SINT Committee Meeting

37th PARLIAMENT, 2nd SESSION

Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

EVIDENCE

CONTENTS

Wednesday, April 9, 2003

»

1740

The Acting Chair (Mr. John Duncan (Vancouver Island North, Canadian Alliance))

Mr. Ian Cheng (President, Comox CanadAsia Business Society)

The Acting Chair (Mr. John Duncan)

Mr. Ken McKeen (Consultant, Coast Forest & Lumber Association)

The Acting Chair (Mr. John Duncan)

Mr. Ken McKeen

The Acting Chair (Mr. John Duncan)

»

1745

Mr. Ken McKeen

»

1750

»

1755

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

¼

1800

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ken Ing (Member, Comox CanadAsia Business Society)

¼

1805

The Acting Chair (Mr. John Duncan)

Mr. Rick Casson (Lethbridge, Canadian Alliance)

Mr. Ken McKeen

¼

1810

Mr. Rick Casson

Mr. Ian Cheng

Mr. Rick Casson

Mr. Ian Cheng

¼

1815

The Acting Chair (Mr. John Duncan)

Mr. Murray Calder (Parliamentary Secretary to the Minister for International Trade)

Mr. Ian Cheng

¼

1820

Mr. Murray Calder

Mr. Ian Cheng

Mr. Murray Calder

¼

1825

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

The Acting Chair (Mr. John Duncan)

Mr. Ken McKeen

¼

1830

The Acting Chair (Mr. John Duncan)

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ)

¼

1835

Mr. Ian Cheng

Mr. Stéphane Bergeron

¼

1840

Mr. Ian Cheng

Mr. Stéphane Bergeron

¼

1845

Mr. Ken McKeen

The Acting Chair (Mr. John Duncan)

Mr. Raymond Simard

¼

1850

Mr. Ian Cheng

Mr. Ken Ing

Mr. Raymond Simard

Mr. Ken McKeen

¼

1855

Mr. Raymond Simard

Mr. Ken McKeen

Mr. Raymond Simard

Mr. Ken McKeen

Mr. Raymond Simard

The Acting Chair (Mr. John Duncan)

Mr. Mac Harb (Ottawa Centre, Lib.)

½

1900

The Acting Chair (Mr. John Duncan)

Mr. Ken McKeen

The Acting Chair (Mr. John Duncan)

Mr. Ian Cheng

Mr. Ken Ing

The Acting Chair (Mr. John Duncan)

½

1905

Mr. Ian Cheng

Mr. Ken Ing

The Acting Chair (Mr. John Duncan)

½

1910

Mr. Ken McKeen

The Acting Chair (Mr. John Duncan)

Mr. Mac Harb

The Acting Chair (Mr. John Duncan)

Mr. Ken McKeen

The Acting Chair (Mr. John Duncan)

---

CANADA

Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

---

NUMBER 008

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Wednesday, April 9, 2003

[Recorded by Electronic Apparatus]

»  (1740)  

[English]

    The Acting Chair (Mr. John Duncan (Vancouver Island North, Canadian Alliance)): I'll call the meeting to order.

    What we're doing today is, pursuant to Standing Order 108(2), an examination in view of strengthening economic relations between Canada and Asia.

    We have with us Ian Cheng, who is the president of the Comox CanadAsia Business Society. Ian, you have one of your members with you as support, correct? What is the person's name?

    Mr. Ian Cheng (President, Comox CanadAsia Business Society): His name is Ken Ing.

    The Acting Chair (Mr. John Duncan): Okay.

    We also have, from the Coast Forest and Lumber Association, Ken McKeen, who is a consultant for the CFLA.

    Mr. Ken McKeen (Consultant, Coast Forest & Lumber Association): Yes, I'm here in that capacity today.

    The Acting Chair (Mr. John Duncan): Ted Haney is expected to join you. He's flying in from Calgary, so maybe something happened there.

    In any case. we do have a written presentation from you, Ken, in English only, as we haven't had time to translate it at this time. Maybe it would be appropriate to start with you, seeing that you are organized. We chatted enough to at least give you some feeling about what we're looking for, and I think you've managed to do that.

    Following Ken, Ian, we'll come to you, and if nobody else has turned up, we'll go into questions.

    You have about 10 minutes. Will that work for you, Ken?

    Mr. Ken McKeen: That would be very close.

    The Acting Chair (Mr. John Duncan): Great.

    Mac Harb is the regular chair of this committee, and he has been gracious enough to allow me to take the chair's seat today because we're all from British Columbia.

    This has been an ongoing study for some time. We've had a lot of witnesses from the Ottawa area and people mostly from Quebec and other parts of Ontario, so this is an opportunity to reach out, although people like the Asia Pacific Foundation of Canada in Vancouver have been well represented at this committee. We will be travelling to Asia in May, that will be the next phase of the study, to actually go to the source. Any hints or tips that you might offer us we would have an opportunity to pursue in our travel schedule, hopefully.

    I'll let you start, Ken. Thank you very much for coming on what I understand was quite short notice.

»  (1745)  

    Mr. Ken McKeen: It was, but I'm pleased to be here.

    I'm here today on behalf of the Coast Forestry and Lumber Association, filling in for Brian Zak, its president, who is in Japan to launch its new promotional program.

    I've recently retired after a 37-year career with the Council of Forest Industries in British Columbia. Of that time 20-plus years was spent as manager of the coast lumber sector, and, in more recent years I served as vice-president of the market access and trade division. I have quite extensive experience in international market development, both promotion and market access, in Europe, Japan, Australia, as well as China, Taiwan, and Korea. I've also had extensive experience in managing industry-government cooperative programs.

    The Coast Forest and Lumber Association is an industry trade association representing the B.C. coastal sawmilling industry. It is an advocacy group that focuses primarily on forestry issues, log security, market development, and government relations. Their market development work includes applied research, product development, market access issues, such as building codes and product standards, and product promotion in both developed and emerging markets. Emphasis is on Asia, particularly Japan. We have been conducting market development work for the past six years with the British Columbia government, and recently with the federal government under its new Canada wood export program.

    I should note that the coast industry has a long history of international market development. It goes back more than 50 years. They pioneered promotion of Canadian wood products in Europe, Australia, Japan, and many other world markets. They were the lead organization in the establishment of the cooperative overseas market development program and a participant in all five of those programs. They initiated promotion of platform frame construction in Europe, and they were the ones that introduced two-by-four construction in Japan.

    The coast sawmilling industry is very different from the rest of Canadian industry. It produces today about 2.25 billion board-feet of lumber annually, 17% of British Columbia's total volume, about 40% of the value of British Columbia's production. They have unique species, predominantly hemlock, but also Douglas fir, western red cedar, yellow cedar, and Sitka spruce. They operate in a very steep, rugged terrain and have the highest logging costs in the world. They face major transportation disadvantages in servicing the North American market. They operate what we call cutting mills, the types of mills required to cut the coastal log. They are more costly and labour-intensive, but provide more flexibility to cut special sizes. They're very dependent on offshore markets. They account for 68% of British Columbia's lumber shipments to Japan, and they still account for more than 50% of Canada's total overseas trade in wood products.

    These factors drive the coast's marketing plans. They must focus on high-value or niche markets. If it costs $700 to produce lumber, you can't survive by producing two-by-four commodity products that sell for $350. Sales to the United States and Europe tend to be species, such as western red cedar, or high grades, such as clears, that are not available elsewhere. They simply can't compete in the low-cost commodity market. Volume business in the common construction quality fibre goes to high-value overseas markets, as with special sizes for the Japanese post and beam housing components, or, hopefully, small niche markets in emerging economies. Major efforts are being made to reduce manufacturing costs and produce higher-value products that better meet the customer's needs.

»  (1750)  

    Today the B.C. industry is still in economic crisis. Rapidly increasing costs, uncertain timber supplies, changing customer needs, and surging competition and protectionism in export markets have resulted in a major downturn in the sector. Sales to Europe have been reduced 90% in recent years, for a loss of some $500 million per year, as a result of protectionism and rising production costs. Sales to the United States, which are mostly high-value products, were hit disproportionately hard by the import duties. The average value of coastal products going into United States is in excess of $800 a thousand, so if you put an ad valorem duty on that, you can see the impact. Sales to Japan, the largest market, dropped dramatically, because of competition from low-cost European products, radiata pine, Russian larch, and domestic supply.

    The coast, however, is responding. The strategy is quite straightforward, to continue to ship high-value specialty products to the U.S.A. and Europe; to reposition coast products and restore demand and market share in Japan, particularly for hemlock, through new market development and aggressive promotion programs; to develop opportunities and demand in emerging markets, starting with China, India, and Korea; and of course, to continue efforts to reduce their manufacturing costs. This work has already started. The focus to date has been almost exclusively Japan. That is the coast's largest offshore market, with annual sales still in excess of $900 million, and it is the market that offers the best growth potential.

    For the past six years, with considerable financial support from the Government of British Columbia, the coast has been pursuing a very ambitious promotional and technical development program in Japan. That includes an extensive promotion program to create an awareness of “Canada tsuga”, which is the Japanese name for our hemlock, as a distinct species with superior performance attributes; development of a comprehensive set of promotional and technical literature and other collateral; establishment of full-time technical representation in the market; numerous trade shows, seminars, and trade missions; extensive in-grade testing of coast species for enhanced design properties in Japanese building codes; development and building code acceptance of a new grading rule for E 120 Canadian hemlock/fir lumber products; introduction and promotion of a new E 120 product line; shear wall testing that proves houses built with Canada tsuga have greater earthquake strength than with other commercially available species; extensive research studies to determine optimum kiln drying practices; studies to document the stability of coast species in Japanese housing; and the development of a code action plan based on an in-depth study of new building codes, standards, building practices, and changing customer needs.

    In the past year they have developed and launched a new technically based promotional program focused on the E 120 Canada tsuga product line. They have also initiated a market development program in China, which will be fully operational by the middle of the year, including full-time representation in Shanghai. Over the next three to four years they will maintain the intensive market development program in Japan and establish a market presence and promotion programs for coastal products in China, India, and Korea.

    I was also asked to address what the government could do to help. It's a little tricky when you start to tell somebody else how to do their business, but I can comment on a few things we in the industry have found helpful and would find helpful.

    The Canadian wood export program is a good example of how government can work effectively with industry to develop overseas markets. It is a cost-sharing program, which makes it cost-effective for all parties, and it is industry-driven and delivered. That is an important component to ensure that commercially viable options are being pursued and that there will be commercial follow-up to the promotion. Even well-run promotional programs will be failures if there isn't good commercial follow-up.

»  (1755)  

    Another area where the government is most useful is in opening doors. A lot of market development work, particularly with access issues, such as codes and standards, has to be dealt with on a government-to-government basis. An example of where the government has been helpful in the past is in the area of codes and standards, by introducing industry technical staff to key officials. The government staff have much better access than commercial staff. Another is organizing incoming missions of government officials. Foreign government officials can't really accept invitations from industry to visit Canada. A third is with exhibitions and trade receptions. Here the profile and involvement of the federal government often results in a much better response.

    Another area we have found useful is having properly trained staff in overseas posts. We have had some experience in putting the commercial officers and trade commissioners through special training programs in Vancouver, and it really helped them to do their job a lot better once they were in the marketplace.

    Market intelligence is always very useful, to keep an eye open for opportunities and developments, particularly where we don't have full-time representation on the ground, and to assist industry reps with itineraries, introductions, etc. on initial market visits.

    The government can also maintain a store of our literature and video for distribution and forward inquiries as they arrive.

    Efforts that are not so productive on the part of the government tend to be those that are not industry-driven. It is a challenge, but an effort must be made to understand the industry and work very closely with it on trade development initiatives.

    The Canadian government, in my view, does a pretty good job in all these areas, much better than most. Programs like the cooperative overseas market development program have been cited as examples of how government and industry should work together. It was extremely effective. Other countries have adopted programs modelled on Canada's. We're very pleased to see that Ottawa has reactivated this type of support with the establishment of the Canada wood export program.

    Finally, from a personal point of view, it seems to me that CIDA is an area that might warrant some attention by this subcommittee. I know it's a sensitive area, but many nations tie their aid to services and products from their country. This may be something Canada could do more effectively, without undermining the aid program itself, but helping to introduce Canadian products in the process.

    Thank you for your attention. If you have any questions, I'd be pleased to elaborate on these comments.

    The Acting Chair (Mr. John Duncan): Thank you very much, Ken.

    We'll go to Ian, and then we'll ask both of you questions, as no one else has arrived.

    Mr. Ian Cheng: Good evening.

    It is indeed my honour to attend such an event. May I wish you every success in your two missions.

    We were established in 1999 in British Columbia by a group of industrialists, immigrant investors, and small enterprises. We have a membership of nearly 200 small enterprises, and international trading accounts for the great majority. Our mandate is more focused on the promotion of Canadian trade and investment between Canada and Asia. During the whole year we host information programs for our members, seminars on business topics, business matchmaking, trade shows, receptions for delegations or trade missions, etc.

    As a Chinese Canadian, I'd like to focus more on China, and I'd like to bring up some figures for your reference. In 2002 China ranked sixth in the world in total imports, $295 billion U.S., and fifth in total exports, $325 billion U.S. With 1.3 billion population, China has already surpassed a per capita GDP of $6,000, and with the rapidly increasing number of the middle class, China is no doubt a very promising market and a strong potential investor in Canada. So I do hope that your mission can win a lot of friendships in China and pave the way for us, as small enterprises, to do business in the future.

    I think that's about it on my part. If time allows, maybe my colleague will take two or three minutes to say something on behalf of small enterprises. Can he?

¼  (1800)  

    The Acting Chair (Mr. John Duncan): Yes, but before we do that, despite the name, you're essentially Vancouver-based as a group, correct?

    Mr. Ian Cheng: Yes.

    And there's one thing I forgot. I think the organization your two missions to China should come into contact with is MOFTEC, the Ministry of Foreign Trade and Economic Cooperation. They can direct you to all other governmental departments or private sector organizations when needed. If you need help, I can put you through, and maybe they can arrange some kind of reception by the time you arrive in Beijing.

    I understand your time is very short in Shanghai.

    The Acting Chair (Mr. John Duncan): It doesn't look like we're going to Shanghai right now, Ian. Our schedule has been in some flux. We're definitely going to be in Beijing, however.

    Mr. Ian Cheng: I see. If you need our assistance, just let me know beforehand.

    The Acting Chair (Mr. John Duncan): Okay. Thank you very much.

    So we go to your partner, Mr. Ing.

    Mr. Ian Cheng: He is one of our members, and he is a specialist in economic affairs. He has very long experience with banking methods in the major banks.

    The Acting Chair (Mr. John Duncan): Thank you very much, Ian.

    Go ahead, Ken.

    Mr. Ken Ing (Member, Comox CanadAsia Business Society): Hello, everyone.

    With the U.S. economy in not so good shape these days, much has been said about China taking over as the growth engine of the world. So today I would like to bring to your attention the importance of small business in developing trade with China.

    It is generally accepted that small businesses are mostly responsible for creating new jobs, and in the case of developing trade with China, indeed, small business is in the forefront of developing new opportunities for Canadian products in the burgeoning China market. As an example, I would like to start off with the geoduck story. Many years ago geoduck was a seafood product hardly noticed by Canadian consumers, but some seafood trader in Vancouver saw the potential, and by risking a few containers, he started to ship them to Hong Kong. He received initial success, and other people started to follow, shipping geoduck to other areas where Chinese live. The majority of the geoduck export now goes to China.

    Another example is chicken feet, a product again ignored by Canadian consumers, and yet we find a market in China.

    I can also tell you that many of our members have tried to export Canadian lumber to China, but have met early disappointments. Yet they all keep trying. One day those obstacles will undoubtedly be worked out and Canada will succeed in opening the China market for Canadian wood products. I have no doubt that those cumulative efforts of small exporters will play a role.

    So we would like to ask you, when shaping policy on trade or immigration, to take into consideration that small entrepreneurs can make a difference.

    Thank you.

¼  (1805)  

    The Acting Chair (Mr. John Duncan): Thank you very much, Ken.

    I'm going to start with Rick Casson on the questions.

    Mr. Rick Casson (Lethbridge, Canadian Alliance): Ken McKeen, you talked a bit about some of the things that work for you and some that don't. I just wondered if you had any other regulation issues that get in your way and you think could be straightened out for us to have a look at.

    Also, you're talking about going into China, India, and Korea. Are you looking at huge numbers? Is it enough to take up the slack from what you lost in Europe and what you continue to have trouble with in the U.S.?

    Mr. Ken McKeen: Let me start with the last part. Yes, we do see a large potential. I think it is a fact of life that the production levels in the coastal region of British Columbia will never go back to what they were in they heyday of the 1970s. We are looking to increase our sales to Japan from current levels by 25% to 30%, we are looking at establishing a market in China for something like 300 million board-feet of lumber, 50 million in the short-term maybe in India. So these are very big volumes of wood we're talking about. To some degree, we're talking as much about redistribution and diversification of our market base as we are about increasing sales totally. We do anticipate that the sales, for example, in the United States will probably, from the coast perspective, continue to diminish even from where they are today.

    As to regulatory problems, I've been out of the picture on a day-to-day basis for about two and a half years now, so I'm not too sure of what they might be specifically. One frustration we have had, though, and I don't know that there's an easy solution to it, is that in dealing with Ottawa, or any other government for that matter, you always come up against the bureaucracy or the process, and industry can never get decisions as fast as they would like them. For example, we put in proposals for the last fiscal year, and it took more than six months to get the programs approved. We were left with about five months in which to carry out a twelve-month program. Those are the types of frustrations you come up against from time to time. However, these were new programs that were getting up and running, and there's every indication that we won't have those types of delays as we get into the second and third year of these programs.

¼  (1810)  

    Mr. Rick Casson: We had a representative from the port authority in Vancouver indicating that they'll soon run out of room and there needs to be some expansion. I'd like to ask both of you if you have any problem right now getting your product moved around. Do you see any shortcomings in the near future with getting containers in and out? How has that flow been going? What process do you use to get your product over to Asia?

    Mr. Ian Cheng: For the time being I myself and, I understand, a number of other members do not have any problem with their cargo going through the port authority or the customs, but this is not true when the union has a strike. The last time they had a strike, a member was making a shipment to China of a lot of crabs, and they all died. That was a great loss, with nobody to claim from. If our government can keep the union in good shape, it will make it easier for us, small businesses, to survive.

    Mr. Rick Casson: Ian, you talk about the opportunity for small business, and I imagine you mean on both ends of the trip, opportunities for small businesses in China and opportunities for small businesses in Canada to work together. Is there some umbrella organization that lists opportunities or people looking to invest in each country? You mentioned some things that didn't go so well. How are our people on this side protected against some of that, and what can we do to further enhance the stability of dealing with small and medium-sized businesses in China?

    Mr. Ian Cheng: I have long experience with international trade from when I was in Hong Kong and in China--I have a background in both places--and I always felt that small industrialists here in Canada are not quite ready for export. Perhaps the government can do something encouraging them to focus not as heavily on the United States, but a little more on the Asian market, not only China. The Asian countries all enjoyed very good economic growth in the 1980s. There were downturns in the 1990s, but they still got a huge foreign exchange return. Hong Kong, Taiwan, and China in the past six or seven years are strong potential investors.

    Last year Industry Canada arranged for us to receive a group of young executives who were sent to the commercial faculties of the University of British Columbia for training. Their organization, China World Best, has an investment in a textile factory in Montreal. According to Industry Canada, the amount invested is $45 million. While they are not that big, they still they have a good start. They are the number one investor from China. I believe, with the rapid economic growth, your tour can work towards inviting more big enterprises from China to come over. In our area, the Comox valley, we have a lot of investment opportunities to offer. If you could invite them to come over and ask Canada to take it easy with the visa issue for these enterprises, it would be helpful to our economic development.

¼  (1815)  

    The Acting Chair (Mr. John Duncan): Thank you, Ian.

    I'm going to go to Murray Calder, the parliamentary secretary, but before I do that, for the record and for your information, we do have people in the audience here from the committees branch of the Quebec Legislative Assembly, Hélène Galarneau, who's the director of the committees secretariat for the Assemblée nationale du Québec, and Ms. Ariane Mignolet, secretary to the committee on public finances. So you've attracted some additional audience from an important Asian-looking province.

    Murray Calder, please proceed.

    Mr. Murray Calder (Parliamentary Secretary to the Minister for International Trade): Thank you very much, Mr. Chair.

    You said, Ian, you have a lot experience not only in China, but over here in Canada. The Three Gorges Dam, which is currently being constructed and should reach completion by 2008, is going to increase hydro generation in the central part of China and give them an inland port. I believe it will solve a lot of the transportation problems they have, because they will start to use a barge system to move product around. We're talking about filling up 1.5 million acres or something like that. The dam is going to be huge. Do you have any knowledge of how this project is proceeding within China? And as the project is proceeding, how can we become involved? If, for instance, there were another Team Canada going over to China, what should we be focusing on as the lead-up to this? And what business opportunities do you see after this project is completed?

    Mr. Ian Cheng: I am experienced in international trade, not those kinds of big projects within China. I would suggest very much that when you contact the Ministry of Foreign Trade and Economic Cooperation, you ask them to invite as many industry people as possible and government departments like the Land Development Corporation--not the very high ranking people just for shaking hands and taking pictures--and those departments responsible for this kind of project. Keep an open mind, listen to them, and invite them to come over to learn more about our industries. Further, I would suggest mobilization of local business circles to organize more trade missions from industry people to take part in the exhibitions in China, to show them what we in Canada have. Work together at the grassroots level, where it's easier to conduct more business.

¼  (1820)  

    Mr. Murray Calder: One of the things that I see with China right now is that the product it's putting out now is increasing in quality, and yet it's still very competitive on the international market. Another thing I see within China at the present time is that there seems to be more of a migration from the rural area into the urban areas as they get more and more into manufacturing. What, if any, opportunities do you see that we could and should be involved in? Now that they're part of the WTO, for instance, there's a humanitarian aspect, and then, of course, there's investment.

    Mr. Ian Cheng: I would strongly suggest that our industries get involved in China's development. It's no longer that you just sit back up there inviting people to come over, make investments in Canada, pay a lot of tax, and make a very small margin of profit. When you get there, you can see a sea of opportunities.

    I would like to mention Taiwan's experience. In the 1980s the government encouraged a lot of their industries to go offshore. They do a lot of investment in Malaysia, Singapore, and Thailand. You should not see this as a outflow of capital; it is inflow of capital. You're just making use of cheap labour, cheap land, and their technology and making money for us, Canada, just like Taiwan. That's why Taiwan enjoyed a very high accumulation of foreign exchange in the 1990s.

    Let's be open-minded. We can move around our industries, using their cheap labour. It's then easier to penetrate their market. When they've got money, they can reinvest, and eventually, the money and the tax will get back to Canada. That's the experience of Hong Kong and Taiwan.

    Mr. Murray Calder: I have been over to Taiwan twice on trade missions and have established some friends over there, and here too. Do you know what the southeast Asian nations' perception of Canada is? Is there a perception of us as a nation of resources or as a nation of technology?

¼  (1825)  

    Mr. Ian Cheng: Both, I would say. It's a nation of resources, but the price is really too high for them. Not long ago I attended a conference held by Forintech in B.C., and National Research Canada brought up two examples of kinds of wood this company used in China that we in Canada have. The price from Russia is only $50, from New Zealand $60, from Australia $70, from B.C. $120. With a wood-frame structure house, a prefab house to be built there, the cost using our B.C. product is at least $260 per square metre; using Russia's resources, it's only $150, and using China's resources--of course, the quality is not that good, but it's still usable--only $120. We are selling quality, but with the American market not in such good shape, why do we insist on quality? I would suggest that we sell something the market needs.

    Canada is indeed a nation of technology. We have activities next month with Environment Canada promoting environmental products. We work together with another association, a very professional association, promoting. We invited at least 10 or 20 environmental product companies to promote their products to the local Asian traders. If possible, we may organize a trade mission to show Canadian products there by September. This is the plan we have on paper.

    The Acting Chair (Mr. John Duncan): Could you tell us where that trade mission is planned, Ian?

    Mr. Ian Cheng: The trade mission is planned for Xiamen, an area of Fujian, with the number two trade show in China. The number one is the Canton commodity fair. The second is the Xiamen investment and trade show. The third one is in Shenzhen, a high end science and technology show there. They have three big shows every year.

    The Acting Chair (Mr. John Duncan): So some of your members would be attending. Would they be attending with federal assistance?

    Mr. Ian Cheng: The red tape and bureaucracy are too much trouble. I hope, Mr. Duncan, you can pave the way for us to get some funding. Can you?

    The Acting Chair (Mr. John Duncan): Ken McKeen.

    Mr. Ken McKeen: I wonder if I could come in on this quality issue. If you go back into the eighties, we were at one stage putting about 100 million feet into China. and it tended to be pretty much low-grade material, number 3 and better. They used to grind that all up and produce windows and doors, albeit of pretty low quality by our standards. They used a lot of it for shoring for their sewer works and things like this. With the Tiananmen incident, of course, all that business ground to a halt. Today it is staring to rebuild, but we are noticing a very significant change in the quality they want. They are starting to order some of our very highest grade clear products for panelling and furniture and that in some of the new hotels they're building and some of the new upscale residential or commercial development going on. So there's a fair bit of that going in.

    Also, to touch on what Ian was saying, there is no question that they do have a huge resource of low-cost labour. We are not going to get in and sell our lumber on the basis of price, we simply can't compete with some of the cheap material that's available from other markets, but we do have products and we can find niche markets, in our view. They are going to import some of our products, perhaps, to do remanufacturing for some of the high-end uses within China, but also for re-export. There's already a certain amount of wood products being imported into China, remanufactured, and then re-exported, for example, to Japan. These are top-quality products they're exporting. So that's another approach we see.

    Finally, for our common construction lumber, we think we can find niche markets that will pay the premium we need to cover our costs, but they'll have to go in and develop markets that will require a higher-quality product to start with. For example, we may very well find that wooden roof trusses are very cost-competitive with some of the steel roof systems they're currently using, but to do that, they will have to use a much higher quality structural product than may be available from elsewhere. The efficiencies of the wood roof system will offset the higher price for the high-quality structural material.

    That's some of the niche marketing approach we think we're going to have to take in China to build up our business there. But the old idea of our going in and competing strictly on price for whatever it is is not the way we're going to be able to approach that market.

¼  (1830)  

    The Acting Chair (Mr. John Duncan): Thank you for that clarification, Ken.

    I'm going to go to Stéphane Bergeron from the Bloc Québécois.

[Translation]

    Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): Thank you, Mr. Chairman.

    Since the beginning or our hearings and review, many witnesses have been telling us that the market of the future, that which represents the greatest development potential, is the Asian market, and more specifically that of the People's Republic of China. However, we know that in the wake of the 1995 foreign policy review, the current government, when it was elected, largely focused its foreign policy on trade development, particularly in the Asian-Pacific region.

    However, we note that—and we certainly need to consider the financial crisis that occurred—since last year, Canada's share has dropped from 1.32% to 1.24% in the import markets of the 10 major Asian clients.

    So, despite all the efforts of this government to develop Asian markets, net results show that our market share has significantly declined.

    My next question is more for Mr. Cheng, but I will certainly have another one later for Mr. McKeen, given the comments he just made.

    What could be done, beyond fine words and commitments, for Canada and Québec to increase their market shares in Asia, particularly in the People's Republic of China, which appears to be the emerging market on the continent?

¼  (1835)  

[English]

    Mr. Ian Cheng: According to the very recent statistics, for the year 2002, January to November, Canada ranks tenth of China's top 10 trading partners. We have a decrease in total value, as you said, but not that much, according to the statistics. It is only a 0.1% decrease.

    As to how to improve this situation, as I said, the mindset of many of our factory people is not ready yet for international trade. Sometimes, when we ask for quotations, they don't even know what FOB, a very basic term, means. You come over to the factory, take the goods, and give them a cheque or bank draft. International trading for them means driving a truckload of cargo down to America and bringing a bank draft back. International trade is far more complicated than this. If industry associations can conduct more educational courses for them, if the government can encourage them to explore the market more aggressively, things will move.

    I'd like to tell you one story. Last year I attended a furniture trade show in Shanghai, which is a very big one. I saw exhibitors from overseas, from Norway, from Australia, from New Zealand, all exhibiting their wood lots. I saw none from Canada. They got 7,000 to 8,000 exhibitors, but none of them were from Canada. I made a phone call to the Shanghai consulate and asked them about this: Do you know there is an exhibition taking place in Shanghai? They said they did. But why was there not even one Canadian exhibitor there? The answer was just that they didn't know.

    There are more examples. I would say the Canadian manufacturer is not aggressive enough in exploring the market. I think this is the only way to gain improvement.

[Translation]

    Mr. Stéphane Bergeron: Mr. Cheng, you raise important issues, and your suggestions are just as important. In my opinion, your anecdote on Shanghai is an example of a situation we must avoid at any cost.

    You said, in a certain way, that our manufacturers were not focussed on international trade, which somewhat surprised me, as Canada in one of the most important trading nations in the world. The problem we have, if we can call that a problem, is that more than 80% of our trade is with our powerful neighbour to the south.

    So I don't think our manufacturers, generally speaking, have a problem mastering international trade terminology. However, there may be a certain number of other factors that explain why our manufacturers are reluctant to engage in Asian markets, whether it be for cultural reasons or local regulations, the latter seeming somewhat Byzantine to them. Other than distance, of course, there are certainly reasons that explain why our manufacturers are not spontaneously willing to explore Asian markets, especially that these are among the most promising.

¼  (1840)  

[English]

    Mr. Ian Cheng: Canadian manufacturers are not knowledgeable enough about international trade. We have huge trade going on between America and Canada, but I would suggest you check with the banks. You can go into any major bank in your area and ask them if they can do LC negotiations and deal with currency futures, because these are two very important procedures with international trade. I dare say 90% of the banks do not know about LC negotiations, about exchange futures. Ask Canadian manufacturers to look beyond American markets.

[Translation]

    Mr. Stéphane Bergeron: Mr. Cheng, I totally agree with you, but I must say that I am dumbfounded, to say the least, to hear you say that our manufacturers and financial institutions do not master international trade terminology, while Canada is, as I indicated earlier, one of the most important trading nations in the world. This being said, I in no way doubt your word, but I must say that, if this is the case, it is unsettling, to say the least.

    If I may, Mr. Cheng, I would have a question for Mr. McKeen to make the connection with the one I asked you a few moments ago.

    We know that China consumes about 60 million cubic metres of wood each year and that they import approximately 20 million cubic metres. According to estimations, the coming years will be quite critical because, according to Québec's Minister for Industry and Trade, Ms. Lucie Papineau, Chinese lumber needs are expected to reach 240 million cubic metres by 2010.

    In the context of this lumber crisis we are going through with the United States, it is obvious that this could help our companies diversify their exports. We know that China, when becoming a member of the World Trade Organization, changed their customs duties on pulp and paper products; they used to vary from 6.2% to 26.3% and now vary from 2% to 7.5%. We also know that China implemented an anti-dumping policy against certain pulp and paper exporting countries, but this does not include Canada. Finally, we know that China will be forced to reduce their customs duties on lumber imports. According to me, this represents an absolutely extraordinary market for our lumber exporters.

    The next question is addressed to Mr. McKeen. With reference to the discussion we began with Mr. Cheng, I would like you to tell me if, in your opinion, the fact that we do not further explore this expanding market for our lumber producers can be explained by the fact that we are not aggressive on Asian markets. Are there other factors that may not necessarily be obvious and that would make it harder than it may seem to export lumber to the People's Republic of China?

¼  (1845)  

[English]

    Mr. Ken McKeen: From the point of view of the lumber producing industry, most of that business going into China now is being handled, admittedly, by fairly large companies, but we do not have problems with letters of credit or hedging on currency. So maybe we should be talking to one another here, but I know that is not a problem for our companies--at least, I haven't heard of that as a problem.

    As to why we are not doing more business today in China, look at the trade statistics. One element is simply economics. I once did an exercise that showed all we would have to do is sell everyone in China one eight-foot two-by-four every year to take our entire production. So there is the potential there. The problem, of course, is finding enough people who are prepared or can afford to pay for it. The other thing is that our industry, in my view, hasn't really got its act together yet, but we are most definitely moving towards that.

    I don't know if you are aware of it, but the Quebec Wood Exporters Bureau, the Canadian Plywood Association, the B.C. Wood Specialties Group, my own organization, the Coast Forest and Lumber Association, the Council of Forest Industries. and the western SPF industry are working together on a cooperative basis now, under the umbrella of the Canadian Wood Bureau, the flag we're under in China. We have offices there now, but you're going to see all the Canadian forest products companies trying to develop the Chinese market out of one office on a fully cooperative basis. When we get that up and running fully, you'll start to see results. The other thing is that there's a great time lag, unfortunately, between going in and doing basic market development work like this and starting to see this translated into sales. Promotion work very often may take two or three to five years before you start to see significant volumes resulting.

    We are not discouraged. I think the industry is doing what it has to do right now. There's no question that the new federal government program, the Canada wood program, which will provide money to these associations trying to do this work, will really give us an ability to get out and do it at a much more intense level than maybe we would have otherwise been able to afford to do. That program only started October 1 of last year, so it really hasn't had time to get up and running effectively. We agree that there is potential, but we're just, on the solid wood side of the business, starting to make that happen. I can't really comment on the pulp and paper side, as my business and expertise is on the solid wood side.

    The Acting Chair (Mr. John Duncan): Thank you very much.

    I'm going to move on to Raymond Simard.

    Mr. Raymond Simard: Thank you, Mr. Chair.

    Thank you, gentlemen, for your presentations.

    My first question is to Ian Cheng. It's very encouraging for me to hear from the small business community. Obviously, some of your small businesses are achieving a level of success out there. Some of the past witnesses have told us that because of the bureaucracy, because of the cultural nuances you have to face often in Asia, you need to have deep pockets and very good staying power. I'm just wondering what the secret of your small businesses has been, because the message I was getting is that we should really be focusing on encouraging larger businesses to do business in Asia. So could you maybe tell me what the secret of your success has been? How have you bypassed this, or how have you managed to succeed in a tough market?

¼  (1850)  

    Mr. Ian Cheng: I believe my colleague would like to take that up and give you an answer.

    Mr. Ken Ing: I'd like to shed some light on whether there are any macro policies that would work in all China. To answer that, I'd like to point out that China should be viewed not as just one big market. It's actually a great many different markets. You may hear that sometimes in the north they're exporting corn, yet in the south they're buying corn. Therefore, I cannot emphasize enough how small business plays a major role in developing those divided and separate markets.

    To give you an example, recently one of my colleagues bumped into a businessman from Quebec. He was setting up an office in southern China. Just through his being there himself, people felt this guy really wanted to develop the China market. He was trying to meet with one of the top officials of a local rice winery to promote wine from Quebec. He was able to link up with a Chinese Canadian who happened to be working in that area, and he was introduced to the top official of the rice winery. We can draw two things from this. One is that in discussion with constituents in your region, you may want to encourage them to invest their time in knowing some people who are doing business in China or make the time to go to China and make those contacts.

    Mr. Raymond Simard: Thank you.

    My second question is to Mr. McKeen. You've indicated that one of the things government can do, Ken, is send properly trained staff to overseas posts. I was wondering if you were insinuating that the people who are there now are not properly trained. If they aren't, we have to know about that. Our information has been that our trade people have been very good, but there are too few of them and they're overworked. I don't know if you want to comment on that.

    Mr. Ken McKeen: I certainly wasn't inferring that they're not properly trained. I would agree that probably the biggest problem we face is that they're overextended. They just have too many balls in the air to try to do an in-depth study or support for anything. What I was referring to about training is based on some experiences. A few years ago, I think on three different occasions, we brought in 15 or 20 of the trade commissioners in commercial offices overseas who were in prime markets for us and put them through a special two-week training program in British Columbia. We took them into the mills, we explained our marketing strategies, we showed them our products, we gave them a bit of product knowledge, and so forth. This in-depth knowledge I think then allowed them to go into the marketplace and understand the market a lot better than they would have otherwise. I think they're all very competent, well-trained, and well-educated people, but that doesn't necessarily mean they know how a sawmill runs or they understand the products that come out of that sawmill or how those products are used to build houses or whatever it may be.

    That's what I meant by properly trained. In the good old days we even had people who were dedicated to wood products working out of these posts, that was their job. Now they carry many other flags. If we can identify that as a priority, and there is someone in that market who's going to be allocating 50% of his time in support of the wood products industry, maybe it would make sense to bring him out to Canada for a week or 10 days and put him through a specialized training program, so he becomes much more knowledgeable on wood products than he might otherwise be. That's what I was talking about.

¼  (1855)  

    Mr. Raymond Simard: Thank you.

    As a follow-up on that, are the people you represent 100% producers of raw materials, or are there also people who manufacture furniture? Is there any value-added in Canada here?

    Mr. Ken McKeen: The particular group I'm representing, the Coast Forest and Lumber Association, are more manufacturers of raw materials. They basically produce lumber products. Some of those products, when you get into exterior siding products, cedar siding and things like that, are pretty finished products, there's not much more you can do with them before they're used. Other products tend to be just common lumber products you would use to frame a house and things like that. That's the product line of the people I represent.

    We also have in British Columbia an organization called B.C. Wood Specialties Group. That's the association that tends to represent the secondary manufacturers who produce much more of the finished products. We work very closely with them. They produce the furniture and beams and a whole bunch of much more finished products. Our job is to look after the other side of the street.

    Mr. Raymond Simard: Thank you.

    I have one last question, again for Ken. You spoke about our sales reduction with Japan in the past. Obviously, some of it has to be attributed to a downturn in the economy over there. Can you tell me if other countries have filled in where we haven't been able to? Do you foresee Canada getting the sales back to where they were before?

    Mr. Ken McKeen: Certainly, the decline in the economy, with the level of housing starts and so on, in Japan is a contributing factor. A very high percentage of our business with Japan goes into the traditional Japanese post and beam housing sector. But the biggest single cause of the drop in our market share there has been competition, and the single largest part of that has been from Europe. The Europeans have come in there with laminated four-by-four posts, you can call them, but the Japanese system is basically a post and beam construction system. The Europeans have come in there with a kiln-dried laminated product that sells for marginally more than our solid green. There's no question that it's a superior product in terms of stability and so on. So they've come in and really taken the post business away from us, purely on price. We can produce products that are as good or better in quality, but that then involves kiln-drying, or maybe we can get into the laminating business, but then we're adding a whole bunch more cost. There's no way we can do that and make money in competition with the Europeans.

    That situation, happily, is changing. One of the functions of that was the value of the euro. In recent times the euro has been strengthening quite significantly relative to the Canadian dollar and the U.S. dollar. That has helped our competitive position in that market. We're seeing now some of the housing industry leaders in Japan, where they had been using European laminated products, switching over to a solid kiln-dried product from British Columbia. So we're quite encouraged that we are going to regain some of this. Will it ever get back to where it used to be in the good old days? Probably not, but it's going to get a hell of a lot better than it is today.

    Mr. Raymond Simard: Thank you very much, gentlemen.

    Thank you, Mr. Chair.

    The Acting Chair (Mr. John Duncan): Thank you.

    Mr. Harb, do you have some comments you want to make?

    Mr. Mac Harb (Ottawa Centre, Lib.): First, I want to thank our witnesses. I think this is an extremely useful presentation we have heard today. I appreciate their comments.

    I have two small questions, one concerning CIDA. I wanted to find out whether our witnesses have had any experiences with CIDA, applying under the CIDA-INC program.

    The second one deals with exchange programs, whether they have heard of any possibilities for exchange programs where they would bring in either the commercial officers from some of those embassies they deal with in Asia Pacific or the trade commissioners. If any of our witnesses would care to tell us, that would be great.

    I want, as a final comment, to say how delighted I am to have been a part of this wonderful meeting today, Mr. Chair.

½  (1900)  

    The Acting Chair (Mr. John Duncan): You've got a question from Mac, then I'll wrap up.

    Mr. Ken McKeen: On exchange programs, we've looked at this in the past, and rather than exchange programs, we have seconded staff from the federal government to manage some of our overseas operations. Probably one of the best known now is Joseph Caron, who's the current Ambassador to China. He was for a number of years running our office in Japan. That type of exchange is extremely useful, but it's pretty difficult sometimes to make it happen in an effective way. We've never really done it on an extensive ongoing basis.

    The Acting Chair (Mr. John Duncan): Ian Cheng, have you heard of CIDA-INC?

    Mr. Ian Cheng: I know the officers, Josée Landry and Joe Knockaert, very well. I believe CIDA is not right for us in doing business, because they are just an organization helping less developed countries with sustainable programs for the environment and education. And with the other programs, Western Economic Diversification Canada, Industry Canada, there are already program cuts, so they're not available.

    Ken?

    Mr. Ken Ing: Keep in mind that China today has major changes going on. It used to be that you had a lot of so-called state-owned enterprises, SOEs, and now they are giving way to private enterprises. Just recently in southern China I was invited to tour a copper tubing plant. This plant, just to give you an idea, is 450 metres in length, and its copper consumption is in the range of two major copper producers in Chile annually. In a matter of 10 years a lot of small private enterprises have been able to thrive in the economic conditions in China, and they've grown exponentially to become major enterprises.

    Can the government have macro policies to help Canada trade in China? I would steer your attention to policies that could help individual small businesses, any policies that facilitate their travelling and inviting their business counterparts to come over to Canada, immigration policies, so that they feel they're being welcomed. All this would help.

    The Acting Chair (Mr. John Duncan): Okay. Thank you very much.

    Before I wrap up, I think I'll just pursue this CIDA-INC a little bit, because, Ian, I believe you were thinking of something slightly different. CIDA-INC is the CIDA industrial cooperation program, which provides financial support and advice to Canadian businesses doing business in developing countries, but it's only available for companies with annual sales of $700,000-plus per year. That would probably exclude a greater part of your membership. Am I correct?

½  (1905)  

    Mr. Ian Cheng: No, I don't think so. About two weeks ago we had a meeting with Josée Landry of the CIDA office in Vancouver, and we are qualified for the industrial program with the minimum yearly turnover. The program we have in hand is to work together with the China Education Department. We are now in the process of finding a counterpart in China who needs our Canadian education system. The B.C. education ministry allows education systems to settle offshore. Education is a product we can export to China, and we need someone who is qualified as a recipient, then we can apply to the CIDA industrial program for funding. One of the companies in partnership with me is a computer technology company. They are using a media server or something like that to transmit our education curricula to China.

    Some of our members are doing big business. The brother of Mr. Ing has already concluded a joint venture project with the number one department store in Shanghai for video big-screen advertising. For some programs we are more than qualified, I would say.

    Mr. Ken Ing: With any program your committee members help to shape, please take into consideration smaller businesses, because until they become big, they have to go through the stage of being small, and they certainly need all your help.

    The Acting Chair (Mr. John Duncan): Right.

    This committee will continue to talk to people. We'll be doing our travel, and this fall we'll be making recommendations. We make those recommendations to the House of Commons and to the minister, and they actually do pay attention to this committee. Of course, we have the parliamentary secretary sitting on the committee, and he's party to all this as well. We really appreciate your input, and it doesn't end here if you don't want it to. We would still solicit any specific recommendations you think this committee should adopt, beyond your specific testimony today. Whenever we've had that, it's been very useful.

    But whether you do that or not, we want to thank you very much for taking the time to speak to us. I think it's been a very good meeting and very useful. We hope to see all of you on the coast one of these days soon.

½  (1910)  

    Mr. Ken McKeen: Mr. Chairman, before you close the meeting, has it been decided where the group will be going in May, the cities and countries?

    The Acting Chair (Mr. John Duncan): It's a little bit fluid because of SARS, but I'll say where I think we're going, and I have people here who can correct me.

    I believe we're going to Delhi, our first stop in India, and our second stop is--

    Mr. Mac Harb: It's Delhi, China, Thailand, Kuala Lumpur, Japan, and South Korea possibly. That's more or less it, but we'll probably be finalizing all that within the next 48 hours or so.

    The Acting Chair (Mr. John Duncan): So we will be travelling widely, Ken. You've talked about a number of countries, and if there are strengths or weaknesses that could be addressed from a federal perspective in those various nations, it would be useful to know them.

    Mr. Ken McKeen: One of the things you asked is what you should be doing when you go over there, and it was a little hard to give any input on that without knowing exactly where you are going. So I suggest that when you get your itinerary a little more consolidated than it is right now, you let us have a copy. Then we'd be very pleased to make suggestions as to things we would like to see you include in your agenda if at all possible.

    The Acting Chair (Mr. John Duncan): We will do that. The clerk will send you a copy as soon as we finalize it, and we'll send one to you as well at the business society, Ian.

    Okay. Thank you very much. I hope we didn't get you caught up in traffic in Vancouver this afternoon. Goodbye now.