SINT Committee Meeting

37th PARLIAMENT, 2nd SESSION

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

EVIDENCE

CONTENTS

Wednesday, April 2, 2003

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1545

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

Mr. Robert Keyes (Vice-President, International Division, Canadian Chamber of Commerce)

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1555

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Gordon Chu (Director, Transportation and Trade Policy, Vancouver Port Authority)

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1600

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1605

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1610

The Vice-Chair (Mr. Stéphane Bergeron)

Ms. Patty Townsend (Executive Director, Canadian Agri-Food Trade Alliance)

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1615

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1620

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Rick Casson (Lethbridge, Canadian Alliance)

Mr. Gordon Chu

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1625

Mr. Rick Casson

Mr. Gordon Chu

Mr. Rick Casson

Mr. Gordon Chu

Mr. Rick Casson

Mr. Gordon Chu

Mr. Rick Casson

Mr. Robert Keyes

Mr. Rick Casson

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1630

Ms. Patty Townsend

Mr. Rick Casson

Mr. Robert Keyes

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)

Mr. Gordon Chu

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1635

Mr. Robert Keyes

Mr. Murray Calder

Mr. Robert Keyes

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1640

Mr. Murray Calder

Mr. Robert Keyes

Mr. Murray Calder

Ms. Patty Townsend

Ms. Patty Townsend

Mr. Murray Calder

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Raymond Simard (Saint Boniface, Lib.)

Mr. Robert Keyes

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1645

Mr. Raymond Simard

Mr. Robert Keyes

Mr. Raymond Simard

Mr. Gordon Chu

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1650

Mr. Raymond Simard

The Chair

Mr. Mark Eyking (Sydney—Victoria, Lib.)

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

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1655

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Ms. Patty Townsend

Mr. Mark Eyking

Mr. Robert Keyes

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Rick Casson

Ms. Patty Townsend

Mr. Rick Casson

Ms. Patty Townsend

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1700

Mr. Robert Keyes

Mr. Rick Casson

Ms. Patty Townsend

The Vice-Chair (Mr. Stéphane Bergeron)

Ms. Patty Townsend

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Raymond Simard

Mr. Gordon Chu

Mr. Raymond Simard

Mr. Gordon Chu

Mr. Raymond Simard

Mr. Gordon Chu

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1705

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Robert Keyes

The Vice-Chair (Mr. Stéphane Bergeron)

Mr. Murray Calder

Mr. Gordon Chu

»

1710

The Vice-Chair (Mr. Stéphane Bergeron)

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CANADA

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

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NUMBER 007

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Wednesday, April 2, 2003

[Recorded by Electronic Apparatus]

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[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ)): Order, please.

    Dear colleagues, today we have the pleasure of welcoming to this sitting of the Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade, Mr. Robert Keyes, Vice-President, International Division of the Canadian Chamber of Commerce; Mr. Gordon Chu, Director, Transportation and Trade Policy, Vancouver Port Authority; and Ms. Patty Townsend, Executive Director of the Canadian Agri-Food Trade Alliance. We are meeting with these witnesses in the context of our examination in view of strengthening economic relations between Canada and Asia.

    Firstly, I would like to apologize on behalf of myself and my colleagues for being late. We had a vote in the House of Commons. That is why we had to make you wait for a few minutes. We do indeed apologize, but without further ado, we will now move on to the substance of our meeting.

    I would now like to invite Mr. Keyes to make a brief presentation, after which we shall be hearing the other witnesses and then move on to the questions of the members of the subcommittee.

    Mr. Keyes.

[English]

    Mr. Robert Keyes (Vice-President, International Division, Canadian Chamber of Commerce): Thank you, Mr. Chairman.

    On behalf of members of the Canadian Chamber of Commerce, it's a pleasure to be here. I have one of my colleagues, Darrel Houlahan, with me as well. We're delighted to be here to talk about Canada and Asia.

    You should have a few overheads, which were submitted to the secretariat last week. I'm just going to speak briefly to those, because I think that rather than a long speech, it's better that we have discussion. I'm going to outline a few of our priorities, bilateral business issues, and then a few thoughts on trade and investment priorities.

    From the perspective of our members, there's no doubt that Asia offers tremendous opportunities for Canadian business. The growth in that part of the world is going to be huge. With just the population base and the increasing wealth of the population, it should all add up to real opportunities. The problem is, how are we going to harness this? Of course, we've been hearing this for years, that this is the place to be.

    I think we often make the mistake that Asia is Asia, that it's a homogeneous region. It's not. These are very different countries, with very different levels of development and needs and issues and interests and priorities. They also have varying levels of business acumen in terms of the capacity to respond to Canadian initiatives.

    We have learned this firsthand. We just finished up a development project in the Philippines, trying to match Canadian and Philippine SMEs. It became very apparent to us when we went into this that what we thought of as an SME in Canadian terms was often a large company in Philippine terms. We had quite an imbalance of capability and the ability of these companies to respond to initiatives.

    So we had growing pains and some real education there. And we started this in mid-1997, just before the financial crisis. It was a very interesting time to be working in the Philippines. Nevertheless, we had a very successful project.

    With regard to Canada and Asia in terms of priorities, Asia has to remain an important priority for us, even if the U.S. is always going to be number one. I mean, this is a fact of life, this is the way it's going to be. As well, there are a lot of niche opportunities in many countries that we think the business community is taking advantage of and will continue to take advantage of.

    I thought I might just give you some very brief snapshots from our perspective.

    First, with Japan, the economic malaise is still there with us, but they're still clearly a very key trade partner.

    With China, the potential is huge, but how do you deal with this trade elephant? The business environment is challenging. They're inside the WTO. What are the implications of this? Is it a threat or is it an opportunity?

    I noticed yesterday a quite interesting article that came out of the southern United States talking about business in the maquiladoras region of Mexico. The article is entitled “The giant in Mexico's rear-view mirror”. The Mexicans are facing threats from China. They're under cost pressures. They're under capacity pressures. And Mexico, even with all the advantages it might have in terms of wage costs and this type of thing, has issues. So China is very much a double-edged sword.

    Just as another aside, I had a conversation with somebody from the steel business last week. They were asking, what's going to happen when downtown China goes into recession? Because China has cranked up its production capability, hugely, but the discipline on the economic side to absorb overproduction domestically is not there. And where are these goods going to go? They're going to look to get rid of these on the open market. So we're going to face pressures there, I'm sure.

    Hong Kong is struggling somewhat, but still positioning itself as a gateway and a launch pad to north Asia and to China. Hong Kong is trying to position itself as a spring pad for Canadian business into Asia.

    Singapore has heavy emphasis on services, and as a gateway into southeast Asia and companies creating headquarters in the southeast Asia region.

    Korea is still a major trading partner, but is going through some interesting adjustment periods, with a new government. There are still opportunities there. We're currently in discussions with Koreans about putting on an event later in June. They want to come and talk about the program in the new government, and trade opportunities.

    The Philippines has been a long-standing market for large Canadian companies who are there, such as Sun Life, and certainly there are prospects, but their economy has been struggling.

    With regard to Vietnam, a considerable amount of attention is increasing there in terms of their capabilities. I was there two years ago on a program to talk to the Vietnamese about organizing business organizations. You can just see the light bulbs going on in Vietnam as they start to get themselves organized.

    Indonesia-Malaysia is a very challenging environment. Pakistan-Bangladesh has some niche opportunities. India has huge potential, but it's still very bureaucratic.

    On bilateral business relationships, just quickly, we have the advantage, as the Canadian Chamber, of having a number of Canadian chambers in Asia. These are in some cases small organizations. Some of them are quite informal, but others have permanent staff and they work very closely with the embassies.

    Where there is enough of a critical mass, Canadian companies are organizing themselves into a chamber or a business association, and they're providing a very good window for business into these countries. This is a network we're trying to energize, that they want to energize themselves; it's come a long way in the last three months.

    I received a piece just last night from the Canadian chamber in Korea, a very interesting exposé and thoughts on a SWOT analysis of Canada in Korea. I think some of these observations are probably applicable to other countries, so I will send that along to the clerk, Mr. Chairman. As we get into the questions, I'm sure some of the things that are raised here I'll be able to comment on.

    When I came to the Canadian Chamber in 1977, we had a number of bilateral business councils. We had Taiwan, Korea, and ASEAN. We closed down ASEAN. It had an identity crisis. Canadian companies don't trade with ASEAN countries, they trade with individual countries, and trying to organize a business group around this ASEAN group just did not work.

    We had Taiwan.... Now, that had its history in the days of the Canadian trade office opening in Taipei. I ran that for two or three years. There were some people there who wanted to take it away from the chamber and make it independent, and they did. Within a year it went bankrupt. They could not sustain the interest in it.

    The Korea one struggled, and it is now basically in name only, but we're hoping to ramp up later this year in terms of an event.

    You might say, if there is Canadian business interest, why did these organizations go down the tubes? Number one is the Internet. The availability of information has been revolutionized from the days that these started. Two, these councils started with government money in the mid-1980s, and they served an important function, but Canadian businesses have grown up; they don't need this kind of organization to do the kind of networking that these organizations did. And it was a struggle for us just to keep up with news and opportunities, so we couldn't sustain them.

    Our goal in all these relationships is to get Canadian businesses to look to Asia, to look beyond looking south. Now, the U.S. is always going to be our number one market. That's never in doubt. It's so much easier to trade with Detroit than it is to go into Asia, where you have to have to have dedication, awareness, attitude, and deal with culture, language, and all these other issues.

    There are some large companies that have been engaged for a long time, and have done very well in Asia, and will continue, but it's a much greater challenge for a lot of SMEs. They're smaller, and they don't have the staying power. Nevertheless, there are niche opportunities.

    In terms of priorities, just to very quickly wrap up here, business facilitation is an important issue dealing with the procedures of getting in, understanding the rules, the transparency, the customs issues. There a number of key sectors there, which I won't go through, but a real goal is to decrease our role as raw material suppliers in a non-value added form.

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    We're still thought of as rocks, trees, and minerals, as a raw material supplier. Enhancing our image, changing our brand, and upgrading this is a real challenge. And we have to get out from under the U.S. shadow, which is difficult to do.

    In terms of our bilateral trade agreements, clearly, let's finish these Singapore negotiations and get that one put behind us. We've been in dialogue with Japan over the last year. That, unfortunately, is not going to happen quickly, or it's unlikely.

    APEC is a very useful forum for dialogue, but it's not a trade agreement. We're never going to get a trade agreement out of that. Nevertheless, the business facilitation issues that have been raised in APEC have been useful.

    In terms of government resources, the Canadian chambers abroad--and we were on a conference call with them two weeks ago to talk about some of these issues in preparation for this meeting, and just regular dialogue--are concerned about the level of government resources and whether our government is able to pay enough attention given that we have so many trade priorities and we are doing so many things in the rest of the world. They would like to have a higher profile.

    Investment issues go hand in hand with trade. The government is looking at new foreign investment protection agreements. This is critical, from a business perspective, in order to protect Canadian investors abroad. They have certainty, application of the rule of law, and due process if investments are threatened. We've only to look at what happened in Indonesia recently. This is why these are so important.

    Multilateral approaches in investment through the WTO, for example, are going to take very long, and they're going to be quite general. Far better, I think, if we can go in with a foreign investment protection agreement that is tailored to situations in the country and to specific business needs. We only have agreements at the moment in the Philippines and Thailand. So I think there is a very important market there for us to do these. It certainly has been discussed in the case of India. That has been raised a number of times.

    There's a final point our colleagues in the Canadian Chamber of Commerce in Japan asked us to raise specifically, and that is, negotiate a social security agreement with Japan. At the moment, Canadian companies that send personnel to Japan, or Japanese companies that send personnel here, have to pay double. There is no recognition of social security payments. So in terms of EI, or Canada Pension, or any pension arrangements, health or taxes, there's no mutual offsetting, so it's costing them double.

    In the view of the Canadian Chamber in Japan, this is their number one issue, and it's been on the table for a while. The Japanese are starting to respond positively. We're hopeful something is going to happen this week. It's an issue that's up there in headlights.

    We met last week with the Japan External Trade Organization. It's certainly an organization that you might want to think about inviting to appear in front of this committee. They have a new mandate. It used to be to promote trade back into Japan, and Japanese products out. It's now focused on investment, because they need the inflow of capital.

    Commensurate with that, this issue on the social security issue comes up, because there's an added cost of business for Canadian companies and Japanese companies coming here. This is one we have to fix.

    So I'll leave it that, and I look forward to your questions.

    Thank you.

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[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron): Mr. Keyes, thank you for your presentation. We will have the opportunity of hearing you again when you answer questions from the members of the subcommittee. We will take your document to have it translated and distribute it to the members of the subcommittee.

    I now invite Mr. Gordon Chu, Director of Transportation and Trade Policy at the Vancouver Port Authority, to make his presentation.

[English]

    Mr. Gordon Chu (Director, Transportation and Trade Policy, Vancouver Port Authority): Bonjour.

    I'm Gordon Chu, and I'm representing the Vancouver Port Authority. I'm very happy to be here and very honoured to be invited to appear before the committee.

    I think the paper has been circulated to all the members, and you have a chance to go through that. What I'm going to do is highlight, perhaps, some of the salient points in the paper itself.

    My paper is basically based on two major themes. Now, I think a lot of very able speakers have come, or will come, before you to speak about the business side, about what kind of business opportunities are out there in Asia-Pacific, be it in China, Taiwan, Hong Kong, or Japan. My belief, and certainly our port's belief, is that the opportunities are definitely out there. The port system of Canada is, to me, the lifeline of the marine transportation system, where commerce by and large is still going through the port system, in and out of Canada, or indeed any countries in the world. The port system is always the lifeline of commerce in any country. That's that's why it's so important.

    The problem we're facing in Vancouver is that we know the opportunity will be there in ten to twenty years, but the fact of the matter is, will we be able to have sufficient infrastructure to cope with the great opportunity ahead? Because building terminals, building marine terminals, building transportation systems on land is not only very expensive but also very time-consuming. A full-sized marine container terminal would take about five to seven years to build, from start to finish, so you're looking ahead a long time, ten to twenty years down the road. We should be building something if we know the business is going to be there in ten to twenty years.

    I will go through some of the points later, but this is the first theme.

    The second theme is competition--competition with the United States ports south of the border, on the west coast. Our major U.S. competitors are Tacoma and Seattle, and further south, Long Beach and Los Angeles. Those ports are heavily subsidized by government funding.

    Just to give you an example, Seattle levy taxes from the municipality...about $58 million U.S. a year. Now, this is per year, and they can increase that as they need it. We have none. So we are competing with a system that is heavily subsidized by government. Therefore, we have to be mindful of whether, further down the road, we will be able to compete against such a system.

    Going back to the more important points, the Port of Vancouver represents about $29 billion to the Canadian economy. We trade with 90 countries in the world, and we are the most diversified port in North America. By “diversified” I mean we handle all types of cargo, from resource materials to lumber to containers to cruise ships. It translates to about $3.4 billion in GDP, and represents also 62,000 jobs.

    The fastest-growing sector of our business is containers, which is measured in twenty-foot equivalent units, or TEUs. If you look at figure 1 in the paper, you can see how dramatically our volume in containers is growing. Last year's volume was 1.46 million TEUs in Vancouver. Each container that moves through the port represents $450 in wages and $1,200 in economic output.

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    We believe that by 2020, our volume will be tripled, to about 4 million TEUs. Again, I want to repeat the point I made early on: Will we be able to cope with the capacity that will be bestowed upon us? If we were at 1.6 million TEUs last year, and our existing capacity, maximum, is 1.7 million, all we need to be full is to grow by about 10% to 15% this year. That is our major challenge at the moment.

    We trade with all the Asia-Pacific countries. Our number one trading partner is Japan, followed by China--not including Hong Kong--South Korea, the United States, Brazil, Taiwan, Mexico, Germany, and the Netherlands. We are about twenty-sixth in the world of total volumes in North America, first in foreign exports, and third in total foreign trade.

    We also have a cruise ship business, which is not too well known to a lot of people. It represents 11% of our revenue.

    We also recently approved $12.5 million to improve our security post-September 11.

    Let me turn to more specifics about some of the more salient opportunities in Asia-Pacific. Just to put things into perspective, in 2002 the container throughput of the six largest North American ports on the west coast--Los Angeles, Long Beach, Oakland, Seattle, and Tacoma, added together, plus Vancouver--is only 18 million TEUs. In Hong Kong alone, in 2001, it was 18 million. That's one port in Asia.

    Mr. Chairman, the previous speaker also spoke about opportunities in China. Just to give you an order of magnitude, the type of infrastructure-building, and also the opportunity out there in China, in Shanghai alone, by 2010 their volume will be 30 million TEUs. And this is fact. This is not fiction.

    They are building a terminal outside the Yangtze River linked to a 35-kilometre causeway. This port, which opens in 2010, for the first phase, will be able to handle 20 million to 30 million containers. And this is, again, not fiction. They are building it. They are starting to build it now.

    So I just want to put it to you that it's happening. Whether Canada wants to be part of trans-Pacific maritime trade is up to us. And I repeat what I said earlier, that our challenge is to be able to finance sufficient space at our maritime terminal to cater to this growth.

    We have one major challenge, our governing legislation called the Canada Marine Act. This act was introduced in 1999, and is actually being reviewed at the moment. The act itself actually has a number of restrictions on our financial areas. I mentioned earlier our financial needs in terms of building new terminals. But the act itself forbids the federal government from infusing any funding into any port infrastructure building.

    Secondly, they cap our commercial borrowing ability at about $245 million. Now, that may sound like a lot of money, but just to put it in perspective, a modern 1.5-million container capacity terminal will need about $500 million to build. So that money, even if we get it, will only enable us to build half a terminal. Our financial challenge is enormous.

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    This piece of legislation is being reviewed under a different committee of Parliament at the moment, and of course it's not for this particular committee to review, but we have recommended some major changes for the Canada Marine Act. It's being considered by Transport as well as the minister at the moment.

    Without those changes, I think we can safely say that even though we spend all our efforts promoting trade with Asia-Pacific, from both the private sector and the public sector, our time will probably be futile, because we just don't have the capacity to handle it. I have already demonstrated some of that growth to you.

    In conclusion, Mr. Chairman, I would like to emphasize that the Port of Vancouver must be a cornerstone of your Canada-Asia-Pacific trade policy. This reality must be reflected in the structure of governance and administration under which we function.

    Some amendments to the Canada Marine Act are expected to be presented to Parliament later this spring. Probably very few revisions will be entertained, although I don't know that for a fact.

    I'm telling you, Mr. Chairman, empowering the Port of Vancouver to compete in Asia-Pacific on a level playing field--I'm coming to the competition bit--with heavily subsidized American ports is in the interest of all Canadians. It brings to this country increased investment and high-paid jobs and income that will otherwise go south of the border.

    I make this pledge to you, that if we are not able to compete with the U.S. ports, the end result will be that Canadian cargo will be going through U.S. ports, and then the entire Canadian market will be serviced by U.S. ports.

    Now, if you argue, well, what's wrong with that, the thing is, our shippers, our end customers, will have to rely on pricing systems over which we have absolutely no control. I think that is the bottom line.

    Let me leave with the committee today the recommendation that the Government of Canada enact legislation that would enable the Port of Vancouver to raise adequate capital and to receive federal funding for infrastructure so that it can compete on a level playing field with government-subsidized competitors in the United States in order to successfully address the lucrative Asia-Pacific market opportunities.

    Mr. Chairman, Canada indeed is the Northern Tiger, but we must not lose sight of the fact that there are other animals in the jungle as well. The competition is fierce, and Canada must empower itself to meet the dictates of the marketplace if we are to win our share of the riches at our doorstep in the Asia-Pacific region.

    Thank you. I'd be happy to answer questions.

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[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron): Thank you, Mr. Chu. I want to thank you for having emphasized the importance of infrastructures for trade. Obviously, no trade can take place without adequate infrastructures. We will come back to you in a few moments during question period.

    I now invite Ms. Townsend, Executive Director of the Canadian Agri-Food Trade Alliance, to make her presentation.

[English]

    Ms. Patty Townsend (Executive Director, Canadian Agri-Food Trade Alliance): Thank you, Mr. Chair.

    I'm kind of the new kid on the block here, since CAFTA hasn't been around for a really long time. And CAFTA here stands for the Canadian Agri-Food Trade Alliance, not the “Canadian Antique Fishing Tackle Association”, which we found out also exists.

    CAFTA is a coalition of 11 national and regional organizations and associations that represent producers, processors, marketers, and exporters of agriculture and agrifood products. Our members are critically dependent on international trade, and as everyone around this table knows, we're forced to continue to compete in a market that's highly distorted by subsidies, tariffs, and non-tariff barriers. If our sector is to continue to grow and make a growing contribution to the Canadian economy, we need an international marketplace that's free of those kinds of barriers.

    The Canadian agriculture and agrifood sector, as you know, is very highly dependent on the U.S. market. In fact, almost 60% of what we export moves into the United States. Given the environment in the U.S. right now, and the growing protectionism--as we've seen through country of origin labelling legislation, rules on anti-terrorism, the bio-terrorism act, and countless anti-dump and countervailing duty challenges--we've come to the realization that we need to diversify our markets away from the United States as much as we possibly can, and capture new opportunities.

    One of the opportunities we see is in the Asian region. In 2002 Canada exported about $2.7 billion worth of agriculture and agrifood products to Asia. The largest market right now is Japan, but as Mr. Keyes said, it is a maturing market. There's an economic malaise there. We're looking now at diversifying also away from Japan for some of our commodities.

    China is also a large, and potentially much larger, market for us. South Korea and India are the other major Asian markets that our sectors are interested in.

    The top products that we export to the Asian region are oilseeds, wheat and wheat products, pork, beef, and their products.

    While we can see a lot of potential in the Asian market, it's a very difficult market. It's fraught with all kinds of distortions, ranging from subsidies and tariffs, tariff rate quotas, and non-tariff barriers to outright restrictions and bans. Sometimes it's simply a matter of trying to interpret how they do business, getting through customs, and understanding how to fill out forms, but it's a very bureaucratic region to try to trade into.

    I want to take a look at those markets that I identified and point out some of the more glaring problems we have trying to get into those markets. I'll start with Japan.

    The beef industry has actually targeted Japan for a tripling of product exports to Japan by 2010, but they do need to resolve a number of trade irritants to be able to reach that goal. The beef tariff in Japan in still generally very high, at 38.5%, and the tariff increases with the degree of further processing. The tariff on cooked and seasoned beef, for example, is as high as 50%. We call that “tariff escalation”.

    One of the biggest problems for the beef industry in Japan is their use of a special safeguard that allows them to increase tariffs from 38.5% to 50% if exports into Japan go 17% higher than they were the previous year.

    Last year, Japan had a bovine spongiform encephalitis, or BSE, crisis, and their consumers stopped buying beef. Exports went way down last year. They're starting to recover this year, and the ironic thing is, they aren't even recovered all the way back up to where they were. However, it's more than 17%, so the safeguard is likely to kick in.

    The safeguard also applies to pork imports into Japan, where the tariffs can increase if pork imports increase by more than 19% over the year previous. The ironic thing there is that buyers tend to anticipate that the safeguard's going to kick in, so they buy up really fast so that they don't have to pay the increased prices, and that triggers the safeguard.

    Japan also maintains a right to impose a very high tariff on wheat and barley exports, with the bound tariff on wheat still at $440 U.S. a tonne. For barley it's about $310 a tonne.

    Tariff escalation is also an issue for our canola oil exporters. Canola seed goes into Japan duty-free. In the tariff imposed, it's yens per kilogram, and right now, at the current price of oil, about 15% is imposed on oil. So what it does, basically, is encourage the export of raw seed; it doesn't encourage further processing in Canada.

    The Japanese market is essentially closed to our refined sugar exporters. It has a 361% tariff, and all imports are controlled by a state buyer.

    Japan also applies other technical and non-tariff barriers to imports. It's made known its intention to ban what they haven't specified yet--feed additives, or some sort of feed additives that they haven't yet specified. We're concerned that they will also ban products that are grown using feeds that may have those feed additives. So our beef and pork industry is quite concerned about that.

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    Japan has also announced its intention to implement mandatory labelling of products of biotechnology. It's not going to affect imports of canola oil, but they don't import that anyway, to any large degree. It's the seed they import, and we are concerned that it will have an impact of our exports of canola seed.

    Moving on to China, China is one of the greatest areas of opportunity that we see in the agriculture and agrifood industry. Its accession to the WTO could substantially improve access. Tariffs have been lowered on malting barley and malt already, and on canola and canola oil, and they'll be eliminated on beef by next year. The tariff quota will be replaced by a system of simple tariffs by 2006.

    That's all very positive on paper; it's whether or not it will actually work that we're concerned about.

    We still have a lot of irritants in China, and probably growing irritants. For example, the Chinese government is reducing its tariffs on sugar imports, but because it maintains a very complicated system of allocating access, and it controls volume through the state and provincially and other owned systems, our refined sugar exporters are kept out of the Chinese market.

    China also practices tariff escalation. For example, the tariff on malting barley is 3%, but the tariff on malt is 10%, with an additional 17% value-added tax on top of that.

    China has given system-wide approval to all federally approved meat-processing plants in the United States, allowing the U.S. to export meat to China, but they've only approved about 6% of the meat-processing plants in Canada, putting us at a competitive disadvantage. Actually, we think that's counter to the “most favoured nation” principle under the WTO.

    Meat exporters were also very frustrated by China's decision to prohibit the use of cotton gloves in meat-processing plants--only in Canada, not in the United States. They did manage to get that suspended, but it's not ended, and we still think it's a possible threat to our meat-processing plants.

    China has recently begun to require new labelling on imports of beef that is more restrictive than that required by other importers. They're also now saying they're going to require all labels on beef boxes to be in the Chinese language, which further adds to our costs and reduces our ability to compete.

    China, along with Japan, has also approved new regulations that will apply to the products of biotechnology. We don't know what the final system is going to be there yet, but the interim system has been very frustrating for exporters, because they keep changing the requirements with no notice.

    The next country that's important to our industries is India. It also is an excellent opportunity for Canadian exporters, but it also maintains some very high tariffs on such products as wheat and corn, in the hundreds of per cents. It's also a very substantial competitive issue for Canadian exporters of canola oil. That's because the directly competing product, soybean oil, comes in at a much lower tariff, 45%, than canola oil does; it's 85%, moving into India. It's a big issue for our canola oil exporters, because India is one of the largest importers of vegetable oils in the world.

    South Korea is another growing and increasingly important market for Canadian exporters, primarily for beef and oilseeds, but it also maintains relatively high tariffs on beef, about 40.5%. In addition, it also applies tariff escalation. Tariffs on processed beef products get as high as 70%.

    Like India, parity for competing projects is a big issue in Korea. The tariff on canola oil imports is 30% and on soybean oil imports it's 8%.

    While there's some market for Canadian sugar beet pulp in Korea, they maintain prohibitive tariffs, so our refined sugar is kept out of that market as well.

    What do we need to try to capture the opportunities in those markets? Our producers and processors and exporters are already among the best in the world. They've had to be, because they've had to compete in these distorted markets for so long. We're in an excellent position to capture all of those opportunities if we have some disciplines on unfair trading practices.

    Asian countries, in particular Japan and Korea, have been very reluctant to engage in any serious negotiations on agriculture at the World Trade Organization. We're urging you, as you travel through the country and meet with people, to point out the potential benefits to these members of the WTO of a successful outcome to the WTO, and to encourage them to fully engage so that we can have an ambitious and successful outcome by 2005.

    Thank you.

º  (1620)  

[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron): Thank you very much, Ms. Townsend. I must admit that we have heard some excellent presentations here today and I thank you.

    I now invite Mr. Casson to ask his questions.

[English]

    Mr. Rick Casson (Lethbridge, Canadian Alliance): Thank you all very much for your presentations. They were very good.

    Mr. Chu, it seems the burden falls on you to get all these products in and out of Canada, as we all look for bigger markets. It's interesting; you'll have to explain to me a little more what you meant when you said the Canada Marine Act prohibits you from receiving government funding for infrastructure; however, you're still limited in your ability to seek money commercially.

    Now, what's the reasoning behind that?

    Mr. Gordon Chu: I wasn't involved in the actual design of the Canada Marine Act, but at the time, I believe....

    You've quite rightly pointed out the two anomalies. On the one hand, the government will not give you...and in fact the act itself bars the federal government from putting any money into the Canada ports system. On the other hand, our borrowing power commercially is capped at $245 million, if I remember the number correctly.

    The reason behind this, I believe, is at the time, I think, with the government at the time, before the previous legislation, it was always a government-backed commercial loan. In other words, the bank would gladly lend us the money, because they knew perfectly well that money would be guaranteed by the federal government.

    Despite the fact that the act itself no longer provides a guarantee, perhaps there is still a fear that if we incur...should the commercial bank lend us whatever amount we want to borrow, it would still be crawling back to the federal government. I don't know the answer, the reasoning behind the cap on $245 million.

    The federal government always said, “If you need more, you can always come back, and we will try to raise the cap itself”, but the anomaly is, since we have to be subject to commercial discipline in borrowing anyway, why the cap?

º  (1625)  

    Mr. Rick Casson: You also mentioned that you handle $29 billion worth of goods a year. Is that right?

    Mr. Gordon Chu: Yes.

    Mr. Rick Casson: It would take just a small percentage of that to give you enough money to build and expand.

    Mr. Gordon Chu: That's very true.

    Mr. Rick Casson: Is that an option you have?

    Mr. Gordon Chu: No, it isn't. The $29 billion is the actual value of cargo that we handle each year. Our revenue is based on a number of sources. One is what we call “wharfage”; basically, cargo moves across our dock and we charge a fee. The second largest is passengers coming through our terminal; they pay a certain service charge. And then, of course, there's the rental we collect from our tenants. Those are our major sources of revenue.

    Our gross revenue is close to $100 million. Our net revenue each year is about $30 million to $40 million a year. Now, if you use that number as our cashflow, using commercial discipline, you probably will be able to borrow, maximum, about $400 million, and maybe, with a bit of a stretch, $500 million. But that will only give us enough money to build one terminal capable of handling 1.5 million containers.

    Mr. Rick Casson: Thank you.

    Mr. Keyes, one thing you mentioned in your trade priorities was decreasing the amount of raw material supplied, and increasing the value added. I want to blend that in with the question of branding, and how you think Canada is felt about as a country to do business with.

    We're trying to look at areas to improve our ability to do trade with Asia-Pacific. What things do you see? Is Canada looked at as a good business partner? Are there things we need to do there? And just throw in this raw material issue; what kind of products are you talking about there?

    Mr. Robert Keyes: We are still seen, through the eyes of many Asian countries and indeed European countries, as a source of raw material--minerals, forest products, agricultural products. You only have to look at some of the tariffs Patty talked about, at some of the barriers that are there to upgrading that amount of processing.

    I mean, we're seen as reliable and secure and good-quality, but trying to upgrade that level of processing and get those value-added goods has been a struggle, and will continue to be a struggle for many years.

    I go back to my days of being involved with the mining industry, and the whole system where a concentrate producer tries to be able to smelt and upgrade. In Japan, for example, the whole Japanese smelter system was structured against us, basically, the way it worked. So it's very difficult for us to be able to shift these gears.

    The kinds of things we do, as a modern, high-tech economy, are just not known there, and it's very difficult to change this image. I'll just read to you from the document I got from Korea last night, that Canada lacks a high-value image. Koreans associate Canada as a clean place to study or to immigrate to and little else. They don't see us an exporting powerhouse or a nation with well-developed broadband or telecommunications capabilities.

    So I think as a business community and as a government we both have to be doing a better job to try to turn that around and sell ourselves. We've been trying to do this for many years, but it's very difficult to change. We just keep butting our heads against this situation.

    I don't have an answer for where the breakthrough is, or how we do it, but we just keep hearing this time and time again.

    Mr. Rick Casson: Ms. Townsend, maybe I'll just throw out a question to you.

    I read recently that the potential for malt barley in China is huge. Having been to China, I know they do make good beer, and I guess it's because they get good malting barley.

    You mentioned the tariff on that product. Are we looking at a potential there, with the tariff that exists, or do we need to do something with that before this opportunity can come to Canada, to our producers?

º  (1630)  

    Ms. Patty Townsend: China is a very large market for Canadian malting barley. The tariff was actually reduced as part of their accession, to a point where a lot of malting barley is now going in.

    Our concern, as Bob said, is that they see us as a supplier of raw product, not as a supplier of malt, or beer for that matter. The tariff on malt is higher than it is on malting barley, and the tariff on beer is prohibitive.

    Mr. Rick Casson: Just one more little question, Mr. Chairman, if I may.

    Mr. Keyes, you mentioned in one part that Canada had grown up, or moved past the need for a certain kind of support, and then in another spot you said there is need for more government involvement to get into some of these countries.

    Did I mishear you when you mentioned that?

    Mr. Robert Keyes: I don't think that's what I was implying. I think I was saying that, based on the experience we had with these trade councils, business comfort in the region has matured. I think the growth curve has flattened. They have familiarity, they have the contacts, they know where to go. As I said, the Internet revolutionized the availability of information.

    Are our trade commissioners and our people on the ground in embassies and missions in Asia still necessary? Absolutely. Do they do a great job? Yes, they do. Are they very helpful to business? Absolutely. I think all I was saying is that business is far more comfortable in the region than it was in the days when these trade councils were started. I think the trade councils themselves outgrew some of their usefulness.

    But again, I go back to this Korean piece, which you will be getting, that refers to a lack of high-profile Canadian delegates, ministers, and bureaucrats coming through Korea. They're asking, where are they? We need them.

    The Vice-Chair (Mr. Stéphane Bergeron): Merci, Monsieur Casson.

    Mr. Calder.

    Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chairman.

    I couldn't agree more with you gentlemen, and Patty here, that a lot of countries in the Asian area of the world consider us natural resources, but I also see that this is changing. We just talked about malting barley here, for instance. China was in Winnipeg at our research centre from October until December of last year, trying some new product lines of beer; they didn't have to shut down their breweries there in China, they could come over here and do this.

    So I would like you to start thinking about that. Is there a way we can expand our research facilities here?

    I have a couple of other questions I'll run through too, and then look for the answers.

    Gordon, you alluded to the Three Gorges dam on the Yangtze River. I think that's huge. When that comes on line around 2008 or 2009, they'll have the same generating capacity as the south central U.S. So in terms of manufacturing in China right now, the quality of the products they're putting out is increasing very greatly, and in a very short period of time they're going to be a huge world manufacturer.

    So question number one on the Yangtze would be, how can we be proactive in getting Canadian technology in there as they build their infrastructure? And afterwards, what are our investment opportunities within China as they become a larger manufacturing nation?

    Mr. Gordon Chu: Thank you for the question.

    In fact, I have always had a very keen interest in China, because I have firsthand knowledge of China. I worked there for two years opening a port marketing office in Beijing. I actually stayed there from 1993 to 1994, and came back in 1995 as a port.... None of the other countries in the world have done that, and we are now reaping the fruits. We are very well placed in terms of connections in China.

    Coming back to your question about the Three Gorges dam, there are two aspects. I think you pointed out one already, about the enormous generating power and the manufacturing base. But the other one is also improving the navigational waterways much further up the Yangtze River, which will help in capturing what you said, the manufacturing base in that river. That's why I ask, why do you think Shanghai is building a port with 30 million containers, opening up probably at the end of the decade? That is exactly what they're doing now. If people don't see that opportunity, I think they are missing the boat.

    On the other hand, on our side of the ocean, our capacity is almost up, and we have neither the financial resources nor the plan to further develop our port system to cope with that.

    Again, you asked about investment opportunities. We have lots of modern barging system experts on the east coast as well as on the west coast. Barging is the answer. The waterway is the highway for China. If you've been to China, you have some knowledge about the Chinese landscape. It is very difficult for them to expand their highways as well as their railways. That's why they're very smart to do this Three Gorges. It's not just for the power, although the power, of course, is important for manufacturing; it's for the transportation highway for the Yangtze Delta. You will see an enormous explosion along the river on the side of all those neighbouring counties, simply because they have sufficient power to generate manufacturing. Second, they have the transportation system to move down the river. Third, they have a port that is capable of handling that growth.

    So that's what I see. Absolutely, Canada has the expertise in barging. On the west coast we have the best barging system, or probably one of the best, in the world, and those people should be looking at opportunities, looking at barging up and down the Yangtze now.

º  (1635)  

    Mr. Robert Keyes: On the technology and the Three Gorges dam, I'm not sure how many of the power generation units come out of Canada, but some of them have come out of General Electric's facility in Montreal.

    Mr. Murray Calder: It's my understanding, too, that the dam is not over- the-top generation down; it's going to be underneath, to deal with the monsoon season.

    Mr. Robert Keyes: It's down and through and beneath, yes. At any rate, Canadian technology and expertise is being used in that particular project.

    In terms of investment, China's entry into the WTO, and the opportunities there, clearly there's a window for investment, but the Canadian businesses who are interested in China still have concerns about the rule of law, investor protection, intellectual property rights, and the certainty and transparency of the process.

    As I mentioned in my opening remarks about the whole economic situation, the production side is ramping up in a huge way. And Gordon has referred to this shipping capability they're going to have. Well, if recession hits downtown China, where are these goods going to go, and what's the discipline? What are the issues going to be if you happen to have a production facility in China whenever this kind of reality comes?

    On the WTO access, I think everybody hopes that this is going to bring good things to China, but also discipline and adherence to the rules. As to how they are going to be able to deal with some of these obligations that they're taking on, I think there's going to be a huge learning process for the Chinese on this. I guess there's a certain scepticism about how this is going to unfold over the coming years.

    So business still has caution about going into China, notwithstanding the fact that there are these wonderful opportunities and the diversity of products that are being offered there.

    I have people who promote the Canton Fair. It may be Guangzhou now, but they still call it the Canton Fair, because that's what it's known as. The range of products and exhibitors and what they are offering at that fair just boggles the mind. They left me with the catalogue showing the kind of stuff that's on offer. And of course they want the world to come there and see what's offered.

    So the manufacturing capability is there, the port capability is there, the power is there....

º  (1640)  

    Mr. Murray Calder: It's a reawakening.

    Mr. Robert Keyes: Absolutely.

    Mr. Murray Calder: Patty.

    Ms. Patty Townsend: You just want to ask me about beer.

    A voice: What's your point?

    Voices: Oh, oh!

    Ms. Patty Townsend: It is well known that the Chinese and other Asian countries and other countries around the world believe Canadian technology and Canadian facilities are good. Our problem is that, as you said, they still do view us as suppliers of natural resources. So they really want to buy barley from us, they a little bit less want to buy malt from us, and they really don't want to buy beer from us at all. They'd like to use our facilities, as they were doing in Winnipeg, to produce their own beer and do testing with different kinds of barleys and that kind of stuff.

    I guess what we're saying is that you can export the technology, but we already produce way more than we can consume here in terms of both raw product and further processed product, and we'd like to have the access for the further processed product as well.

    Mr. Murray Calder: Okay.

    The Vice-Chair (Mr. Stéphane Bergeron): Mr. Simard.

    Mr. Raymond Simard (Saint Boniface, Lib.): Thank you, Mr. Chair, and welcome to the witnesses.

    My first two questions will be directed to Mr. Keyes. My first question is with regard to branding.

    With past witnesses we've talked a lot about branding. I guess we realize that we won't be able to do this alone, and I'd like to know what the Canadian Chamber of Commerce is doing in terms of trying to change this image in Asian markets that Canada is just a nice, clean place to visit.

    First of all, do you have a presence out there, or do you just get involved in Team Canada missions and that type of thing? That's my first question.

    Second, you mentioned that a lot of Canadian companies are having success out there, and I'd like to know what their secret is. What kinds of companies are having this success, and what size are they? What kinds of things are they producing, and what is giving them that competitive edge?

    Mr. Robert Keyes: Good questions, thank you.

    On the branding, we have a lot of incoming missions of visitors from Asia who come through our offices, who want to meet with us to talk about trade opportunities. Most of them, of course, want to sell their products to us, but you always take the opportunity to reinforce what you're about and what you have to offer.

    We've been involved in Team Canada missions in the past. The last big one into Asia was in 1997. We did the business program, and arranged that in several countries. So we've certainly been there.

    Our face in Asia is through these affiliated organizations, Canadian chambers out there. And certainly, the mission of these organizations, these chambers in Japan, Korea, Hong Kong, Philippines, Malaysia, Vietnam--Laos is just getting organized--and Thailand....

    Yes, we're in a very loose affiliation. It's not as though they're our members or that kind of thing, but we have an electronic network, and we're in very regular contact with these organizations. We were on the phone three weeks ago, and this one from Korea came in last night.

    So they're very helpful to us, and we try to assist them. I mean, one of their major roles as the face of Canadian business out there is to attack some of these issues directly. Now, they don't have a lot of resources to do it. They're small organizations. They work very closely with the embassies. They do things that perhaps the embassies can't sometimes in terms of helping to organize things.

    Clearly, though, one of their missions in life is to explain Canada and be the face of Canada. There is a lot more going on, too, on the cultural side. I forget the name of the program in Japan last year that was instituted, but it was very successful. Along with that cultural initiative, of course, is the trade and the brand image and everything else we have.

    So it's just something that we all, both government and business, have to keep working on, and work on continually with the representatives of Asian governments here in Canada and the embassies to try to reinforce what we have to offer.

    In terms of the secret, I don't know what the secret is, but I know that the people who are out there take a very long time view. They're persistent. They're not passive. They have to have an inordinate amount of patience. They develop the personal relationship, and then the business follows. And it seems that once relationships develop, they can be very successful for the longer term. But as to the standard business model of going in, your sales are quick, you've made your sale, in and out, as we might do in a north American or European context--that's not how business is done in Asia. It's still a very different approach, and that takes staying power.

º  (1645)  

    Mr. Raymond Simard: Do you see it as being fairly difficult for small and medium-sized businesses to have the staying power to do this?

    Mr. Robert Keyes: Absolutely, and it's expensive. From a business perspective, at the end of the day, on your bottom line, when you're reporting to your shareholder, a dollar is a dollar is a dollar. And if you can do your business and have the same return south of the border, then where are the dollars going to go, and where are you going to look in the first instance? It is just so much easier to do business on this north-south axis than to worry about distance and culture and language and regulations and transparency and rules and trade barriers and tariffs--unless you have a very specific niche where you can have a market advantage and you can derive a chance to do well in that market. And that's what I think Canadian companies will look for in those areas.

    Mr. Raymond Simard: To Mr. Chu, I guess it's very disconcerting for me to hear you say, when we're going to be going out to Asia to try to drum up some business, that you can't handle it. You're also telling us that to do anything to your port, it would take maybe five to seven years.

    First of all, I'd like to know whether you have the physical space to expand, whether that's an issue.

    Secondly, it seems to me that you've almost reached your maximum, that you're almost at capacity. It seems to me there should have been some planning to expand. You've talked about the restrictions you have, but it doesn't seem to be an excuse. I mean, it's unthinkable that you're almost at the maximum capacity and that we have five- to seven-year planning period and it's not happening.

    Mr. Gordon Chu: I'm glad to pick up that point, because that is precisely the idea I'm trying to drop here in terms of what we are facing.

    Let me answer the question in two ways. In terms of space, we are very limited in Vancouver, there is no question about that, but we have ways to expand. In fact, we have a dedicated group of staff, of which I was part for the last two years, now looking to develop a long-term plan to expand the Vancouver port facilities.

    Yes, we have limited space, but we can find it. That would be a long story to tell, but we do have it. As well, with the downturn of forest products in the last ten years, we can convert one or two of our forests product terminals in the harbour into container facilities, so it is a question of choice.

    The major thing is that we don't have the financial resources to make that big jump. If we are going to implement this plan, we have to be able to back it up with major capital investment. We don't have the ability to do that. We know how much is needed. And as my president has been saying publicly, we're probably going to need $1 billion to $2 billion in the next ten to fifteen years to finance our infrastructure building.

    In the shorter term, although I paint a very gloomy picture for you, between now and 2005 we have the ability to increase by improving our productivity on the terminal to add about 350,000 container capacity handling, to make it almost close to 2 million. That is in the short term.

    In the medium term, if the forest product business does not come back, we may want to use some of the terminal space formerly used for forest products for containers. That can be converted very quickly.

º  (1650)  

    Mr. Raymond Simard: Merci.

    The Chair: Now Mr. Eyking.

    Mr. Mark Eyking (Sydney—Victoria, Lib.): Thank you, Mr. Chair.

    To Ms. Townsend, there are close to a billion people in China. I don't know if the figures are right, but probably two-thirds of them are on the land. I think I read somewhere that over the next ten to fifteen years the number of those who would be producing food could drop to one-third.

    Do you have an estimate of how much food will have to be imported in maybe ten to fifteen years? What percentage of the food consumption will have to be imported?

    It just seems they don't have a big land mass, with a lot of small farms, and they will not be able to produce food as cheaply as countries like New Zealand, Australia, the U.S., and ourselves. So how much will they be importing and how can we capitalize on that? How do we stack up in comparison to these other countries?

    I have one other question about the cotton gloves. That kind of went right over my head. Could you just enlighten me on that one again?

    Ms. Patty Townsend: I will start with the first one. We don't have an estimate, or at least I don't have it with me. I can try to get one for you. The beef industry has established ten-year targets for how much. In some areas in Asia, they are forecasting at least a tripling of possible or potential exports from Canada. But I'll look to see if I can find you some numbers and send them to you.

    The cotton glove issue was one that I threw in just to outline some of issues that seem kind of picayune but that actually stop exports. China decided it was not going to approve the wearing of cotton gloves in meat-processing plants. It is the standard in Canada and the United States that cotton gloves are the cleanest. They are the easiest to clean, and they're comfortable. That's what everybody uses. But as they were going through their approval process for meat-processing plants in Canada and the United State, they told the Canadian meat-processing and exporting industry that they would not approve the use of cotton gloves.

    Mr. Mark Eyking: What do they use in China?

    Ms. Patty Townsend: I don't know.

    They do use cotton gloves in the States, and all of the plants in the States got approval, so there is some reason other than the cotton gloves. What's happened is that there has been a suspension of that decision. They've put it on hold because they do realize now that the U.S. also uses cotton gloves, and they have all of their facilities approved for export. So the Canadian industry was able to get that decision suspended until they can come up with something that applies to everybody.

    Mr. Mark Eyking: With China, I don't know if that figure is right, that they could be only producing half of the food they consume. If that is a fair statement, that it's ten to fifteen years, is the Chinese government...? Because Japan has a real problem with that. That's why they have all this protection with rice and whatever.

    Does China see this as well, that we're going to be shipping all these goods to North America, so let's not get all hung up if we're bringing food back? Or is it a major concern with this big exodus of people going, or are they going to let their market...? What is the sense there?

    Ms. Patty Townsend: We met with the Chinese delegation mission people when we were in Geneva last month. We talked to them extensively about opening up trade. China doesn't subsidize as highly as Japan does, or at least the protectionist aura is not quite as large, but it's the bureaucracy in China and the difficulty in understanding how to get into that market--as Bob mentioned, just figuring out how to fill out forms and answer questions, who to talk to. And they change things. For example, with the biotech regulations, they put in an interim set of regulations, and they change those requirements without a whole lot of notice.

    That's where we've found that the Canadian mission staff has just been excellent, because they've helped guide us, especially our canola industry, through those changes that they make without a whole lot of notice.

    We see a tremendous potential in China, because they do see Canada as a good, clean source of supply of good-quality food, we hope both in the bulk product and in the processed product. It's just a matter of working our way through these barriers, both clear tariff-type barriers and the non-tariff barriers like the cotton gloves.

º  (1655)  

    Mr. Mark Eyking: I have another question. If these people are becoming urbanized, are their food preferences also changing? Would you see a bigger opportunity for us to ship potatoes in there? Would the people be eating more potatoes in these areas, and beef and pork products, where maybe they were eating soya products and rice? Is that whole thing going to change, and do they see that happening too?

    Ms. Patty Townsend: I think a lot of our members are banking on that. It's known that as wealth increases the demand for different kinds of food increases, especially meat products. There's a shift away from grain-based, rice-based products to meat-based products and further processed products. So that's what we're trying to do now, to develop those markets and break down those barriers so that we can bring in the more specialized products and further processed products in particular.

    Mr. Mark Eyking: Right now, I think 75% to 80% of our agricultural exports are to the U.S.

    Ms. Patty Townsend: It's about 60%.

    Mr. Mark Eyking: How much is to Asia, or China?

    Ms. Patty Townsend: I don't know.

    Mr. Mark Eyking: It might be only 5%?

    Ms. Patty Townsend: It's not a huge market right now, it's more a potential market.

    Mr. Mark Eyking: But if we have our ducks lined up in ten to fifteen years' time, we could conceivably export almost as much to China as to the United States.

    Ms. Patty Townsend: At least, yes.

    Mr. Mark Eyking: Do you want to add something?

    Mr. Robert Keyes: No, I was just agreeing with what Patty was saying. As well, I was reflecting back on a conversation I had at a meeting with the Japanese last week about the need for us to process and prepare food exports into Japan in a form that's going to meet what they want and be readily acceptable. There was discussion about this from the new JETRO advisers about microwaveable food, and having it ready in a form such that it can just be popped into the microwave oven and be ready to go. That would have ready acceptance.

    The problem is, we have to meet some very high challenges in terms of sanitary issues and food quality issues. That's another issue that's high on the radar screen of the Canadian chamber in Japan.

    I'm sure Patty knows all about that, much more than I do.

    The Vice-Chair (Mr. Stéphane Bergeron): Monsieur Casson.

    Mr. Rick Casson: Thanks, Mr. Chairman.

    Patty, just a question. This week a deadline was missed at WTO, the next round of talks on agriculture.

    As well, Mr. Keyes, you mentioned the fact that dealing with groups of countries seems to be far more burdensome and harder to do than dealing bilaterally. I might have misinterpreted you again, but you can explain that.

    How important is this next agreement at the WTO for our future in Asia?

    Ms. Patty Townsend: We do have a number of bilateral and pluri-lateral agreements in Canada, as you know. I think a lot of our members--and I'll use sugar as an example--find that those are not to the benefit of their industry, because there are also bilateral agreements between other countries in the world that give preferential access, and we can't get in. It's critical that we have a multilateral system where all countries are subject to the same rules, and we're all playing by the same rules, all maintaining the same sorts of support systems under those same rules so that we can all trade more fairly.

    We believe, in our industry anyway, it's critical to the well-being of a lot of our members--for their continued growth, and for some, for their survival--and we have a lot of eggs in the WTO basket right now.

    We were really disappointed that deadline was missed--not surprised, but very disappointed. Countries just aren't ready yet to really start to seriously negotiate agriculture, and I'm kind of hoping that they don't miss another deadline on services, because I think some of the other parts of the Doha development round are going to help drive agriculture.

    For example, with the European Union, they don't want to move on agriculture at all, but they really want to get an ambitious agreement in services. So we need to have this multilateral, multifaceted kind of negotiation so that we can get benefits for everybody.

    Mr. Rick Casson: So the levers we could create in trying to come to an agreement on some of these other issues would help the agricultural portfolio--

    Ms. Patty Townsend: And conversely; for a lot of other countries, getting something in agriculture will help them to give up on other areas as well. That's why it's so important that we continue to move this thing ahead.

»  (1700)  

    Mr. Robert Keyes: I agree. Agriculture is a linchpin in these negotiations, and there are so many other items on the agenda that are really contingent on the agriculture problem being solved and there being movement there, as much from the perception of developing countries, because a major portion of their exports are agricultural goods; they want access to the developed country markets.

    So they're not going to play the game with us on the issues that are important to us--services, for example, and investment, and other issues--unless they see movement on the agriculture side. It's a very difficult problem. As to whether it's intractable, some days one almost wonders.

    Mr. Rick Casson: Patty, in terms of our meat-packing plants, is there a problem there, in your estimation, or is there something going on here politically between the Chinese and us?

    Ms. Patty Townsend: I don't think it's a problem with the plants. I think our plants are as good or better than the plants in other countries. I think it's just a case that the U.S. is a lot bigger than we are, and they have a lot more to offer China than we do, and it's a lot easier to deal with the United States. The GMO or biotech issue is another one where we found that where genetically modified soya beans were accepted into some parts of Europe...and canola was shut out.

    So it's more that they're a whole lot bigger than we are, and they have a lot more to offer in exchange. I think that's probably more the issue than anything else.

    The Vice-Chair (Mr. Stéphane Bergeron): Why do you say it's easier to deal with the United States?

    Ms. Patty Townsend: I'm not saying it's easier; I'm saying that they have a lot more to offer in terms of a larger market, and they have more control, more power. It's just that you have to pay attention to the United States, because they're bigger than we are.

    The Vice-Chair (Mr. Stéphane Bergeron): Okay.

    Monsieur Casson, or Monsieur Simard.

    Mr. Raymond Simard: I have probably one last follow-up question. Actually, I think Mr. Casson probably addressed what I wanted to know in terms of the WTO. I wasn't sure what you wanted from us in terms of how we can help in that respect, but I think you've answered it.

    To Mr. Chu, first, is the port authority profitable? Two, you spoke about American ports, about eventually the American ports perhaps receiving our products and then delivering over the border. Is that happening today, and if yes, to what extent?

    Mr. Gordon Chu: Do you mean the Canadian cargo?

    Mr. Raymond Simard: Canadian goods delivered to, say, Tacoma or Seattle, and then delivered back into Canada. Is that happening a lot?

    Mr. Gordon Chu: To answer your first question, yes, we are a very profitable port. We have a gross revenue of about $100 million, and our net revenue is between $30 million to $40 million a year. So we are.

    Mr. Raymond Simard: I'd like to follow up on that. If you're profitable, and we decide to bring you more business, wouldn't it be to your advantage to build, to expand?

    Mr. Gordon Chu: Most definitely; most definitely. However, the revenue, the cashflow itself, will not be able to finance the $1 billion to $2 billion in required cash to build that kind of facility.

    I just want to also follow up on a question that you asked about what kind of strategy for China would work, and also what are the success stories in China.

    First of all, I think a lot of points have been mentioned about doing business in China. I can tell you that in 1993, when I opened the office in China, it took me six months--six months--to just apply and get approval for a phone line into my office. It took ten years, and I'm not kidding, to actually convince a Chinese shipping line to call into Vancouver. But I succeeded.

    So that's how long it takes. It takes a lot of patience, deep pockets, and political and personal contacts. That's why it is very difficult, if not impossible, for a small business to break into the Chinese market.

    When I came back from China, a lot of people came to me to ask for advice on how to get access into the market. The first question I asked was, “How deep is your pocket?”

    So if you don't have the cash, don't even bother. That is why it is so important that government and major enterprises in Canada....

    There have been some success stories. Nortel was one of the pioneers, and Canpotex, who exports potash to China. Canpotex potash is probably one of the best marketing stories of introducing potash from Saskatchewan into China.

    Now, somebody asked a question about the gloves. To deal with China, what you hear and what you see is not what you need to deal with; it's what you don't see that you need to deal with.

    Some of you may know that there are two kinds of potash, the pink and the white. What's the difference? There's absolutely none. The two are just the same. But the Chinese would prefer the pink one. Canpotex in the very beginning in their marketing strategy somehow instilled this knowledge, saying that the pink one was better than the white. But there's absolutely no rhyme or reason, since the white and the pink are the same. I'm not a scientist and I'm not a chemist, but to me they're the same.

    In the Chinese market there are a lot of difficulties, but it's no different from any emerging market in the world. That's why I have to give credit to all the staff, the trade commissioners in DFAIT, who are doing a tremendous job all over Asia; in the rest of the world, I don't know, but I deal with them.

    Back in 1988, when I first went out to Asia to promote the port of Vancouver, our business, we had no Asians, or our own officers. The only persons I relied on were the trade commissioners, and they've done a tremendous job since then. But throughout the years--and I've worked with them--I've seen them either not grow in terms of resources or actually be depleted.

    Then I look at Australians; when I worked in China, they were our major competitor in the market, especially in agricultural products. They've grown in leaps and bounds. Their people in the commercial side...and all you need is to go and talk to the Australians.

    They are being shortchanged, in my view. I'm not saying this because this is a DFAIT committee. I'm saying this because, from my personal experience, I think that is what we need to do, to access the market, to deal with what I call unfair competition. Those are the experts in the field, our eyes and ears to get into the market.

    Thank you.

»  (1705)  

    The Vice-Chair (Mr. Stéphane Bergeron): Mr. Keyes.

    Mr. Robert Keyes: Before the hearing started this afternoon, I was talking to the clerk about your travel plans, and where you might go. I was asking if Korea was in the travel plans, and it didn't seem that it was.

    I would just mention to you here that our friends in Korea have done a SWOT analysis, and they've put down here, under “Opportunities”, that “Canada has established a standing committee to re-evaluate trade opportunities in Asia”. Given the importance of Canada-Korea trade, if Korea could be on your agenda, I would encourage it to be there.

[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron): Thank you for your comment, sir. We will be taking that into account.

    Mr. Calder would like to ask another question.

[English]

    Mr. Murray Calder: Thank you very much, Mr. Chair.

    Gordon, I have just one quick question. I've been out to Vancouver, and I have seen it. It's very impressive, with stacks and stacks of intermodal containers. If we increase the harbour size, what about the rail infrastructure, which is taking the intermodal freight away? What are you going to do about that?

    Mr. Gordon Chu: Excellent question. I think one of our advantages with the intermodal system now, at this moment, as we speak, is our very efficient CN and CP hinterland. That's the one edge we have. In fact, I mentioned that in a paper I presented to members. They are now a truly coast-to-coast transcontinental railroad.

    The American railroads may have longer or more trackage than the Canadian, but they are not truly transcontinental. Our railroads are, east and west and north and south. The Americans are separated into two theatres, the west coast and the east coast. So if you're a shipper in Japan, you have to deal with more than one railroad in order to get your goods into North America.

    To answer your question directly, in the meantime we have capacity, but if we want to capitalize on the future growth to four million or more containers through the port, we need to have major infrastructure improvements on our railroad system as well.

»  (1710)  

[Translation]

    The Vice-Chair (Mr. Stéphane Bergeron): Mr. Simard? Mr. Eyking? If there are no further questions from members and if our witnesses have nothing to add, I have only, then, to thank our witnesses once again for having accepted our invitation and to thank them for their presentations, which were indeed very informative.

    The meeting is adjourned.