REFORM PARTY DISSENTING OPINION
EXECUTIVE SUMMARY
The purpose of the Committee's report is to examine the problems facing small and
medium-sized enterprises (SMEs) in becoming exporters, and to recommend the most
appropriate role for the federal government to play, in relation to other levels of
government, in assisting SMEs develop markets for their goods and services abroad.
While the report gives a fairly good representation of the concerns shared by the
companies and business organizations that appeared before the Committee, we disagree
with some of the recommendations and would like to add a few of our own.
We believe the principal role the federal government should play is to provide a business
climate that is conducive to allowing SMEs to grow and to contemplate investing time and
money in venturing abroad. Providing the proper business climate entails, first and
foremost, reducing government expenditures so that, eventually, federal income taxes
and business taxes can be reduced as well. The federal government also has the primary
role of eliminating interprovincial trade barriers that hamper initial expansion within
Canada, and reducing tariff and non-tariff barriers with our trading partners. A further
crucial role for the federal government is to proceed with the harmonization of regulations
and standards that impede fair trade with our NAFTA partners.
Even though the report states that the federal government should not subsidize SMEs,
some of the recommendations with regards to financial assistance for accessing
information on market development and intelligence lean in that direction. It is our firm
belief that taxing all businesses to provide subsidies to some is unwarranted. The Reform
Party would like to see business subsidies eliminated entirely.
The June 1996 report entitled Canadian SMEs in the World Economy by the Standing
Committee on Foreign Affairs and International Trade attempts to identify the needs and
problems associated with small and medium-sized enterprises (SMEs) becoming more
export oriented. The free-trade environment in North America and worldwide presents
many opportunities for Canadian companies. It is therefore essential for the Government
of Canada to create the proper climate for our small and medium-sized enterprises to
develop at home and build to a level where they can feel confident enough to launch into
international competition.
The report confirms that small and medium-sized enterprises form the backbone of the
Canadian economy and are responsible for most of the job creation in Canada. It also
confirms that most SMEs do not export. While there are roughly 1 million SMEs in Canada,
over two-thirds of Canada's exports are conducted by only 150 companies.
The Standing Committee heard from many companies and business organizations and
this report is, for the most part, a good representation of their concerns. However, the
Reform Party MPs on the Committee cannot agree with some of the recommendations of
the report. Our differences with regard to specific recommendations are listed below. In
addition, three new recommendations are submitted.
Report Recommendation 2: The Committee welcomes the recent decision
of the federal government to provide EDC with $50 million of additional
funds. The Committee recommends that these funds should be dedicated to
SMEs.
We do not welcome the fact that the Export Development Corporation (EDC) has received
more funding. As a Crown corporation, EDC is not subject to the
Access to Information Act
and its expenditures of public monies in the form of concessional financing to certain
Canadian companies are hidden behind a veil of commercial confidentiality. As the report
points out, there have been charges that EDC competes unfairly with the private sector
because it does not bear the same costs as its counterparts. In 1994, the Canada Account
paid EDC $12 million for expenses incurred in administering loans deemed to be in the
public interest. Appendix I shows that, in total, EDC and its loans under the Canada
Account will cost the taxpayer $444 million in 1996-97.
Report Recommendation 3: The Committee recommends that their
experience [EDC's new programs] be carefully monitored with a view to their
further strengthening.
The term `strengthening' is usually a code word for `let's get more money and bureaucrats
involved'. We would prefer that the new Emerging Exporter Team and Master Accounts
Receivable Guarantee programs be assessed for their effectiveness by the Committee at a
later time. The Committee should have full access to information regarding the programs
to judge whether or not the expenditure of public funds is serving the public interest.
Report Recommendation 13(c): The government should, upon request and
based on predetermined criteria, assist SMEs with funds to access
information regarding financing, market development and market
intelligence services where a fee is charged by the private sector.
The Reform MPs on the Committee do not recall witnesses requesting this type of funding
from the federal government. If a company cannot pay for foreign market intelligence, it
should not be contemplating moving past the Canadian gatepost.
Report Recommendation 16: ...the Committee recommends that the
Canadian government should pursue actively the harmonization through
international agreements of regulations and standards that have an impact
on international trade.
We would like to see this recommendation strengthened considerably. As more Canadian
companies become export ready, the need to harmonize standards with our major trading
partners increases. Since the U.S. marketplace is particularly important to Canadian
businesses, small and medium-sized enterprises find the lack of harmonized standards to
be a hindrance to their ability to access these markets.
Reform Party Recommendation: The Department of Foreign Affairs and
International Trade should immediately strike a NAFTA working panel with
our partners to resolve the issue of harmonizing standards. The Canadian
panel members should solicit information from industry groups regarding
which Canadian standards can be brought into line with those in the United
States and vice versa.
Report Recommendation 20: The Committee recommends that an
independent review be undertaken of federal government programs that
affect the ability of SMEs to compete successfully in international markets
and to determine in particular the extent to which the programs and services
provided by the federal government, provincial governments,
municipalities and the private sector duplicate each other and/or overlap.
The objective would be for the private sector to make clear what it cannot
provide and what it expects from the various orders of government. This
review should be undertaken by a task force consisting of representatives of
financial institutions, trade and business organizations, independent
business people and trade experts, to be appointed by the federal
government in consultation with provincial governments and in
consultation with municipalities and the private sector. The three levels of
government should be represented in an ex officio capacity as observers.
The operations of the task force would be financed by the principal
stakeholders.
Reform MPs think that the proposed review will be costly and time consuming and, in the
end, will serve little purpose unless the objective is more results-oriented. We recommend
that the federal government get its own house in order first. For instance, the report states
that 18 separate federal departments and agencies have been identified as having some
kind of responsibility for international business development programming.
A more productive endeavour for a task force would be to examine the various federal
programs and to recommend a complete streamlining with the objective of eliminating
some programs and refocussing others. If the Committee is not familiar with the 18
separate programs, it cannot expect that the average SME will be either, even though
SMEs are paying for them. The task force should also assess whether the various
programs can be folded into one overall program to be accessed via the Department of
Foreign Affairs and International Trade.
Report Recommendation 22: The Committee recommends that the
following issues be dealt with in this review:
(a) the contracting out practices of Canadian posts to determine whether
this is an efficient and effective way to deal with the varying demands placed
on trade commissioners stationed abroad
Reform MPs recommend that the Trade Commissioner Service (TCS) begin charging for
some of the trade and investment services it provides. This would allow for partial
cost-recovery, workload reduction, and increased quality of service. General information
should be provided free of charge, but a fee should be charged for the gathering and
provision of detailed commercial information.
(b) the practicality and cost effectiveness of using tax incentives to
encourage SMEs to enter foreign markets
Reform MPs endorse the Reform Party's flat-tax proposal which would eliminate all special
tax incentives which distort normal business activities.
(d) the development of clear criteria of what constitutes a "high technology company"...so that the federal government can determine...whether financial assistance should be made available to high tech SMEs
This recommendation flies in the face of the first recommendation which states that the
federal government should not subsidize SMEs. Furthermore, Reform MPs believe that
federal programs should not target one industry over another, so that developing a
definition of a "high tech" company serves no purpose.
(f) the impact on Canadian firms of the harmonization of
international/technical standards on their ability to compete internationally
and to establish themselves abroad
The Committee has already heard that the lack of harmonization hurts Canadian exports.
We recommend that the federal government proceed with a NAFTA working group to
address this problem as cited earlier.
Besides disagreeing with some of the report's recommendations, Reform MPs are
concerned that the report ignores the detrimental effects that high levels of taxation,
interprovincial trade barriers and government regulations have on SMEs. We would,
therefore, like to submit three additional recommendations.
Reform Recommendation: The federal government should reduce its own
spending to achieve a balanced budget and then surplus budgets which will
allow it to reduce taxes.
The main restriction to business expansion for small and medium-sized enterprises in
Canada is the high cost of doing business in this country. Corporate taxes combined with
high payroll taxes are detrimental to the ability of small and medium-sized enterprises to
grow and prosper. In an international business environment, this makes it difficult to be
competitive and discourages many companies from entering into export markets.
Reform Recommendation: The federal government should set an immediate
time table for phasing out interprovincial trade barriers.
Domestic trade policy does not allow small and medium-sized enterprises to properly
grow and achieve the economics of scale that are required to compete successfully in the
international marketplace. Barriers to trade within Canada have been estimated to cost
Canadians $8 billion annually.
Reform Recommendation: The federal government should strike a special
committee of the House of Commons to review all government regulations
affecting small and medium-sized enterprises to identify and eliminate
non-essential regulations.
Excessive government regulation is a problem that faces all businesses in Canada.
Dealing with regulation requires a disproportionate amount of time for small companies.
Often, when a business is starting out, it is entrepreneurial and the owner's energy is
required in production, marketing, and financing the operation. To the extent that much of
the regulation seems to be frivolous, and because compliance is costly, many businesses
find government regulation to be detrimental to their success.
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