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

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, November 28, 2001

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[English]

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): We'll call to order the Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade. It's Wednesday, November 28 at 3:30 p.m., and we are meeting today to deal with Bill C-41, an Act to amend the Canadian Commercial Corporation Act.

We have with us a series of witnesses, starting with Sara Hradecky, director, export financing division; Mr. Wayne Robson, deputy director, export financing division; Georgina Wainwright-Kemdirim, officer, export and financing division. As well, we have witnesses from the Canadian Commercial Corporation: Emechete Onuoha, vice-president, corporate strategy; Paul Thoppil, vice-president and chief financial officer; and Tamara Parschin-Rybkin, manager. I'm sorry for butchering some of the names in the way I did—being ethnic sometimes works to your disadvantage—but I want to apologize for that.

I want to run something by my colleagues. I know some of you have some other commitment to go to, and I do not want to lose a quorum of the committee, because we want to report this bill back to the committee tomorrow and into the House on Friday, hopefully. Some of my colleagues have already indicated they have some amendments to propose.

My suggestion is that we will start with our witnesses, in particular the vice-president or the chief financial officer, to give us a quick synopsis in terms of what we are dealing with here, and as soon as that is done we will open the floor for my colleagues who have amendments to the legislation so they can table them. Then we will debate them, dispose of them, and move on. Would we be in agreement on that?

Some hon. members: Agreed.

The Chair: Okay, thank you very much.

Mr. Emechete Onuoha, the floor is yours.

Mr. Emechete Onuoha (Vice-President, Corporate Strategy, Canadian Commercial Corporation): Mr. Chairman, if you would indulge us, the DFAIT officials will speak to you about some of the substance of the legislation, and we will follow up with content regarding the corporation.

The Chair: Perfect.

Mr. Emechete Onuoha: Thank you.

The Chair: If you have a long speech, I suggest you deposit it. It will be part of the minutes, so you don't have to read it into the record.

Ms. Sara S. Hradecky (Director, Export Financing Division, Department of Foreign Affairs and International Trade): I have quite a brief statement.

I'm pleased to outline the amendments to the Canadian Commercial Corporation Act that are included in Bill C-41 before you. The bill is straightforward, and members who spoke during second reading quite correctly categorized it as housekeeping. There is a need, however, for these changes to the legislation governing the CCC in order to allow the corporation to modernize certain issues regarding governance and operating procedures, as well as to give it new tools to serve the needs of Canadian exporters in a commercially responsible way.

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I will deposit the prepared remarks I had, which talk a little bit about the history of the CCC, and I'll bring you forward to the purpose of the bill. I should preface this by saying the corporation is an important instrument in the government's trade promotion activities. It's a full participant in Team Canada Inc. and a valued partner of many Canadian companies in the international marketplace.

Bill C-41 updates the Canadian Commercial Corporation Act in order to make necessary changes to the corporation's governance and operating procedures, as well as to give it new tools to serve the needs of Canadian exporters in a commercially responsible way.

The bill proposes three changes. These are: separating the positions of chair of the board of directors and president; permitting the charging of fees for service on CCC's non-defence production sharing agreement business; and authorizing the corporation to borrow funds in the commercial market. While these changes are essentially administrative, it is necessary that we amend the act in order to give them legal effect.

The CCC is one of 41 wholly owned crown corporations in Canada, and while they are used as tools to deliver important public policy programs, they also operate at arm's length from government in their day-to-day activities. This arm's-length relationship is outlined in the Financial Administration Act. It allows crown corporations to have more autonomy so they can operate in a commercial environment.

The Auditor General indicated in her year 2000 annual report that Parliament provides appropriate direction and control for crown corporations through several mechanisms, including approval of the corporate plans and annual budgets. It also has the power, through cabinet and Governor in Council, to appoint directors to a board of directors and to select the chief executive officer to manage the corporation.

In this bill the government is creating separate job descriptions for the offices of the chair of the board of directors and the president of the corporation. In doing so, the government is bringing CCC's governance structure in line with Treasury Board guidelines for the administration of crown agencies, as well as with modern corporate management practices.

Indeed, a recent report by the Joint Committee on Corporate Governance to its sponsors—the Toronto Stock Exchange, the Canadian Institute of Chartered Accountants, and the Canadian Venture Exchange—has recommended that all boards of directors should have independent board leaders who are not the chief executive officer.

The second amendment allows the corporation to charge fees for its non-DPSA business. The DPSA treaty with the United States precludes the charging of fees for business done under that agreement. But allowing the corporation to charge its clients a fee for other services lets it become more self-supporting and expand beyond the U.S. market.

The corporation earlier introduced a cost-recovery fee for some of its international market development services and through this cost-recovery structure earned some $900,000 in the first year it was implemented, in 1996. Last year, some 15% of CCC's revenues came from cost recovery. The approach in this legislation builds on that experience by moving to a fee structure that fairly balances fees charged with value received and clarifies the ability of the corporation to charge fees, which include not only cost recovery but risk premiums.

Currently, as a result of the corporation's inability to charge risk premiums on transactions, CCC can only help an exporter if it can mitigate all risk. This is very difficult to do, especially in supporting small and medium-sized enterprises.

The final amendment in this package allows the CCC to have access to capital markets for borrowing. This will address liquidity issues, regularly encountered by the corporation on its DPSA business, due to late payments sometimes received from the U.S. Department of Defense. The CCC incurs a contractual obligation to pay Canadian suppliers in 30 days on DPSA business but does not always receive timely payment from the U.S.

Rather than pass on this liquidity problem to its clients, the CCC mitigates the concern through short-term borrowing and cash management. Currently, this cash management is only done through transfers from the Consolidated Revenue Fund. This amendment will allow the CCC to have an additional capability to borrow on commercial markets to meet this need.

Overall, these amendments will strengthen and expand CCC's capacity to deliver the specialized services that have spelled its success and that of thousands of companies in export markets for almost 50 years now.

Thank you very much.

The Chair: Thank you very much.

Mr. Onuoha.

Mr. Emechete Onuoha: Thank you, Mr. Chairman. Members of the Subcommittee on International Trade, Trade Disputes and Investment, it is my pleasure to appear before you today with respect to Bill C-41.

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The bill before you today is vital for the Canadian Commercial Corporation, as it will enhance our level of self-sufficiency, strengthen our governance structure, and provide us with much needed capacity to alleviate short-term liquidity challenges.

Mr. Chair, it's estimated that each year governments worldwide purchase well over $5.3 trillion worth of products and services. That amounts to 18% of global economic output. In many cases, these markets can only be accessed on a government-to-government basis. As an official government contracting agency, the Canadian Commercial Corporation as prime contractor can sell Canadian products and services in foreign-government markets. Without the Canadian Commercial Corporation, in fact, many of these markets would be inaccessible to Canadian business interests. The CCC means credibility, contracts, and closure for Canadian export opportunities.

[Translation]

Small and medium-sized businesses in particular benefit from the presence of the CCC in carrying out their international projects. By using its status as a government organization, the CCC enables Canadian SMEs which do not have a high international profile to compete equally with bigger and better-known foreign companies.

[English]

Mr. Chair, in addition to assisting in the development of trade between Canada and other nations, the Canadian Commercial Corporation also plays a compelling role in North American defence industrial base coordination and procurement. In the aftermath of the horrific terrorist attacks unleashed against the United States of America on September 11, it is incumbent upon the Government of Canada to provide an appropriate response to collective security and defence requirements associated with the war against terrorism.

As custodian of the 1956 defence production sharing agreement, or DPSA, with the United States, the CCC is mandated to serve as a government-to-government contracting agency in support of the procurement needs of the United States Department of Defense. In times of war, the CCC serves as a Canadian national contracting instrument associated with industrial mobilization and Canadian sources of supply, in keeping with our obligations to the United States under the DPSA.

Accordingly, the procurement regulations of the U.S. DOD specify that defence purchases from Canada above $100,000 U.S. must be transacted through the CCC. As stated in the 2001 Speech from the Throne:

The government will work closely with the United States, Canada's most important trading partner, to maintain secure and efficient access to each other's markets.

Under the DPSA, the Canadian Commercial Corporation maintains special access for Canadian companies to the enormous and highly protected U.S. aerospace and defence market. Given the heightened concern for cross-border trade post-September 11, the DPSA has become increasingly important to Canadian exporters. Despite modest capital and operating resources, the CCC remains an important economic policy instrument for the Government of Canada with respect to export growth and trade promotion.

In light of the compelling role played by the CCC in respect of the procurement of defence products and services in Canada on behalf of the United States Department of Defense, CCC anticipates additional cost pressures related to increased demand for its DPSA-related services.

Mr. Chair, I would like to take this opportunity to recognize the strong support we have received from the Minister for International Trade and his departmental officials with respect to the corporation's fundamental operating requirements. Minister Pettigrew has been unswerving in his commitment to the CCC and has helped improve our visibility and level of recognition among key stakeholders.

In conclusion, I would like to emphasize the following point. The CCC is a low-input, high-output operation. Mr. Chair, like many of the Canadian exporters we serve, we are not an enormous bureaucratic organization, but we are effective. Last year, with a staff of merely 90 people and a thin appropriation of approximately $13.6 million, the CCC used its credibility and contract expertise to bring closure to approximately $1.3 billion worth of sales for 275 businesses across the nation, with particular attention to SMEs.

This represents an estimated 13,000 jobs in the Canadian economy. Whether it's Trican Multimedia Solutions in Ottawa centre, Horton Automation in Burnaby-Douglas, Vetement Stenis in Joliette, or IMP Aerospace in Cumberland-Colchester, the Canadian Commercial Corporation remains committed to helping Canadian companies achieve credibility, contracts, and closure in international markets, particularly during the current economic downturn.

Mr. Chair, on behalf of the Canadian Commercial Corporation, I would like to thank you and your colleagues on the Subcommittee on International Trade, Trade Disputes and Investment for your time, patience, and support.

My colleagues and I are happy to take any questions the members may have.

The Chair: Thank you very much.

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We are going to go right to the heart of the matter, starting with Mr. Duncan. I think he may have a question, as well as Mr. Casson and Monsieur Paquette.

Mr. John Duncan (Vancouver Island North, Canadian Alliance): Yes, I have a couple of questions.

Thank you for coming before the committee. My first question is not for you, because I don't think you prepared this book. Is this book prepared by the committee, by the clerk?

The Chair: No.

Mr. John Duncan: Oh, okay. Then the question is germane.

You have a section in here dealing with parliamentary debates. We have the minister, the parliamentary secretary, and another Liberal. It just doesn't resonate well with the opposition when you format things in that particular way. So I just have a communication suggestion: the opposition does have things to say. We are not going to pay a lot of attention to a briefing that gives us all the government bumf only.

My question, which I think I gave you some notice of, relates to the borrowing authority going from $10 million to $90 million as a consequence of these amendments. I believe the frequently asked questions portion of the document, if I'm reading it correctly, would indicate that you had a one-time bump of $5 million repayable for cashflow purposes in this current fiscal year. I would understand that this was all that was required over and above the $10 million in order to meet cashflow requirements, which is what I assume is the same wording as saying that's what's required in order to guarantee the 30-day payment regime.

First of all, am I correct in that assumption?

Mr. Emechete Onuoha: Mr. Chairman, I would ask Paul Thoppil, our chief financial officer, to address Mr. Duncan's question.

Mr. Paul Thoppil (Vice-President and Chief Financial Officer, Canadian Commercial Corporation): Mr. Duncan, to respond to your question, I would like to say that you are correct in that over the past couple of years, the corporation has been suffering under liquidity flows, in part based on the sometimes slow payment by the United States Department of Defense to the Canadian Commercial Corporation. It has received certain injections of moneys in order to help compensate it, although this has not fully addressed the issue.

There are a number of reasons that the corporation does require liquidity access. The primary reason would be to maintain payments to various Canadian SMEs on a timely basis.

Mr. John Duncan: Right. What I'm trying to do is to quantify the requirement for borrowing and see how much of it is related to the 30-day backstop. It's my belief that the value of CCC should be based on its technical merit and on its ability to access, but not on the basis that it's a 30-day financial guarantor, which are better conditions than one would even receive dealing domestically with the Government of Canada as a local supplier.

So if, rather than a 30-day backstop, we had a 90-day backstop, what would the financial requirement be for the corporation? What difference would that make?

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Mr. Paul Thoppil: The thrust of the bill is to put Canadian Commercial Corporation on a commercial footing. Therefore, much like any private sector or commercial organization, it needs access to a line of credit in part to finance its receivables.

The $90 million barring limit was based in part on the fact that at any one point in time, it has well over $120 million worth of receivables from the U.S., United Kingdom, or French governments. Therefore, much like a banking organization, in terms of trying to determine what an appropriate banking line would be, it would do a margin and would say that $90 million would be the private sector comparison of what an organization with $1 billion worth of annual throughput would require in terms of a line of credit.

In terms of the issue with regard to payments to suppliers in 30 days, pursuant to the defence production sharing agreement, we pay suppliers in a way that's consistent with Government of Canada policies and procedures. Based on that, how we pay is consistent with Public Works and Government Services policy with regard to payments to suppliers.

It is our understanding that 90% of the time, Public Works and Government Services Canada pays Government of Canada suppliers within 30 days. If it pays beyond 45 days, they pay with interest.

Mr. John Duncan: There are an awful lot of suppliers who would like to believe that. That's certainly not what we hear.

I guess where I have difficulty is that the corporation's been around since 1940-something—

A voice: Since 1946.

Mr. John Duncan: Since 1946. So you've been operating for 55 years and all of a sudden you need to go from $10 million to $90 million. The numbers don't add up. We already know the Government of Canada is backstopping the commercial credit corporations. We know the 30-day backstop is not for the large enterprises. It's for the small and medium enterprises. You don't use that for Bombardier; you use that for the smaller companies only. Is that not correct?

Mr. Paul Thoppil: Again, Mr. Duncan, we pay our suppliers consistent with Government of Canada policies of Public Works and Government Services, which has a policy to try to pay its suppliers in 30 days, or up to 45 days without interest. That is paid to all suppliers, regardless of size.

Mr. John Duncan: Okay.

The Chair: Monsieur Paquette.

[Translation]

Mr. Pierre Paquette (Joliette, BQ): Good afternoon and thank you for your presentation.

I would say that the best part of Bill C-41 is that it helped me become familiar with the corporation. I had never heard of it before I saw the bill. I realized that at least three businesses in my riding of Joliette had availed themselves of the services of the corporation and that it played a significant role in helping them. So, I would say that is the first good aspect of the bill.

As for amendments to the bill, there is no problem. However, since I am not very familiar with the corporation, I have several questions. I understand that with this bill, the government wants to make the Canadian Commercial Corporation more dynamic from a trade point of view by seeking to diversify target countries in particular. For a long time, the United States were the main partner involved in the corporation's operations. But now, 34 countries other than the United States have reaped the benefits... In fact, your report says so. There was an increase of 57% over the last few years. So, diversification is the goal, and the bill, which would allow you to make loans on financial markets, will be one step in that direction. I find that very interesting.

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I would like to know a little more about the profile of these 34 countries. There are sales by product category. These products are fairly strategic when it comes to national security. They include vehicles and rail equipment. They cover a bit of everything. The second category is aerospace. That is followed by armaments, electronics and more.

I feel that the corporation should ensure that the operations it supports do not affect Canada security and global security in general. The events of September 11 have forced us to keep this in mind.

So, I would be interested in knowing more about these countries and how you ensure that the corporation's operations respect Canada's commitments.

I would also like to ask a question of the representatives of the Department of Foreign Affairs. On page 31 of the Annual Report, there is mention of a process which is being developed regarding the Canadian Commercial Corporation's social responsibilities. I would like know how far along this process is. I would like to receive clarification on a part I did not understand very well. It is on page 31 and I quote:

The CCC continues to keep track of DFAIT's work in this area...

This is the area of social responsibility.

...and will respond accordingly to relevant recommendations resulting from the process.

This implies that the corporation will choose which of the departmental recommendations suit it best.

I would like to know how far along we are in this process and where it is headed. I would also like to know what the obligations of the corporation will be once the results of this operation are known.

[English]

Ms. Sara Hradecky: You asked a number of questions. Let me start by saying that on the specific issue of corporate social responsibility and international obligations, as you have worded it, it's probably important to note that... You talked about the range of countries where the CCC exports and the impact that may have on security. I'll ask my colleagues from CCC to clarify that question more specifically, but while something close to 70% of the CCC's business is related to the United States, and most of that is defence procurement, the international business is government procurement writ large. It's not necessarily defence products; in fact, it has been a range of products to countries outside the United States. I'll ask them to expand further on the markets they're involved in.

As for how CCC is informed and what kind of recognition it takes of corporate social responsibility, certainly as a crown corporation, CCC is responsible for monitoring Canadian government policies on human rights and sustainable development. It's a responsibility we share to provide information about markets where CCC is interested in becoming involved in business.

The CCC is of course required to adhere to Canadian obligations. We're satisfied that the corporation does this work appropriately. More can be done and more is being done currently, as the corporation begins to expand to a broader range of markets. The department is becoming more involved with CCC in providing advice about places where, as a result of its new expanded mandate, CCC is becoming more involved. We're in frequent contact, providing advice from a range of parts of the department, be it export controls or the human rights department or the geographic departments that monitor activities in different parts of the world.

We're working closely with CCC to develop a more comprehensive strategy that can leverage the special influence that CCC can have in international transactions as it carries out its work as an agent, so to speak, of Canadian companies.

I'll ask Mr. Onuoha to—

[Translation]

Mr. Pierre Paquette: In the annual report, we refer to a process. Where are we—

[English]

Ms. Sara Hradecky: I haven't seen the exact page you're referring to, but I think what you're—

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[Translation]

Mr. Pierre Paquette: It reads as follows:

The Department of Foreign Affairs and International Trade has been chairing an ongoing process with Canadian business representatives on corporate social responsibility in the context of international trade transactions.

[English]

Ms. Sara Hradecky: That's referring, sir, to an interdepartmental working group that is affectionately called Club C. This is a working group on corporate social responsibility that is chaired by the Department of Foreign Affairs and attended by departments and crown corporations that wish to be informed of corporate social responsibility practices, guidelines, codes of conduct, international obligations that Canada may undertake, etc. Club C meets in this context to inform each other about these obligations.

When I said earlier that crown corporations are required to inform themselves, this would be part of the process where the Department of Foreign Affairs leads in and chairs this interdepartmental and interagency group.

[Translation]

Mr. Pierre Paquette: Will the recommendations be made public? In the same paragraph it says that “will respond accordingly to... recommendations...”

[English]

Ms. Sara Hradecky: If I'm not mistaken, those recommendations are... they're not meant to be overarching kinds of guidelines, but rather recommendations related to specific questions or queries that crown corporations may have about individual markets, such as: Is this a place where we can do business freely? Is this a market where there should be any human rights concerns? Are there export control issues related to a particular market?

In this case, the word “recommendations” really means with respect to specific markets or targeted areas that you may be interested in doing business with.

I'll ask Mr. Onuoha to speak to the question of markets where CCC is becoming increasingly active.

[Translation]

Mr. Emechete Onuoha: Mr. Paquette, thank you for your question regarding our work with other countries.

[English]

As you may have seen on page 48, there is a listing in our annual report of the countries with whom we have transacted our business in the past year. Those 31 countries, indeed, are countries with whom Canada has secure and recognized official relations. You will notice as well that several of those countries are members of the North Atlantic Treaty Organization, for example.

As such, the transactions that we have conducted are all conducted under the aegis of current Canadian trade policy, and the nations for whom we provide our contracting services are all nations with whom we have had a solid track record in terms of the security of transactions that have been undertaken as recognized by the Department of Foreign Affairs and International Trade.

With respect to diversifying our markets, indeed you are correct that currently a large portion of our business is with the United States. However, we do make an attempt to ensure that our services are provided to Canadian exporters who are trying to transact business in non-U.S. markets as well. However, we are subject to the same trends that we see in the general trade process in that in Canada, as you know, 86% of Canadian exports are transacted to the United States market. Indeed, the trend toward increased export sales to the United States is something we have tried, in our way, to diversify. However, we are subject to the same trade flows that dominate overall trade between Canada and the various markets.

The United States does remain our largest market. Having said that, we will continue to provide services and market access opportunities for non-U.S. states as well.

[Translation]

The Chair: Do you have any other questions?

Mr. Pierre Paquette: No. My questions have been sufficiently answered. Thank you.

The Chair: All right?

[English]

Mr. Casey, do you have any questions?

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Mr. Bill Casey (Cumberland—Colchester, PC/DR): Thank you.

First, I just wanted to address the remarks made by Mr. Duncan, who took exception to all the Liberal comments in here. I want to say that I read the remarks by the honourable parliamentary secretary and I found them very profound and meaningful—they brought tears to my eyes. My goodness, I don't know how you could criticize that.

Anyway, the fact of the matter is I had a very good briefing by Mr. Onuoha the other day and the minister's assistant, and I was surprised to learn about CCC. I've only been here for 13 years, off and on, but I didn't even know it existed. It was an excellent briefing, and he had it all geared up to point out that a company in my riding was an active client.

Moving right along, who's going to authorize how you access this public money from the private sector?

Mr. Paul Thoppil: Perhaps I may take that question, Mr. Casey.

The Financial Administration Act lays out to some degree the process for borrowing from the private sector for crown corporations as part of the annual submission of the corporate plan. Included in that is a borrowing plan, and that borrowing plan is submitted to the Minister of Finance for approval. Through discussions with his officials, they lay out what is called the borrowing plan framework, in terms of tenor of the line of credit, or the loan, the appropriate range for an interest rate, and so on.

In a sense, that is the guideline that is issued from the Minister of Finance to any crown corporation, but in particular ours under this process, for a discussion that would lead to a commitment with a financial institution.

Mr. Bill Casey: Who in CCC signs off on the final decision? You're approved in principle to borrow money, but who actually makes the decision on who borrows the money and from whom do you borrow it?

Mr. Paul Thoppil: Like most crown corporations, we all have an existing banking relationship. The Canadian Commercial Corporation's current bank is the Bank of Nova Scotia. Obviously, we will set out to get the best rate we can based on discussions with our existing bank or others.

In terms of who has the authority, that's an authority that will in part rest, as it does in every crown corporation, with the board of directors, which in turn delegates it to the appropriate person or position within the corporation, whether it be the president or myself as the chief financial officer. That actual specific borrowing nature will in part be dependent upon the daily monitoring that the corporation's treasury staff do on its daily bank account.

Mr. Bill Casey: How did you arrive at $90 million? Have you ever needed that much money?

Mr. Paul Thoppil: As I explained in my response to Mr. Duncan, the amount of $90 million was based on the fact that there is at least $120 million worth of U.S. government and other what I would call G-7 government receivables at any quarter end. In discussions with the Department of Finance, they took the private sector benchmarking analogy that you margin, or a bank would margin, according to the amount of receivables outstanding in any point in time that were deemed to be creditworthy. That $90 million was an appropriate limit, given the size of the receivables and the size of the liquidity flows coming through the corporation.

In terms of restraints that the corporation experiences, they do vary largely. In fact, if I may indulge you, the corporation and its Canadian suppliers were impacted for one to two weeks on the September 11 tragedy. Our bank, the Bank of Nova Scotia, has offices in New York—which is our conduit for U.S. government flows. It was in part due to its situation next to the World Trade Center. They had to evacuate the building, 1 Liberty Plaza. Since there was no receipt of inflows, we did not have any capacity to continue honouring our payments to Canadian suppliers. That's just a tangible example of the necessity to be able to maintain, during that state of play, a heightened liquidity that Canadian companies needed at that point in time and yet we were not able to honour.

Mr. Bill Casey: Is this going to replace money provided from government sources, or is it additional money? It is additional.

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Mr. Paul Thoppil: Currently, under the existing act, we have, with the approval of the Minister of Finance, access to the Consolidated Revenue Fund for up to $10 million. So this would in a sense delete that provision. He could borrow either from the CRF or from the private sector. It would be essentially only for lines of credit backed by appropriate security, which would be the receivables from the various foreign governments.

Mr. Bill Casey: Who do you report to in order to confirm that you have that security?

Mr. Paul Thoppil: That will be part of the borrowing plan discussions that occur between CCC officials and Department of Finance officials in soliciting the Minister of Finance's approval of the borrowing plan.

Mr. Bill Casey: It says in the annual report that “The new regime would enable the Corporation to... accept more risk... particularly among SMEs”. What perspective do you have for that? What's the range of more risk?

Mr. Paul Thoppil: We believe, Mr. Casey, that there's a clientele of what I would call medium-sized enterprises under the SME definition who are hamstrung in terms of getting access to appropriate securities in the private sector in order to close an effective sales contract with a foreign party. Given an appropriate risk capital base for the corporation, the corporation can, by acting as prime contractor, negotiate the contract in a way that it can substantially reduce the risk and perhaps, by quantifying the exposure, price it at a base whereby we can help them without necessarily sacrificing their profit margins to close the sale.

Mr. Bill Casey: That is a good answer.

I'm going to switch now. Who's the smallest client you have and what do they do? I don't care about the name, but what does your smallest business do?

Mr. Emechete Onuoha: Off the top of my head, Mr. Casey, I think one of our smallest would likely be Flags Unlimited in Barrie, Ontario, in the riding of Aileen Carroll. They produce flags and various paraphernalia, sundry paraphernalia primarily. Although it's a small organization, it has a very vibrant and flourishing business, and we're proud that we were able to provide them with some assistance with respect to access to working capital through the PPP program.

Mr. Bill Casey: How much?

Mr. Paul Thoppil: I think it's a $100,000 contract. The one I'm familiar with for Flags is with the Bahamian government.

Mr. Bill Casey: Thanks.

The Chair: Mr. Duncan, do you have any more questions to pose to the witnesses?

Mr. John Duncan: I do from the standpoint that we have this Canadian Commercial Corporation that's dealing in foreign government procurement, and as Mr. Casey just explained, for the most part it's probably under the radar screen of most Canadians and others.

Given the increasing number of bilateral and multilateral agreements we're getting into, there is starting to be a fairly significant degree of scrutiny of these kinds of activities. There are people ever ready to point fingers and say, aha, that's a subsidy, or, aha, this is something else. You've never been subject to that as far as I know, and we would prefer to keep it that way.

Now, is there not a little bit of provocation in what you're suggesting in terms of the very question I was asking before, which was about the borrowing power and the way the use to which it is going to be put could be construed?

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That's a question I ask. You don't have to read between the lines very much.

Thank you.

Mr. Wayne Robson (Deputy Director, Export Financing Division, Department of Foreign Affairs and International Trade): As to the question relating to government procurement, normally in multilateral arrangements, government procurement guidelines are related to the obligations you undertake and the obligations of how your own government will procure and how they will allow multiple suppliers to bid for contracts.

In the business the Canadian Commercial Corporation is doing, where they are acting as a prime contractor on behalf of the Canadian government with another government or where they are providing services under a treaty such as the one with DPSA, first of all, notification of these services is made multilaterally, so our partners are aware of the services that are being provided. They do fit under the multilateral guidelines of what is allowed under government procurement. In the case of the defence production sharing agreement, for example, the United States has taken exemptions on a number of their abilities to procure in certain manners for certain things, under Buy America or national security arrangements for defence production buying, for example.

In the cases where the Canadian Commercial Corporation is providing this assistance to the United States for Canadian companies to sell to the United States, for example, I should clarify. Those Canadian companies are operating under that agreement underneath the obligations of the U.S. government to procure in certain manners. There is no subsidy being provided in this instance because the government procurement that is being done is government procurement by the United States. The assistance being provided by the CCC here is that mandated under the agreement with the United States.

Mr. John Duncan: The financing arrangements are quite separate from that, are they?

Mr. Wayne Robson: Those financing arrangements are also governed by multilateral guidelines. Most of them are relayed in the agreements at the OECD under financing and export credits and export arrangements. It's in those guidelines that they must operate as well, and there's ongoing consultation between our group, which is on government procurement and investment and on multilateral trade, and the CCC to ensure that they're aware of what the requirements are in each case.

It's our understanding from our legal counsel that none of this is an issue with respect to there being a prohibited subsidy.

Mr. John Duncan: Most of the business is with the U.S., as you mentioned. You talked about the OECD. Is this also specifically true of our U.S. partners?

Mr. Wayne Robson: The financing export credit arrangements with the OECD are, again, on that business that is defined in that multilateral agreement. It does not extend to the government procurement guidelines we're talking about with the United States for defence-related products. There are always more sensitivity and exemptions when it comes to issues that are also related to national security, I think you'll understand.

The Chair: Mr. Paquette.

[Translation]

Mr. Pierre Paquette: A little earlier, we talked about the social aspect. In your Annual Report, you also talk about environmental concerns. What framework of assessment do you use? Are you covered by the Canadian Environmental Assessment Act and by the Access to Information Act?

[English]

Mr. Emechete Onuoha: Mr. Chair, if I may, I'll allow our corporate counsel to answer that question.

Ms. Tamara Parschin-Rybkin (Senior Counsel and Coordinator of Legal Services, Canadian Commercial Corporation): Mr. Chair, I'd like to address Mr. Paquette's question. Yes, crown corporations are at this point in time subject to the Canadian Environmental Assessment Act, but there's a specific provision in that act that says it's only once regulations are made that they will have to comply with the procedures. Generally speaking, the answer is yes. The Canadian Commercial Corporation is subject to the Canadian Environmental Assessment Act, but only at such time as when regulations are promulgated by the Governor in Council.

With respect to access to information, yes, we are subject to the Access to Information Act.

[Translation]

Mr. Pierre Paquette: So, it is not quite the same as with the Export Development Corporation.

[English]

Ms. Tamara Parschin-Rybkin: That is correct, yes.

[Translation]

Mr. Pierre Paquette: Since there are no environmental regulations at this point, how do you assess the environmental impacts of your operations?

[English]

Ms. Tamara Parschin-Rybkin: The corporation has taken steps voluntarily; we are not subject to the legislation as yet because there aren't any regulations. We have been very proactive and have established an environmental framework that has been examined by the board and to which we subject capital projects, which are very few and far between with the corporation. We subject them to the scrutiny of the environmental framework.

• 1620

The Canadian supplier has to satisfy the corporation that the work they propose to do in the foreign country meets our approval. They have to submit an environmental assessment of the project. In the two capital projects we've done we have worked very closely with the Export Development Corporation because they do have the in-house expertise on environmental assessments and they've worked with us to give us assistance on those projects.

[Translation]

Mr. Pierre Paquette: So you have criteria which you use to analyze your projects.

[English]

Ms. Tamara Parschin-Rybkin: We have a framework, yes, but that now is obviously going to have to be developed further because the Export Development Corporation will be establishing a new regime. Once again, because it's a sister corporation and many of our capital projects are financed by EDC, we will be working very closely with them to augment our criteria or to make sure our environmental regime meshes with theirs.

[Translation]

Mr. Pierre Paquette: Is the frame of reference, which the board of directors developed, public?

[English]

Ms. Tamara Parschin-Rybkin: We do provide the environmental framework to our suppliers if it's a capital project. I don't believe it's on our website, but we do have it. Yes, it is a public document.

[Translation]

Mr. Pierre Paquette: Could you table it with the committee?

[English]

Ms. Tamara Parschin-Rybkin: We can undertake to provide it, yes.

[Translation]

Mr. Pierre Paquette: Thank you.

The Chair: Thank you, Mr. Paquette.

[English]

Mr. Casey.

Mr. Bill Casey: Those were good questions Mr. Paquette was asking.

What's the difference between EDC... why did EDC move to come up with their own regime, as you referred to it, and not use the environmental assessment standards? I never did understand what they were doing. Maybe you can help me understand it.

Ms. Tamara Parschin-Rybkin: Perhaps I can ask the parent department to answer that question.

Ms. Sara Hradecky: The crux of the issue is in the different natures of business. EDC is a financing organization and CCC is not. It is a procurement agency for procuring or purchasing goods and services produced in Canada according to Canadian environmental regulations and providing those to a buyer in another country, a government buyer.

They're not involved very much in capital projects, where one can control the nature of the parameters of the project or one has influence on the development of infrastructure. This is primarily a goods and services type of business as opposed to an infrastructure development type of work, where environmental review is more commonly done. As Ms. Parschin-Rybkin pointed out, the corporation has been involved, I believe, in only two capital projects, and those with the Export Development Corporation, so in that case the environmental review framework of EDC is used as EDC is financing part of the capital project the CCC is undertaking.

Mr. Bill Casey: Okay. Thank you.

The Chair: Mr. Duncan.

Mr. John Duncan: I'll try my borrowing question again, but I'll ask it in a different way. What would be the implication for the corporation if the borrowing authority were doubled from $10 million to $20 million? What would you not be able to do?

Mr. Paul Thoppil: I'm not sure, Mr. Duncan, if you were aware of a response I gave to Mr. Casey on an earlier question to the effect that sometimes cashflow is subject to an unlikely turn of events. I'm not sure you're aware of the impact September 11 had on Canadian suppliers dealing with CCC, when our Canadian banking institutions' offices in New York were vacated for a week or two and no inflow of moneys came. Unfortunately, Canadian suppliers transacting business through the corporation experienced a lack of funding flows in part because the corporation had no money to remit under its contractual obligations. Much as with every business undertaking, it needs to have that financial flexibility or liquidity in order to respond to its partnerships with its Canadian suppliers. In that unfortunate situation it could not, and in that scenario the doubling would not necessarily have sufficed.

• 1625

Mr. John Duncan: Right. So other than September 11, when everybody had difficulty, you would have done just fine with $20 million.

Mr. Paul Thoppil: That's not necessarily correct. That's because the payment flows from the U.S. government fluctuate widely. You cannot necessarily make a precise determination of saying that the $20 million is enough. That's because there are large contract payments of $10 million to $20 million at a time that vary down to $50,000. If a $20 million receipt doesn't come in at a specific time, that proposed doubling would not necessarily cut it for the corporation.

Mr. John Duncan: What could you not do if your borrowing was $30 million?

Mr. Paul Thoppil: Again, the question is what is deemed to be an appropriate amount. That's why I started my initial response to your first question by saying that one has to look at it much like a banker does and look at it in conjunction with what are the outstanding receivables that a corporation has at any quarter end and use that as the benchmark to determine what's an appropriate borrowing line to have.

Mr. John Duncan: The private sector is not guaranteed by the government. You are. That's a bogus comparison.

Mr. Paul Thoppil: Not necessarily, because the borrowing that will take place is in part necessarily based on what is the creditworthiness of the receivable. In this case, the U.S. government receivable is the highest security available. So there is no issue of credit risk, based on the credit strength of the U.S. government receivable.

Mr. John Duncan: Do you understand the concern, though? The concern is, when you inflate a number that significantly, it can lead to a loss of rigour about how you run your affairs, because the first and foremost role of members of Parliament should be discipline in terms of protecting the taxpayer.

What I'm asking you are very legitimate questions. The trend and tendency in any bureaucracy, whether it's a crown corporation or whether it's the government, is to make things as convenient and comfortable for themselves as possible. I have not heard a rationale as to why you need to go to $90 million, other than a private sector comparison. You only make comparisons with the private sector when it's convenient for you. In other cases you don't want to make comparisons with the private sector because crown corporations are different.

I'm actually not at all convinced that you have done a rigorous exercise that says we need $90 million borrowing authority. If September 11 is the only justification, I'm sorry, that's not good enough. We can't plan all our financial affairs as if we're going to have a September 11 once a year.

Mr. Paul Thoppil: Mr. Duncan, I don't know how to respond except to say that this is a corporation that receives throughout the year over $1 billion on behalf of various exporters across the country. I would ask what organization has $1 billion revenue billing and does not have at least a line of credit of a lot less than $100 million.

The Chair: The point Mr. Duncan is trying to get at is that the $90 million, if that's what you think you want to keep, is the ability to go and borrow.

Mr. Paul Thoppil: Right.

The Chair: The point I want to make is that it does not necessarily mean you are going to go on an annual basis and borrow $90 million.

Mr. Paul Thoppil: No.

The Chair: It doesn't necessarily mean you're going to go and borrow $20 million or $30 million or $50 million. All it means is if—and only if—there's a need, you will go and borrow it.

The thing is that your role out there is almost like a bridge financing... Is that right?

Mr. Paul Thoppil: That's correct.

The Chair: If the money is not coming in within the 30 days or so, you are there.

Mr. Paul Thoppil: Right.

The Chair: You are going to be charging fees to those people that you are providing services to. Is that correct?

Mr. Paul Thoppil: Right.

• 1630

The Chair: In the past you weren't necessarily charging fees to recover some of your services. Is that right?

Mr. Emechete Onuoha: On non-U.S., non-DPSA business, that's correct.

The Chair: Right.

I think that's important for us to know as parliamentarians because, as my colleagues have clearly stated, you have good intentions here to ensure that you have that borrowing authority. It does not necessarily lead you to go and borrow, whether you need it or not, and just put it in a bank account. As to you borrowing it at 5% or 6% or 7% and in the meantime not making any use out of it, you wouldn't be doing that.

Mr. Emechete Onuoha: Right.

The Chair: You report annually to Parliament.

Mr. Emechete Onuoha: Yes, we do.

The Chair: That will be through the Minister of International Trade.

Mr. Emechete Onuoha: That's correct.

The Chair: Your authority in the past used to be done through Order in Council—your appointment, your board, and everything else. It continues to be done that way.

Mr. Emechete Onuoha: Yes, our board appointments still continue to be done by Governor in Council.

The Chair: There are some changes administratively. Did you bring about those changes in order to meet the guidelines of the Department of Finance?

Mr. Emechete Onuoha: Treasury Board, actually, with respect to governance.

The Chair: Okay. If we were to ask you point-blank, would you say that most of what you have brought before us in this particular proposal would be administrative and technical in nature? There's nothing that will be earth-shattering. You're not going to be doing anything that is wild.

Mr. Emechete Onuoha: No, Mr. Harb. Unfortunately, our corporation hasn't often been accused of being extremely exciting, much to the chagrin of some. Indeed, most of these amendments are characterized as largely technical or housekeeping in nature.

The Chair: Most of the time your risk exposure is literally negligible, because you mainly deal with government.

Mr. Emechete Onuoha: That's right.

The Chair: Okay.

Well, if there are no further questions, I would suggest now we will move to...

[Translation]

Mr. Paquette, you have five minutes.

Mr. Pierre Paquette: I imagine we can wait a few seconds.

The Chair: Yes, there is no problem. Would you like us to move on to the other clauses? As for your motion, I propose—

Mr. Pierre Paquette: It will not be long—

The Chair: Do not worry. We can do the other clauses and address your motion at the end. What clause would your motion amend?

Mr. Pierre Paquette: I would like to add a clause.

The Chair: Perfect. We will move on with the rest and not adopt the bill until we have dealt with your motion.

Mr. Pierre Paquette: By the way, if it had been included on the agenda in the Notice of Meeting, the amendment would have been ready. It is better if we know beforehand.

The Chair: That is right.

Mr. Pierre Paquette: I think it is important to say so. I must admit that from a technical point of view, this bill is not the most litigious one I have ever seen, but you never know. Let's hope it does not happen.

The Chair: Do not worry. Do you have it now?

Mr. Pierre Paquette: Yes.

The Chair: Perfect.

[English]

With your permission, first let me thank the witnesses on behalf of the committee members. You have answered many of the questions we had and you have informed many of my colleagues about some of the wonderful things you do. Even if we didn't have a CCC, we would need to have one. But we have it and we are proud of what you do.

Can we now proceed to the clause-by-clause, colleagues? Are we ready now?

Some hon. members: Yes.

The Chair: Okay.

[Translation]

Mr. Pierre Paquette: Out of respect for my colleagues, we will wait for the amendment.

The Chair: That is fine.

Mr. Pierre Paquette: Last time, you were complaining about the fact that we always did them at the last minute, but today you are complaining—

The Chair: It is because you are an efficient member. Your help is also very efficient.

Mr. Pierre Paquette: I would have been even more so had the Notice of Meeting said that we were going to go through the bill clause by clause.

The Chair: You are also very helpful.

[English]

(Clauses 1 to 3 inclusive agreed to)

The Chair: We will skip clauses 4 and 5. We'll come back to them.

(Clause 6 agreed to)

The Chair: Shall the title carry?

Some hon. members: Agreed.

The Chair: Now we will go back to clause 4.

[Translation]

The Chair: Mr. Paquette, you have a motion.

Mr. Pierre Paquette: Perhaps we can move on to—

The Chair: All right.

[English]

Shall clause 5 carry?

[Translation]

Mr. Pierre Paquette: No, there is still Mr. Duncan's motion.

[English]

The Chair: Mr. Duncan.

Mr. Rick Casson (Lethbridge, Canadian Alliance): Good try.

(On clause 5)

• 1635

The Chair: Okay. We have a motion by Mr. Duncan and Mr. Casson that Bill C-41, in clause 5, be amended by replacing lines 2 to 4 on page 3 with the following: “time shall not exceed $30 million”.

The thrust of the motion here, if I understand it correctly, Mr. Duncan and Mr. Casson, is to bring down the borrowing authority of the corporation from $90 million to $30 million.

Mr. John Duncan: No, that's not correct. We're tripling the borrowing authority from $10 million to $30 million.

The Chair: Oh, correct me. They are proposing $90 million and you're saying $30 million.

Mr. John Duncan: But they're currently at $10 million.

The Chair: Okay. Let's have a bit of discussion on it.

Mr. John Duncan: There's a big difference, Mr. Chair. I don't know what further there is to discuss. I just had a to-and-fro on this and expressed my point of view. So if you want to take it straight to a vote, that's fine. I'll just ask for a recorded vote, that's all.

The Chair: Okay, a recorded vote.

Mr. John Duncan: I wouldn't mind hearing some Liberals justify their vote, but they're probably not about to do that.

Mr. Tony Valeri (Stoney Creek, Lib.): Mr. Chair, I'd like to speak to that. Can I?

The Chair: Yes.

Mr. Tony Valeri: I think the point that Mr. Duncan is missing, unfortunately—and I thought in fact he might be arguing the opposite—is that you have a crown corporation that is making an attempt to become more self-sufficient and more business-like in its approach. I thought he would be applauding the fact that the crown corporation is taking these steps.

The other point is that the $90-million borrowing authority you're looking for is not the crown corporation's number. They've looked at the private sector formulae to support the receivables they need to carry at every quarter and at banking relationships that exist in the private sector, and the private sector has agreed and supported that they would need $90 million in borrowing authority.

In essence, that's the argument. We can sit here and argue whether $90 million is enough, whether it should be $30 million, or it's at $10 million, so maybe let's pick $30 million or $40 million. But at some point we have to agree that if we want our crown corporations to function as effectively and efficiently as possible and be out there in the private sector to do the types of things they need to do to support small and medium-sized business, since we depend on trade and this is a trade facilitation-type crown corporation, I don't really see what much of the argument is about.

I respect the fact that Mr. Duncan puts forward an amendment to go to $30 million. I don't believe $30 million is justifiable just because Mr. Duncan thinks $30 million is the number and $90 million is not. I don't think that's much justification for the amendment. That's really all I want to say, and I would certainly welcome the recorded vote.

The Chair: Well noted.

Mr. O'Brien, briefly.

Mr. Pat O'Brien (London—Fanshawe, Lib.): I'll be very brief, because I think my colleague has explained it well.

I thought the description of a line of credit was a very good one, but noting that it's all secured by receivables. I'd refer to Mr. Duncan's comment that we can't plan our financial dealings looking towards another September 11. No, but there's a very good reason this corporation needs that kind of line of credit for unforeseen emergencies; you couldn't have a better example than September 11.

I think we're ready for the question, Mr. Chair.

The Chair: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): I would like to justify my vote. I have no hesitation whatsoever, based on the fantastic work that this Canadian Commercial Corporation is doing in Etobicoke North and around the country. The more authority and the more capability we give them, I think it's to be encouraged and supported in helping small and medium-sized enterprises, like they're doing in my riding of Etobicoke North.

The Chair: I think we are all trying to do our best here, and Mr. Duncan's intentions are certainly not to skirt the ability of CCC. I don't ever believe that is the case.

Mr. Duncan, you have a comment.

Mr. John Duncan: Yes. I just want to say that 90% or more of the transactions that go on between Canada and the U.S. don't use any federal export development or Canadian Commercial Corporation as intermediary at all.

Secondly, the 30-day backstop is an arbitrary decision. They're trying to compare themselves with the private sector, but that's not what the private sector does. They don't backstop and guarantee a 30-day...

• 1640

Thirdly, you keep talking about small and medium-sized businesses. You heard the evidence. I'd say the majority of this backstop actually goes to the Bombardiers and others of the world because that's the biggest client base.

So all I'm saying is that this is not a rigorous way to protect the taxpayers' dollars, to behave and act in a sloppy fashion in terms of the rigour you put to the discussion.

The Chair: Thank you, Mr. Duncan.

Mr. Cannis wanted to—

An hon. member: Rhetoric aside, we should probably go to the vote.

Mr. John Cannis (Scarborough Centre, Lib.): To justify our support, I guess all I can say as a former entrepreneur is that I found access to capital to be what made me trigger. When we refer to the Bombardiers and what have you, we have to look at the types of associations with various other spinoff companies that it trickles down to, from a top end to the small and medium-sized enterprises, and the key to it is access to capital.

If we're going to compete internationally, like the one in Etobicoke that my colleague here... a tremendous success, more than justified. So we don't have to justify our support for this effort any more than what you've heard.

The Chair: Mr. O'Brien and Mr. Paquette, and that's it. I'm cutting it off.

Mr. Pat O'Brien: Mr. Chair, I just can't believe what I heard from Mr. Duncan. I don't apologize that one of the firms that makes the most use of CCC is General Motors Defense in my riding. They happen to have suppliers in every single province of this country with the sole exception of P.E.I., and they're working on that. There are thousands of jobs directly related to their success in export sales. I don't think CCC deserves the characterization of sloppy preparation or that we have to apologize for—

Mr. John Duncan: I wasn't attributing that to them. I was attributing it across the table.

Mr. Pat O'Brien: Well, to whatever. Fine.

There's a philosophy of Mr. Duncan that he doesn't see a place for this kind of corporation. Fine. We understand that right-wing thinking. Let's just get on with the vote.

The Chair: Okay. Mr. Paquette, and that's it.

[Translation]

Mr. Pierre Paquette: I will vote with Mr. Duncan because I have the impression that, for now, most businesses dealing with the corporation do so mostly because of its reputation. That reassures foreign governments, especially the American government.

I also completely agree that you should be allowed to go from 10 to $30 billion as a first step. If you want to go to 90 or $120 million, you can always come back before the committee. It would be a pleasure for me to vote in favour of your receiving authorization to borrow more money. But for now, I agree with Mr. Duncan. I feel that going from 10 to $30 million, as a first step, is completely in line with the goal you have set.

[English]

The Chair: Colleagues, after these earth-shattering, lively discussions, we're going to be voting on the motions. We're going to call the names, one by one.

Mr. Clerk, are you ready?

On the motion by Mr. Duncan and Mr. Casson to reduce it reduce it to $30 million.

I keep making this terrible mistake. You're reducing it from $90 million to $30 million; you're increasing it from $10 million to $30 million.

(Amendment negatived: nays 4; yeas 2)

(Clause 5 agreed to)

(On clause 4)

[Translation]

The Chair: Mr. Paquette has a motion proposing that the bill be amended by adding after line 36 on page 2 the following:

4.1 The portion of subsection 10.(1) of the Act before paragraph (a) is replaced by the following:

10.(1) The Corporation may, while complying with Canada's international commitments, do such things as it deems expedient for, or conducive to, the attainment of the purposes set out in section 9, and, for greater certainty, but not so as to restrict the generality of the foregoing, the Corporation may carry on the business of

[English]

I don't want to discuss whether or not it needs a consent. With your permission, we will receive it, and then we will deal with it.

[Translation]

Mr. Paquette, would you like to explain your amendment?

Mr. Pierre Paquette: I will do so briefly because in my questions I said that I wanted to ensure that the corporation's concerns were in line with Canada's international commitments.

• 1645

It seems that this is already the case. I therefore think it would make sense to include a reference in the bill outlining Canada's international commitments and stating that the corporation, as a crown corporation, should respect those commitments. But since this already seems to be the case, I do not think there should be a problem.

[English]

The Chair: Are you ready for the question?

[Translation]

Mr. Pierre Paquette: Could we have a recorded vote?

The Chair: No problem, we will have a recorded vote.

[English]

(Amendment negatived: nays 4; yeas 2)

(Clause 4 agreed to)

The Chair: Shall the title carry?

Some hon. members: Agreed.

The Chair: Shall the bill carry?

Some hon. members: Agreed.

The Chair: I will report the bill, on your behalf, to the committee tomorrow. Hopefully we will be able to table it in the House on Friday without amendment.

I want to first thank our witnesses for their excellent work and being here with us on very short notice. On behalf of us all, I want to thank you. I also want to just let you know that on whatever my colleagues have made comments, on both sides of the aisle, the intent was not directed at CCC. In fact, this is part of what takes place in this home. We have charged debate from time to time in our discussions, so please don't take anything personally.

Mr. Duncan, do you want to say something?

Mr. John Duncan: I don't think it's worth worrying about very much—I think Pierre mentioned it as well—but there was no expectation of clause-by-clause when we came here today. I just happened to have mine with me. It was not indicated at all on the schedule.

The Chair: At the main committee two days ago I said that if any member of the main committee—and that's probably why you and Mr. Casey are here—had any questions about it and everything else to be here. I also indicated to them that it would be reported back to them tomorrow. At the same time, according to the rules governing subcommittees, when we're dealing with legislation that's referred to us by the main committee, we don't need to include any information about clause-by-clause.

Mr. Casey, we're going to suspend for one minute. If you can stay here, that will be a good idea, because we're going to be talking about the future business of the committee.

We will suspend for one minute. Thank you very much. We'll be back.

• 1650

• 1651

[Translation]

The Chair: We can resume our deliberations.

[English]

We're back in session.

[Translation]

Colleagues, we are now beginning the second part of our meeting. In accordance with Standing Order 108(2), we will now hear from the Fédération des producteurs de lait du Québec. Our witnesses are Ms. Guylaine Gosselin and Mr. André Belzile.

Welcome. We are here to listen. We have until 5:30, which gives us enough time. As soon as you are finished with your presentation, we will go to questions.

Ms. Guylaine Gosselin (Director General, Fédération des producteurs de lait du Québec): Good afternoon and thank you, Mr. Chairman. Good afternoon, gentlemen.

It is a pleasure for us to be here today. We would like to thank you for the invitation. Our President, Mr. Jean Grégoire, would have liked to have been here, but since we did not receive much notice, he could not make it. So, the two of us came in his stead. Mr. Belzile, who is with me, is responsible for government relations within the Fédération des producteurs de lait. I myself am Director General.

We basically want to address the issues which will be discussed during the upcoming negotiations of the WTO as regards agriculture and also the pending decision regarding milk exports. However, we would like to begin by giving you an overview of our industry and what the Fédération des producteurs de lait is all about.

Quebec dairy production is fairly significant. Its direct farm sales total $1.7 billion. Retail sales bring in $4.3 billion annually. Quebec's dairy production industry employs approximately 60,000 people directly or indirectly.

Quebec produces about 40% of Canada's milk. The sector employs about 150,000 people across the country and represents between 9 and $10 billion in retail sales. So, you can see it is a huge industry and a major economic sector which is spread across the country. Thus, it is also an important business for regional economies. That gives you a brief overview of the industry.

I will briefly explain how dairy marketing works in Canada, so you get a bit of an idea. It is often said that milk marketing, for people familiar with the expression, is done through supply management. But supply management is basically three things.

Producers must first ensure that they produce enough for the domestic market without generating any surpluses. There is also a producer price and a pre-target milk price established by the Canadian Dairy Commission, which is a crown corporation, on the basis of the production cost of the most efficient dairy producers, as measured in annual enquiries using extremely high statistical standards. Finally, the third element is border control, that is, a limit on imports which enables producers to adequately plan their production and to maintain reasonable prices on the domestic market.

Clearly, there is evidence that the system works very well for producers. In the pamphlet we handed out, you will find these elements which show how the dairy marketing system in Canada affects everyone involved in the process.

The first thing you will notice is that Canadian dairy producers receive stable and higher prices than anywhere else in the world, particularly in the United States. The price of milk is higher in Canada than in the United States.

• 1655

Canadian dairy processors are extremely competitive. They have a clear rate of return of 20%. Canadian shareholders therefore get a good rate of return, which is just as high as in the United States for the dairy processing sector.

Third, dairy products are cheapest in Canada compared to elsewhere in the world. Compared to the United States, our dairy products cost 19% less, according to studies carried out over the last five years. Each study revealed that dairy products were cheaper in Canada than in the United States.

This last point will surely interest you. The system does not cost anything to either the federal or the provincial governments. It is not a system which requires government intervention. Let me assure you that no other agricultural sector in Canada has as good a record. I think everyone can agree on this. The system works for producers, for processors, for consumers and for the government.

So, if it ain't broke, don't fix it. I feel that the Canadian government should keep this in mind during the upcoming WTO negotiations and that it should make sure that it retains the power to set a domestic price and to limit dairy imports to their current level. This is key. Otherwise, the system will not work anymore. As I said before, everyone wins.

This brings us to the ruling. The World Trade Organization is set to rule next week. People expect the ruling on the export of dairy products to reflect what was said on Monday. In my introduction, and up until now, I focused on the domestic market, but there also is a market aside from the domestic one which enables producers and processors to sell dairy products for export markets.

Of course, under this system, the export price is lower than the domestic one. It is about half. What is being contested is the double price. The export and domestic prices are different. It is argued that the difference in price equals a subsidy paid by producers and not by governments. The argument is that the subsidy is not governmental, but paid by producers to processors in the form of lower prices. This is what is at issue.

Of course, if we win, we will continue to use the export procedure we have at the moment. I must tell you that it is rather marginal. Three to four per cent of the milk produced in Canada is involved in export transactions. Producers do this on a voluntary basis, so, naturally, what determines whether or not they produce milk for exports depends on a number of factors, including the price.

So, if we win, the system will continue to operate, and we will continue to export. I was saying that the percentage of the total production that is covered by these procedures is between 3% and 4%. I would say that this represents between 1% and 2% of the total production value. This is the first scenario, and perhaps the best.

However, if Canada loses, producers will no longer be able to subsidize export processors through a two-price system. It will no longer be possible to have a different price for milk that is exported and milk that is sold on the domestic market. In such a case, there are probably two possible scenarios. I would say that only one is possible, but two possibilities do come to mind immediately. The first is that the export price would be the same as the domestic price, which is possible in niche markets. So we could continue to export, but for niche markets, for which we would have to do some very intensive research.

In addition, others might be tempted to tell you that the other solution would be to allow the domestic price to match the world price. To all intents and purposes, this is an unrealistic solution. First of all, if we look at our American neighbours, where there is no marketing system like ours and where the price of milk is determined according to supply and demand, more or less, the price of milk never drops enough to enable American dairy processors to export their product. Consequently, no more than 3% of the American production is exported, and this is done using public money. The government actually provides money to subsidize exports directly.

• 1700

As I said, in both cases, the issue is really financial, that is the two-price system. So the options will be fairly limited if Canada should lose. That does not mean that we will not be able to continue to export, but we will really have to develop some niche markets.

In any case, I should say that if Canada loses, the processors will definitely be claiming something. They will say that they need to grow, that their companies need to grow. I will leave this subject with the comment that we think that these growth needs can be met easily by the domestic market. For about 10 years the Canadian dairy industry has been really focused on export markets. We have neglected our domestic market somewhat.

If Canada had the same per capita consumption as the United States, the Canadian dairy industry could grow by 15%. So that gives you some idea. At the moment, we are exporting 3% to 4% of our production with the existing procedures. If we had the same per capita consumption as the Americans, our domestic consumption would increase by 15%. And if we had the same per capita consumption of dairy products as the French, we could double our production. We know that we may be at the other end of the spectrum, because the French eat a great deal of cheese, yogurt and other dairy products. On a per capita basis, they eat twice as many dairy products as Canadians. So the future is not so gloomy at all.

That pretty well covers the points we wanted to present regarding the decisions and the negotiations that are underway. If you have any questions, we would be pleased to answer them.

The Chair: Thank you very much.

Mr. Casson.

[English]

Mr. Rick Casson: Thank you very much for that very precise and to the point presentation. I'd like you to expand a little on what you think some of the niche markets are that you would have the ability to fill.

The recent WTO round talked about agriculture and opening that up. However, the government's position is that supply management will stay the way it is. Maybe you have a little comment on how you feel the federal government is positioning itself for your market and if it's adequate.

On this upcoming ruling, sometimes you get a hint or two as to how it's going to go. Do you have a feeling of what's going to happen there?

Ms. Guylaine Gosselin: On our feelings, we are realistic and we think Canada has a good chance of winning this fight. We have a better chance than we've ever had.

On what happened in Geneva, I think the Canadian defence was pretty good. If the decision is a legal decision that really stands on what is written in the agreement, Canada should win. But you never know what will happen in these forums. We don't know what's going to happen, but we hope Canada will win.

In any case, we're just trying to explain that we think that even if Canada lost, it wouldn't mean the dairy industry would lose so much that it would be dangerous for its future. This is maybe the first point.

You asked me what niche market we could develop. I don't know exactly which one we could do, but I can give you an example. Canada is exporting very good old cheddar cheese. In some quantities, for that cheese, we have very good prices because it's a niche market, and we have access directly to the market in England.

Otherwise, I think we would have to look at the specialty cheeses. We're very good at those. We have very good cheeses, and we could try to see if there are some markets where we could have some access, because of our good prices. When we look at the retail price of cheese, for example, there are some very good cheeses where the retail price is $40 per kilogram, which is a lot.

• 1705

Maybe we can access and develop some markets for that in some places. They're not huge markets, but there could be some.

So if the decision were negative, we would have to really concentrate on these. But in any case it would be good to concentrate on a niche market for export.

Mr. Rick Casson: The other issue is the recent goings-on at the WTO and what came out of that, and the position the government has taken on supply management. Do you have any comments?

Ms. Guylaine Gosselin: The government has said it wants supply management to stay in place after the negotiations are done.

Today I tried to explain to you the two major points that have to be there. The import controls for dairy products have to be maintained. The other point is that we should still be able to have administrated prices for milk. But we're anxious about how the negotiations will go on tariffs and support prices, because when they talk about internal support, they also talk about support prices.

So we just hope our government will stand very strong on this, for our industry.

Mr. Rick Casson: You also mentioned the Americans export some milk. I wasn't clear on that. Are they subsidized?

Ms. Guylaine Gosselin: Yes, for sure, totally.

Mr. Rick Casson: What's their argument then against what we're doing?

Ms. Guylaine Gosselin: They're doing it within the commitment they have, according to the WTO agreement. So they have that kind of limit.

We have 3% to 4% that we can subsidize. When I say we can subsidize, I mean producers are subsidizing, not government. But there is some quantity we can do.

But as I was trying to explain, in the United States there is no supply management system at this moment. The price never gets low enough for processors to be able to export dairy products while buying the milk at that price. So the only exporting the United States does is subsidized. It's 3% of their total production.

Mr. Rick Casson: How much variance is there between the domestic price here in Canada and the export price?

Ms. Guylaine Gosselin: There's a 50% difference.

A voice: At the farm level.

Ms. Guylaine Gosselin: Yes, that's at the farm level. So if a litre of milk on the domestic market is sold for 55¢ or 60¢, for export it's 25¢ to 30¢.

Mr. Rick Casson: Okay. Thank you.

[Translation]

The Chair: Mr. Paquette.

Mr. Pierre Paquette: I am going to start with this last point. How can we explain that there is such a significant difference between the regulated price and the export price, which is set by auction, if I understood correctly?

Mr. André Belzile (Coordinator, Government Relations, Fédération des producteurs de lait du Québec): The system for the price of exported milk works as follows. Processors who want milk to make cheese or any other export product offers a contract. They say they are prepared to purchase a particular quantity of milk at a certain price for a certain length of time. Producers wishing to produce at this price during that period of time accept the offer and that is how the price is determined.

So the price is determined solely by the bids made by processors, and these bids by processors for exported products have never exceeded $32 or $33. They have rather been around $25, $26 or $27. The prices for the domestic market are negotiated with our processors. The Canadian Dairy Commission imposes a sort of target price on the basis of which the producers collectively negotiate prices with the processors. During these negotiations, we negotiate collectively on behalf of all the dairy producers in the province, in our case. That is where we get prices of $58 or $60. It depends on the classification.

Mr. Pierre Paquette: What is wrong with this system, according to the WTO? I would like to understand the situation. We have appealed the decision. Mr. Dufour had explained that to me earlier, but I confess that it might perhaps be good for the committee... I read that the Canadian dairy product exports affected by the WTO decisions are those in the 5d and 5e special milk categories. They are the ones that are considered to be subsidized.

• 1710

Could you try to explain this in such a way that non-experts can understand?

Ms. Guylaine Gosselin: At the moment, we have two export stocks. They are exports that represent the entire production of some producers. There are the two types. We give them a “pooled” price, taking into account certain quantities that are exported and certain quantities that are not exported.

As I was saying earlier, there is a good market for old cheddar in England, but it is a little cheaper than on the domestic market. All producers produce some every year, and so there is an average price for the product that remains on the domestic market. That is more than there is in category 5d.

Category 5d is for surplus product. When producers produce more milk than required to meet the domestic market, thus when there is surplus milk, it can be exported. However, there was no advance contract for this milk on the export exchange. As a result, this milk is surplus. It sometimes happens that producers have such surpluses. This is also part of category 5d. That is what category 5d is. It consists of exports that were considered to be subsidized. We do not challenge that. We understand that according to its analysis, the WTO will continue to say that this product is subsidized, even if the government does not contribute a cent, and even though the producers accept a lower price for this milk.

Another subject being studied at the moment, and which is part of the decision that we are waiting for, is the product exported through an exchange on which processors post the prices they will pay for the milk. If the producers are interested, they apply voluntarily. That is really what the decision is specifically about this time. That is the decision we are awaiting.

Before we appealed, the special group said there was a price difference between the domestic market and the export market, and that when producers export, they cannot get the domestic price, and so this amounts to a subsidy. It is as simple as that. Since there is a wall between the two markets, and since producers get a lower price when they export than when they sell on the domestic market, this is considered an export subsidy. That is what the appeal body is analyzing at the moment.

Mr. Pierre Paquette: So actually the products in these categories have nothing to do with quality or origin. These are really dairy products for export or product that is surplus to the planned production or whose price is determined by the exchange system you mentioned.

Ms. Guylaine Gosselin: That is really the focus of the case at the moment.

Mr. Pierre Paquette: The WTO made an initial decision and some corrective action was taken. What type of corrective action was taken?

Ms. Guylaine Gosselin: The corrective action was to set up an exchange on which producers voluntarily choose to export their product, and they announce this ahead of time. So it no longer has anything to do with surplus product. This is not milk that producers want to get rid of, but milk that they decided ahead of time to produce for export. Obviously, they determine the price through the exchange. So it is not the board, or the Canadian Dairy Commission or any other so-called public organization that decides for them what price they will get. Those are the changes that were introduced. The idea was to keep things separate, and to allow producers and processors to decide voluntarily to go to the export market.

Mr. Pierre Paquette: In the case of NAFTA, are there any dangers on restricting milk exports, or did the Americans decide to go to the WTO because they had the best chance of winning there?

Mr. André Belzile: Initially, when the Americans and Canadians negotiated the first free trade agreement between Canada and the U.S., it was decided that all issues regarding products subject to quota, such as this one, would be dealt with at the WTO, which was the GATT at the time. It was therefore decided that the GATT clauses would be followed. There are no specific clauses stating that we will go further than what the GATT said at the time or than the WTO says now. This is how things were done initially. Until the NAFTA is changed, we will have no problems in this regard.

• 1715

Mr. Pierre Paquette: Why was it specifically the United States and New Zealand that filed complaints? Were there other countries that could have done so? Is it because we export particularly to these two countries, or are we their competitors on the export markets?

Ms. Guylaine Gosselin: I think the main reason is that there was a significant increase in our exports to the United States between 1995 and 2000. There have been increases, but we think one of the reasons they attacked the Canadian system, was much more to try to prevent other countries from having this type of export arrangement. I am thinking of the European Community, which could decide—

Mr. Pierre Paquette: I have one final question. I believe that the other supply-managed products are poultry and eggs. Are these the two main areas where supply management applies?

[Editor's Note: Inaudible]

A voice: Poultry—

Mr. Pierre Paquette: To your knowledge, are these products under threat at the moment as well?

Ms. Guylaine Gosselin: The decision will apply only to—

Mr. Pierre Paquette: More generally, with reference to future WTO negotiations, an agreement was reached in Doha to discuss export subsidies on agricultural products. Do you feel threatened by this? Do you have any contacts with these other agricultural producers?

Mr. André Belzile: The other Canadian productions which come under a supply management system, including dairy production, are in touch with each other. It is clear that the poultry producers as well as the egg and dairy producers probably value this system. These systems are good for everyone, they are good for the producers, and they want to keep them. They also insist that the federal government continue to do what is necessary, that is to control imports, to limit imports, and to allow prices to be regulated. The federal government must support this. All the production that is subject to a supply management system works along the same lines.

It's clear that for example, the day we drop border controls for milk, it will also be dropped for poultry and eggs at the same time. We don't foresee a time when the federal government will drop this for one sector and not for the others. Therefore, all output that is subject to a management supply system is interrelated.

Mr. Pierre Paquette: If I understood the producers' position correctly, given that exports are marginal, the important thing is to protect the supply management system. It is perhaps less clear as regards the processors.

Mr. André Belzile: Yes.

Mr. Pierre Paquette: In fact, we must meet with the processors.

I would like to make sure that I have understood correctly. The important thing for you, as a Quebec producer, is to maintain the supply management system, even if it means losing a few export niche markets, if we were unsuccessful, obviously.

Ms. Guylaine Gosselin: Obviously, if we lose, it will be clear for the producers. In any case, it's not a matter of whether or not the supply management system will be maintained, or whether we win or lose, because with or without the system, that's not what the decision concerns. The decision will concern the possibility of having dual pricing or not. There would be no supply management system for the Canadian export market. There would have to be dual pricing. That's what we are trying to explain. Therefore, we cannot export more without supply management.

The issue then is knowing whether we will be able to have dual pricing. Even in the United States, where there is no supply management, under such a decision, they would not be able to have a two-price system for exports. They will not be able to do more. It is obvious that Quebec and Canadian dairy producers and the other producers that come under the supply management system are defending the same things.

There is a group called the SM5 in English, or GO5 in French. For us, it is of course first and foremost the domestic market that is the most profitable. We are ready to export, but we must, even if the decision is negative, be more resourceful and develop niche markets where we will be able to get the same price as we do domestically. There would be no more dual pricing, no more subsidies, and we would be able to develop the industry in this way.

The supply management system suits dairy processors. Regardless of what they claim, they cannot deny the fact that they do have above average yields in Canada compared to what happens elsewhere. A 20% yield on equity is very good. I don't think it can be denied.

The Chair: Thank you.

[English]

Mr. O'Brien, then Mr. Duncan.

• 1720

Mr. Pat O'Brien: It's not really a question, just two comments.

First of all, we have a limited number of witnesses, and that's fine. But I want to make it clear that while this is an important issue for many parts of Canada, including the province of Quebec, it's also very important to the people I used to represent before redistribution. I had a number of major dairy producers in my former riding in southwestern Ontario, and the county next to mine, Oxford county, is one of the major dairy-producing counties in Canada. So it's hardly just an issue important to Quebec. We know it's very important to Quebec, as it is to all parts of Canada.

The second observation is that the minister's been very clear. He's already been asked about this in the House following Doha, and this government's been absolutely consistent and definitive that the system of supply management is not on the table, and we don't intend to budge on that position.

I'll leave it at that. I know the supply management system fairly well, but I think you've helped to explain it even more. So thank you for being here.

The Chair: Thank you, Mr. O'Brien.

Mr. Duncan.

Mr. John Duncan: I was at the talks in Doha. There were representatives from your industry there, from dairy, and there were other representatives there, including the food and restaurant association. They mentioned something to do with... is there some kind of suit between their organization and the dairy industry? Can you tell me what's going on?

Ms. Guylaine Gosselin: It's a very complicated issue, but CRFA... in Canada, we have what we call... what you've been talking about, special classes. In some circumstances milk is available to processors and further processors at a lower price to match the U.S. price when there is no control at the border for those products. Take frozen pizza, for example. When further processors or processors buy milk to make cheese to go on those frozen pizzas, we lower the price so they can be competitive, because there's no import control between the U.S. and Canada on this. That's the point.

We do that for producers only when there's no import control and when there really is competition. What CRFA would have liked is that we also decrease the price for fresh pizza. But we're sorry, there's no competition for fresh pizza. When you call for a fresh pizza, you don't have the choice of buying it in the U.S. or buying it in Canada. They make a big fuss about it, but as you can see in the brochure we gave you, the cost of the milk that goes on a pizza is 5% of 54¢. That's much less than the tip you're going to give the guy who delivers the pizza to your house.

Mr. John Duncan: But I understood the issue wasn't with the price of the pizza; it was with the price of the cheese.

Ms. Guylaine Gosselin: Yes, that's it. It's the price of the cheese that goes on pizza. It's further processing.

The Chair: It's the price of the cheese that goes on the pizza that goes in our tummies.

Ms. Guylaine Gosselin: That's it.

Mr. John Duncan: The way it was characterized to me was that there's something in the order of a kilogram—I think that's the weight they use—per pizza, let's say, and they could sell tens of thousands of that product based on the U.S. experience, but it's not happening because of the way things are. Is that the nature of their suit?

Ms. Guylaine Gosselin: No, the nature of their suit is that they said the CMSMC, which is the Canadian Milk Supply Management Committee, should have agreed to give them a rebate for milk used in cheese that goes on pizza, that goes in your tummy. Yes, that's it.

• 1725

Usually those food and restaurant associations are more the multinationals, like Pizza Hut, not the little restaurants. It's those big multinationals. They're after the collective bargaining power of producers. That's really what they're after.

It's not an issue. We can show the numbers. It's not true that this makes a difference. It doesn't make a difference. On a glass of milk that they sell for $1.50, our producer gets 16¢. Even if we were doubling the price of our milk, it wouldn't make any difference over there.

Mr. John Duncan: What mechanism are they using? Are they using domestic legislation or are they using WTO rules?

Ms. Guylaine Gosselin: They're using domestic legislation.

At this moment, they're suing in Ontario. They lost in the first instance at the federal level, so now they're trying in Ontario. We hope they lose, because they should lose on this.

Mr. John Duncan: Yes.

[Translation]

The Chair: I thank you on behalf of the committee. This was very important, and I hope that justice, as we know it, will be well served by next week's decision. Good luck.

There will be a vote anytime now.

[English]

Colleagues, next week there will be no meeting. As we have stated, we are going to have the officials come back in February to give us an overview for our studies on the free trade of the Americas. The clerks are in the process of preparing a budget that will be submitted to the main committee some time in the new year.

So with this, Merry Christmas and a Happy New Year to all of you.

We're adjourned now.