CIIT Committee Report

Supplementary Report

Official Opposition

New Democratic Party of Canada

The New Democratic Party (NDP) is pleased that the Standing Committee on International Trade (Committee) approved our Motion to undertake a study of the development of trade policies to better support Canadian small and medium-sized enterprises (SMEs). During the many days of testimony, the Committee heard from a diversity of stakeholders including academics, business association leaders, think tank researchers, and small business owners. The testimony proved very instructive for Committee members, and we hope that this Report and the recommendations herein  provide  guidance  for  future  Canadian  governments  in  their  efforts  to  stimulate international success for Canada’s SME sector.

Our  motion  was  motivated  by  our  belief  in  the  critical  importance  of  SMEs  to  Canada’s economy and the potential for growth on the international commercial stage. Small businesses make up 98.1% of Canada’s 1.2 million businesses. While over half of Canadian businesses have less than 5 employees, the SME sector has been responsible for the creation of the vast majority of jobs in Canada over the last decade. Small and medium-sized businesses build our communities, support our families and drive our economic prosperity. It is clear that to the extent that Canada’s economy depends on international trade, so too does the prosperity of SMEs. Supporting SMEs in their efforts to meet their international potential will be an important driver of economic growth in Canada, across multiple sectors. Accordingly, the Government of Canada must pursue consistent and ambitious policies, in partnership with the private sector, to secure further SME success in international markets.

Yet, the international footprint of Canada’s SMEs has not reached its potential, and the study brought attention to some of the weaknesses in Canada’s SME export performance. First, not enough SMEs in Canada engage in export. According to Statistics Canada, only 10.4% of Canadian SMEs exported their goods or services in 2011. Second, among those SMEs that do engage in exports, trade ties are heavily concentrated in the United States, while emerging markets in Asia and Latin America have seen comparatively lower penetration.

Notably, the sectors with the highest SME export propensity are manufacturing and knowledge- based (30% and 27% respectively), whereas resource-based sectors are significantly lower (8.5%).  SME export growth can therefore contribute to a more balanced Canadian economy and enhance stability in the event of abrupt commodity price fluctuations. Further, data suggests that exporting can also be a pathway to higher wages for Canadian employees. According to a 2011 Statistics Canada report, which is based on data from the 1999 Annual Survey of Manufacturers and the 2001 Census of Population, manufacturing companies that export paid wages that were, on average, 14% higher than those paid by non-exporting manufacturing companies.

The study also served to highlight key and entrenched weaknesses in Canada’s recent record on trade, particularly over the last decade.  Canada’s current account (the sum total of all imports and exports in goods, services and investment) went from a surplus of some $19 billion in 2006 to a deficit of $62 billion in 2014.   Indeed, February and March, 2015, were the two worst months of trade deficit in Canada’s history. Qualitatively, Canada’s export ratio of value-added to  raw  and  barely-processed  products  has  also  declined  markedly,  a  concerning  trend inconsistent with the development of a modern industrial economy. In 2014, manufactured goods accounted for 63.8% of the value of Canada’s exports, with resource-based goods representing 36.2%. This composition has changed dramatically since 1994, when manufactured goods and resource-based goods accounted for 84.0% and 16.0%, respectively, of the value of Canada’s exports.

Canada’s penetration of the highest-growth markets has also been less than optimal. The Conference Board of Canada has expressed its concern about Canada’s dropping market share in key Asian economies to the benefit of international competitors, including Australia and the European Union. For example, while Canada was the 15th  largest exporter of goods to Asia in 1993, we have fallen to 23rd  place in 2013.   It is obvious that Canada, as a trading nation, can and must do better on both the import and export sides.  It is also clear that the SME sector is a critical part of the path forward in this regard.

In our view, the Government of Canada must do more to help SMEs achieve international trade success. This requires a comprehensive and multi-faceted approach to fill the gaps in capacity, build partnerships, promote Canadian growth-oriented firms, and reduce unnecessary barriers to the trade in goods and services and in the movement of people across borders. Key themes were identified that address the needs and gaps in Canada’s SME trade policy landscape, and which require concrete action.   While we agree with the recommendations in the main body of this Report, we have added a number of recommendations herein which we believe are necessary to help our SMEs reach their full potential.

Many small  business  owners  told  the  Committee  about  the  challenges  they face  accessing capital,  especially during  the  expansion  phase  into  international  markets.  Meeting  the  high growth  demand  in  foreign  markets  during  the  initial  international  expansion  phase  can overwhelm the resources available to a small business. Concerns were also raised about the lack of working capital, particularly where building up inventory is concerned.

“[Sometimes] we can hardly put food on the table because we're pushing so hard to meet the demand that is there… I think it would be very beneficial to have assistance both at the beginning to access what's there, but also assistance in growing financially...”

– Dionne Laslo-Baker, Deebees Special Tea, April 20, 2015.

“Often the Canadian banks are great at supporting us in Canada, but as soon as our working capital needs for international expansion go beyond a certain comfort zone, it's difficult for them to provide financing. We use EDC to insure our foreign receivables, but that doesn't really help with working capital, particularly for inventory.”

– John Williams, LTP Sports Group Inc., April 1, 2015.

A number of witnesses identified a need for deeper and more expansive international trade support. Canadian SMEs are particularly reliant on trade commissioner services because of their limited resources. The federal government must therefore prioritize meeting the needs of SMEs in export markets with expert and well-resourced “boots on the ground”. Many witnesses also expressed   satisfaction   with   the   high   quality   of   service   delivered   by   Canada’s   trade commissioners  –  something  Canadians  can  be  proud  of.  However,  a  recent  report  by  the Chamber of Commerce highlighted Canada’s low relative investment in trade commissioner services when compared to competitor nations such as Australia and the UK. This is concerning considering the strength of Australian market penetration into key emerging Asian economies. The Chamber also noted the flat investment by the Government in trade commission services.

Many SMEs reported experiencing difficulties and inefficiencies with border clearance when they import goods. Since Canada’s economy is intimately woven into the global supply chain, export success also depends on efficient access to imports. Moreover, many Canadian SMEs are import-oriented, providing services and goods to Canadian consumers originating in foreign markets. Some witnesses spoke about the need to update procedures at Customs to align with market realities.

“Our first point concerns the challenges we are continually facing with CBSA policy when clearing product into the country by ocean freight. The expense and delays we face have a significant impact on our ability to compete and succeed in this market.”

– Albert Addante, Caboo Paper Products Inc. April 29, 2015.

“DFATD should be tasked with maintaining some sort of an inventory of all these export-focused regulations, and working with the red tape reduction initiative to streamline and remove domestic barriers wherever possible.”

– Joy Nott, Canadian Association of Importers and Exporters, May 4, 2015.

A clear and important issue is emerging about the impact of work visa delays and other barriers to the movement of personnel on businesses. Labour mobility impediments can be costly for businesses and can slow the delivery of their good or service to market. Some witnesses complained about growing red-tape in recent years, and experienced difficulties moving senior managers, executives and specialized technical support staff across borders in a timely manner. We believe that better and more efficient processes can be developed in this regard, while taking care to ensure work in Canada is reserved first for available Canadian employees.

“From 1973 to 2013, a labour market impact assessment (LMIA) was free. After

2013, a fee of $215 was required. Since June 2014, that amount has been increased to $1,000, plus $155 for the permit and an amount of $346 for Quebec. If my need is for, say, 15% of my workforce to be foreign and if they must have a temporary work permit in order to work on the projects, it is going to cost me about $80,000 to get 52 employees, which is 15% of 350 employees.”

– Martyne Malo, Enzyme Testing Labs, April 1, 2015

With the rise of the digital age, e-commerce was identified as a game-changing phenomenon. Traditional methods of developing foreign market expertise and building business relationships are no longer always required. The Committee heard from Google Canada and others about the potential of e-commerce to foster new international business partnerships, promote trade growth and land sales. Moreover, small businesses in remote locations of Canada can now find international customers for their products at the click of a button. The Government of Canada must help optimize SME digital connectedness in order to help them reap the benefits.

“The most important thing you can do to help Canadian small and medium-sized businesses compete globally is to get them online quickly. The Bank of Canada recently forecast that our economy is expected to grow by less than 2% this year. Meanwhile, the global digital economy is growing at more than 10% a year – and in emerging markets, it’s growing at 12% to  25% per year.”

– Colin McKay, Google Canada, April 29, 2015.

In our view, Canada must focus and increase our efforts to promote technology, environmental and other sustainable sectors of the Canadian economy. Witnesses told the Committee about the enormous global growth potential of these sectors over the coming decades.

“We need a strategy for international development and climate change, which has to be both multilateral and bilateral. International development and climate finance have been the foundations for important industries, both in the G-8 and in the G-20. Multilateral finance must deliver climate mitigation. We absolutely must ensure that, but it has also served to build industrial capacity, and this will continue in the future.”

– Celine Bak, Analytica Advisors, April 22, 2015.

New Democrats believe that achieving SME trade success also requires the deployment of domestic policy tools to strengthen the competitiveness of SMEs in the Canadian domestic economy. Strong, growth-oriented, Canadian SMEs are well-positioned to successfully jump into international markets. To this end, New Democrats believe that companion proposals to strengthen Canada’s SME sector, including an SME tax cut, and restoring SME hiring credits, are important policies that will translate into international SME trade success.

To reach our full SME trade potential, the Government of Canada must combine domestic policies that spur SME success and competitiveness with coherent, ambitious, and forward- looking export support policies to optimize SME success on the international stage. The NDP is committed to forging meaningful partnerships with the SME sector to realize these objectives.

NDP Recommendations:

1. That the Government of Canada coordinate export marketing support activities across federal and provincial governments, departments and agencies.
2. That the Government of Canada work with the Export Development Canada to shorten approval timelines for financing to ensure SMEs don’t miss opportunities to secure foreign market sales.
3. That the Government of Canada study new ways to assist SMEs to obtain foreign registrations for their products or services.
4. That the Government of Canada study new ways to improve SME access to working capital during the international expansion phase, particularly for inventory.
5. That the Government of Canada join the Asia Infrastructure Investment Bank to secure Canada’s presence at the table of the world’s next big international financial institution, and as part of a more comprehensive strategy to deepen Canadian commercial relationships with emerging Asian countries.
6. That the Government of Canada study Canada’s weakening market footprint in emerging Asian markets, report to Parliament on the results, and develop a comprehensive strategy to ensure our trade development strategy focuses on improving Canada’s presence in important Asian markets.
7. That the Government of Canada study pursuing an equivalency agreement for trade in organic products with the EU to facilitate export of Canadian manufactured organic products.
8. That the Government of Canada facilitate partnerships between university business schools and small businesses in need of support during export growth phase.
9. That the Government of Canada develop a plan to monitor the export promotion policies of competitor countries to ensure the Canadian public service is equipped with the information necessary to deploy strategic, effective and world-class export promotion policies.
10. That the Government of Canada and the Canadian Border Services Agency tie the cost of container inspections at customs to the value of the cargo inside the container, in order to prevent the imposition of disproportionately burdensome fees on high volume and low value import products.
11. That the Government of Canada include more SMEs in government trade delegations to promote enhanced networking opportunities between start-up Canadian enterprises and foreign business and political leaders.
12. That the Government of Canada increase Canadian government support for small businesses seeking to enhance their e-commerce capabilities.
13. That the Government of Canada expand the Transit Without Visa program at all appropriate Canadian international airports.
14. That the Government of Canada pursue reciprocity when negotiating Air Transport Agreements to ensure that countries which do not permit fair access in their domestic airspace or which employ anti-competitive, sub-standard labour policies in the airline sector do not receive an unfair advantage in Canada.
15. That the Government of Canada foster more efficient customs clearance for exported and imported goods.
16. That the Government of Canada examine strategies and policies to move more business people across borders quickly and efficiently, to facilitate access customers and the pursuit of new business opportunities.
17. That the Government of Canada adopt a comprehensive strategy, including policies and incentives, to encourage the import and export of sustainable technologies.
18. That the Government of Canada establish and coordinate a One Stop Shop where SMEs would have access to the range of resources dedicated to them.