:
Mr. Chairman, thank you very much. Good morning to you all. Maybe I'll just make a very brief opening statement and then go to questions.
In my 27 years now at EDC, I've been witness to many changes in our clients' needs, in the norms of our marketplace, in the expectations of customers around the world, and in our own ways of doing business. That was always the basic assumption to any discussion in global commerce, that change is inherent to it. The real difference, however, that we're experiencing today is the pace of change. Things move faster, things evolve much more quickly, new players arise. If we cannot keep pace, there are a lot more alternatives out there that probably can and will. International trade, as we know, offers Canadian business more opportunity than ever before, but there is also more and there is fiercer competition than we have ever faced before.
Throughout what is now a 60-year history of EDC—we're beginning our 61st year—EDC has been a relevant player, I'm proud to say, internationally for Canada. As a key element of the government's trade agenda, EDC has been a strong contributor to building prosperity, jobs, and growth in Canada. At the same time, none of us can take it for granted that the models, be it the products, the services, the theories, that have served us well in the past will serve us well in the future, and I include EDC in that assessment. I am committed to ensuring that we at EDC will know our clients well. If we're going to understand their needs, we're going to have to understand intimately their plans. I will ensure that we are fully engaged with Canada's investors and exporters from every industrial sector, from every corner of the country, and indeed for every size of business.
My EDC career has been focused on delivering the financing of risk management solutions that Canadian businesses really need to succeed abroad. I would say that during my tenure as president I want to ensure that through EDC the Government of Canada will have an organization that's not just efficiently delivering what's needed today, but is able to anticipate what's needed tomorrow.
Thank you. I look forward to your questions.
:
Mr. Chairman, I thank the honourable member for the question.
Let me go first to small and medium-sized enterprises, because they actually form the core of EDC's client base. In fact, more than 90% of EDC's overall customer base, which is approximately 7,000 customers, are small and medium-sized enterprises, and have been for some time.
In terms of aggregate support, last year we supported some $15 billion of insurance and financing just at the small and medium-sized level. So it is, and will continue to be, a very important component during my term of presidency.
What we have done to increase our reach, and ultimately to increase the size of the customer base, is to restructure the organization. Actually, during my interim presidency I commenced what we call an integration project, in which we were now separating the business development function from our underwriting function, and we were actually moving more people into the business development side of the business. We increased the size of our complement by over 50 people.
We have increased the number of people who are out there in the regions, actually. We have also introduced dedicated account management, not just at the large customer end but at the mid-market and at the small end of the market. So we're really increasing our overall customer interface capability.
The other aspect that we're increasing is our delivery channels through the financial institutions. Over 50% of EDC's products and services are delivered through Canadian financial institutions, or where the financial institution is actually the beneficiary of the coverage. And of course they have a tremendous reach out there to their client base. So we are working to tap that delivery channel as well as our own direct delivery channels in order to be able to reach out to more of those customers. Some of that will be a function of actually designing products specifically for each bank and/or combining that with technology to be able to reach those players more effectively.
Thank you, Mr. Siegel. Congratulations on your appointment as well.
In my time as a member of Parliament working with local businesses in my constituency in New Brunswick, I've had a chance to see first-hand some of the good people who work for Export Development Canada. The people in the regions whom I've met, without exception, have been outstanding people trying to fit what tools they have to meet the needs of clients, often in industries and in a region of the country where sometimes it's not obvious to see where they fit in. So my experience with your regional staff has been, frankly, very positive, and that's why I would like to ask a question that builds a bit on what you said a minute ago.
Often financial institutions use the products and services you're offering as comfort when they're entering into a business relationship or a transaction with some small company, for example, that exports seafood. In my part of New Brunswick, exporting shellfish and seafood is a big industry and it's fraught with complicated transactions and dependent on a whole bunch of factors that often the small-business person himself or herself can't control. That's why tools offered to them by EDC can be very valuable--in fact, even having a financial institution look at an application that they may have, be it for a line of credit, be it for export purposes.
I'm wondering if you have any specific plans to try to make EDC a visible presence in small communities and small-market economies. You talked about that a minute ago. I'm wondering if you could expand on that.
For example, in New Brunswick I think many business people don't understand the advantage, in many cases, of dealing with EDC or meeting with EDC officials to see if there are places where you could help and offer appropriate services. Are you going to aggressively look at that? They see EDC, in some cases, as an Ottawa institution that services large companies in Toronto or Montreal or out west, and they don't realize that in many cases a very complementary relationship can develop.
I'm asking you to promote that more and to give the people you have in places like New Brunswick more resources so that they can try to get more clients for your company, because I think in the end they'll benefit from a relationship. Both sides will, both EDC and the client.
:
Mr. Chair, I want to thank the honourable member for his question. If he does not mind, it would be easier for me to answer in English.
[English]
The member is quite right. EDC is set up as a corporation, so we are intended to be self-funding. EDC has in fact been profitable in every one of its 61 years of operation. More recently, EDC has actually had a more significant profit. Last year it was some $1.2 billion, roughly equal to the same profit we reached in 2004. We expect a profit level somewhat comparable to that this year.
Basically, in size, EDC has a little over a thousand permanent employees, about 90% of whom are based here in Ottawa. The balance of them are spread through regional offices across the country, along with ten representatives that we have outside of the country in specific markets, such as emerging markets where Canadian activity is very important and building.
The corporation runs a series of insurance products and services, as well as financial services or lending services. It's actually the lending that generates the principal revenues of EDC. Insurance contributes to that, but it's about a 90% contribution from the lending side of the business in terms of general revenues, and about 10% comes from a variety of insurance products.
Out of those revenues, EDC not only pays its administrative expenses but sets aside all of the provisions for future operations. It sets aside a loan provision and it sets aside a claim provision, in order that in the event that we have loan losses or something against the insurance claims—which is part of the business—we draw that out of the claims and we do not have to go back to the shareholders for any equity.
The government has a paid-in equity position of just slightly less than a billion dollars. The cumulative equity now, if you take the equity paid in, retained earnings, and then you take the provisions that exist, is in excess of $8 billion against a total asset base of about $20 billion. Now, that $20 billion is basically the loan assets, and over and above that $20 billion, we have contingent liabilities that relate to all of our insurance operations. Last year those totalled about $55 billion in insurance and about $10 billion in new financing underwritten.
:
My vision has been for some time that EDC has to operate as a globalized type of entity, which means that EDC can't be just a sole provider of service directly. EDC has to be partnering with a number of players internationally in order to ensure that we're getting the kind of coverage we need.
My vision has also been that while EDC is really needed in all markets, both developed and developing markets, probably the sweet spot, or the area that is most mandate-rich for EDC, is what it can do in emerging markets. We have always set, and will continue to set, very strong objectives for having a disproportionate amount of our penetration, particularly relative to Canada's export profile, coming from emerging markets.
What we have also seen of late is the growing importance not just of supporting export but of actually supporting investment abroad. I think we're seeing a world in which borders mean less and will continue to mean less and less.
My colleague will speak about integrative trade and the impact that has, but it really means that we have to look at markets in terms of how Canada benefits from those markets and how we get into those markets in order to benefit, not necessarily as just an exporter to those markets but as a beneficiary of what those markets can do for our overall competitiveness. So more and more of our thrust will now be placed on helping players invest abroad and on actually supporting their affiliate in that market with the same sorts of services they could get if they were an exporter here. To do that, however, means that in some cases we have to deal with regulatory hurdles in those particular markets, so we need to partner with players on the ground.
Also key to that is the reputation that EDC has as a very credible international financial player. So included in that will be an expansion of EDC's on-the-ground presence in those markets. While we have 10 players right now who actually reside outside the country--in China, in Brazil, in India--we see that doubling in the next two to three years, and potentially growing beyond that. EDC can use its credibility to actually target the companies and the key sponsors in those particular markets who are going to have the most interest and the most to gain by developing relationships in Canada. So EDC becomes a facilitator of connections on behalf of companies of all sizes. We're doing that now.
We engage in a lot of what we call pull-strategy deployment, where we go into a particular emerging market, identify the key business players in that market, and attempt to establish a financial connection with them, provided that they will allow us to ultimately introduce Canadian capability of all sizes to them. And then, teaming up with industry associations and teaming up with our government partners and colleagues, we try to bring in actual missions and reverse missions to really draw the connections between those two countries in order to lever up Canadian capability.
Get people really invested on the ground, and really get some core capability. Then you just build upon that. You try to expand, or thicken, what you've already been able to establish there.
Clearly partnerships are going to be a much more important part of EDC's future going forward, not just with Canadian financial institutions but with international financial players. And we have been actually engaging in some strategic secondments with players who we think will be important to know in the future. They have to know us and we have to know them so we can truly partner on a mutually beneficial basis in order for us to get greater access to some of these markets.
I would also say that while small and medium-sized enterprises will continue to be very important in our overall thrust, we also have to ensure that we have more successful transnational corporations. That means we need to take the players who are currently out there. Some of them are larger firms. From time to time there's a sense that they don't need us, but actually, they're the ones who need even more backing from us to ensure that they have a very solid footing and that they can expand. And with that, they become a draw for smaller and medium-sized players to actually come into the market, either as part of their supply chain or just because they have created the on-the-ground presence of Canada and have therefore encouraged those players to come into that market.
:
I do, Mr. Chairman, just a few remarks. Thank you very much. I won't duplicate what I sent in my submission, but just elaborate on a couple of things.
Thank you very much for the opportunity to talk to you this morning.
[Translation]
I will make my presentation in English, but please feel free to ask your questions in French.
[English]
It's very important that we understand well how international trade is changing. I'd go far enough to describe this as a new paradigm of international trade, because it just isn't the way we used to think of it.
Mr. Siegel mentioned quite a lot of things about EDC. As I pass on to the next topic, I want to mention a couple of things that didn't come out in the discussion. Last year, in 2006, EDC facilitated $66 billion worth of transactions for Canadian companies that operate abroad, be they exports or investments, and 90% of this was with small and medium-sized enterprises. In total, 6,800 companies were helped this way.
As we touched on at the end, all those transactions must pass a Canadian benefits test for us. We have to be able to see where they will benefit Canada. We estimate that the transactions we facilitated helped to contribute 3.9% of Canada's GDP last year. That's with no fancy economist multipliers, Mr. Chairman; it's just the nuts and bolts of the transactions.
The international trade paradigm is evolving, as I described in my submission. I thought I might emphasize a couple of points by telling you a 50-year story.
The story begins in 1955 when the economies of the United States and Canada looked rather similar, at least in terms of their manufacturing sectors. Thirty per cent of the workforce in the United States was in manufacturing, and in Canada it was 26%. In the United States—let's focus on them—there were 15 million manufacturing workers in 1955, which was 30% of those working. Today 10% of the U.S. workforce is in manufacturing, and there are 14 million workers. There are fewer total workers in U.S. manufacturing today than there were 50 years ago.
What is important about this story is that those 14 million workers today are six times as productive as they were in 1955—a factor of six. This was done by embracing the integrative trade model that we talk about in the submission. Today trade is four times as important to the U.S. economy as it was in 1955, and the trade that has grown is not just exports. We don't really think of the U.S. as a big exporting nation. They are a pretty big exporting nation, but it's not really that important—not like it is to us. But the embrace of trade has two dimensions. It's not just exporting, but using trade as a tool of supply to make your company more efficient and able to do the same thing, but with fewer workers, or perhaps growing other dimensions of the business. So that has happened in spades in the United States during the last 50 years.
I tell you this story because a lot of people think, including when I made reference to Mr. Friedman's book, The World is Flat, that this is not that new a phenomenon. This is a trend line. If I look at the manufacturing workers in the United States, it's a straight line for 50 years.
Of course, none of us would say that the past 50 years have been bad for the U.S. economy; they've been extraordinarily good. So this is a picture of progress.
Indeed, you'll see in the newspaper tomorrow that the U.S. trade data came out for December, which gives us a full year, and in the articles I'm picking up on my BlackBerry—a great Canadian product, by the way—it says that during the Bush presidency three million manufacturing jobs have been lost, and there are people who say it's because of unfair trade. It's blamed on the trade deficit with China. On the contrary, what has happened in the U.S. during this time is that they've continued to globalize and increase their productivity. They've had a “productivity miracle”, as we call it, and in fact they've created more than eight million other jobs in the process. Approximately seven million of those jobs are in higher-paying categories than the ones lost during the manufacturing restructuring. That suggests to me that this was a pretty important success.
If I can go to Canada for a moment, there is a difference. We had 26% of our workforce in manufacturing in 1955—1.4 million workers—and today we have 14% of our workforce in manufacturing. It's a very similar story to the U.S. However, our productivity has risen by five times, not six times as in the U.S. Our use of trade as a tool has doubled during those 50 years, whereas it has quadrupled in the U.S. This, I think, is the most important difference between the two economies and the reason we have a productivity or competitiveness gap, which we so often discuss. That suggests to me that Canadian companies are embracing this new paradigm, but they have done so more gradually than their American counterparts. Nevertheless, we can see that is happening.
I want to briefly turn to EDC's role in this. As Mr. Siegel mentioned, we facilitate many aspects of that. Very often it's just a matter of breaking into new marketplaces. Twenty-three per cent of what we did last year was in emerging markets--something like $15 billion of new business for Canadian companies.
It also may involve investing in a foreign economy in order to set up a foreign affiliate or to have a supply chain provider that improves Canadian companies' efficiency. For instance, the pieces of our famous BlackBerry come from seven different countries. Even though the idea, the R and D, and some of the manufacturing happen in Waterloo, there are seven other countries involved in supplying the parts for this fantastic product. Indeed, last year EDC helped Canadian companies invest about $6 billion in those foreign countries in order to build those kinds of supply chains. That will have a direct contribution to our productivity.
In our corporate plan for the next five years, which has been approved at Treasury Board but will be tabled this spring, we have three pillars. First, this is connecting with our exporters and investors. That's why Mr. Siegel talked about putting more people on the ground, to make sure we are intimate with the Canadian companies' business and understand how they have to deal with this foreign competition and how to capitalize on it.
Second, we have facilitating integrative trade, which is a broader, more high-dimensional picture than traditional exporting. There's much more to it today, and we need to facilitate all the dimensions to help a company truly prosper and grow their employment here in Canada--their footprint, as we described.
Finally, there is leveraging of EDC's resources; in other words, to use our partnerships, in particular our capital, for sure, and our partnerships with financial institutions, to get even more mileage out of the things we do. Over 60% of the transactions we did last year were in partnership with commercial financial institutions.
As you can tell, we're very proud of this. But we are trying to do many other things. I'll mention a couple of them before I conclude.
One is increasing our global footprint. To give a recent success story, for instance, 15 months ago we established a representation in New Delhi. The business volume for Canadian companies in 2006 tripled compared to 2005. We're very pleased with the way that started. We of course know that there's a great deal of potential for Canadian companies in that market space.
Another example was jumping in when the need was there. As you recall, during the year the auto sector was under considerable stress, and the suppliers to the big participants in the auto sector were therefore also under stress. These of course are mostly exporters. EDC introduced new tools during that time: new insurance programs specifically aimed at that gap in the marketplace. At the time, the private marketplace was actually drying up.
Those are some examples of what we can do. I look forward to your questions about integrative trade and other things connected to that.
I will conclude with a few concrete proposals that I think might be of interest to the committee. I think the illustration from India is a good one. We have a lot of other places where there are great opportunities for Canada. I think, in general, Canada needs more feet on the ground in the world--both Foreign Affairs and International Trade people and EDC people, who are their partners. We need to facilitate that as best we can. EDC has a plan for this, but it could be much broader and more embracing. We could have an important increase in resourcing on the ground out there; other countries do.
With respect to foreign investment protection agreements, I mentioned that the integrative trade model is usually driven by an investment. Indeed, just to illustrate, Canada has about $460 billion worth of exports per year, but we also have over $400 billion worth of sales from our foreign affiliates that are operating abroad. So there is another Canadian economy operating out there that is just as important to Canada as its export base, and that is, of course, financial institutions, insurance companies, companies like Bombardier and Nortel--global companies.
For those companies to do that, free trade agreements would be wonderful, but they're very difficult to do. Foreign investment protection agreements are narrower, more focused, and easier to accomplish, and so it wouldn't be a bad idea, I think, to take a two-track approach as much as possible and get as much investment freedom as we can.
We need more collaboration among the provinces. Often I'm told that our branding is dispersed, as we have out in these marketplaces visits from groups from Ontario, from Quebec, and from Canada. We have everybody trying to capitalize on these new markets. That's excellent, but the brand can sometimes become a little bit fuzzy.
Another suggestion is to build industrial parks in strategic markets, in places Canadian companies could call home. They could actually lease a small place in a Canadian industrial park, let's say, somewhere in India or in China, where they would then have an atmosphere in which everybody's in the same boat. That sort of thing, I think, can work well. Other countries have tried this.
Finally, I'd like to suggest that we overinvest in our trade infrastructure. By trade infrastructure I mean a variety of things, but one of the important things would be ports, rail, and bridges--the actual physical connections that are necessary for trade. One of the things that Canada can capitalize on is its unique relationship with the United States. Canada could actually become an important trade hub for the United States. We see some evidence that this is happening, and I think it's something that we could encourage. Even if we aren't adding value to the goods as they pass through, we can earn, say, a thousand dollars per container as a service for handling that trade, and that's a good business to be in.
I'll stop there, Mr. Chairman. Thank you very much for the time. I look forward to the committee's questions.
:
Thank you very much for those two questions.
The minister is right in the sense that it does appear that other countries are having a disproportionate success with China. However, I wouldn't be quite that negative perhaps, because I do think we have to take to heart some of the lessons of my submission--for example, that trade has become triangular, that the bilateral relationship is not a good way necessarily to summarize the total relationship.
For instance, a smaller Canadian company might have a great deal of difficulty breaking into the Chinese market directly; however, it may be quite a global company by breaking into the supply chain of a major American company that is actively exporting to China. Some of our trade with the United States may actually represent global trade, because we are one of the links in the supply chain. In fact, I'm certain that is true, because we actually speak to those companies. So that's one thing to bear in mind.
I see China at the moment, of course, as the major opportunity for us, but also as an important place for us to use the integrated trade model to supply ourselves. It may be that China is one of our biggest suppliers today, as it is for the United States, for instance, a supplier of low-cost inputs to some of our products, such as this one. And then we export those things everywhere...whereas five or ten years from now China may become our biggest customer.
I would remind everyone of our experience with Japan. Back in the mid-1980s people were sending people to Japan to find out what the secret was. How was it they were taking away all of our business? That was very instructive, but by 1992 or 1993 that story had gone away, because Japan had reached its full maturity and now was one of our biggest customers as opposed to that ultra-competitive manufacturing machine. They have moved decidedly up-market. And of course they compete with us on those fronts, but it's not like it seemed back in those days.
Coming around to how EDC can help, first of all, I hope I've helped you to understand some of those numbers, but how can we actually help to develop trade? We have our feet on the ground. We have two representatives in China, one in Beijing and one in Shanghai. We expect that is going to grow over time. We of course collaborate directly with our trade commissioner colleagues from the embassies and consulates. As I said in my presentation, that's exactly how we need to grow those things. It's that face-to-face nature of the business that is very important. It isn't just people buying something over the Internet and ordering it; it's a relationship business, especially in the services end of the business, which is growing so rapidly. EDC helps in the form of facilitating. In the past year, for example, EDC did facilitate $1.3 billion worth of transactions in China. It's not insignificant, but we know, of course, there is a great deal of potential for growing that.
Turning to the branding question very briefly, I think the representation is the way to do that. I think the Canadian success stories are starting to get around. It's amazing just how widespread this one is, and when people see that as a Canadian story of a global company, that is the kind of success story.... And there are others: Husky, Nortel, Bombardier, and SNC-Lavalin. Those kinds of companies have gone global and are right in the actual trenches where the transactions occur creating that Canadian brand.
:
Obviously I can't comment on the specific case; that's a matter before the court. But let me explain that EDC credits insurance. We provide receivables insurance. We're not the only provider of receivables insurance; in fact, there is a private market, and there are a number of private market players that provide this same product. The same principles apply to EDC as to the private market, that is, we provide a coverage for exporters against receivables that they wish to incur with foreign buyers. They have to approach EDC as they would have to approach the private market, and they actually have to get an approval for their ability to ship against a foreign buyer.
From time to time the risks will change, and the insurer will notify the insured if there is a change in risk that affects the price under which they're prepared to provide receivables insurance on a going forward basis--not retroactively--or if they're no longer in a position to provide that coverage.
You'll appreciate that in the private market they are not only providing that insurance, they are actually calling upon the reinsurance market to provide a great deal of capacity, and the reinsurance market is prepared to do it on the basis of the program's being structured in that way.
So EDC's coverage is no different from the private market's. This is a product that has been offered for many years, and this is the basic convention on which it's provided in order that the insured understands what coverage they are getting, and the insurer is able to provide adequate risk coverage.
Now, at the same time, Mr. Poloz indicated a situation that we faced in the automotive sector, where that type of coverage would not provide the type of protection that suppliers to the automotive sector might need. For instance, there was a risk that General Motors might file for bankruptcy, and we had suppliers who were under contract to provide goods and services or parts to GM for, say, a period of a year. If there were to be a filing by General Motors, they would find themselves in a situation whereby they had goods that had already been shipped for which they were not going to be paid, and in fact might have had to continue to provide goods, notwithstanding the bankruptcy. They wanted to seek out coverage for that.
At that point, conventional reinsurance would have.... The private market was doing exactly what it would do. When the risk got to a point where it was prohibitive, they were saying they were not going to insure new sales into General Motors. Anything that had been insured under the existing policy continued to be insured until one had been paid, or if not paid, one would be able to claim under the insurance.
EDC stepped up and provided a whole different insurance policy in order to cover the new risk and provided, in a sense, a non-cancellable period of coverage for a period of time until the disposition of General Motors was better known. Ultimately, when the filing risk went down with General Motors, parties returned to the conventional receivables insurance.
To back up a little, the story really doesn't distinguish between goods or services, but what it envisions is that the process of taking an idea and ending up with a sale, whether that sale be of a service or a good, usually involves a sequence of activities, some of which could be thought of as services and others that involve merchandise in one form or another. We usually think of the ideal model as being a vertically integrated firm that has just the right combination of things in-house, and from basement to top floor everything happens and they earn a nice cheque from somebody abroad. That's the traditional export model.
What is happening in this world of better communications, lower trade barriers, and better logistics providers is the ability to take that model and disintegrate the firm, and take the pieces, whether they be service or production pieces, and locate them globally wherever they make the most sense to the company. With that disintegration of the company, what you need then is international trade to tie it all back together again so that you can actually do the export trade.
You need to do trade twice, as a supply process and then as a final sale process. What that means is the productivity improvement that the company enjoys depends on the distributed model. If you're unwilling to take this slice and move it to India, let's say, for some reason or another, you don't pick up those extra few percentage points of productivity improvement domestically.
If it's a low productivity task that we're talking about, if you move it to another country, it just disappears from Canada's statistics. Therefore, you get the so-called productivity miracle that the U.S. has enjoyed, and you can argue that although, of course, there are people who do that low-productivity task, their jobs are at risk from that reallocation globally.
The improved purchasing power and the extra income that is generated generates jobs in many other sectors. The biggest one in Canada has been in the construction sector, as the higher incomes have generated a much bigger demand for housing, bigger and better houses and additions and all that. So there's been a lot of construction work.
That's why we have record low unemployment even though this is going on, because people are transferring into other sectors of the economy that are expanding as a result of this underneath phenomenon. That's why it's important to keep in mind that it's a 50-year story and not one that just began a couple of years ago. We've been coping with it year after year for two generations.
The end of your question before was what is EDC doing to deal with this transformation that is in services as opposed to merchandising, and this connects directly to your question as well. We have never drawn that distinction per se. Many of the companies we work with are service providers, like engineering companies. The very big foreign operators are the best example. The same kinds of products and services that we offer to companies that produce goods are there for companies that do services. But there are things that they use more, such as contract insurance or bonding services. An engineering company may have to post a bond to guarantee they'll be done the job by a certain date. We'll insure that bond for them against wrongful call, and it reduces the draw on their capital at the banks. That's the way we work with their institutions.
What sectors are really taking advantage of integrative trade? Probably the answer won't surprise you. They are companies in the advanced technology business, the telecom business, the aerospace business. When I talked before about trade penetration, or the importance of trade to the next dollar of GDP, 15 years ago 38¢ out of every dollar earned in the world depended on international trade. Today it's almost 60¢ out of every dollar. It's a 50% increase in the importance of trade, and it's because of this growth in what I call the supply trade, the trade that happens before the job is done.
If you look at it as a company, how deeply does trade penetrate the business model, there are companies in these sectors that look like Hong Kong. They import stuff by the tonne and export stuff by the tonne, and it all adds up to far more than the actual size of their company. It's because they need massive amounts of inputs, they're adding their value to it, they're doing something to it, and out go those same massives, but with the additional value added. That contribution to GDP is just that nexus of what they add on the way by. So we'll see, routinely, companies in the AT sector with trade penetration of 150%. Their revenues might be 100%, but they trade 150%, exports and imports.
The service sector as well--I mentioned engineering firms. We have many engineering firms that have set up offices abroad, who are thereby creating global models both of supplying and providing. So they'll have a project, and some of the work will be done in more than one office around the world, in different time zones perhaps, and indeed the actual delivery is then face to face.
I should mention financial services: a very big exporter and a big contributor to the numbers I mentioned before, which are foreign affiliate sales. A Manulife Financial or Sun Life, for example, has big operations out there. They've made these investments, and they provide those services directly, face to face, and of course the cheque ends up finding its way back to head office and generates income back here.
You have companies that are transforming to become global. In many cases it's do that or shrink, because their competitor is doing so. If you're in a highly competitive business such as a telecom equipment provider, there are all kinds of providers, so you have to be on the cutting edge. If they're doing it with a global model, they can provide a telephone handset for $100, and yours is $200. If the BlackBerry were $600, fewer of us would have them, that's for sure. It's that global model that allows the cost to be as low as it can be.
But you're right, for the companies confronted by this change, such as those in the textile business, it's a very big thing to transform yourself, but it is the kind of thing EDC has helped companies to do. Often it means they'll say, for example, “I'm making this garment. I need to cut my costs. I know somebody, and I can take advantage and buy this little factory in India to cut my costs on some of the pieces of this garment. That way I can preserve jobs here and I create jobs there, and I've got a model that works. I can meet my cost point.” And EDC will help them with that investment, help them with that restructuring.
Of course, in the end, what we hope is that the company still has its footprint in Canada. In fact, that's part of the requirement. The risk is that if we weren't able to do that, the footprint might disappear because they just restructure totally, and it goes.
So I don't have a convenient metric for you.
If you do not mind, I will answer in English. It will be clearer.
[English]
Many would say that we are too dependent on the United States. More than 80% of our trade is with the United States.
I mentioned before that our trade has become triangular. Much of our trade growth has been with globalized U.S. companies, and in that sense we are tapping into the global economy, albeit indirectly. So the 83% number probably is wrong, as a guide. It's probably much lower than that.
For example, our services trade is much more diversified globally. Our foreign affiliates operating out there are more like 50% United States, and 50% the rest of the world. It's the same thing with services trade. You can see there's something different going on when you measure it that way. So if we are sending goods to the United States that end up going to China or India...well, we don't know that from the statistics, but we presume there's a lot of it that we'd miss.
We are perhaps more global than we look. Certainly there is no need to incent companies to go global, because as I said before, the emerging markets are growing at two or three times the pace of their traditional markets. So there is a great deal of benefit to going global.
EDC is very active in that. Just to put out the big numbers, about 60% to 65% of what EDC does is in the United States, even though more than 80% of what Canadian companies want to do is in the United States. So you can see that EDC is much more focused on taking those opportunities out into the world.
What prevents Canada from being more diversified? I think it may be more a case of there being some obvious advantages to focusing on the relationship that is so good with the United States. And of course the U.S. is itself the biggest, most diversified economy in the world already. So in terms of diversification, there is a lot already there.
As for intellectual property, very briefly, Mr. Chairman, this comes up quite a lot. Canadian companies say, “I'm a little worried about going into China, because I'm worried about my intellectual property. I'm worried about going into Eastern Europe; I'm worried about intellectual property.” That's a real worry. But I would just say that every company in the world faces those same challenges. Canadian companies aren't uniquely challenged by this. Somehow our American counterparts have managed to get over that. They've been very aggressive investors in China despite those intellectual property challenges.
I also think it's improving with time. The actual business ethic and the ability to work there are on an upward track. It's far different from what it was five or ten years ago, so I'm quite encouraged about the way that is evolving.