SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, March 29, 2000

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[English]

The Chair (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Ladies and gentleman, I'd like to bring the meeting to order. I understand some of our Liberal colleagues will be here. If not, we'll get started anyway.

I'd like to thank you all for coming back again to join us at the committee.

We'll start with the officials in the Department of Foreign Affairs and International Trade and then we'll have questions. Then we'll have Mr. Myers, who has joined us again.

Again, on behalf of the committee, I appreciate that you're returning here.

Ambassador Clarke, we'll let you start.

Mr. William Clarke (Assistant Deputy Minister, International Business, and Chief Trade Commissioner, Department of Foreign Affairs and International Trade): Thank you very much, Madam Chair. I should say right up front that I rarely appear in front of a sign that's marked “13”. I'm extremely superstitious, but since we're very good people in this committee, I will take my chances today.

I want to thank you for having us back and to also extend to you the department's full support for the initiative you're taking. We welcome the initiative of this committee. I think the review you're undertaking is extremely important. Each one of our ministers and the senior officials of our department, the Department of Foreign Affairs and International Trade, are strongly supportive. If there is anything we can do to help you in your deliberations and in supporting your work, please let us know.

Before I begin, I thought I would introduce my colleagues from the Department of Foreign Affairs and International Trade.

First is Susan Cartwright. Susan is director general for the western European bureau of our department. Susan was until last year—happily—our Canadian ambassador in Budapest, Hungary, where she did a stellar job. She is very familiar with and aware of what's happening in Europe.

Next is Gary Scott. Gary Scott is director of the trade, investment, and business development section for western Europe. He had overall responsibility for all of Europe for investment and some of the trade and trade promotion programs of the department. Gary has now been in the western European bureau for going on three years and is very knowledgeable on the trade program.

Finally, in addition, I have with me Cameron Siles. Cameron is from the trade policy and trade relations section of the European bureau, and is knowledgeable, certainly, about the policy issues and any trade or investment irritants or difficulties we have with our European colleagues at the current time.

That's our team, and we're extremely pleased to be here this afternoon.

I do not intend to repeat what I said on February 16. I think you've heard it. You heard me out then, but I thought I understood from your chair and also from the secretary of your committee that it would be useful if I were to perhaps summarize in 10 minutes the comments we were trying to put forward to you from our department in terms of our European perspective.

If that's okay, Madam Chair, I'll go ahead and do that in 10 minutes and then we'll be open to your questions, observations, and comments.

First of all, I think the most important message we want to get across is that Europe is a huge and sophisticated market. That certainly goes without saying, but there is a tendency to forget that Europe is a trillion-dollar market. It is composed of 450 million of some of the richest and best-educated people on this planet. It offers us traditional friends and allies: people who have been great contributors, as immigrants, to the makeup of our population, and who have also been very strong and traditional trade investment partners with Canada.

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There has been a tendency, as we look at other opportunities around the world—Asia, Latin America, and other markets—for us to sometimes take Europe for granted. That is a very big mistake, given the richness of that market and the opportunities there are for Canadian commercial interests. For example, our High Commission in London was noting that there are now, in the U.K. alone, over 300 Canadian companies with operations, investments, and marketing offices.

Certainly as you travel through Europe, you see that most of the major Canadian companies have large holdings in Europe. Whether you're talking about Alcan, Bombardier, Moore Corporation, Nortel, Seagram's, or CAE, the major companies of Canada have important stakes throughout western Europe. They've invested strongly and heavily and have very important interests there that they wish us, as a government, to support, enhance, and defend.

At the same time, we've seen in the last 10 or 15 years a sharp increase in the number of small and medium-sized enterprises from Canada that have also taken a stake in the European market, particularly in our high technology and informatics companies, which have sales offices, marketing offices, joint ventures, and investments in plant and equipment in many European capitals, particularly in western Europe. Certainly the names we see in the press, whether they are Corel, JDS Uniphase, Cognos, Newbridge, Mitel.... All of these companies have important European stakes and are aggressively developing and trying to promote market shares in western Europe. They look upon the market, particularly for the EU, as a very golden opportunity to follow on any successes they've had in the United States market.

The second point I'd make on the trade side is that it is no longer a traditional export market whereby we simply put products onto a ship and send them over to Europe. Very much now, the marketplace is dominated by our firms forging alliances with European partners. They're always looking for European partners for win-win situations, in many cases where they can have the European partner help them carve out market share in the European market and introduce their products into the EU. At the same time, our Canadian companies are always looking at opportunities for bringing new technologies and new products back to the NAFTA market to sell through Canadian subsidiaries into the NAFTA marketplace.

It has been quite a sea change, I think, in the last 10 or 15 years, and a very important one for us since Europe is such a large source of new technologies for us and for the NAFTA market.

The third point I wanted to make was about our investment picture. We've had a good increase in investment into Canada. I don't think we've done quite as much as we should or are doing as well as we should. We've seen a very sharp increase in the amount of Canadian investment into Europe. Since we believe strongly—or at least, I believe strongly—that trade follows investment, I think this could be very helpful to our trading interests as well as our investment interests during the course of the next 10 or 20 years. We now have something in the order of an impressive total of $100 billion in two-way investment back and forth, and the number for Canadian investment into Europe has more than doubled in the last 10 years.

So I think the investment picture is very healthy. As I say, I think we can and should do more in trying to attract the Europeans to use Canada as the gateway for the NAFTA marketplace, to set up their subsidiaries and their first efforts here in Canada in order to take advantage of the U.S. market in particular, of our own domestic market, of course, and even of markets into Mexico.

The fourth point I wanted to make was that in terms of our resources, that is, the Canadian government's resources in western Europe—and in all of Europe, for that matter, but particularly in western Europe—we think we have a good balance of personnel resources at our missions throughout Europe. We've managed to retain a good cadre of experienced Canadian trade commissioners in most of our offices in western Europe. We have enhanced and increased the number of locally engaged market development officers, business development officers, in all of our offices.

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As I think many of the members of the committee are aware, to save money we have been engaging locally engaged personnel around the world, to take advantage of the lower cost of doing so. It is basically a 3:1 ratio. Posting a Canadian abroad, on average, costs about three times as much as hiring a locally engaged person.

So we have increased the number of locally engaged commercial officers, business development officers, throughout Europe. We have opened several new offices with trade commissioners in the last few years, particularly in eastern Europe, where there are new opportunities—places like Kazakhstan, where we have large Canadian investment interests already, and where business and trade opportunities are quite promising. Of course, in some of the more traditional markets of eastern Europe, such as the Baltic States, the Czech Republic, Hungary, Poland, and some of the other eastern European markets, we are doing our best to extend our resources there.

The determining factor and guiding factor for the department and the Government of Canada is demand from the private sector for support and assistance. We are trying to show some leadership, but at the same time, given resource restraints, we are very much driven by the private sector seeking our support in new markets in western Europe and eastern Europe, before we decide to deploy those resources. That is the key factor for assessing opening new offices and establishing personnel in new marketplaces.

In terms of the reduced financial resources that came from program review over the past five years, we have certainly had to cut back on our promotional efforts, in terms of trade fairs and missions, since government budgets across the board for trade and investment promotion were cut globally. Europe certainly bore its share of those reduced expenditures in western European markets.

However, the government signalled in last fall's throne speech that they intend to increase the resources devoted to trade promotion, particularly in key priority high-growth sectors, such as information technologies, biotechnology, environmental industries, and several other industries that are offering high growth.

The government has announced that they intend to increase their trade promotion resources. We are hoping to define that over the course of the next few months in a memorandum to cabinet, whereby we will be seeking some enhanced resources. We think a share of that will go to Europe, since we have the demand from the private sector to give us a heads-up and a push forward in western Europe.

In terms of our European trade strategy, we have tried in the past five years, given the restrictions on resources, to have a very focused and well-defined program aimed at new and innovative value-added activities. Certainly under the European bureau's efforts with our Team Canada Inc. partners across 22 departments and agencies here in Ottawa, we have aimed at much better preparation for trade promotion events we run; more pre-show business networking; focused trade press advertising campaigns; and the provision of market opportunity studies to potential Canadian exporters, so they have a good database and a good information flow before they go into the marketplace and are better prepared.

We've tried to encourage buyer visits to Canada from major European companies, which is a cheap way of influencing trade. We've been very firm in pushing ahead with our key programs for European business development, principally on the NEXOS side—the new exporters overseas—and Crossing the Pond initiatives, which are basically aimed at prodding, promoting, and assisting SMEs to take advantage of opportunities in European markets and helping them get ready to do so.

We've currently been working very hard with the small and medium-sized enterprise community and business associations, who are very actively pushing exports, to identify and support those companies who've carved out good positions in the United States market and are now looking for new market niches in other markets.

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The European market is the obvious choice for companies that have been successful in the United States, and I think we'll see a lot more of that over the course of the next 10 years. I think it's the logical move for many of the SMEs.

Finally, the transatlantic free trade agreement is certainly something our department has been carefully reviewing and promoting for some time now. We think there is new life in the possibility of doing something. Commissioner Lamy, as you know, from the EU commission has indicated that the commission is willing to look at it, particularly if we can put together a good business case.

I think the findings of your committee will be very helpful to us in our department, and other government departments involved in that process, and will also be very helpful to Canada's business community, who I think are also quite keen to move forward with improving our access to the European marketplace.

I would like to say a word about our investment program, because it is certainly of great interest across the government right now. As I may have mentioned earlier, the government also announced in the throne speech its intention to launch Investment Team Canada, which is a new effort to invigorate and promote foreign investment in Canada.

The government has set a high priority and has established two major initiatives in Europe aimed at attracting new European investment into Canada. Here we face a competitive situation. We are competing generally with the Unites States and our friends in Mexico to obtain European investment from the major companies, because most of those companies are looking for market share and they're looking at developing a large market share in the NAFTA market. They are not looking at, for the most part, niche markets in the NAFTA region; they are looking at getting major shares of our NAFTA marketplace, and they need a base for operation.

We now have very encouraging opportunities to offer those European investors. The climate in Canada is excellent. I think we have better cards now than we've had for many years, and we are certainly very competitive with our friends in the United States. But we have to be out there aggressively pushing, promoting, and selling ourselves, and ensuring that our image is high.

It's a very competitive world out there. Not only the Government of the United States, but most of the individual states have put together very aggressive investment and trade promotion campaigns in western Europe and are aggressively seeking those companies to invest in their states. You particularly see that in the Carolinas, Texas, and the southern states of the United States, but you also see that in some of the more developed parts. We have to compete there. We have to be out there aggressively getting our image out.

We have a very successful program we're building on. It's the country champions program, whereby deputy ministers from the Government of Canada have taken particular roles and have acted as liaisons to specific countries throughout western Europe. We have a country champion for Sweden and the Netherlands. We have a country champion for the United Kingdom and Ireland. We have a country champion for Germany and Austria. We have a country champion for France, and soon he or she will also take on Belgium. We're also looking at extending those programs into other key markets, particularly Italy and Spain.

Our heads of mission, our ambassadors, and our trade commissioners are all aggressively involved in the trade promotion program and the investment promotion program we run in Europe. We do so through an active corporate liaison program, which is bearing fruit. We're hoping to improve on that in the years to come.

I thought it would be worthwhile, given my experience in Sweden where I served for four years, to point out that in Sweden the Government of Canada has run a very active, aggressive program for the past six years. We've had tremendous success in attracting new greenfield investment to Canada. We have received from more than a dozen Swedish companies over the past six years more than $2 billion in new investments. The largest new greenfield investments in Nova Scotia, Quebec, and Ontario have come from these Swedish companies. It's because of a very active program, managed by the federal government but supported strongly by the provinces and by the private sector, that we have seen success.

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Just by way of example, Stora put $850 million into Cape Breton in a state-of-the-art paper mill. We have Ericsson, which is one of the great success stories of the past decade in Quebec in terms of opening up major operations. They have established their worldwide centre for digital telephony just outside of Montreal. They have 1,100 engineers and professional staff, after starting some ten years ago with about four. They are extremely bullish on opportunities here in Canada to do business in the NAFTA marketplace.

We have AstraZeneca, which has put some $600 million into research and development facilities in Montreal and some $300 million into a brand-new facility for manufacturing in Mississauga.

We have Autoliv, the world's largest manufacturer of seat belts, who have decided, after a very heated campaign involving competition with three United States destinations, to set up a greenfield investment in southern Ontario to build air bags and seat belts.

We have, of course, Volvo, which has concentrated its efforts and bought the two largest bus manufacturers in this country, put them together, and is now running its North American bus operations out of Montreal.

The point I'm trying to make here is not to toot the horn about the Swedes so much but to point to the fact that if we work on the very determined, very clear basis of having our Minister of Industry and our Deputy Minister of Industry go every year—in fact our ambassador and our trade commissioner carry out 100 corporate liaison calls a year—and if we have a very clear supply of messages to those companies in Sweden as to what's happening in Canada, and encourage them at every opportunity to look at our opportunities for doing business in the NAFTA marketplace, we can succeed. We are succeeding in western Europe in other marketplaces on the investment side, along that same model.

The last point I wanted to make was about science and technology. In the throne speech the government highlighted the importance of Canada's international S and T program as certainly a top priority, and specifically called for greater international R and D collaboration and more attention and resources to promoting innovation and new technology in our country.

By way of example, the EU countries will be extremely strongly targeted in that effort. EU countries produce more than a third of the scientific knowledge worldwide, and some 67% of the technologies we utilize in Canada come from abroad, a very large share of those from Europe.

There's no question that a very high government priority will be in science and technology. We currently have bilateral S and T agreements with several of the European countries, certainly with the EU commission itself, and with France and Germany. Four of the six science councillors Canada deploys abroad are in European missions.

As members of the committee may be aware, late last year the government announced, through the Advisory Council on Science and Technology, the establishment of an experts panel to review Canada's complete role in international S and T. This panel has been meeting since November. They are having more deliberations in March and they will be coming forward to the Government of Canada with a series of recommendations and a paper in June 2000.

I expect this will feed very nicely into the work of your committee. I also expect they will provide very clear evidence of the necessity for Canada to continue to promote and expand its efforts in trying to attract new technology innovation from western Europe during the course of the next few years. I think that's a very important signal from the government. I also think it dovetails very nicely with your work.

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I think I'll stop there, Madam Chair, if I may. We're open for questions. Those are the six or seven points I wanted to get across, and I hope I've done so.

The Chair: Thank you very much, Ambassador Clarke.

We'll start with Mr. Obhrai.

Mr. Deepak Obhrai (Calgary East, Canadian Alliance): Thank you, Madam Chair.

Thank you, Mr. Clarke. Listening to your presentation, I'm left with the opinion that everything is so hunky-dory, we might as well shut down this committee. I mean, everything is going great.

But let me start with something else here. With the European Union coming into being, and with us being more tied to NAFTA, and looking at the other markets, I think Canada and the European Union are on diverging paths. We have different interests, and are going in totally different directions. Traditionally, the markets we had over there.... It would probably be one of the reasons—and I think you mentioned this—our trade is down.

I think we're going to see, as we go further, that this divergence is going to become more and more apparent, politically as well as economically. We are also part of NAFTA, so I think we will be competing with each other in a lot of other markets over there in the long term.

Would you agree with that assessment?

Mr. William Clarke: I take your point, but I'm not sure it's quite as bad as you make it out to be in terms of diverging.

I think we've lost a lot over the past 25 or 30 years, and I make no bones about it, on the agricultural side and on certain natural resource sides, particularly in forest products. I think there's no question that the Europeans have cut our market share. We have suffered in the European market from decisions taken by the EU commission, primarily on the agriculture side, whereby the Europeans for the last 30 years have looked at agriculture as a social issue, not as a trade issue. They basically have been very protective of their market and have been very aggressive in terms of offering subsidies to their producers.

At the same time, on the new emerging industries—informatics, medical-based equipment and services, and all of the new knowledge-based industries—I think a lot of Canadian firms are extremely interested in the European market and have very good opportunities for competing, and competing successfully, in the European market.

I think that's where a lot of the growth is. That's where we're seeing all of these hundreds and hundreds of new SMEs, in those sectors, whether you talk about software, informatics, or environmental industries. So I don't think there's any divergence. They're already asking us for support in developing the U.K. market, in developing the French market, in pushing into Germany. We're getting a high level of demand from those companies for support and services in trying to sell their goods into the western European market.

On the United States side, I think there's a tendency to say that we're doing so well in the United States we should perhaps forget about the rest of the world. I strongly disagree with that.

Mr. Deepak Obhrai: I agree with you.

Mr. William Clarke: We don't want to get trapped again, as the government has in the past, looking at third options and fourth options and fifth options, whereby the government is trying to tell the private sector where they should go. What we want is growth. I think we have opportunities for growth, because I think a lot of our companies, who are now successfully doing business in the new knowledge-based industries, and successfully in the United States market, will as they grow bigger turn their attention and try to do business successfully in the European, Asian, Pacific, and Latin American theatres.

So I don't think it's so much a divergence as it is a question of growth. I think the European market, given its richness, offers us a lot of opportunities.

In terms of the resource industries and agriculture, in the short term we still will have difficulty selling our products to the same level we used to sell them 25 or 30 years ago, but I notice, from the resource industries committee I met with a few weeks ago, that the high-priority market for them is still western Europe.

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Mr. Deepak Obhrai: Going back now to when you were talking about where you see the growth opportunity, one of your programs is Crossing the Pond, is it?

Mr. William Clarke: Crossing the Pond.

Mr. Deepak Obhrai: Crossing the Pond. That is something new, I heard.

Perhaps you can explain exactly how you do it, which will tie into my next question. You talked about European investments here.

Mr. William Clarke: Yes.

Mr. Deepak Obhrai: What about the push for Canadian investments in Europe? These are tied together.

Mr. William Clarke: Yes. I'm going to ask my colleague, Gary Scott, who runs the program, to talk about Crossing the Pond.

Mr. Gary Scott (Director, Northern Europe Division, Department of Foreign Affairs and International Trade): We looked at different ways of preparing our new exporting companies to enter into the European marketplace, particularly, as Bill stresses, companies in information communications technology—the high-tech areas.

We formed a partnership, if you will, with a private sector law firm, Grasset-Fleisher, and the Canadian Imperial Bank of Commerce to develop a series of programs aimed specifically at these new exporters. We built that program Crossing the Pond, or Traverser l'Atlantique in French. There is a website for it.

We organized it on the basis of what we call a knowledge café. The knowledge café has six or seven tables of different areas that would be of interest to companies, from standards and regulations to getting started to forming strategic alliances, what have you. There we have private sector companies who have succeeded, experts who have done it in that particular area, and they're paired with a trade commissioner from one of our posts and a facilitator. The companies spend about 45 minutes at the table talking about that particular issue. They get to rotate through about four tables during the course of the event.

What tells me that it works well or that the companies like it is that while there's no compulsion on them to stay—when you have the first rotation and they stand up, they could as easily walk out of the room as not—I've never yet seen a company leave. In fact they stay afterward to ask further questions.

We only started the program about eight months ago, but so far about 150 Canadian companies have taken part in the knowledge cafés that we've had in different parts of Canada. We're going to do a follow-up study with them this summer to find out exactly what happened. Have they applied that knowledge? In some cases, the companies will not have pursued the market. That doesn't mean that the knowledge café failed. What it means is that they realized they themselves may not have been ready to pursue the market.

So we've had enough companies go through the process that we can now study and take a close look at it to see if it's working, to fine-tune it. We also are going to use a number of the companies that participated in it to form the core cadre for a series of NEXOS missions we want to run in the next fiscal year. Those are new-exporter missions to Europe.

So that's basically the program, the aims and objectives, and how it works.

Mr. Deepak Obhrai: So this is primarily information exchange, with companies sitting here and looking at the opportunities.

Mr. Gary Scott: It's primarily a teaching or knowledge-sharing program geared to giving new companies knowledge, not only general knowledge about Europe, but very specific knowledge in key areas of business preparation, given by business people who have succeeded in the marketplace.

Mr. Deepak Obhrai: This is small scale—

Mr. Gary Scott: This is for small and medium-sized companies, SMEs. That's correct.

The Chair: Thank you.

Mr. William Clarke: On the investment side, shall I just touch on the investment question?

You mentioned Canadian investment in Europe. We've gone from about $22 billion in Canadian investments in western Europe in 1990 to something over $50 billion now. I think this is certainly a deliberate attempt by Canadian industry, Canadian companies, to establish market share. I think most of them have decided to take a direct investment stake to ensure they get a large share of the marketplace in Europe. A great example of that, of course, is Bombardier.

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But we've seen both on an individual basis and on a comparative basis that trade does follow investment. Certainly since the post-war period, we've seen that the Americans and the Europeans have been very successful in carving out large stakes on the trade side by enhancing their investments. For example, in Latin America, they first came in and made investments, and then they not only saw their sales from that factory in Brazil go up, but they saw the products that are brought in by the company to meet demand also increase.

We've also seen it in the case of Bombardier on a specific basis, whereby Bombardier is taking very large stakes in many European countries, building products for its railway division, its air division, and its outdoor products division. In all those cases, I understand from Bombardier, they've also had increased exports from Canada to those European operations and subsidiaries.

Without taking those investment stakes, they always risk losing the marketplace to other people who do, other domestic companies or companies from other parts of the world.

So I think it's very difficult, but you would probably agree with me that it's hard to separate investment from trade. You set up a marketing office, you get there, and all of a sudden the demand for your products is quite good. You decide to put some local content into it because that gets your prices down, and the next thing you know you're making 80% of the product there. But there's always the supply of some components or equipment that comes from the home office, or usually there is.

So the two go hand in hand, and I think we can make a very clear argument that the important investment stake that Canadian companies have made in Europe over the past 20 years will be reflected in our trade numbers during the course of the next 20 years. I really think we're going to see that.

I would also just like to say, in answer, that I didn't mean to make it out that everything is wonderful in Europe in terms of our European trade, or that there are no opportunities.

Certainly in terms of the image of Canada in western Europe, we have to ensure we do as much as possible, because it's an extremely competitive marketplace. And if we're not in the European trade shows, which are a very important forum for doing commerce in Europe, particularly in Germany and France, we run the risk in certain industries of having our image and the fact that Canada is a major player in some of these industries go unrecognized by our partners in Europe.

So as officials, we've been pushing very hard and trying to make the case to the Government of Canada that we must be in all of the major international trade shows and events—whether it's the plastics industry, the rubber industry, manufactured toys, or music—to ensure we have the flag up there promoting Canada's role as a major player in the technology business and on both the trade and investment sides.

There is one problem with Canada, and we've always had this problem. We've almost been too successful in marketing ourselves as a wonderful, free, open-air country with clean air, beautiful mountains, lovely plains, great lakes, fish, fowl, and all sorts of things. But we do have real problems—and there's no question we should recognize this—in the United States market, and certainly in the western European market, with our image as a high-technology supplier of goods and services. When European business people think of Canada, they do not bring to mind right away Nortel, Cognos, and high-technology industries. They think of going skiing, fishing, or having a holiday in the mountains.

That is a real problem for Canada, because when we're trying to attract investment, the biggest disincentive—whether it's in the United States, western Europe, or Asia—is that those companies, when they're thinking of looking at what the options are for making an investment decision, do not think automatically of Vancouver, Calgary, Toronto, Montreal, Halifax, or Quebec. They think in terms of California, South Carolina, and so on down the marketplace. So we have a real job to do on the image side.

The Chair: Thank you, Mr. Clarke.

Mr. Marceau.

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[Translation]

Mr. Richard Marceau (Charlesbourg, BQ): Thank you for being with us today. Your presentation was most interesting and I made several notes.

First of all, I must say that I'm quite the Europhile. I took my Master's degree in Europe and I was always very attracted by Europe. That said, since this committee's work has begun, one feels a sort of fatalism coming from our different witnesses. The most striking example, in my opinion, was the Canadian Chamber of Commerce, last week, saying: yes, we know that a country has to diversify its economy, yes, we know that a country has to diversify its markets, yes, we know that we have to sally forth into the world and not limit ourselves to a single market, but—there was always a “but”—right next door to us, we have the biggest, most powerful, most dynamic market in the world going ahead full steam. A businessman or a businesswoman always tends to look south of the border rather than to Europe. To go to Europe, you have to cross the Atlantic and you have all those cultural differences while we have a lot more in common with the Americans. So we sort of get the impression that what your committee is doing is interesting, but despite all the efforts that any government, provincial or federal, could make, the first priority is still the USA. After that, but way behind, you have the multilateral agreements, mainly the WTO, and then some other possible markets, Europe being one of them.

Mr. Clarke, as assistant deputy-minister, don't you feel that you always have to fight against that? Secondly, is it worthwhile to fight against that? Instead of trying to tilt against windmills, shouldn't we simply use the fact that we are right next door to the USA and accept the advantages, but also the disadvantages, that this proximity entails?

[English]

Mr. William Clarke: Thank you. Those are very good points.

First of all, I would say right up front that a little bit of the problem that we have with the United States-Canada relationship is the fact that the U.S. is so large that it dwarfs everything else. We've seen such sharp increases during the past five years, as this tremendous American boom has gone on, that our relationship with the U.S. tends to hide other relationships. But as I was trying to make clear, we now have $100 billion in bilateral investment between Canada and Europe, most of that with western Europe, and we have a trading relationship of some $50 billion. That is still quite important to some of the major players and companies in our economy.

Secondly, I was trying to give some examples of investment from Sweden. There would certainly be nobody in Montreal or Toronto who would downplay the role of European investment in those communities during the past ten years. That's extremely important for us, and it's extremely important to get a larger share of those new investments in the course of the next few years.

So that is investment, not trade, and perhaps you're principally concentrating on the trade side of the equation. But I would say the investment side is just as important as the trade side. I think there is a role there that's just as important for us to play as the one on the trade side.

I would also say that, frankly, given the globalization of the world economy, it is very much in the interest of Canadian companies to be players on the European scene in order to protect their backsides. There's always a danger that if they're simply and completely engrossed and involved in doing business in the American market, they might get blindsided by competition in other marketplaces, certainly from western Europe. By playing in the European market, I think that gives Canadian companies a much broader perspective on what the competition is out there that they might face now and in the future.

As almost purely observation, I take your point. It's interesting to note that you did your master's degree in Europe and have always found it an interesting place to visit. I would say that I've rarely met a Canadian, no matter what province, who has not found it at least as much fun to do business in western Europe as it is to do business in the United States. From a personal perspective, I would say that many of our companies will find it maybe more challenging to do business in Europe, but they will still be very interested to do so.

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The last point that I'd make is that you should talk to the EDC about the United States as being a sort of easy market and risk-free. Many of the EDC's bad loans are concentrated in the United States. Contrary to popular myth, a lot of the problems that Canadian firms have come from some of the business relationships that they have in the United States market. That's not to say that companies shouldn't be doing business there, but doing business in the United States is not a day at the beach, as the expression goes. You have to be very careful and very well prepared to succeed in that marketplace. The great news is that our companies now, small and medium-sized companies over the past 25 years from all across Canada, are doing much better in the United States marketplace than they did 25 years ago. I suspect and I expect that a lot of those companies will be able to do the same thing as they move into Europe.

[Translation]

Mr. Richard Marceau: First, I'd like to pick up on your comment on the pleasure that one has in Europe, but I wouldn't want to linger on that too long for all kinds of different reasons.

In a document given to the committee by the researcher, Peter Berg, I saw that the Conference Board of Canada came to the conclusion that few business people, on both sides of the Atlantic, knew their other partner. Canadians don't know Europe enough and the Europeans don't know Canada enough. When I saw that, I was a bit surprised. Once again, I will come back to last week's Canadian Chamber of Commerce testimony. They told us that the problem was not that there was not enough information, but that there was too much. Most business people consciously make a choice to turn to the USA.

That said, there is a Parliamentary mission just back from Europe. I had a word with some of the people who were on that mission. They were told that

[English]

Canada is not on the radar screen.

[Translation]

It's not there at all. It does not exist. It's not there at all, in the slightest.

You say we must have a greater presence in the conventions, I think. What do you call them?

[English]

A voice: Trade fairs.

[Translation]

Mr. Richard Marceau: The trade fairs. First, is that enough? Secondly, what can a government do, if it can do anything, to promote trade or investment? Is it wishful thinking to think that the State can make a big change or should we simply just let the market forces take care of everything naturally?

[English]

Mr. William Clarke: First of all, in terms of this question about the image of Canada, I've tried to say very clearly that I think we can do more and should do more, because the European marketplace is an extremely competitive marketplace, both for trade and investment. The European business people now have the option of trying to do business in many more marketplaces than they did, say, thirty years ago. Thirty years ago, most European companies were not aggressively doing business in China, in Russia, in the former Soviet Union countries. The opportunities in Asia were nowhere near as high, and Canada was much more on the radar screen because the major companies in Europe knew us from historical ties following the war and from our participation in the war.

Nowadays, when they're looking for business partners and opportunities and places to do business and people to do business with, European companies are faced with many more options, as are Canadian companies, as are American companies. They can go to China, they can go to Russia, they can go to South America, or they can go to the fast-growing countries of Southeast Asia. India is opening up and there is a tremendous opportunity there, given its huge population. The opportunities are very much there, so you have to be able to position yourself or promote yourself as a country, both for trading opportunities and investment opportunities, by highlighting your strengths.

• 1625

In terms of the government role, I think the government role is very much to do things such as ensuring a small expenditure of money so that we are at these major trade shows and are bringing business groups to those major trade shows. We let the private sector do the running and most of the expending would be done by the private sector, but we show the leadership and give them the incentive to participate in these major events. There are a host of these major shows in Germany. Virtually every industry sector has a major European trade venue at which we should be waving the flag, both for our trade and investment purposes.

Again, I think a signal to the business community that we want to be aggressive in Europe in promoting our trade and investment interests is to continue down the track of trying to have a free trade arrangement with the European Union. I believe in that. I think it would be very good for Canada if we did that, and it would be a very important signal to our business community. But I'm trying to get across the message that it is not a question of the government always taking the lead. We should be more or less in sync with the private sector.

Now, from what I've seen, my impression is that Canadian companies, and certainly the major companies, are extremely interested in Europe because it offers this huge market. It's a marketplace more or less the same size as the United States, so they would avoid it or not take part in it at their peril. For the SMEs, their attention has been devoted to the United States for the last 25 years because of the tremendous growth opportunities and because it's natural for them to go down there. From Montreal to Boston or from Toronto to Buffalo, it's a very easy thing to do. But I think what you'll see is that a lot of the companies, having carved out stakes in the United States market, will now turn their attention to Europe and say “Gosh, it works well in Boston, so let's have a go at London or Brussels or wherever.” That's what we're seeing.

Just by way of example, in Stockholm, where I was, 25 years ago there were three Canadian companies in the whole of Sweden. There was the airline company, there was the Canadian tourism bureau and there was Seagram. Nowadays, on the informatics side alone we have 30 Canadian companies with marketing officers in Stockholm selling informatics, telecommunications, and high-tech products. They're using Stockholm as their base to go into the Scandinavian, Russian, and Baltic markets, and I think you will see that repeated in city after city.

The danger is for the committee to think that all of Canada is spending all of its time in the United States because it's so rich, while other markets have been forgotten. I'm just trying to get across the message that I don't think that's true. When you visit a few of these spots, such as Brussels, I think you'll find a Canadian-Belgian chamber of commerce. We have a Canadian-Swedish chamber of commerce. It has gone from having 4 members to 114 members in the last five years. In Belgium there is a 120-member chamber of commerce. These are very much nuts-and-bolts business people getting together for breakfast or lunch, networking, exchanging views, and trying to do business in that environment.

I think we have lots of room to be optimistic. I think we just have to keep pushing and promoting a little bit to make sure the business community and the federal and provincial governments are all working together and are singing from the same songbook. I think we are doing that quite effectively, because we're both promoting trade and investment. Both the provinces and the federal government are quite aggressive and active in Europe, particularly on the investment side.

The Chair: Thank you.

Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): Thank you.

I was wondering if you are familiar with a project called the ITER project.

Mr. William Clarke: Yes, I am.

Mr. Alex Shepherd: I've had some connection with that, and the feedback I have had from a lot of these people is that DFAIT has not been particularly supportive of their initiatives to get this investment into Canada.

As you know, it's an investment of something like $10 billion dollars over thirty years. It's as if there was a culture within the department that seemed to be opposed to this. What examples can I give you? Well, attempting to get things on agendas—and I know there's a political side to this as well—attempting to get our international trade minister or whoever to bring these things into a discussion. But there seems to be a real drag on the system from the bureaucracy.

• 1630

Is that a fair comment? That's been driven home to me a number of times.

Mr. William Clarke: I can comment as follows, and perhaps my colleagues can add to it as we go along.

Last November, I believe it was, the two deputies of our department—that is, the Deputy Minister for International Trade and the Under-Secretary of State for Foreign Affairs and International Trade, Don Campbell and Rob Wright, met with the ITER management team and outlined that the Department of Foreign Affairs and International Trade was strongly supportive of the ITER initiative and that we would provide a normal business support in our embassies and consulates and at our offices around the world to further those interests.

Subsequently, we've had ITER team visits to several European capitals. I just saw the reports from the ITER team visit to Brussels and to Germany. In Brussels our embassy to the European Union provided full support to the ITER team and enabled them to have extremely fruitful discussions with EU commission officials at senior levels. I saw the report from our embassy in Germany reporting on the ITER team visit there. Again, our ambassador and his team of people from the embassy in Berlin gave full support to the ITER team and they had very interesting and full discussions with the German officials.

If there is any reluctance on our part in our department, it is the following. We are not the lead department to decide on the funding from the federal government and we do not have any funding resources to put in. I think we are providing extremely full support in the marketing and the promotion of Canada's obtention of the ITER project, but there is no DFAIT money available to put into the project. If that's the reluctance people are talking about, that's a fact of life, because we just don't have the money.

Mr. Alex Shepherd: I understand that, as far as the money side of it is, and there's a lot of history related to that as well.

Mr. William Clarke: Yes.

Mr. Alex Shepherd: But the impression I get is that because there's seemingly no financial commitment there's less of a commitment to promote this as well. Is that a fair comment?

Mr. William Clarke: I don't think so. I really don't. They're now going to London. Have you spoken with the team since their last European visit and their upcoming visit to the U.K.? Our high commissioner—

Mr. Alex Shepherd: I'm going.

Mr. William Clarke: Oh, you're part of the group. I think you'll see it after that, and if there is, then I think we would welcome that. The whole program for them is being set up and managed by our embassy in the U.K.

Mr. Alex Shepherd: Getting back to a point another witness raised some time ago, which was that Canada may well do better at picking the European market rather than trying to do a smorgasbord and hit everything, there was an argument put forward that we may well focus on smaller countries, where our influence may well be greater. And I was interested in your dissertation about Sweden, because obviously Sweden and Canada have a lot in common.

Mr. William Clarke: Yes.

Mr. Alex Shepherd: Is there any merit in that sort of strategy?

Mr. William Clarke: I would say most western European markets are extremely free now, and with the exception of a few constraints on trade and investment, they are basically open markets. I would say that we've been successful in Sweden and the Netherlands and some of these countries, because our private sector has decided to be active and aggressive in marketing there and they've found it a receptive marketplace. I think that's often on a people-to-people basis. We found that Canadian business people seem to get along very well with Swedish business people. And I have seen the same in Holland, because I've spent 30 years in Holland. That's the same situation.

In terms of targeting, it always makes me very nervous that we target countries, for example, rather than trying to work with our business community to develop whatever the best marketplace for them is. I think it's also a reflection of the fact that some marketplaces are much more difficult than others. Germany has always been a difficult market for Canadian firms to succeed in, because the German marketplace is so heavy in terms of industrial strength that it's a difficult place to compete in; secondly, the language has been a barrier for our people to do business there successfully; and thirdly, because I don't think we've always maintained a real strong marketing effort year in and year out in that marketplace. And there's no question that because of language abilities in the old days, companies from Sweden and the Netherlands were easier for us to do business with than they are now.

• 1635

However, I think we've also seen that the language of business throughout Europe, virtually from top to bottom, is English, and virtually every business person you meet, even from smaller and medium-sized companies, is prepared to do business in English. And so that advantage is probably declining a little bit.

But I think certainly we've seen success in terms of the smaller marketplaces because they have been in the past a little bit more conducive and open to our people. And they're familiar in the Swedish industries, because we've always had this tremendous forest products and resource-based industry connection.

Mr. Alex Shepherd: Finally, you've talked about the concept of getting investment capital into Canada and competing with other forces in that. We're all very focused on the fact that the American system is so different in the sense that they give them land, municipalities give them free taxes, and so forth. Is that a significant disadvantage to Canada? Does that take us off the radar screen because our municipalities are prevented from entering into those kinds of things?

Mr. William Clarke: One great advantage the Americans have had is this system of selling bonds for investing in their communities. That is, municipalities in the United States have a very nice tax situation where they can sell municipal bonds, raise money for that, and put it into industrial development purposes. And we do not, to my knowledge, have that in Canada.

On the other hand, I think right now, because of the Canadian dollar and the competitiveness we offer, we have some real strengths that offset some of those advantages.

First of all, we have seen from the companies that I've spoken with that they are extremely favourable to looking at Canada because of the worker loyalty in our country. Just by way of example, Ericsson has a facility in Montreal that I referred to with about 1,000 engineers. They have a similar facility in Texas. The facility in Canada has an average turnover of about 4% per annum. The turnover rate in the Texas facility for Ericsson in three years is 100%. So it's a tremendous opportunity, because the loyalty of the workers to stay in the companies is a very great plus for us.

Secondly, as you've probably seen, we have the study that was done by our department in cooperation with KPMG, a major consulting company, comparing costs of doing business in major markets in the United States, Canada, and Europe, and Canada has very distinct cost advantages. And for the companies, you know as well as I that what, after all, they're looking at is their profit after taxes and the return on capital. And if we have a better return on capital than they can get in South Carolina, or in Michigan or in California, then they'll come here. And right now, we are extremely competitive in that factor.

So I would say incentives are a factor, but it's one factor out of 10 or 12 factors that are very important to foreign investors.

Finally, some of our municipalities are able to use some ingenious ways of trying to attract companies to come in. And some municipalities are more aggressive than others, but there is scope in Canada for some assistance from the municipalities, particularly in service land and getting down municipal service rates.

Mr. Alex Shepherd: In your comments to do with municipal bonds, are you suggesting that there's a shortage of service land in Canada?

Mr. William Clarke: No, what I'm saying is that's how the United States municipalities in the past have been extremely successful in raising revenue. They also can't go out and say, we're going to take your taxpayers' money and give it all to Mercedes-Benz. But what they have been able to do is have this system whereby they go out, sell municipal bonds on the local market, raise $20 million, and use the proceeds of that bond issue to promote investment promotion in their municipality, and give financial support directly to Mercedes and to some of the major investors in California, in Texas, in South Carolina, in Alabama. And we do not have a similar system in Canada that competes with this. Municipalities have to go directly to their own financial base.

• 1640

The Chair: Thank you. I have one very quick question.

I was surprised, Ambassador Clarke, when you started and you talked about Canada's presence in the United Kingdom, 100 companies. Right now we also have a major trade irritant with the European Union. We seem to be asking for compensation from the British. How are these trade irritants affecting trade? Is there an adverse effect? In addition to the opinion people have of us of just being mountains and lakes and rivers, are they saying, why bother, it's just another trade irritant with the Canadians?

Mr. William Clarke: I think I'm going to ask my friend Susan here and Cameron to answer that. Perhaps over to you, Susan.

Ms. Susan Cartwright (Director General, European Union, North and West Europe Bureau, Department of Foreign Affairs and International Trade): I'm not clear about which trade irritant with the United Kingdom you refer to, but the trade irritants we have are with the European Union because of the union's—

The Chair: No, I understand that. It was against the European Union that we were going to seek retaliation by prohibiting the import of biscuits or whatever it was, jams and jellies... It was over the beef hormone issue.

Ms. Susan Cartwright: Yes, it was on the hormone beef.

The process of establishing a retaliatory package is a long and complicated one, where we try to address directly the exports that are affected by the measure against which we're retaliating. We try to identify the exporters or the exporting industries that are causing injury in Canada, and so we would try to target those. We're also responsive to the interests of the Canadian business community, and they have the opportunity, once a retaliation list is gazetted, to respond to us, to protest and so on.

So when we come up with a retaliation list, it's a long and fairly complex exercise. It's one in which we all engage. This is a fact of life in the trade disputes field, as I'm sure you're very much aware, and I wouldn't say that the reasons we are or are not on the radar scope in Europe versus the U.S. or any of other major markets is as a result of the fact that we are associated with particular trade irritants or trade disputes. They are a fact of life in any major trading relationship, and I don't see a direct linkage there at all. It's an unpleasant reality we all accept.

May I add a couple of other things?

[Translation]

First, I'd like to respond to the comments you made and the questions you asked, that I found very interesting. You spoke about fatalism. I prefer to speak about realism. The U.S. market is the biggest one we have and that is reality. There is nothing to be done to change that and we have no interest in doing so. However, we are trying to increase our markets everywhere in the world. There are three people here who work on a day-to-day basis with Europe. We do that because it is interesting and because we see that we have real business opportunities in Europe. It is not that we forget about the USA, but in our case, the USA is set aside because it's important to look at the European markets.

[English]

You asked about whether we have too much information or too little information. I think the question of information is common in all of our markets and in all sectors and in all walks of life. We have a lot of information, but I'm still not convinced we know very much about each other, and it's something we can address through the work of our missions in Europe. It's something we can address through people-to-people contacts, which is why we promote contacts not only among members of the business community but amongst academics, parliamentarians, Canadians and Europeans in all fields.

• 1645

You asked about trade fairs and whether we can do more. All our programs at our missions in Europe and everywhere else in the world are engaged to deal with our trade interests. There isn't a clean compartmentalization of our programs in our missions abroad. So the work we undertake in the cultural field, for example, is to reinforce the branding of Canada, the image of Canada, and to work in support of our trade and investment program. The work we do building relationships among academics has a commercial and investment relationship to it.

There's a lot we can do, and there's a lot we are doing. Although it's the core of our trade and investment promotion relationship, it's not only the purely trade-related activities. They will remain at the core, but that's not all we do. We address the image of Canada in many different ways through our missions abroad.

Mr. Cameron Siles (Trade Relations Adviser, European Union, North and West Europe Bureau, Department of Foreign Affairs and International Trade): With your permission, Madam Chairman, I would like to add another perspective to what Mr. Clarke said in response to one of Mr. Shepherd's questions.

I believe one of the points you were raising was whether it was possible to pick different countries within EU and target them. I think it's important to remember what's going on right now in Europe. You have an enormous trend toward integration. The most visible example of that is the Euro, the single currency, which now unites 11 of 15 member states, albeit not yet Sweden. The theory is—and I believe it is going to happen—that when the Euro is a circulating currency in all or nearly all 15 member states, it will be possible for Canadian companies to have a base in one member state and serve the entire market.

You have a market now that is much more united than it ever has been before. As that project finishes, you will no longer have exchange rate volatility or differences among local market conditions. Some, of course, will remain. Languages will still be different. But I think you will see a lot more Canadian companies taking advantage of this newly unified market in order to be able to access the European market.

I just wanted to add that point to what Mr. Clarke said.

The Chair: Thank you.

[Translation]

Mr. Marceau, a brief question.

Mr. Richard Marceau: I have a brief question for Mr. Siles.

You specifically mentioned the euro, which would facilitate trade throughout Europe because it would be an interesting integrating element. Do you think that the idea of a single currency for the NAFTA countries or maybe even for all of the Americas might be interesting for European investors? Many have told me that the rather major fluctuations of the Canadian dollar had something to do with the fact they preferred investing in the USA, which is NAFTA's main market. Do you think that could make certain irritants disappear and attract more investors du Canada?

Mr. Cameron Siles: You know very well, Mr. Marceau, that this is a most current debate. The Governor of the Bank of Canada, Mr. Thiessen, and Mr. Martin...

Mr. Richard Marceau: I know that, but I'd like to have your opinion. That's why you're here. I'll be speaking with Mr. Thiessen and Mr. Martin but I'd like to have your own opinion.

Mr. Cameron Siles: Perhaps we could look at this matter after this meeting is ended. In any case, having studied in Europe for myself, I do have a certain point of view, but I think that a Canadian independent monetary policy has served us well. It did serve as a shock absorber for certain external forces pushing on our primary products. I know very well that this is a debate where there is some rigor in Canada, in the case of certain economists and universities.

I think that there is some... [Editor's Note: Inaudible]... between our market and the North-American market. You can't easily compare our situation to Europe's. There are a number of major economic forces which are France, the UK, Germany and Italy. To a certain point, there are some similar economies. Here, in North America, that's not the case. We try to compare apples and oranges.

• 1650

Personally, I followed the debate with much interest and I think that we won't be able to envisage a North American monetary union for some years. I strongly agree with Governor Thiessen and Mr. Martin who say that it wouldn't be good for us in the short or medium term.

Mr. Richard Marceau: Thank you.

[English]

The Chair: Thank you very much.

Thank you very much, Ambassador Clarke, Ambassador Cartwright, Mr. Siles, and Mr. Scott, for joining us. I'm sure we could sit for a few more hours and ask questions, but we have brought Mr. Myers back, and I don't want to bring him back a third time. He has been very patient.

Mr. Myers, please address the committee, and thank you for your patience.

Mr. Jayson Myers (Senior Vice-President and Chief Economist, Alliance of Manufacturers & Exporters Canada): Thank you, Madam Chair, and thank you for the invitation to appear again before the committee.

My comments will echo much of what Ambassador Clarke and his colleagues have said. On a number of issues I've been dying to jump into the discussion, so I'll try to address some of the points raised beforehand.

I find that these days it might be appropriate to start off any committee appearance with an introduction of what the alliance is. Brand imaging is a problem these days not only for Canada but also for other alliances. I want to do that because it's not only a good story, but also a story that shows where Canadian industry is going.

As you probably know, the Alliance of Manufacturers & Exporters Canada was formed in 1996 as the result of the merger between the Canadian Manufacturers' Association and the Canadian Exporters' Association. The CMA was formed in 1871 with the sole purpose of protecting Canadian industry and fighting free trade with the United States. The Exporters' Association was formed in the 1940s, and its sole purpose was to promote market access for Canadian exports around the world. So you can see that it took approximately 100 years for Canadian industry to turn from an inward-looking protectionist focus to one that is very much now looking at world markets.

One of the statistics I always quote in my presentations is that today 65% of the entire industrial production of this country is being exported. In fact over 55% of the entire value of what is produced in this country by Canadian industry is being exported into or through the American market. That is really the prime market for Canadian companies and Canadian exporters generally, because of course today exporters are not only manufacturers but also service companies.

We have about 3,500 members in the association. Most of the largest companies in Canada are members. Our membership accounts for about 95% of Canada's exports. Many of our members are large companies with operations in Europe. I counted 180 subsidiaries of European companies that are members of ours, and many other companies that have some form of European ownership are a part of our membership. But the majority of our members are small companies, and I think there is a growing interest in the European market on the part of those small companies with regard to exports and also to establish a place of business, an investment.

I think Europe is an important market because of the size and the growth potential, particularly in high-tech sectors, but also it's a sophisticated market. Canadian companies selling into the United States can transfer and sell into Europe. It's perhaps much more sophisticated in some senses in terms of quality and design than the North American market is. It's also a very demanding market, and it's a very competitive market. When we're talking about promoting and encouraging trade and investment between Canada and Europe, I think we also have to talk about building the capacity of small companies in Canada in particular to trade and to invest in the European market.

• 1655

I spoke before about the importance of the American market to Canada. It is an important market, but I think perhaps today we shouldn't look at bilateral economic relations in the sense of Canadian trade with the United States; we should look at the North American market as one market. That's the way many investors look at the market. I think when we're looking at trying to promote export and investment activity, then Europe and Asia are the export markets today. It's not necessarily the United States. I don't want to underplay the importance of the United States as a market for Canadian companies, but this is a close market, it's a market where Canadian companies are active. I think we should be looking beyond the North American market.

We also have to look at business relations between Europe and Canada from various perspectives, not only bilaterally. This is not just a matter of Canada trading with Sweden or Canada, investing in the United Kingdom, France, or Portugal. It's a regional relationship. We have to look at these business ties as NAFTA to the EU and as points of access into those markets.

I think more and more we have to look at our business relationship in global terms. We're not necessarily talking here about bilateral trade or investment between Canada and Europe, but about business partnerships where businesses get together to trade and invest around the world in third markets—in eastern Europe, Africa, Asia, and Latin America. I think that's a very important base for growing a bilateral relationship between Canada and Europe, and it's perhaps also a different context for looking at negotiations on trade and investment matters between Europe and Canada.

This is not necessarily something where we might want to see all issues included in a bilateral transatlantic free trade agreement. Certainly we would want to place our priority on ensuring involvement in a more multilateral framework of negotiations, particularly in the WTO. As I said before, I think there is a growing interest on the part of smaller companies in particular in the European market, not only Canadian companies in Europe but European companies in Canada.

We've reached a point, I think—and this is very much along the lines of what Ambassador Clarke has said—where Canadian companies with specialized technologies, products, and services have done very well in the United States. Now they're looking at exporting and investing, expanding their businesses beyond the NAFTA market. I think we're seeing exactly the same thing in Europe, where small companies have done well within the EU and now they're looking at expanding into North America.

Canada, I think, is a very favourable location for investment, particularly on the part of smaller European companies. The size of the Canadian market, and the fact that smaller companies are facing.... Whether it's due to the quality of the labour force, the types of social services we have, the legal system we have, or even simply the competition in these markets, these markets in Canada are much more favourable for the location or investment of smaller companies than for larger ones.

But we face a tremendous selling job to convince European companies of whatever size, large or small, that Canada is a favourable market to invest in in terms of location, or that it's a favourable market to invest in to gain access to the U.S. market. I can't emphasis enough the tremendous attraction of the American market for any investor today, simply because of the size and growth of the American economy.

If we want to attract investment, I think Canada has to offer two things—three things, if you count image—to make sure companies are aware of the opportunities in the Canadian market.

• 1700

One, we have to show that the Canadian market is a dynamic market. And I think it is. I think the restructuring that has followed upon the NAFTA, in particular, has created a tremendous opportunity in Canadian industry, in Canadian high-tech companies, for both imports of technology and for investment. I think we do have a good story to tell in terms of market dynamics, but that story has to get out.

The second part is simply the fact of whether we are competitive, either in cost or on return on investment. I really do have to question, simply on the tax and regulatory side, whether we are as competitive as we should be. Even after this recent budget, in the year 2004 our corporate tax rates will be higher than those in Germany, France, the United Kingdom, and Ireland, and they will remain higher than many combined federal and state tax rates in the United States. That alone I think is something we should focus our efforts on. We really do have to build a very attractive business climate for investment here to offset the attraction of the American market, particularly with European companies.

Just quickly, we've talked a number of times about some of the impediments for doing business in Europe. I think one we don't mention very often is the structure of the Canadian economy itself, the fact that so much of our export activity is driven by American-owned subsidiaries operating in Canada. What we have to do is grow the Canadian export base into other economies. It's no surprise that our trade has developed so quickly with the United States, and much of that is intracorporate trade or managed trade between our two economies.

I agree with Ambassador Clarke that more Canadian investment in Europe will lead to more export activity, and more European investment from Europe into Canada will lead to more import activity. It's not only an impression of Canadian businesses, but there are significant non-tariff barriers of both doing business in Europe and investing, particularly on the standards and regulatory side.

There are also barriers in terms of the capacity of Canadian companies, and I think this is important as well. Design standards, quality standards, environmental standards, and various other product and service standards are in many cases much higher in Europe than they are in the North American market. I think a part of encouraging Canadian companies to do business in the European market is to build the capacity of Canadian exporters to service the demands of their customers in that market. It's not just simply hoping they'll begin to trade more and invest more.

I think there are tremendous opportunities, and I agree with Ambassador Clarke on that point.

Just to give you a very brief overview of some alliance activities and our activities of business promotion in Europe, we're involved in speaking extensively and trying to encourage European companies to invest in Canada. On that side, I've personally been involved in and visited most of the countries in Europe trying to make the case for investment in Canada, and I really do want to recognize the role, expertise, and quality of our trade commissioners across Europe. I think they're simply outstanding.

But apart from just encouraging speaking, we're a founding member of the Canada-Europe round table, and I think that's something we need to encourage much more business involvement in. We lead a number of trade and technology missions, not only to trade shows but also to look at best business practices in Europe, and I think that's a very important indirect way of building the personal relationships that Ambassador Clarke talked about.

We have a number of agreements with European industry associations as well where we will play host to European companies visiting Canada, and similarly they will host Canadian companies looking for partners in Europe. We also have a number of sourcing programs—programs to enhance quality, enhance design—mainly involving European companies operating here in Canada. I think that's very important as well.

• 1705

Finally, I'll stop here by saying that we can look at a number of various ways in which we can build business activity between Canada and Europe, and Ambassador Clarke and his colleagues have talked about many of them.

Again, I don't think we should lose sight of the broader context here. What we're trying to do is build the capacity of Canadian exporters and the capacity of Canadian business to do business around the world. I think European-Canadian partnerships can be effective in building the bilateral relations between Canada and Europe, but they may offer even greater opportunities in building business relationships in third markets in central Europe, in Africa, in Latin America, and in Asia. I think there's a tremendous opportunity and a win-win situation for companies offering market access or technology if we look at that broader context.

That was a long-winded short comment.

The Chair: No, that's great. Thank you very much, Mr. Myers.

[Translation]

Mr. Marceau.

Mr. Richard Marceau: Mr. Myers, thank you for being here today. What you've said is very interesting. The committee is examining the economic relations between Canada and Europe. It's not just a matter of studying the facts, but also making certain proposals. I hope this committee will be making certain proposals.

If, tomorrow morning, Jayson Myers were Canada's Minister of International Trade, what would he do to promote trade and investment between Europe and Canada? Would he negotiate a free- trade treaty? Would he do away with some of the existing irritants? Would he favour trade by doing away with certain non-tariff or regulatory barriers? What would that minister do?

[English]

Mr. Jayson Myers: After overcoming the shock of becoming trade minister, I think my first priority would be to focus on the regulatory and standards issues here, and to do that within a context, perhaps in multilateral negotiations or bilateral negotiations with Europe. There are many areas of regulatory differences or standards, differences that stand out. We should be focusing a little bit more on mutual recognition agreements, where possible. Where Canada and the government can take a lead is in exerting pressure on the European Commission, if not for more preferential access, then at least for a more transparent system of regulation and standards and purchasing preferences.

Much of the export business that we have with the United States, and also with many European companies, is built on purchasing and procurement practices, both on the part of companies and on the part of governments. This often is a fairly opaque type of process, and it's another area in which much can be done to improve the transparency of procurement, the transparency of the regulatory process in the European Union and in individual European countries. I think that's what my first target would be, or what my first priority would be.

My second priority would be to make the case for business investment. Looking at Canada's pretty dismal record in trying to attract foreign investment, we've seen our international share fall and we've seen our share in the United States fall. I think it's extremely important to put Canada back on the radar screen. That is more than simply a selling job in Europe. We have to demonstrate that there is something to offer investors as well, and I think I would be very active, along with my colleague, the Minister of Industry, in trying to identify the conditions in Canada and how European companies see Canada as an investment location, and in trying to respond to some of their demands.

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[Translation]

Mr. Richard Marceau: You talk about making Canada known. What are you talking about exactly? Having studied the European market, businessmen and women and European investors, would you undertake a campaign to charm them or engage in a more intensive information campaign for them? In concrete terms, what would you do? Everyone seems to agree that we have to sell Canada or certain parts of Canada, but there is no agreement on how to do it. What interests me is what we could do so that in the minds of businessmen and women, Canada becomes more thant the Rocky Mountains, Maria Chapdelaine, the sugar shack and plaid shirts.

[English]

Mr. Jayson Myers: I think it has to be a very targeted effort, first of all in response to the requirements of Canadian business that are already active in Europe and European companies that are active in Canada. I think it's targeted in the areas in which we do have a competitive advantage as well, which more and more include companies with specialized products or unique technologies. These are the products that Canadian companies can sell around the world, and they are many of the key products and types of investment that we would want to see in Europe. They are some of the key types of products that European companies would like to source from Canada.

Targeted in another way, Ambassador Clarke mentioned some of the sourcing visits or interest in the part of European companies in sourcing from Canada. We are a very attractive source not only for technology but for high-value components and for high-value services. I think one of the very effective ways of increasing export and investment interest is to target companies that are sourcing internationally, and to then put them in direct contact with potential suppliers here in Canada. We found this to be extremely effective in Austria and in the car industry in Italy. Many of these European companies are operating not out of Europe but out of the United States. Bring the American subsidiary to Canada, and that often leads to investment here.

Fourthly, at a personal level, target people who are making investment decisions. I know this is going on in many of the posts in Europe.

In short, I don't think we go very far by a broad information campaign that is sort of a shotgun approach that says to do business in Canada, what a great place this is, we can offer you all sorts of fabulous benefits or tax incentives or whatever. That's not the way we should be doing business, because I think we have a very compelling story for targeted investments. But it's just like any business. If you want to sell your products, if you want to make a case for investment in your business, very few companies would go out and just advertise in the paper to do that. They would target the companies that they wanted to work with and would target their investors and do their homework beforehand.

Mr. Richard Marceau: Merci.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd: I'd like to address another issue, but it's one of concern about the modernization of Canadian industry. As you know, our government has been very interested in getting Canada up to speed in the e-commerce area. There's a feeling that we could be world leaders in this area. Having said that, there are a lot of disparaging comments about Canadian industry adaptation to using e-commerce. It has been a lot slower than its American counterparts.

Here we are trying to promote trade, and I guess I'm going to bounce this back on you. You told us to reduce taxes. We're telling you to get your act together when it comes to e-commerce, because you don't seem to be catching up or in the game. I guess you could maybe answer that question.

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Maybe we could then take that to the next stage, which may well get into the tax structures and whether or not there are some things that we can do. I think you and I had discussions before, when we talked about the Y2K issue. The government came across with a tax incentive program to get businesses up to speed. Possibly we could look at how that could be done to assist small and medium-sized businesses, and the large businesses that you represent, to take advantage of this.

As you know, there's only a certain window of opportunity. The Europeans are coming on strong and fast in this area. What can we do to change the culture of Canadian business in order to take advantage of this?

Mr. Jayson Myers: I think those are good points, and your criticism of Canadian business is well taken. It's a concern not only in terms of the adoption of e-commerce technologies, but also in terms of modern automation systems, modern design systems, and modern information systems that are all a part of not just manufacturing but any sector of business today. Canada does lag behind. We tend to focus on issues like productivity, but if you look at a range of various measures, like the introduction and commercialization of new technologies, the adoption rate of new technologies, Canadian design capabilities, or levels of quality, we lag behind not only the United States but many European countries as well.

The adoption of e-commerce is an area in which I think we tend to lead the Europeans, and maybe there's some benefit we can gain by leveraging that. But again, this is what I mean when I say part of our trade strategy with Europe has to be building the capacity in Canadian industry itself. I think it's a matter of improving quality, of making sure Canadian companies are able to meet the standards being set by the European customers, and of getting Canadian companies more up to speed in terms of technology and using the e-commerce technologies well. It's a big challenge.

I think there's something else behind all of the trade statistics, though. Let's keep in mind that the trading base or the export base in Canada is very small, particularly when you're looking at Canadian companies that have these unique products that they can sell around the world. There aren't all that many of them in relation to the whole community of Canadian businesses or the community of Canadian manufacturers or companies that could potentially be exporting. Many of the companies are now looking at putting an investment into the European market—more and more of them—but these are the companies with the unique technologies and with high levels of quality and design standards. Many of these companies are owned and operated by Europeans who came to Canada in the 1950s and 1960s. When you look at Magna, ATS, or Linamar in Guelph, all are expanding rapidly in Europe, and all are expanding because their owners are from the markets that they're now growing in.

So where I'm going with all of this is to say that we shouldn't be wringing our hands that the whole universe of Canadian companies is lagging behind, we should be trying to build the capacity of industry generally. But I think we should also be focusing our efforts, just on a targeted basis as well, on those companies that do have the capabilities and are world leaders in technology and products. In the short term, those are the ones from which we will get the success. Maybe they're also the ones that can lead the rest of Canadian industry in terms of best practices.

Mr. Alex Shepherd: I guess my focus would be more likely on small and medium-sized businesses and some of the larger ones that you're talking about. I presume some of those are in your association as well.

Mr. Jayson Myers: Yes.

Mr. Alex Shepherd: You know, we have this fixation that we have to have bricks and mortar somewhere in Germany or whatever. The reality is that all we need is a web page. I guess it's that issue that I'm focusing on more.

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The report card seems to be that we just don't get it, that Canadian businesses just don't get it, that they're just falling behind compared to their competitors in the United States, and that in fact the Europeans are going to beat the pants off them and this sort of thing. Do we, as a government, need more incentive programs to get Canadian businesses to use this connectivity that we have?

Mr. Jayson Myers: I don't know how much it is really the fact that we don't have enough web pages up and running. I'd rather see the e-commerce and the new communications technologies being used in terms of business-to-business transactions, because I think that's where the capabilities can be leveraged a great deal, more so than simply doing a website.

I agree with you that companies can put up a website and that we should encourage more to sell over the web, not necessarily targeting the European market but the global market, but in the application of these technologies, I think the future development is going to be in the areas of integrated design, whereby companies or business partners operating in Canada and Europe can jointly design and manufacture a product for sale in wherever, in the global market, or it'll be in managing supply chain relationships or in joint research projects or joint commercialization projects. I agree with you that this is where the importance of e-commerce comes in. So yes, I think we should be encouraging Canadian companies to become more connected and to use the e-commerce activities that way.

I don't know, frankly, how effective a targeted tax measure or some form of financial inducement to do that would be, because I think the adoption of e-commerce technology should be designed around the business process. In that way, the job is to convince companies that, number one, they should be interested in the European market, and number two, they had better get their act together in terms of the design, the quality, and the technology, and use e-commerce as a part of building that business process—but they have to think strategically before that.

One of the problems, especially on the part of small companies, is that they don't have the time, the resources, or the manpower to be involved everywhere, in all markets, doing all things, developing different types of products, and meeting the demands not only of their customers but of doing business as well. When you look at the smaller companies that's the real challenge. It's no surprise that many of these smaller companies do look at the American market, because it just takes less time, less effort, and less money to make a mark in the American market. Going to Europe is still a big jump, whether you have a website or not.

Mr. Alex Shepherd: It's just that the round table that was done is what I'm referring to. One of their recommendations, in fact, was a targeted tax incentive. I was interested in your comments because you don't seem to think that would be useful. I can't figure out how it's useful, because the original Y2K incentive was allocated to hardware, but most of what we're talking about is tax deductible in any case.

Mr. Jayson Myers: We've looked at this. I think you should really study that. If we're going to target tax measures, we had better make sure that they're effective. I don't know. Once you get into targeted measures, especially with technology, I'm not so sure how effective they are. Maybe we could try to build the business capacity in some other way.

The Chair: Mr. Myers, I have just two quick questions.

You talked about the Canada-Europe round table and you said your association was part of that. Can you perhaps tell us how useful that activity is? Again, what, if any, role can the government play if it is a useful exercise? The second thing is the Crossing the Pond initiative, which was previously spoken about. Is that something your members have taken advantage of? If so, how successful have they found it to be?

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Mr. Jayson Myers: On the Canada-Europe round table, we have been active since the foundation of the round table, about a year ago, I guess. I think it has been useful, first of all, in identifying some of the problems that exist for companies in Europe and in Canada and in identifying some of the trading and investment obstacles that exist.

One of the challenges, though, I think, is building up corporate representation or business representation in the round table. The report of the round table was very representative of the particular interests of the companies sitting around the round table and was a good piece of work, but I think much more has to be done in making sure more companies are at the table.

The Chair: How do we do that?

Mr. Jayson Myers: First of all, I have to say that a $6,000 U.S. membership fee is not a great way to start. Even for large companies it's a problem. If we're looking at encouraging small companies to be a part of this, it's really going to impede any involvement on the part of small companies. Business associations can represent the small company interests. It's going to be difficult to get a lot of companies involved, but I think it's a very useful process—maybe with a lower entry fee.

One area in which it really is going to be very effective, I think, is if we can bring together, in a round-table setting, a group of Canadian companies operating in Europe and a group of European companies operating in Canada to talk about various difficulties or challenges or what's going well in order to build up the personal contacts and the networking in the round table. I think it can be very useful.

But that's going to take a bit of organizational effort. Being in the association world, I can say that companies are under tremendous pressure to not only reduce their budgets for things like this overall but to reduce the number of association memberships they hold. So this has to be something that is extremely poignant for Canadian companies—or for European companies, for that matter. It's going to need someone who is a real entrepreneur to sell this idea to companies on both sides of the Atlantic, to sell the idea that they should be involved, that there's a real agenda here, and that they're going to achieve something.

I don't think government should be leading this, but in terms of any support that's possible for finding an entrepreneur who can do that or any support that's possible in trying to recruit companies to become a part of this, I think that's a useful role for government.

In terms of the Crossing the Pond initiative, we work with Foreign Affairs quite closely in trying to encourage our members—and not only our members, but Canadian exporters—to take advantage of the programs that are available in order to increase their knowledge of markets around the world. Certainly we encourage them to take part in the Crossing the Pond programs and initiatives or any other initiatives that are there.

Frankly, it's hard for us to gauge how useful all of this is, because there is a lot of information available. Maybe it is too much—and companies are always going through a process of trying to simplify and get exactly the type of information they require.

But there's no doubt that at the level of just raising awareness about the market opportunities that are there—not necessarily the specific questions—an information program like that is quite useful, not just in Europe but in other markets around the world as well, and even in the United States.

The Chair: Thank you very much.

Mr. Alex Shepherd: On a point of order, Madam Chair, I was just wondering about the process. We were talking about actually travelling sometime in May. I just wondered what is happening on that agenda.

The Chair: This is a matter that we're going to have to speak about to our colleagues on this side to see if it cannot be brought up for review. When we brought up the motion originally, Mr. Marceau voted against it. We're not calling for a vote here, but we will ask to perhaps have all the parties reconsider it, and we could look at it again at the next meeting.

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Just before we go, I want to say thank you to Mr. Myers for returning again.

Thank you again for staying, Mr. Scott and Mr. Siles.

Gentlemen, before we go, on the free trade area of the Americas, the FTAA report, the response by the minister was tabled a little while ago. I'm just wondering, since it was our committee that did it, whether this committee would be interested in having the minister come and speak to the response before the end of the year.

Perhaps we could instruct our clerk. I don't think we need an official motion on this. I know it all came across our desks, but I thought that perhaps if you thought it would be of interest, we could perhaps bring the minister before us.

Some hon. members: Agreed.

The Chair: On April 5 there will be no meeting, because Minister Pettigrew is appearing before the standing committee on the main estimates, so if you could just mark your calendars accordingly, we'll send out a notice.

The meeting is adjourned.