, specialty products, trade fairs,
etcetera. They are in your face.
Therefore, are we investing enough in these marketplaces to have Canada in people's faces because once people
think about Canada, we sell ourselves? People love to deal with Canada. We have that great hidden advantage. In
Poland, the word success is "Canada.'' If you want to use the word "Canada'' in Poland, it is success.
Why is it that we have not done the same amount of forward-court press on all these fronts to be
"in your face'' in
China and Russia? I will leave aside India for a moment. Those places hold huge opportunities, obviously.
Frankly, there seems to be a disconnect between the activities of the government, the things that we do, and trade.
Germany is all about trade. Everything they do is about trade; every cultural event and every intellectual event is about
trade. We are more liberal and more disconnected.
I ask that seriously because that is based on personal observation. I ended up in a place called Urumchi, which is a
small town near the Pakistan border. About eight or ten years ago, I showed up with my family in this dusty little
motel, and there I am with the trade mission from Germany and Japan.
They seem to have huge presence and huge activity, and it is not just team Canada; it is constant. I would like your
comments because obviously this is something that is important to both of you.
Mr.Daignault: My own observations are in line with those. We basically try to create trade through the various
transactions I described a little bit earlier. However, sometimes we go to India and talk about Canada; we talk about
the Canadian capabilities and the answer we get is, "We do not see companies from Canada.''
It is obviously a characteristic of Canada. There is some work to do. The results are quite encouraging, but the
reality is that the substantial focus is on North America and on the U.S. It is quite a task in order to get to the same
level as the French and the Germans, who are present every time you travel. If you go to a hotel, you see French and
German delegations. They are with business people, politicians and the like, so it is an integrated approach.
Senator Grafstein: That is my point.
Mr.Daignault: We have the same observation, and we are trying to create winning conditions. We do a fair number
of trade missions ourselves. We also attract outside companies to Canada so that they can also visit. We are trying to
connect those dots and make a difference from that perspective.
Mr.Siegel: Being on the front line of trade, we share the view that we need to improve our game in this regard.
I would point out three factors that are at the core of it. The first is that a country such as Germany is more
successful because they are invested on the ground. If you want to trade, it is not just about export. It is about being
invested in the markets.
For a long time, there was a belief that investment abroad was somehow exporting jobs away. We realize now, in a
globalized environment, and with globalized supply chains, that that is the only way we will participate. Therefore,
those countries that have invested more aggressively internationally do better in terms of trade, and they retain at home
the types of jobs and work that they are really after.
The second influence is branding. Countries that have been the most successful, I think, have been able to achieve a
brand. That brand may well be around an industry as opposed to a country brand.
I think Canada has fallen down. Our brand is often provincial. It is rarely national, and it is certainly not industrial.
Therefore, we go into markets and present ourselves as one province. We present everything from university services to
high-tech equipment to heavy machinery, and we have two of this and two of that. The impression left is an uncertainty
about what Canada does. We must get to that point.
The third factor I have spoken about before: We have a habit of denigrating large firms in this country. We are just
as likely to attack a Bombardier and ask why they are getting EDC assistance. Is that not really a handout from the
government? Instead, one should recognize that it is the marquee names that any country puts forward that give you
the visibility and credibility in that market. Then smaller firms can piggyback on to get into that kind of market.
We do not have many transnational corporations. Historically, when you measure the number of transnational
corporations that Canada has relative to countries such as Holland and Denmark, we fall behind.
Some things we are doing are designed to overcome that. We support foreign direct investment in the same way we
support export because we think it is that important. We are investing in funds in foreign markets, not just here in
Canada, because we are trying to pull Canadian companies into those markets and get more visibility and presence on
We are trying to draw those connections with companies such as Reliance Communications and others of the world
because we are trying to create much more visibility, to say, "This is what Canada does.'' Once we are able to do it, we
have great success stories.
The Chair: I am in concert with Senator Grafstein, which brings me to my first question. One of the frustrations that
parliamentarians have when they travel to different parts of the world — and we do not travel often, but most of us will
find ourselves in a foreign country with one of the associations or committees once or twice a year — is that we are
seldom engaged by trade offices. I have met people from EDC, but I have never had an EDC representative talk to me
about an issue for which I may be able to provide some assistance.
Generally speaking, Canadian officers of the embassies, the trade offices or EDC — even some of the provincial
ones — seem to regard us as unapproachable. However, I am sure that many of us have seen how other countries will
engage their parliamentarians in their business discussions and will drag them around to a reception to meet some of
the people with whom they are doing business.
Do we do that with EDC that you know of?
Mr.Siegel: Yes, very clearly. If we know you will be in the market, we would endeavour to engage you if we were
organizing some sort of function, reception or other meeting, with the exception of a commercially confidential
transaction. It starts in this country. We would prefer to be able to speak with you before you go and provide you with
information on the market, what EDC is doing in the market and provide you with a brief.
That is available to you to assist you in the overall success of your visit.
The Chair: I appreciate that. The only comment I will make is I think we can discuss it at some other time.
We generally go to the DFAIT to tell them where we are going. Therefore, you should talk to them to ensure that
when we go there, they keep EDC in mind so that we can talk to you folks as well.
We have a different world out there now. It is a world that will be more challenging for us. First, your debt-to-loss
ratio, is it any different in the three countries we are talking about, as a group or individually, from other regions of the
Mr.Daignault: It is not that different because you tend to see the profile of risk more from a sector as opposed to a
The mix of business — like in transportation — is not that different from one country to another. We have fairly
substantial ICT exposure in some of those countries. Obviously, as the risks evolve in that particular sector, we will see
where we have more exposure on the ICT side.
In India, for instance, we might see a variation from that perspective. However, currently the differences are not
The Chair: Keeping this in mind, do you consider that our exposure in China, India and Russia is still a relatively
safe risk under the definition of risk?
Mr.Daignault: The answer is yes. Obviously, we need to be prepared from a migration perspective.
The Chair: I understand that; it is relative.
Senator Downe: On page3 of your presentation this evening you indicated that China was the second-largest
emerging market based on volume of business and number of customers. What is the largest?
Mr.Daignault: It is Mexico.
Senator Downe: On page4 you indicate India is another top-five priority market for the Canadian government and
EDC. Does the Canadian government set the top-five priorities or does the EDC set their top five? Is there a difference
sometimes between the government's top five and your top five?
Mr.Daignault: Currently, there is no difference. Historically, I do not know if it is the case or not.
Senator Downe: Why is Mexico your number one emerging market? Is it because of our investment in that market or
long-term historical connections or the free trade agreement? What is different from Mexico versus China and India?
Mr.Daignault: The free trade agreement is making a difference, and proximity is making a difference. In Mexico,
1,200 Canadian companies have activities there. With respect to the reference that Mr.Siegel was making about being
on the ground, being invested and being present, a true example of that is a Canadian company in Mexico.
Senator Downe: What is the EDC investment on the ground in personnel compared to India and China?
Mr.Daignault: We have one representation in Mexico City and one in Monterrey.
Senator Downe: Do you only have two?
Mr.Daignault: We have two representations, and total staffing is four or five.
Senator Downe: Thank you.
Senator Fortin-Duplessis: So EDC supports infrastructure projects in many countries. It supports, for example, the
Qinghe purification station in China, in which the Canadian company GE Water and Process Technologies took part,
the TEESTA III underground hydro station in India, in which a Canadian business also took part, and the
construction of a subdivision in Russia, in which the Canadian businesses Thomas Cochren Homes and Canstrong
Can you explain the selection process for these infrastructure projects? Were they presented to EDC by Canadian
businesses or by the foreign government responsible?
Mr.Daignault: There is no specific selection process. We have existing relations with Canadian companies active in
those markets. We also have relations with large foreign companies that are often involved in those projects. We also
have relations with financial institutions that typically support this kind of transaction. We often hear about the same
transaction from two or three different angles. There is an established relationship. We get a request from our client to
look at the transaction to help them work, and that becomes a working team, because often there is cooperation not
only with the Canadian company involved in the transaction, but also with the buyer or the sponsor in case of project
funding and also with the financial institutions involved.
In the case of these projects in particular, I would not be able to say where it came in first, but the dynamic of the
connections and the work dynamic of these projects, that is how it works.
Senator Fortin-Duplessis: Are there any other companies that want to do the same work or is it only those
companies in each of those three projects that sought EDC assistance? Were there any competitors for each of those
Mr.Daignault: I would not be able to tell you for those projects in particular, but in general there is competition in
the markets. We can be called once the competition is over in certain cases or before it even starts when the bid is filed.
It is generally a Canadian company or Canadian consortium that is competing with a foreign consortium. So our
solutions are appreciated because we lend foreign stability to the project. That increases the chances of winning the
In some cases, we have seen that, if two companies are interested in the same project, then we establish two different
teams internally to ensure that there is not an exchange of information.
Senator Grafstein: Do you have a country-by-country war room to determine if there is a project there that might
suit Canadian needs? I will give an example: The Georgian pipeline that went from the Caspian Sea to the Black Sea
was an ideal project for a number of Canadian companies. There were no Canadians there; there was no Canadian
presence; it was a $25-billion to $40-billion project. Do you say, "There is a project'' and get after Canadian companies
and give them a kick in the butt and say, "Let's get going''?
Mr.Daignault: I would not comment on the kick in the butt.
Senator Grafstein: You understand my meaning.
Mr.Daignault: Yes. We are aware of most of the major projects happening around the world. Our natural reaction
is to see what kind of Canadian company fits that project. Because we have offices in Canada, we know those
companies, regardless of whether they are large, medium or small. We are able to call them and say,
"There is a project
here. Do you have an interest?''
Senator Grafstein: Generally, what has been the response?
Mr.Daignault: To the extent that you have the right information about the project, and it is the right fit with the
Canadian company, it is very successful. The challenge is not to get a list of 300 companies interested in looking at a
project. The challenge is to get the right five companies that can deliver on the project.
Senator Grafstein: I rest my case.
The Chair: On behalf of all my colleagues, I express my gratitude for your being here. I assure you we got some good
information that will help us in our deliberations, particularly from Mr.Siegel, who was here longer and doing an
extra job. We thank you and look forward to the next time we have an opportunity to talk to you, Mr.Daignault, and
others from your organization. We extend our good night and good wishes.