Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 3 - Evidence - March 9, 2016
OTTAWA, Wednesday, March 9, 2016
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:35 p.m. to study the issues pertaining to internal barriers to trade.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Good afternoon. Welcome to the Standing Senate Committee on Banking, Trade and Commerce.
My name is David Tkachuk and I am the chair of this committee. Today is our second meeting on our special study of issues pertaining to internal barriers to trade.
On February 24, we heard from the Honourable Navdeep Bains and his officials. Today it is my pleasure to welcome the following officials: From Statistics Canada, James Tebrake, Director General, Macroeconomic Accounts Branch; Ziad Ghanem, Director, Industry Accounts Division; from Public Services and Procurement Canada, Brenda Constantine, Acting Director General, Policy, Risk, Integrity and Strategic Management Sector; and Desmond Gray, Director General, Office of Small and Medium Enterprises and Strategic Engagement.
I should note that we also invited officials from Environment and Climate Change Canada, who declined our invitation indicating that they have taken the position that the Government of Canada's environmental regulations are not barriers to internal trade and thus would have little to add to the study. That's interesting.
We also invited Agriculture and Agri-food Canada, but unfortunately their assistant deputy minister, who would be best suited to speak to this topic, was not available for today. We will pursue another date to invite them.
Officials, I ask you to please proceed with your opening remarks, after which we will go to a question and answer session. Welcome.
James Tebrake, Director General, Macroeconomic Accounts Branch, Statistics Canada: Thank you very much, Mr. Chair and members of the committee. Today I will be speaking to you about Statistics Canada's Interprovincial Trade Flows program. First, I will give you a broad overview of the program. I will then share with you some of the recent trends in interprovincial imports and exports. I'll be happy to answer any questions you have following the presentation. As well, we distributed a presentation deck.
As a little background, the Interprovincial Trade Flows program is part of a larger program at Statistics Canada called the Canadian System of Macro Economic Accounts. The CSMEA is a set of statistical statements, each one providing an aggregate portrait of economic activity in Canada. They produce measures such as gross domestic product and its components at the national level.
The diverse nature of the Canadian economy has given rise to the need for a detailed set of provincial and territorial economic accounts. They represent a geographic elaboration of the national economic accounts. A key component in those provincial accounts is the trade flow of interprovincial imports and exports.
Statistics Canada releases aggregate annual estimates of total interprovincial imports and exports approximately 11 months after the reference period. For example, on November 10, 2015, we released interprovincial imports and exports for the year 2014, which represents our latest data point for interprovincial imports and exports.
At the detailed level, Statistics Canada tracks interprovincial imports and exports for around 700 commodities for each province and territory. This represents a total of around 50,000 trade flows in any given year. As you can imagine, we rely on and are very grateful for the cooperation of Canadian businesses in providing the agency with the information we require to calculate these valuable statistics. For the most part, we are able to obtain the data from annual business surveys where Statistics Canada asks businesses to report the destination of their sales by province and territory. While Statistics Canada spent many years developing the underlying data programs to accurately measure interprovincial trade, it remains one of the most complex tasks that we have as an agency.
I would like to turn your attention to the presentation deck that we distributed. I'll explain some of the recent trends. The data are taken from the provincial and territorial economic accounts for the periods 1981 to 2014, and we have some more detailed analysis for 2012.
As you can see from the first slide, the growth in total interprovincial trade has been somewhat slower than the average growth in gross domestic product for Canada. For the period 1981 to 2014, interprovincial trade grew at an annual average rate of 4.2 per cent, whereas gross domestic product grew at an annual average rate of 5.3 per cent. Similarly, the growth in international provincial trade was outpaced by the growth in international imports and exports, which grew at annual average rates of 6.2 and 6.1 per cent respectively over this period.
While it's true for the entire time period, the results are somewhat different when examined for each of the 1980s, 1990s and 2000s. As you can see from the third slide, there was a significant divergence between the growth in interprovincial trade and gross domestic product in the 1980s and 1990s. In the late 1980s, and throughout most of the 1990s, the Canadian economy grew in large part due to an increase in international trade, particularly in the automotive, lumber and information technology sectors. Since the beginning of 2000, the growth in interprovincial trade has paralleled that of gross domestic product or the economy itself.
We see a slightly different story unfolding when we compare the growth in international trade and the growth in interprovincial trade as seen in slide four.
In the 1980s and 1990s, the growth in international exports outpaced that of interprovincial exports. This trend reversed in 2000, where, over the last 15 years, growth in interprovincial exports has outpaced that of international exports.
Another important trend in interprovincial trade is interprovincial trade and services and the growth in services relative to interprovincial trade and goods as shown in slide 5. Up until around 2007, the level of interprovincial trade in goods was roughly the same as the level of interprovincial trade in services. In 2007, this changed quite a bit, as we saw a drop in the trade in goods and continuing strength in services.
Interprovincial trade and services, in fact, has risen steadily since 1981.
Turning to a provincial dimension, the growth in interprovincial exports from 1981 to 2014 varies across provinces, as you can see in slide 6. Between 1981 and 2014, the average growth in the volume of interprovincial exports was highest in Newfoundland and Labrador, British Columbia, Saskatchewan, and Alberta.
Much of this growth was due to a significant increase in trade and natural resources such as crude petroleum, potash and other minerals. Growth was the lowest in Quebec and Ontario, which are more reliant on manufactured goods and services and less on natural resources.
The influence of trade on the provincial economies differs across provinces. One way to measure this influence is to calculate an index of what we call "interprovincial openness'' for each province as shown on slide 7. The degree of openness represents the combined value of a province's interprovincial imports and exports as a percentage of their gross domestic product or as a percentage of their total economy. The interpretation of the index is, essentially, the higher the index, the larger the influence of trade on domestic activities.
So it's clear from chart 7 that the smaller provinces rely more heavily on interprovincial trade than do the larger provinces. The average degree of openness over the period 1981 to 2014 for Ontario is around 34 per cent whereas the average for the eastern provinces is over 50, with a high of 80 per cent for Prince Edward Island.
Another important economic indicator is the interprovincial trade balance. This represents the difference between a province's exports less its imports.
As you can see from slide 8, only Ontario, Quebec and Alberta have positive trade balances. All other provinces import more than they export, or import interprovincially more than they export interprovincially. Many of the imports by the smaller provinces represent imports of services such as wholesaling and financial services, and a lot of that originates in Ontario.
The majority of the goods and services that flow from one province to the next are used by businesses as inputs into subsequent production of goods and services. The table on slide 9 indicates that around 67 per cent of all goods and services imported across all provinces were consumed by businesses and used as an input into subsequent production or subsequent production of goods and services.
The majority of the rest of the goods and services are consumed by households in the form of what we call final consumption.
This means that for the most part interprovincial trade is used to facilitate the further production of goods and services in a given province rather than meeting the final consumption needs of households, governments and non- profit organizations.
In order to provide you with a picture of the type of detailed data that Statistics Canada releases with respect to interprovincial trade flows, I would like to refer to slide 10. It shows the interprovincial trade flows, the imports and exports by each province and territory to each province and territory.
From this table, it's possible to determine the major trading partners for each province or territory, where a given province is exporting to and from where they're importing goods and service. For example, from this table, we're able to determine that 60 per cent of Quebec's interprovincial exports are destined for Ontario, whereas 35 per cent of Ontario's interprovincial exports are destined for Quebec. These same tables can be constructed for individual products such as automobiles, financial services and crude petroleum, providing a comprehensive picture of Canada's interprovincial trade.
In summary, some of the high level trends we see emerging in international provincial trade include the following: the growth in interprovincial trade has been on par with the total economic growth in Canada since the beginning of 2000; since the middle of 2000, the growth in interprovincial trade and services has outpaced that of interprovincial trade in goods; the average growth in interprovincial trade between 1981 and 2014 has been highest in the natural resource-rich provinces such as Newfoundland and Labrador, Saskatchewan and Alberta; the degree of openness across most provinces has remained relatively stable since the 1990s; the eastern provinces rely more heavily on interprovincial trade than the central provinces; most provinces have a negative interprovincial trade balance with many of the provinces relying on imports from Ontario; most interprovincial trade is used as an input into subsequent production of goods and services by businesses.
In addition to the above trend in analysis that we've undertaken, users can use the interprovincial trade database for modelling an impact analysis. The database can be used to examine the impact that changes in trade policy have on the trade flows by looking at the timing of a policy change, the products and provinces impacted by the change and the resulting trade flows.
In addition, the trade flows are part of the Canadian provincial and territorial input/output tables and models, and these tables can be used to model the impact of economic changes that result from policy changes on both interprovincial trade flows as well as overall provincial and territorial economic growth.
We hope that this presentation has provided you with the broad overview of interprovincial trade that you were looking for, as well as some of the uses that can be made from Statistics Canada's interprovincial trade program and its database. We're happy to answer questions that you may have.
The Chair: I will call on Desmond Gray, Director General, Office of Small and Medium Enterprises and Strategic Engagement.
Desmond Gray, Director General, Office of Small and Medium Enterprises and Strategic Engagement, Public Services and Procurement Canada: It's an honour and pleasure to be here today. I'm accompanied by Brenda Constantine, Acting Director General, Policy, Risk, Integrity and Strategic Management Sector.
I am pleased to discuss how Public Services and Procurement Canada works to enable internal trade with Canada.
The federal government has an obligation not to discriminate between the goods, services or suppliers of any province, territory or region, and this is found in article 504(2) of the Agreement on Internal Trade. To that extent, the federal government does not create or maintain any barriers to internal trade with respect to government procurement.
[Translation]
Any barriers to internal trade in federal procurement result indirectly from the federal government's need to comply with the applicable provincial and territorial laws. For example, when procuring nursing services in Ontario, the federal government must require that nurses be registered in Ontario.
[English]
The case is similar for other professional services that require licensing, such as medical doctors, pharmacists and engineers.
I also want to speak today about the Office of Small and Medium Enterprises and Strategic Engagement within the acquisitions branch of Public Service and Procurement Canada. This is the organization I head. My organization was created to address the needs and perspectives of small and medium enterprises selling to the Government of Canada.
[Translation]
Specifically, we help them to understand and find selling opportunities, we work to remove unnecessary barriers in doing business with the government, and we provide free information and services across the country. Currently, some 40 per cent of federal contracts are awarded to SMEs.
[English]
We also deliver the Build in Canada Innovation Program, a unique program that helps Canadian companies commercialize their innovations by buying and testing them in the federal government. As of February 11 this year, the program has awarded 174 contracts to Canadian businesses for a total value of $61 million.
Finally, of relevance to my following remarks, in 2015 the Office of Small and Medium Enterprises and Strategic Engagement's mandate was expanded to include provincial and territorial engagement in outreach. In terms of procurement expenditure, about $150 billion is spent annually on procurement in Canada, including federal- provincial-territorial and municipal levels, of which an average of about $18 billion is procured by Public Services and Procurement Canada's acquisition program. To maximize the buying power of federal-provincial-territorial procurement spending in February 2015, an order-in-council was approved that permits Public Services and Procurement Canada to share its instruments and services with provinces and territories at no additional cost to the Crown.
[Translation]
Provinces and territories participate on a voluntary basis. This means that provinces and territories can decide to use procurement instruments put in place by Public Services and Procurement Canada to obtain the goods and services they need.
[English]
A study to determine what commodities the provinces and territories were most interested in was completed in April 2015, and the result is that our department and the provinces and territories are working on collaborative procurement in the following seven commodity areas: office supplies, laboratory supplies and equipment, all-terrain vehicles, snowmobiles, motorcycles, tires and packaging materials.
We are now at the proof of concept stage with the first commodity, office supplies, and both Alberta and Prince Edward Island expressed their interest in using our procurement instrument. Thus the value of the procurement could double from $50 million to $110 million, and we expect to obtain better value for all involved participants. The office supply procurement will come into effect on May 1, 2016.
[Translation]
This proof of concept will help us put in place standard approaches for simple procurement instruments that can be easily used by the provinces and territories. Additional opportunities between the provinces and territories, as well as municipal, school and hospital partners, could follow.
[English]
Moving forward, the provinces and territories have indicated an interest in Public Services and Procurement instruments for laboratory supplies and tires.
To close, we are excited about this new federal-provincial-territorial collaboration in procurement.
[Translation]
We are making good progress, paving the way for greater collaboration across the federal, provincial, and territorial jurisdictions.
[English]
Working together, we can reduce the level of work and cost for the purchasing of goods and services we need. We can better leverage our buying power by purchasing together, and we can make it easier for suppliers to sell to all levels of government.
Thank you for the opportunity to speak this afternoon, and Ms. Constantine and I would be pleased to answer any questions you might have.
The Chair: Before I go to the list, so I'm clear on the piggyback, what happens? Is there a letter sent out from the federal government to all provinces saying, "We're buying office supplies''? Are there phone calls made asking, "Are you interested in getting into the process?'' And they just jump on board?
Mr. Gray: We have had a process for the last two years. We have a deputy minister's committee where our deputy minister meets with other deputy ministers from the other provinces on a regular basis, and, in fact, this request was initiated by the provinces almost two years ago. As a result of that, we have been working with the provinces. For example, in the spring of this year, we hired a consulting company and worked with the provinces at the provincial government level to figure out what exactly they buy and looking at what we buy, so we could come to a realization as to the best areas of opportunity. The approach is completely voluntary; beginning to build the data and understand the best opportunities to bundle our purchasing together is how this evolved. As a result of that, not surprisingly, office supplies was one that a number of provinces said, "Yes we're interested in that. We'd like to work with you.''
So, yes, they have participated, and the way it's taking place now is with input from two provinces that said they would like to be part of this instrument, on December 21 last year we released an RFP on the street to Canadian businesses and said, "We would like to buy office supplies,'' and we included the demand for Alberta and Prince Edward Island, so our overall value has gone from $50 million, which would normally be just for the feds, and now we're at $110 million reflecting the additional consolidated demand. We're on the street now. That will close in March, I believe, but the actual effective date is May 1, and we expect by then to have this new procurement instrument available for the provinces as well.
The Chair: I have a list of senators, starting with Senator Black.
Senator Black: Thank you all for being here; it's very interesting.
I have two questions, one for our friends from Statistics Canada and one for our friends from Public Services and Procurement Canada.
Starting with Statistics Canada, on the graph on page 2 of 6, the graph at the top, I'm going to read something that you have said here and I'm hoping you can explain it to me. It says:
Although the value of internal trade in Canada increased between 1981 and 2014, this value as a share of gross domestic product (GDP) has fallen. . . . internal trade as a percentage of GDP fell from 27.0% in 1981 to 19.3% in 2014.
Mr. Tebrake: That's not the study I provided.
The Chair: It's the Library of Parliament document that we're referring to; everyone can go to that Library of Parliament document and we'll start again.
Senator Black: If you would turn to page 1, there is the graph. There is the language that I was hoping you would explain to me. You look at that, and I'll ask the other question. That's only fair.
In terms of procurement, thank you for the tremendous presentation. The work you're doing is very important to inform Canadian businesses of their opportunities.
I'm working from the premise on this particular study that we need to do more to enhance interprovincial trade in Canada. Government procurement, I suspect, is likely the largest sector of that universe. Tell me the three things we need to recommend on this committee to enhance interprovincial trade as it relates to procurement, please.
Mr. Gray: I will invite my colleague from the policy side to ask her, of course.
From our perspective and the initiative we have right now, by opening our procurement instruments up, and we had to get an order-in-council to do it, the federal government has an expanded opportunity to work collegially and in partnership with the provinces. The provinces can choose if in fact these procurement instruments meet their needs, if we deliver value, and frankly, if they meet the socio-economic considerations of those provinces as well.
As we come forward, the more we can analyze the data about the federal and provincial level to better understand precisely what is being purchased, the better. Data is very important because it provides a more accurate picture of what we're doing. That would be positive. Working with the provinces in a collegial and partnership way would be very helpful.
Senator Black: Would you say then that obstacle one would be that you need greater data as to what is available?
Mr. Gray: I just chose my words. I don't want to present it as an obstacle, but it would improve the analytic and benefits that will accrue for all parties.
Senator Black: You feel at this moment that perhaps you don't have the data you need; is that correct?
Mr. Gray: That is correct.
Senator Black: That is important.
Mr. Gray: Yes it is.
Brenda Constantine, Acting Director General, Policy, Risk, Integrity and Strategic Management Sector, Public Services and Procurement Canada: I don't have anything to add. I don't think it's a policy question: What are the barriers to trade in terms of procurement? We have to continue on the path that we're on and continue the discussions with the provinces and territories to see where we can align and where we can work better together.
Senator Black: You like the direction?
Ms. Constantine: Yes.
Mr. Tebrake: I will do my best to try to reconcile these two things. Your report is basically showing that internal trade as a share of GDP has fallen from 1981 to 2014. That is definitely the case. My first slide shows growth in interprovincial trade and GDP. You can see that GDP is growing over that period at a much faster rate than interprovincial trade is growing.
The point I was trying to make is that you should break that up into chunks, for example the 1980s and 1990s, when a lot of the divergence in growth happened between interprovincial trade and GDP. From 2000 forward, they're actually growing at the same rate. Yes, the share from 1981 to 2014 has changed, but a lot of that was in the 1980s and 1990s when a lot of the economic growth in Canada was due to external trade. It was due to sending a lot of our automobiles and lumber to the United States, which moved the economy along. If you take that graph and look at it from 2000 forward, the shares probably haven't changed much from that year.
Senator Campbell: Thank you for coming here today.
I have one question about slide No. 5, which shows the interprovincial goods and services. My question is: Why do we see this divergence starting in 2007 and 2008? What is going on there?
Mr. Tebrake: There are a couple of things. If you remember, coming out of the financial crisis there was quite a structural change in the Canadian economy. Specifically hard hit were Ontario and Quebec and the automotive and IT sectors, where we saw a lot of restructuring and a substantial drop in output. These sectors would generally export goods not only outside the country but also to other areas of our country, and we saw that decline. If you would look specifically at the trade in goods of Ontario and the interprovincial trade of goods of Ontario and Quebec, you would see quite a decline in Ontario and a fairly substantial slowdown in Quebec. You are seeing a lot of evidence of the slowdown in automotive and IT industries.
Services continued to grow across all provinces. We are only now getting back to the level of goods trade. The first dip you see, the really big one from 2008 to 2009 picking up again, is also indicative of the drop in oil prices because of trade in goods, things like crude petroleum. This is for all provinces. With the decline in the price of crude from Alberta or from Newfoundland going to Ontario or to New Brunswick, the value of trade declined. That is that first dip and it hasn't really picked back up due to some of this restructuring in Ontario and Quebec.
Senator Campbell: Do you see that changing?
Mr. Tebrake: We report after the fact, usually.
Senator Campbell: It is a perfect way to go; 20/20 hindsight is a job I always wanted.
Mr. Tebrake: I can tell you what happened up to 2014, but I can't tell you what will happen in 2016 or 2017.
The message I can convey is that Statistics Canada produces a lot of detailed information behind this, which allows for the type of analysis to know why there is a slowdown in goods. We have a lot of the underlying data, and I could present that here, but all of that information is there for you or for anyone if they are interested.
Senator Greene: The trade agreements that the western provinces have in place have been around for about 10 years or so. Does anything in your statistics point to the fact that they are there? Is there any comparison that you can make with regard to those provinces before the agreements and after?
Mr. Tebrake: We mention that in the closing remarks. One real use of these tables is a nice long time series. We have data from 1981 to 2014. We have some good, detailed productivity information and we map all the flows from one province to the other. With this information, somebody could go back to any point in time when a trade agreement was put in place and look at the flows prior to it and after it to get a sense of the impact of that particular policy change.
That type of analysis is possible. This product lends itself to that type of analysis, which we hope people will do with this information we provide.
Senator Greene: Would our people be able to do that or would we have to ask Statistics Canada to do that on our behalf. That's interesting information.
The Chair: Why don't we leave it to the analysts to determine whether they can do it. If they can't, maybe they can go to Statistics Canada or others who can help us get that information. It is probably valuable information to have as we move forward.
Mr. Tebrake: We are always here to help our users use the data, so we would be happy to assist.
Senator Greene: That is good for me.
Senator Enverga: Thank you for your presentation. I have two questions. The first one is for Mr. Tebrake: Graph No. 7 shows "degree of openness.'' Can you elaborate on what that is in each province?
Mr. Tebrake: It's a standard kind of trade measure. We often talk about it in international trade. Basically, the formula is: Add up a province's interprovincial imports plus their interprovincial exports, and divide that number by their gross domestic product. The result is what we call a "degree of openness.'' It is intended to measure the influence of trade on the province's economy and it does it in two ways. On the export side, the province produces something and exports it, so that influence is fairly straightforward and has a bearing as it brings revenue to the province. On the import side, it is how reliant you are on importing goods from other provinces to produce goods or for your consumption, whether household or government. The higher the degree of openness, the more reliant the province is on trade.
In a totally closed economy, the openness would be zero. Such an economy would produce everything it needs and would consume it. It wouldn't need to sell to anybody or to import from anybody. The degree of openness would be zero. The higher the degree of openness, the more reliance there is on people outside a province for its economy. I hope that answers your question.
Senator Enverga: Yes, I am hoping it was about openness in policy. That is what I was looking for. But it is not. It is how you use your productivity.
My second question is for Mr. Gray. You mentioned earlier that there are interprovincial procuring services in Ontario. The federal government requires them to be registered in Ontario, as with other professions.
Would you suggest, or do you believe that the interprovincial barriers should be taken out or that there should be uniformity in licensing for all professionals? Are there any other issues with regard to skilled labour?
Mr. Gray: I will turn to my policy colleague, who will respond to that one.
Ms. Constantine: We are not experts in labour mobility, so I don't think we can answer that question. We know those barriers exist and we try to work within the provincial and federal laws we have to abide by. We can't comment on that.
The Chair: May I interject on purchasing? You mentioned Canadian suppliers. That is not problematic with the North American Free Trade Agreement. In other words, can anybody sell office supplies to the federal government?
Mr. Gray: Within the trade policy, yes. Under NAFTA, of course, we have a threshold. Yes, we are open to a broader market. This is about defining the demand side. For example, in the data you would see that most of the supply comes from Canada for office supplies. What those supply chains are, to be honest with you, and where they go, I don't have that information.
The Chair: An American company could tender on the process; is that right?
Mr. Gray: In theory, yes.
The Chair: What do you mean by that? You don't tell them, or what?
Mr. Gray: No, we are very transparent. That is our obligation. We post it on our buy and sell website and it's openly available. Under NAFTA, we post it and people can see it if they choose.
I guess it depends really on the opportunity and how they wish to exercise it. Not surprisingly, in office supplies many are large distributors like Staples. These companies flow into the United States so there is more than a national entity or supply chain for all of this.
Senator Ringuette: Mr. Gray, I am reading your statement. On page 4 you say:
My organization was created to address the needs and perspectives of small and medium enterprises selling to the federal government.
I wholeheartedly agree with that principle. However, when we move to your statement on page 6, procurement goes from $50 million to —
Mr. Gray: To $110 million.
Senator Ringuette: That's for office supplies. We're staying with the same commodity as referred to earlier.
How can we expect a Canadian SME to be able to double its cash flow in order to provide the inventory, plus the return mechanism, plus the shipping mechanism, if you double your procurement document? In doing that, you are probably removing yourself from your priority mission of trying to get more Canadian SMEs involved in the federal — and in some areas provincial and municipal — procurement processes?
Have you analyzed the impact on your primary mandate to get SMEs involved in more procurement with the federal government, or provincial or municipal governments? That is a concern.
Mr. Gray: Yes, I understand. It is a very good question. I am not the expert on this particular commodity but as I understand it, senator, this is structured in such a way that there are 13 separate geographic areas which, together, form the total value in the procurement or the solicitation. That means regional opportunity is being defined and captured in this procurement. Your point is quite correct.
This could mean, for example, for demand in the Pacific area, say, a company in the Pacific region might be best positioned to supply a subcomponent or smaller dollar value in that area simply because the distribution costs, if you have to ship from other places, might be very high. This is structured so that it recognizes geographic opportunity for the different parts of the country.
You are absolutely right. One of the considerations is the actual cost of shipping. For example, even though they are not participating, we had a series of conversations with Newfoundland. In remote areas when you have to send office supplies and ship them out to a major urban centre, clearly there is a potential for much greater cost. When we look at this, we look at the structure and how we will embed those costs as part of the procurement process so that we rationalize and don't increase costs excessively for that kind of remote delivery as well.
Senator Ringuette: Are you saying to us that this global procurement of $110 million will be broken down in acceptable geographic regions and acceptable quantities so that the main purpose of your organization to help get small and medium Canadian businesses involved in procurement will have an equal opportunity as any big box business?
Mr. Gray: Yes, absolutely, senator. They will have the same opportunity in terms of accessibility as any of the big ones.
I want to be very clear that any of the big ones could bid on all of the 13 geographic areas. In other words, they could come in and have a bid on each one. It depends, again on the economic benefits in terms of a regional supplier versus a national supplier and how those costs would be developed.
I don't have an answer to that, but your question is a good one. We need to consider that as we look at these strategies and determine what strategies we put in place for these instruments as the provinces come in and how they will impact. The provinces have an interest in that and they look at how that opportunity will be realized for that province if and when they participate.
Senator Ringuette: I would be interested to have another conversation with you in another year's time to see what has evolved from this. I understand that it will have an effect on interprovincial trade, hopefully. I hope the effect is not negative on the SMEs.
Mr. Gray: So do I.
The Chair: There is nothing stopping SMEs from cooperating. In other words, two or three if things go bigger, and usually the market will adapt to that.
Mr. Gray: Correct. It is not unusual for SMEs to look at the opportunity and decide to work together. They can establish economic relationships when they see a bigger opportunity. At the Office of Small and Medium Enterprises we encourage that because it gives them greater capacity and buying power they can leverage in the marketplace as well. However, in the end it's their business decision.
Senator Wallin: I have a few small points. On the question of procurement, when you say you are getting together to do this, there is nothing preventing multisourcing. You will talk to Walmart or Staples office supplies, and they say they'll ship to Eastern Canada from Boston but do the rest from out West.
Mr. Gray: They would make that decision based on their internal business model. What they have to abide by are the terms, such as the timeline, to deliver. For example, if the contract says there is a delivery charge, it may be limited in the contract. Even though it may cost them more money, it's their business decision to say whether or not it works.
Senator Wallin: They can subcontract.
Mr. Gray: Correct.
Senator Wallin: On the question of these seven areas, after your consultation we talked about office supplies. Some of the others are puzzling to me as to why these were priorities. Is there really that kind of demand for motorcycles, for example, from the federal government or from the provincial government?
Mr. Gray: This is an excellent question. I wouldn't say that this necessarily presents the optimal list of opportunity — let us say that. I would say this is the list that has come forward through the engagement process. We have only begun in the last several months in terms of more specifics.
One of the challenges, of course, is provinces are out buying on their own cycle already. They have locked into contracts that could be multiyear contracts for lots of different things, and we are now saying, "We will buy on our cycle. Do you want to participate in our cycle?'' One of the things we are looking forward to is to better align and give them information about future opportunities. So as our standing office supply arrangements come to expiration, it opens a window of opportunity where we can come together. We are working to align that. We are hoping to provide greater transparency on our current standing office supply arrangements, so when they expire, we can say, "I see you have this and this coming up in 2016, 2017 or 2018,'' and now we can be far more strategic.
Senator Wallin: Is this kind of preliminary?
Mr. Gray: Yes. This is easy to get to because it is easily accessible, and it may reflect that they have not locked into long contracts and things that may or may not be that large a buy for them.
Senator Wallin: They are looking to acquire this stuff, not only from a government point of view but for private sector interests that may have come to them?
Mr. Gray: I am not sure. All we know is they are telling us they will have a demand. What they do with that product and service is up to them in terms of their provinces. These are their commodities that they expressed interest in, yes.
Senator Wallin: And to James on the question of the importance of hindsight, looking at this chart, which is slide 5, when you see a drop in 2009 and you are talking about, obviously, the crash and whatnot, I was surprised that there was no increase in activity in 2001 after 9/11 and the border crisis that we had, where people would be tending to look internally rather than externally and trucks were lined up for two weeks at the border. There doesn't seem to be any indication of that. Or are these small drops enough to be significant?
Mr. Tebrake: Yes. This is a very high level aggregate number. Some of those blips, if you dig down in the detail to certain products or provinces, you might see some of those impacts. But this is all Canada, all goods and services, and a lot of that gets smoothed out. Something like a large drop in energy prices in 2009 is really there. When we get to 2015- 16 where we experienced a similar decline in energy prices, it is quite likely we will see that.
Senator Wallin: So we see that on 8, where Alberta, a trade balance, for example, is in the positive territory right now when we look back at this period?
Mr. Tebrake: Right, it might be that. That might be reversed, given the oil prices.
Senator Wallin: It will be a two-year window before we can assess?
Mr. Tebrake: Yes, the 2015 numbers would be out this November and 2016 the following year.
The Chair: Are there a lot of trade barriers by provinces on purchasing? In other words, does Ontario favour Ontario business? Does B.C. favour B.C. business, or are they fairly open in their procurements to all businesses across the country without impediments?
Mr. Gray: My comment on that one is I can tell you in terms of the federal procurement, we only have one set-aside program we are allowed under NAFTA, and this is for First Nations-Aboriginal where we can designate a certain portion of our procurement to First Nations suppliers.
We don't have set-asides for veterans, for small and medium businesses or reserve a certain percentage of our procurement for other sectors or social activities. But the provinces are not constrained by those agreements. I am not an expert, but it is my understanding that they may have programs where they try to identify or direct a certain part of their procurement to those communities. That is certainly the case in the United States, which has an extensive array at the state and municipal level of set-aside programs.
[Translation]
Senator Bellemare: I have a question about the graph on page 4. It shows the difference in growth between domestic and international exports. Is there a relationship to the value of the Canadian dollar?
Mr. Tebrake: I will answer in English if you don't mind, because your question is complex.
[English]
Is there a relationship to the dollar? That is a little difficult to determine.
What we experienced in Canada in terms of interprovincial and international trade is in the 1980s and 1990s we saw strong growth in international trade. At the same time, the dollar was doing what it was doing. It was quite a bit weaker, not relative to now but relative to maybe three or four years ago, and we saw a pickup in international trade. We still saw growth in interprovincial trade but international trade was stronger.
To put all of that on the dollar, I don't think you can do that. There are many factors that contributed to that. Just the overall foreign demand contributes to that, and a number of international free trade agreements were struck in the 1990s, so a lot of that stimulated a lot of the external trade that went on in Canada.
There is some evidence that as the dollar depreciates it definitely makes our goods more attractive to other countries, and we see growth in international trade in that area.
The Chair: Thank you, witnesses.
We will suspend the meeting right now to go in camera.
It will just be a minute or two, and then the room should be cleared of everyone but the staff. I will then resume the meeting in a minute. Thank you very much.
(The committee continued in camera.)