[Recorded by Electronic Apparatus]
Tuesday, October 31, 1995
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[English]
The Vice-Chairman (Mr. Volpe): Colleagues, ladies and gentlemen, we'll begin. The chair and some of our other colleagues will make their way to the room anon, as Shakespeare would have said.
Pursuant to Standing Order 108(2), a study of small- and medium-sized businesses in the globalized economy, the Canadian experience, this committee on foreign affairs and international trade will continue its hearings.
This morning we have with us from the Canadian Exporters Association Mr. Mark Drake, president. His is not an unfamiliar face to this committee. We also have Mr. James Moore, vice-president, policy. Again, I think his is a familiar face. And we have Ms Vanessa Hammond, vice-president, business development. Hers is not that familiar a face.
You're familiar with our usual proceedings. The committee is prepared to hear a presentation of ten to fifteen minutes. It's probably best we don't go beyond that, so that we can have an opportunity to engage in dialogue through question and answer. Is that okay with each of you?
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Mr. Drake, before we begin, do you intend two presentations or just one?
Mr. Mark Drake (President, Canadian Exporters Association): There's just one presentation.
The Vice-Chairman (Mr. Volpe): Excellent. The microphone is yours.
Mr. Drake: Thank you very much, Mr. Chairman.
Let me say right at the outset that the CEA appreciates very much the opportunity to appear yet again before this committee on an important issue.
I should mention that Jim Moore is our vice-president, policy, and is the prime author of the brief, which we have already circulated to you. Vanessa Hammond, our vice-president, business development, has run her own small enterprise for twenty years and can speak from direct practical experience.
Of our members, 65% are SMEs, so I think we're in a good position to help the committee on some of the issues that will come up today.
The brief we submitted is fairly long. What I'd like to do is take the ten minutes you've allocated me to highlight a few points in it and to particularly note our recommendations. Then, as you say, we'll throw it open for questions.
Perhaps as an introduction I should mention that the SMEs are moving much more into the export field right now. They are developing market initiatives and looking at exports as part of a deliberate strategy. As the Canadian Exporters Association, our presentation today is focusing on the particular problems SMEs face as they look at the export market.
There are three very important ones I'd like to highlight and talk about briefly: the lack of competitive export financing, high taxation levels, and the government regulatory burden. Those are the three we'd like to look at specifically. Then I'd like to talk about trade development and the initiatives that came out of the Red Wilson report last year.
First of all, the major concerns SMEs have with financing are equity and venture capital to finance their expansion to take advantage of export markets. They also have problems, of course, with financing inventory and production in the pre-shipment phase and with sales from shipment to the completion of collections. All of these are more difficult in export business than they are in domestic.
For most SMEs, the banks, of course, are their primary source of export financing. But we have a concern that many banks still do not margin U.S. receivables and still fewer margin foreign receivables, and that's an important factor for SMEs.
The CEA has helped in a number of initiatives in the financing area over the last twelve to eighteen months. I think the committee has already heard and will hear again about most of these, so I won't spend time on them. I'll just mention them very briefly.
The first is insurance. Growth in the Export Development Corporation's insurance business attests to both the need for and the increased availability of insurance for SMEs. It's covering credit and political risks on competitive terms. This is absolutely vital to SMEs.
I know you will hear from the EDC that they have established a new emerging exporters team especially to provide focus for SMEs, and we think this is an excellent initiative.
The Canadian Commercial Corporation is another important player, and they've recently introduced a new progress payment program to support SMEs through the banks.
We'd be very happy to talk about any of these later, but I just want to mention them in passing, in view of the shortage of time.
The Business Development Bank of Canada, formerly the Federal Business Development Bank, provides revolving credit loans and venture capital loans, and that's an additional assistance to SMEs. Their new mandate looks as though it could be interesting.
Another initiative that came up last year was the master accounts receivable guarantee program, known as MARG. EDC is piloting this with the banks to encourage more operating-line financing secured by export receivables. It's disappointing that up to now no MARG transactions have been completed, but there is a high level of interest in this program, and we hope it will be fully developed through Canada's banking system soon.
I think you have already heard from or will be hearing from Northstar Trade Finance, but they, along with the EDC and the Bank of Montreal, are providing an additional competitive choice for financing for SMEs. There is also a framework agreement being put together between the EDC and the banks for medium-term guarantees. One has been set up for small business, but for a number of reasons, it appears not to have been used as yet.
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Commercial banks have a very important role to play and a variety of initiatives, collectively and individually by banks, have been put in place focusing increasingly on SMEs.
We did a recent mini-survey, which we've referred to in our brief. I think it's interesting that SMEs are saying, increasingly, that the banks are performing better in servicing their needs as exporters.
Those are the key finance points we'd like to make. Because it is in the same section in our brief, I would just like to mention education. The education of SMEs and the preparation of SMEs is extremely important in their efficient move into exporting.
The Canadian Bankers Association, a number of banks, Foreign Affairs and ourselves have put together various initiatives to prepare SMEs for export markets. But an independent survey just done by the Royal Bank reveals that few knowledge-based SMEs appear to be aware of the services that are available to them, including a road map about information sources on finance.
The CEA's own survey reveals that only 23% of respondents, to date, are aware, for example, of the Canada business centres that have been established as one-stop information centres. I think this highlights that although these innovative things have been put in place, we have to do more work, collectively, to market them and make sure the SMEs across the country know about them and can use them.
I have a very few words to say now on trade development. Duplication and overlap between federal government departments and agencies within the provinces have been a major concern for a number of years for the CEA. Most companies continue to rank this issue as serious, despite some positive initiatives aimed at reducing the problem.
Maybe I could talk about some of these initiatives. You'll hear more about them from Foreign Affairs and International Trade representatives, who I believe will be your next witnesses, but I'd like to touch on them briefly from the CEA's perspective.
The Canadian international trade business strategy, the new consultation process, is a useful framework for looking at Canada's international business plan. It needs to be meshed very closely with the business community and it particularly needs to focus sectorally. I think you'll hear more about that from Foreign Affairs.
Industry Canada and Foreign Affairs have set up sector teams. We're interested in this initiative. Time will tell whether it will be effective or not. I think some people in the private sector would have preferred the government to have bitten the bullet and reduced the 22 government departments and agencies with trade promotion activity to a more manageable number, but maybe the sector teams bringing these together will do something to compensate for this difficulty of having so many agencies fighting in the same territory.
Again, talking about the elimination of duplication and the increase in the Team Canada approach, a series of MOUs have been signed in the past year for increased trade cooperation between Foreign Affairs and International Trade and the provinces. This is a good sign and holds the promise of further improvement in coordination.
We do have one caveat, though. A number of provinces have closed their missions abroad, which we think is very satisfactory. We do have to make sure the federal trade posts pick up the work and the provinces, particularly the smaller ones, do not suffer.
Another issue in trade development of particular importance to SMEs is the establishment of regional trade networks. This is another initiative that will enable SMEs to get local service and that will be good.
I will now refer very briefly to the so-called Red Wilson report of last year and its connection with SMEs particularly. The CEA strongly endorsed the recommendations the committee made, including the focus given to SMEs in Canada's trade development strategy.
There are some problems, however. Some of the SMEs are not well prepared and have failed to do their homework. The trade commissioner service, which is central to the corps of Canada's trade promotion service, is very stretched and is even more so with a large number of SMEs coming into the export market.
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The solution to this is better education and preparation of SMEs, linked to a screening-in process to qualify for a category of government assistance. This is to make sure in large measure that the trade commissioner service resources in the field are not totally overstretched. SMEs have to be prepared at home before they go abroad.
We also strongly recommend, as we have before, that more trained trade commissioners be deployed abroad rather than kept in domestic positions.
The Red Wilson report also recommended that industry-initiated programs for export marketing development be restricted to companies with annual sales of less than $10 million. We believe the $10 million in sales should be raised and that in addition to SMEs, more focus should be given to medium-sized companies that will be stimulated to put incremental effort into their export as a result of programs such as PEMD. We feel that the $10 million is a touch low.
In a similar vein, while we fully agree that priorities should be given to sectors with high growth potential, we don't believe it's the role of government to make the difficult sector choices. Industry should make these choices and the government should be responsive.
I'd like to say a quick word about trade fairs. Referring back to the Canada trade business plan, the trade fair participation should be guided principally by industry sector interest and not organized on a geographical basis. It shouldn't be up to the geographic desk or the posts to decide which trade fairs we participate in; industry sectors should make that choice. By the same token, in scaling back on trade fair participation because of fiscal considerations, the government should avoid giving up prime locations in fairs that happen not to be deemed major international shows. We need to make sure the investment Canada has made in prime space over the years is not lost.
Specialized trade shows are often more important sectorally than the major international shows. Again, we'd emphasize very strongly that in this business plan it's the sectors that have to drive this rather than the geographical areas.
I have a couple of final points. We just mentioned export preparation for SMEs. Many of them are ill-prepared when they venture abroad. The Canadian Exporters Association is a strong advocate of programs to fill this need. I think the Forum for International Trade Training is appearing before you, and that's a major development we have strongly supported. The Business Development Bank's new exporter training and counselling program is also important.
We ran 60 seminars for exporters across Canada last year ourselves on subjects ranging from capital projects to international financial institutions, free trade, Mexico, etc. We would like to stress this education aspect is particularly important to prepare SMEs before they go abroad.
A very quick word on taxation. Our SME survey consistently rates the tax burden as one of the main disincentives to entrepreneurship in Canada. We're a bit schizophrenic about this because we recognize absolutely that deficit reduction must remain key. But there are some tax measures we believe should be given consideration.
We commend to your attention the trade starters' approach recommended by the small business working committee to Ministers Martin and Manley last year. This was a refundable tax credit program.
We think a tax allowance could be provided for export receivables on a similar tax basis as domestic sales. Once again we come back to something we've brought up at this committee before, which is the foreign sales corporations - the export tax incentive provided in the U.S. through the foreign sales corporation. It is an excellent system and we've recommended several times that a Canadian equivalent be put in place so our exporters are not at a competitive disadvantage relative to U.S. companies.
Just to wrap up very quickly, small business set-aside programs on government procurement were a proposition for the government. We do not recommend that this be implemented. SMEs can be assisted instead by prompt payment of government receivables - it is notoriously slow - improved access to bidding opportunities, and the tax incentives mentioned above.
Service exporters are very important. More attention is needed to develop the ability of service exporters to pull through and enable the export of goods. For example, it is important to have engineers to pull exports of equipment for major projects, including those funded by the IFIs.
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Trading houses are also a vital contributor to Canadian exports, generating over 40% of our offshore sales. They're an ideal export channel for SMEs that lack the expertise, market knowledge, or financial strength to develop their own international marketing capability.
Two areas of great importance relative to the SMEs are the service sector and the trading houses. The government needs to recognize the importance of trading houses in increasing Canada's exports.
Having said all this about SMEs, Mr. Chairman, let me also mention that we shouldn't forget the large exporters. Rolls Royce appeared at our convention last year in Toronto and pointed out that they had 3,000 SME subcontractors. While they exported 95% of their business, they took 3,000 small- and medium-sized companies along as indirect exporters. We shouldn't forget that in our concentration on SMEs.
Finally, the paper burden on SMEs is ranked second only to taxation as a disincentive to entrepreneurs, and the problem appears to be getting worse, not better. As a quick example, the Canadian Environmental Assessment Act looks as though it would be an absolute nightmare.
We can only urge government officials and legislatures to keep the legislation and regulations simple and straightforward and seek out opportunities for eliminating a silly or unnecessary regulation. In this respect, we urge members of the committee to support the passage of the Regulatory Efficiency Act.
Mr. Chairman, I've kept to between ten and fifteen minutes, and those are the highlights. It's such a difficult, complex, and important subject, and I've only touched on the highlights of our brief, but I am very happy to throw it open to you for questions.
The Vice-Chairman (Mr. Volpe): You've been remarkably religious in meeting the obligations of time and I thank you for that, Mr. Drake.
I know I already have members who want to speak, and we have been joined by our usual chair, who is not known to be reticent when it comes to asking questions, so I hope the dialogue we'll engage in will flesh out some of the ideas you touched upon.
Mr. Penson, the floor is yours.
Mr. Penson (Peace River): Thank you, Mr. Chairman.
Welcome to our committee again, ladies and gentlemen. I've always enjoyed having you here.
I think the subject of small- and medium-sized businesses is a particularly pertinent one we're dealing with in our committee. I certainly recognize, as I think you do, that they are a very important component of our business society and one that we need to see grow in order to meet the needs in the future to keep businesses conscious of the fact that they need to export, particularly in the environment these days when we have reduced tariffs here at home. These very businesses are going to be facing some increased competition at home, too, and I think they have to be conscious of that.
Mr. Drake, I noted in passing that you talked about the regulations as a burden, as well as taxation, but that's not the subject of my questions this morning. I think it's a given in Canada that we need to reduce both of those areas.
I do want to hone in on your area of focus towards sectoral choices or growth into the future. You've suggested that the government, the Department of International Trade, should not be the one to make these choices, that rather it should be done by industry. I'm curious to know how that would be done. I know you have an association, but would your association be the one that wanted to make those kinds of choices, or would it be left up to the individual companies? How would we determine where we should be spending our efforts?
Mr. Drake: The best people to bring this in focus are the sectoral associations, and we work very closely with some of them. Let me give you one example that happens to be particularly good, that of the Canadian Association of Mining Equipment and Services for Export, CAMESE. They're a very small sectoral association concentrating on the mining sector. We work extremely closely with them. They're a member of the CEA.
I think in determining where the mining sector should go in terms of trade fairs and exhibitions, the ideal group to perform this role would be CAMESE, with their members working perhaps with a horizontal association like ours, which can bring the wider focus. We as a horizontal association representing a whole range of sectors right across the spectrum of industry and across the country will not have the narrowness of focus to do this on our own. We have to work with the sectoral associations.
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Mr. Penson: But in fact aren't we still going to have the same difficulty? Each sector is going to want to have their sector as one chosen by the department in support of trade development. Aren't we going to have a lot of competing interests where somebody will have to make the decision at some point and say that this is the area we are going to focus on?
Mr. Drake: Yes, inevitably there will be. But then you look at those where we can build incremental success on what's already happening right now, whether it's in high technology, in bioengineering or in mining areas where Canada is successful. I think we have to focus on areas where Canadian capability can be built upon.
I agree. There's always going to be some competition for resources when these are limited.
I think also that more and more we're going to have ``pay as you go'' in terms of participation in trade fairs and missions, apart from the very small companies that can be helped through PEMD and assistance like that. More and more, it's going to be a question of companies paying their own way. This is as it should be.
Mr. Penson: Yes. That's the subject of my second question. You've anticipated it. Even in the PEMD program you've asked to have that area increased for companies with in excess of $10 million in sales. Do you think there should be a cost recovery? I gather that's the gist of what you're saying. Would you be agreeable to some cost recovery in that for the government, if they are successful?
Mr. Drake: Yes, absolutely. I think that more and more business is not looking for subsidies. It's looking for a sharing of risk and for seed money for the launching. Thereafter, any business that is worth its salt and is being successful would have no problem in repayment and pay as you go. In fact, in the current PEMD program there is indeed an element of repayment, of cost recovery. PEMD is not a grant. It is done on a cost-recovery basis. You spend the money and then you claim part of the cost.
Mr. Penson: Could we take it a step further and explore the possibility of the trade commission service in our embassy having a basic level of information available to all companies that want to have market intelligence? If more specific intelligence were required, there could be pay for service in that specific area. What are your comments?
Mr. Drake: Can I ask any of my colleagues if they want to jump in on that particular one?
Mr. James Moore (Vice-President of Policy, Canadian Exporters Association): It's an excellent question, one that has been debated very extensively in the export community. On the surface it has a lot of attraction, but the more you get into it the more problems you come across.
It has been tried in a number of countries, in Australia, New Zealand and others, and essentially they're backing off because it tends to direct your trade promotion efforts in directions that can be supported more readily, and that very often means big business versus small business. There are a lot of problems with it.
Ms Vanessa Hammond (Vice-President of Business Development, Canadian Exporters Association): However, it is an area one of our committees is looking at with particular interest. The committee may have some suggestions to make within six months.
Mr. Penson: I asked the question because we're all conscious of high levels of taxation and, as you know, that's driven by high government debt. We have a $35-billion deficit this year so I think we're all looking for ways to recover costs.
It seems to me that area may not be a bad approach, in that there's a general level that's out there for all businesses, but if the companies wanted specific information they could be directed to more specific information with some sort of gathering or referral service through the private sector. That's the reason I asked you this. There is a cost to this and we're all looking for better ways to cut costs.
Mr. Drake: Mr. Moore has just reminded me that the Wilson committee did look at this in some detail and recommended against it for some of the reasons that have been mentioned. This is charging totally for the trade commissioner service.
Mr. Penson: That's not what I said. I said a general level of market intelligence could be available to all companies, but if they wanted to get into more in-depth research that the trade commission service would conduct, it would be a fee for service.
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Mr. Drake: I think there is merit in that once you get beyond that overall level. It's where you draw that line that's a little bit tricky. But certainly once the post in a particular country starts doing a very detailed investigation for an individual company, there certainly should be some sort of charge for that.
Mr. Penson: I have more questions, but hopefully we will get a second round.
The Chairman: We should move on to the other members. Ms Beaumier.
Ms Beaumier (Brampton): Mr. Drake, I'd like to talk a little bit about EDC. I know you're not with EDC, but you know infinitely more than I do and I'd like some things cleared up.
You're talking about a medium-sized business and an export of $10 million or business dealings of $10 million. When you talk of lending money to people who are mining in other countries, I'm not sure how that relates to export. Are we talking about companies who export $10 million in products?
Mr. Drake: The $10 million that I mentioned was actually in connection with the program for export market development, which is only available to companies with sales of less than $10 million. It's so the big companies who have hundreds of millions of dollars of sales cannot use government funds to help their marketing abroad, which used to be the case; it used to be much higher.
Ms Beaumier: But that's not true any more?
Mr. Drake: That's not an EDC program, though. That's a Department of Foreign Affairs and International Trade program. The $10 million that I mentioned was in connection with that particular program. It's called the program for export market development, which is to help companies go abroad on trade fairs and missions and with their marketing plan. They have to put together an annual marketing plan and submit it.
It's now restricted to the smaller companies. We think that's a good idea, although we felt that the ceiling perhaps should be raised a little. It was very, very low. I think it's total sales - isn't it? - and not export sales. We felt that it's awfully small. There are companies with sales of, say, $15 million or $10 million who might need that help to get into the more difficult markets.
Ms Beaumier: I'd like to ask your opinion on a few things in regard to the lending of Canadian money for export development or for development in foreign countries.
Do you feel there is any way we could establish, perhaps through the auditor general, a monitoring mechanism so that moneys being lent for development in foreign countries aren't going to be at the expense of Canadian workers, such as money for establishing plants or facilities in foreign countries that would ultimately lead to the lay-off of Canadian workers?
Is it feasible that we should be monitoring that kind of thing? After all, exporting is taking a product from here and sending it somewhere else, not making it somewhere else and bringing it back.
Mr. Drake: You have raised a very complicated and detailed subject, and I'm not really sure how to begin to answer it.
There are two aspects. You mentioned exporting and investing abroad. We are talking about SMEs primarily today, and SMEs, by definition, are fairly small companies and need the financial help that they can get either through their banks or through EDC programs, or through joint efforts between EDC and the banks and other facilities like the ones I've mentioned - Canadian Commercial Corporation. Some of these are government bodies. EDC is a crown corporation. CCC is a crown corporation. The banks, of course, are private sector.
I think the public and private sectors have to work together to ensure that exporters are competitive internationally. But what we're talking about is not simply giving them money, but helping them to compete internationally by making venture capital available to them - which they pay for through interest charges - helping with project financing, so that Canada is competitive internationally.
When it comes to working in the developing world, of course, which you touched on, there's CIDA, the Canadian International Development Agency, which is available with programs of one sort or another, for justifiably interesting programs in the developing world.
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Ms Beaumier: I'm going to make a statement so you know where I'm coming from. I get a little concerned sometimes because we have this preoccupation with Canada being a service-based industry country. I believe that if we ignore our labour force and our manufacturing force....
If you don't make something, you have nothing to trade. If we continue to trade and sell nothing but knowledge, we're going to make ourselves obsolete in twenty years.
You're not selling knowledge to morons. You can only sell your knowledge once.
Mr. Drake: With respect, there are some sectors of the Canadian non-manufacturing industry, whether it's the software industry or the financial services industry, or even a wonderful organization like Elections Canada, for example, that have knowledge they can sell again and again. This can be a significant part of Canada's export business.
In fact, although it's not captured by Statistics Canada, I think 30% of our exports are now in the service sector. These are not exports you just sell once and never sell again; you can go on selling this knowledge. It's not a one-off sale.
Canada certainly has to keep a strong manufacturing base, particularly in high-tech areas such as telecommunications and environment and so on, but I think we'd be wrong if we threw the service sector out the window - very wrong indeed. It's a very important export area.
Ms Beaumier: I'm not talking about throwing the service sector out the window; I'm talking about this apparent neglect of developing the labour force within Canada.
Mr. Drake: But it's all a question of competitiveness. Canada is working in a global market, and we can't artificially create a manufacturing industry that is uncompetitive unless we put up protectionist barriers around the country, which would be devastating.
We operate in a global economy. The only way Canada's manufacturing industry can be successful is by being competitive, which means really productive and efficient, with wages that are competitive and of course with a dollar that is competitive, which is helping right now at its current levels.
We can all breathe a sigh of relief today.
Mr. Penson: Not too big a sigh.
Mr. Alcock (Winnipeg South): You say the level of $10 million in sales is too low. What should it be?
Mr. Drake: That's a very difficult question. We were afraid you might ask that.
Mr. Alcock: That's my role with this committee.
Mr. Drake: I mentioned $15 million to $20 million, but it's a little bit like asking how long a piece of string is.
Jim, do you have a view on that?
Mr. Moore: Everybody has a different view on it, but in our own discussions with members, one view that seems to have attraction is it should be $10 million in export sales rather than $10 million in overall sales. So anybody with less than $10 million in exports would qualify. But that's only one view.
Some of our members feel extremely strongly, for example, that all business in Canada is small relative to its international, global competition and that we're totally wrong to make any distinction.
Mr. Alcock: In point 11, where you talk about the tax credits, have you any estimates or any sense of how much that would cost?
Mr. Drake: This is the FSC? Is that the one you're talking about?
Mr. Alcock: It's point 11, which supports the trade starters approach recommended last year. It would be encouraged by a refundable tax credit.
Mr. Moore: I can only make one or two points on that one. First of all, if this developmental work leads to successful exporting, those expenses will be a legitimate business expense. So we're really talking about cashflow assistance in the upfront market development costs.
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In the discussion when we first suggested this to the committee, we looked very closely at that aspect of it. We felt it could be defined in ways that would be relatively revenue neutral, not only from a cashflow basis. It would replace, for example, the kind of PEMDs we were talking about earlier and in effect serve the same function but make them much more responsive to an individual SME's needs and requirements, without having to try to fit them around an existing government program. We believe it can be revenue neutral.
Mr. Alcock: You also made a general comment about the elimination of silly or unnecessary regulations. Can you identify a silly or unnecessary regulation for me?
Mr. Moore: Well, one gets a lot of anecdotal stories.
Mr. Alcock: I know that.
Mr. Moore: I don't know if I can recollect any at this particular point in time.
Mr. Drake: The particular act we have looked at recently and the one we mentioned here is the Canadian Environmental Assessment Act, particularly with its potential for application projects outside of Canada. We took a close look at that, and I have to say that it was pretty incomprehensible even to us, and to the average SME I think it would be totally so.
I can't pull out a particular regulation that I could say was silly or unnecessary, but if we look at the country of origin rules under NAFTA, for example, that's another area of incredible complexity. It is an indirect barrier to trade, particularly for the SMEs, who just throw up their hands in horror and say, ``I can't deal with all this paperwork. It's just too much. Why don't I just restrict myself to the domestic market?''
We want to encourage potential SMEs to move abroad, to get into exports. Any reduction that can be done in the paper burden they have to complete is going to help this.
Mr. Alcock: I'd like to respond to that. I don't want my question to be interpreted as a light or frivolous kind of throw-away. People come before this committee and say the regulatory burden is a deterrent to SMEs getting into the market. One of the reasons we're doing this work is to find ways to smooth the government systems and smooth the supports for SMEs so more of them can get into business.
The dilemma is when you say - and I've heard Mr. Penson say it many times - what one? What specific change? What would you do? The whole area gets a little cloudy.
Mr. Moore: Can I relate back to the Canadian Environmental Assessment Act? That legislation was written with the domestic market of Canada in mind. Nobody thought very much about how it might apply outside Canada.
There was a clause put in that made it possible to vary and exclude some of the provisions of the act in relation to exports. In fact, the lawyers have determined that this very exclusion part only applies to a very small part of the act.
Say a Canadian ambassador in Botswana, if we have one, were to go out into the countryside and meet the village chief, who said gee, it would be wonderful if you could give us a well; it would only cost $500. There are now discretionary funds in the embassies in Canada for him to donate that $500 for a well.
Now it will require, in all probability, an assessment process, which cannot be varied and excluded. Can you imagine that $500 well multiplied by thousands? Can you imagine what kind of costs we're talking about and what kind of bureaucracy is required? That's just the tip of the iceberg there.
Incidentally, we do not yet have regulations on how this will apply to projects outside Canada. I have seen what we had hoped would be the final draft, and I can tell you it does not resolve all of the difficulties that companies will have trying to operate under that. It may well result in companies withdrawing from export markets because they just can't cope with the regulatory requirements under the act.
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Mr. Drake: Mr. Chairman, if I could respond, we do take Mr. Alcock's question very seriously, and we do regular surveys of our members. I think this could be a useful question to put in one of the future surveys, to ask them to give us some practical examples.
The Chairman: Can I interrupt for a moment? I would suggest that it would be very helpful if you could give to the committee and our research staff a list of examples. But we do have a problem with the two you've selected, just to pick up those two.
Rules of origin are complex, but we didn't devise them. They are largely devised, as you know, by the United States. If you look at the automotive rules, they were designed to deal with Japanese automotive imports; if you look at the textile ones, they were clearly designed to become fibre specific and textile specific. In a way, I quite agree with you, it is mind-bogglingly complex.
But now there are three partners, so we have to have some way where we're directing at things we can do something about. In the environmental field, you mentioned globalization and the global marketplace in which you operate. Surely you would agree that in an ideal world, where we are having to look at the impact of what we do here in Canada on the global environment, just as we complain about the impact of what other people do in their jurisdictions has on our environment, we're struggling towards having a regime that will operate properly. So if you could tell us where we should be looking in specific circumstances and what is unreasonable, but in a framework that relates to this global marketplace you have put forward, that would be very helpful to us.
Why don't we leave that question, and if I may just follow up as well, because I won't have time to ask questions, I'd like it if you could give us an answer -
Mr. Penson: That's pretty smooth, Mr. Chairman.
The Chairman: I've been taught by some great experts around this table on how to sneak in.
I'd ask if you would be good enough to give us some more information about the foreign sales corporation, because you will recall that the Canadian government specifically complained about the American DISC as being contrary to the GATT, and if you could tell us where we'd be at if we were to make that recommendation in relation to the GATT subsidy rules. This is typical. We can hardly whistle and suck on these issues and complain before a GATT panel if the Americans do it and then try to do it ourselves.
Mr. Moore: I have a brief comment, Mr. Chairman. FSC is almost identical to DISC, but it is fully GATT-able. Proof of that is that Canada and no other countries challenged the FSC in GATT or the WTO.
The Chairman: Thank you. That's helpful.
Mr. Lastewka, then Mr. Penson and Mr. Volpe.
Mr. Lastewka (St. Catharines): Thank you, Mr. Chairman. I have a short question.
I come from the Niagara area, and I've been working with some 300 companies that do some type of exporting. The message I'm getting out as I try to work with these companies even more and with new companies working with our trade office in Buffalo is that they seem to be bombarded with information, and they're trying to sort out export information and data. Are we in a position where maybe the government has too much clutter out there, but various associations are also getting clutter out there, whether it's the chamber of commerce or the CMA - two that I've been working with?
How do you work together to make it simple also for the exporters? I'm getting that type of impression, and I've been working at it for about nine months now.
Mr. Drake: I think your impression is absolutely correct, and it comes from the fact that there are many organizations out there, many associations, and of course, very many government departments. We've mentioned this.
I think as far as the associations are concerned, they certainly have to work together - and many of us are already doing that - so that the exporter only has one place to go for his information. This is happening even more strongly in government circles where the Canadian business centres are being set up, which is basically a one-stop shop.
If it works well, an exporter can go in, sit in front of a computer screen, and tap into information from the Department of Foreign Affairs and International Trade, or from the EDC, or from the Canadian Commercial Corporation, or from any of these government sources that are available, so that this confusion, this plethora, this overload of information that you absolutely rightly describe, is filtered and more easily digestible. The work is starting on this, but a lot more needs to be done.
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The one-stop shop is perhaps the most visible sign, but as I mentioned earlier, there are many small- and medium-sized companies that don't know about the Canadian business centres. Their main point of contact is their bank.
So we have to again make sure this is part of the education process and that their main contact in their bank, whom they deal with on their account, knows where this information is as well, so that as they're moving abroad he can be that initial filter and say ``For this go here; for that go there''.
You're absolutely right to identify this as a problem that is being worked on and where more needs to be done.
Mr. Lastewka: Just for my knowledge and maybe the committee's, what is happening between those various associations to try to minimize the duplication, the mixed signals and things like that?
I didn't mention this, but also you get into consultants who say they're experts in export. They're involved in that too, and I'm not sure they don't have their own personal agendas in mind more than trying to make it easier for new exporting companies.
Mr. Drake: The key area where this has to be done is in the very good, very interesting wealth of information that comes out of government through the internal trade centres from the posts abroad, market intelligence and so on. That's where the key work has to be done rather than in associations that deal with their own particular constituents, whether it's the chambers of commerce, which deal with smaller business; the Manufacturers' Association, which deals with manufacturing; us, who deal with exporters; or indeed the sectoral associations with their narrower focus.
Associations, as I mentioned, certainly have to work together more, and they are doing it. Increasingly we co-sponsor events and work together. We have a data bank of information. If somebody comes to us, we'll do our best to provide a solution, and I think the other associations will do so as well.
Plugging into the so-called electronic highways is going to help this, because all of us are now getting our pages up on the Internet. The increasingly electronically educated consumers in the small- and medium-sized business arena will be able to sit in front of their PCs and just get into a CEA page, a CMA page, a Foreign Affairs page or an EDC page. They'll be able to call up very quickly the information they need, and that will help.
Mr. Lastewka: Thank you.
Mr. Penson: I'm very interested to see the results of your survey regarding regulation. I think we as a committee are going to be surprised at how much we get.
There is a committee in the Alberta government right now whose only mandate is to look at all government regulations there to see what is still relevant, what stands in the way of people exporting in business and in what areas regulation has become outdated. Maybe that's what is needed here as well - to have a look at it, at least, and see if it still fits what it was designed to do.
Mr. Drake, you mentioned there's a lack of competitiveness in export financing and you also said the banks and government should work together to help our companies in the export market against international competition. Does it matter to you whether that is done through a government agency such as EDC, or is it just so long as that is provided?
I'm looking at the European model, especially in Britain, where they've privatized, and the only role of the government there is to guarantee areas such as where the foreign exchange is not enough in some countries to handle those capacities. So they're in more of a guarantee situation rather than the administrative end.
Does it matter what model we use, as long as that service is provided to the exporters at a competitive rate?
Mr. Drake: I'll ask Jim to comment on that one.
Mr. Moore: The short answer is no, but the medium and longer answer is yes. The basic issue here is what changes if the government is guaranteeing the banks? The government is still on the hook. It's not a shortage of money; it's a shortage of risk capital. If the banks are prepared to put some of their own risk money into financing - from the tone of your question, I think we're mainly talking about medium- and long-term financing.... We would love to see the banks put more money into it, but they'd have to take some of the risk off of the government.
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We would want to see evidence of commitment over the long haul. The banks would need to emphasize the human resources side of it. We wouldn't want to see what happened with the world market conditions in the early 1980s. You will remember that there was a currency crisis at the time, such that this area became less attractive to the banks and they withdrew human resources.
We would want to see exactly what the banks would offer. We would want to be absolutely certain that the terms and conditions are no more onerous on exporters than they are today, and remember that you're introducing another profit centre, which makes things a bit more complicated and takes money out.
Mr. Penson: But as private business people, I would have expected that to be attractive to you, that there would be a profit-driven motive involved.
Mr. Moore: It certainly would be as long as the financing to exporters and their clients didn't become more expensive. I think we're largely talking about buyer credits here, which are credits to foreign buyers rather than to Canadian exporters.
Mr. Penson: But keep in mind that there's a cost to the other method too. I think EDC right now has a non-performing loan portfolio of about $2.5 billion. That will be a taxpayer expense if it has to be written off. Last year, through the Paris Club, we wrote off a fair amount. On the other side of it, when taxation levels are high, you have to come to terms with that aspect of it because that's part of the reasoning.
Mr. Moore: Again, to emphasize the point, if the government is guaranteeing what it is lending directly now, there is no difference in the government books.
Mr. Penson: But my understanding of the United Kingdom's model is that they're not guaranteeing all export sales. They're only guaranteeing those that don't fit into a category because of foreign exchange difficulties - where that country doesn't have enough foreign exchange. It rules out guaranteeing in about 80% or 90% of cases.
Mr. Moore: If we're talking medium- and long-term financing, which I think is the focus of your discussion, I believe the government guarantees virtually all of it through ECGD in the U.K. We would love it if the private sector put up some risk money, assumed some of the risks and took that over from government to a greater extent than they do now. Even more important from our perspective, they could increase the availability of competitive financing, which is the issue that we as exporters have.
The Chairman: At the Canadian Exporters Association meeting that you held in Fredericton, two of the chartered banks told me and have written me stating that EDC is crowding them out of the market, that they're willing to be engaged in this market but are not able to access it because EDC is offering the rates. People go to EDC but don't know they could get this through the private banks.
What you're telling me now is that the past experience of industry is that you don't trust the banks. As many of us who have been in business know well, the problem with banks is that when times are good the tap is on, and when times go bad - just when you most need the money - the tap gets turned off. This is a real problem when dealing with banks. We've all had that experience.
So I don't disagree with your comment, Mr. Moore. I thought it was very relevant to the 1980s. That's the type of thing the committee has to look at and understand when we're trying to come to this. Does the association have any experience, or do you hear from your members, that the banks are being hindered from getting into this field because of EDC? Or would that be news to you?
Mr. Penson: That would be the same with insurance as well.
Mr. Moore: We need to be careful in this discussion to define what exactly we're talking about. My observations were largely aimed at the medium- and long-term, the export project end of the business.
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I go back to what I said earlier. I think most exporters would just love to see the banks play a more active role, but they have to be prepared to take a share in the risk and put some of their money into it and not rely on 100% government guarantees. They have to bring something to the party.
Mr. Penson: But how do they compete with EDC, when EDC doesn't pay any taxes; they have access to the Canadian government's best credit rating - that's what they're borrowing on. They're leveraging, I think, 12 times what their assets are now, so they can loan about $15 billion out. How do they get into that area when it's a very tough competitor?
We hear the same thing in the export insurance area, that they are dominating and insisting that anybody who does business with them has to have their whole portfolio with EDC. How do you compete?
Mr. Moore: Would you like me to start on the insurance since we haven't commented on that?
Mr. Penson: Sure.
Mr. Moore: That's an area that has been extensively privatized in Europe, as you observed earlier. But one needs to look at the availability of insurance, the credit and political insurance in Europe.
We have some figures based on a survey of private credit insurers in Europe. It reveals that export credit insurance is very hard to come by, if not impossible, by SMEs - small companies. Quite frankly, the volumes or the premiums that can be earned from servicing SMEs relative to the costs of servicing them don't make it worthwhile. As a consequence, export credit insurance for smaller companies in Europe is very difficult to come by. The governments in Europe are still backing the private sector in most cases in relation to the political element of an export credit insurance policy. So it's not entirely privatized even now.
Mr. Penson: Mr. Chairman, I want to make one short comment.
The Chairman: Make a very short one, and then we're going to go to Mr. Volpe.
Mr. Penson: Okay. But I have a basic inconsistency -
Mr. Volpe (Eglinton - Lawrence): You can go ahead and ask your question.
If you don't mind, put me on the next panel, and let Mr. Penson carry on.
The Chairman: Okay, fine.
Mr. Penson: Thank you, Mr. Volpe. I want to follow up what I see as an inconsistency in what you're saying here today. That is, on one hand you're saying that the cost of doing business in Canada is too high because of - well, government regulation is one. But you're also saying that taxation levels are very high.
One of the things that in my mind is leading to high taxation is that we have a crown corporation out there that competes directly with the banks and with the private insurance companies. I've heard that they tend to crowd them out and there's not much room left, because they have the national treasury behind them.
We know there's something like $400 million written down last year through the Paris Club. We have $2.5 billion that looks like it may have to be written down at some point in the future through EDC. How do we resolve what you're saying here?
I'm asking you - and I think Mr. Drake answered the question, but then you added to it,Mr. Moore - as long as that service is provided, does it really matter who it is? There's more than one model we can look at.
Mr. Drake: I think it's very important that we use every possible arrow in our quiver - if that's the right expression. But the EDC and the banks have been working together, public sector and private sector, to help Canada be competitive, whether we're talking about buyer credits, whichMr. Moore has mentioned as an important aspect, or many others, including the insurance area.
We have to leverage both these resources. I think it's been very encouraging to see in the last year or so, ever since the meeting between Ministers Manley, Martin and MacLaren with the CEOs at the banks and with the president of EDC, that this collaboration where both the role played by the public sector, EDC, a crown corporation - very important - and the banks, which are the ones who are in contact with the SMEs - they both have a role to play - and where these are working jointly together....
Several of the programs we mentioned, whether the MARG or the framework agreement, are joint efforts between the EDC and the banks. I think it's wrong to look at one crowding out the other. That may be a comment from individual banks, but I think the important thing is that they should be working together to keep Canada competitive.
The Chairman: Thank you. I think that's helpful and I will take it. There's no doubt about it; the committee is going to have to come to grips with the problem of export financing. Finance is going to be one of the very important chapters of our report.
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We presently have or will have in the report some suggestions that the EDC plays a wonderful role in some respects, where it's complementary to the private sector, but in other cases it is making it difficult to develop a healthy private sector in the export financing field because of its activities.
Your association could actually give us some statistical information as to whether these totally contradictory impressions are right or wrong. That is where you could be most helpful to us,Mr. Drake. From the information you get from your members, you could tell us whether your members have gone to the banks and the banks have said, ``Well, we can't provide that service because we can't compete with EDC or EDC has crowded us out''. Then we could have a better factual base from which we could try to understand what would be the appropriate recommendation.
Could I leave that with you as a bit of a challenge? If you could find that information out for us, we would appreciate it very much.
I'd like to thank you on behalf of the members for coming this morning. Your association is always extremely valuable in the insights you bring to bear on these issues.
Thank you, Mr. Drake and Mr. Moore.
Mr. Drake: We appreciate the opportunity. It's more than a bit of a challenge, Mr. Chairman, but we'll try our best to rise to it. Thank you.
The Chairman: Thank you.
We'll adjourn for five minutes and then we'll be back.
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PAUSE
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The Chairman: I call this session back to order.
With us from the Department of Foreign Affairs and International Trade are John Treleaven, director general of trade planning and operations; John Mundy, director of the international finance division; and Peter Campbell, director of the trade commissioner service. These gentlemen will review the federal government programs that are available, what the trade commissioner service does, and our new Team Canada approach to international exports.
Mr. John Treleaven (Director General, Trade Planning and Operations, Department of Foreign Affairs and International Trade): Mr. Chairman, thank you for the invitation to appear.
As many of us have, I've read with interest the testimony from the stream of witnesses to this committee over the past few weeks. Money was mentioned at the end of the last session, and it has been a common theme throughout the presentations.
On the Canadian government's role as an advocate for companies abroad, I think witnesses mentioned our embassies in Cuba, Kuwait and China. Some described the foreign service as the eyes and ears of the business community abroad. Others discussed our trade promotion - programs, fairs and missions - and how good, effective and necessary they are. Still others have focused on the issue of preparing companies in Canada to tackle the opportunities in the global marketplace.
At the same time, several witnesses have outlined areas where they've seen problems - consistency of service across the trade commissioner service, the trade commissioner's knowledge of industry or a company's products, and inconsistency of approach between embassy staff and government agencies. For example, I can recall our embassy in Tehran contradicting EDC on the issue of export financing for that country. Several people have also mentioned the need for a predictable, effective level of service to Canadian industry to prepare them for exports abroad.
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On the research paper that was prepared for the committee, the work done there on the issue of how companies - SMEs - enter export markets was well done and consistent with the kind of research that we've had under way for some time.
Let me quote my minister, who will be appearing here later this week. Last year he wrote on the issue of the government's role in international business development in the global economy, stating the following principles:
- - government does not conduct business; companies do. Government can and should provide
information and services but it is not in the business of picking winners;
- - government should supplement private sector service providers such as banks, libraries,
universities...rather than replicate what is available in the public domain.
- - government's role is to stimulate, not subsidize.
Market sectors and companies are different, and government support programs should be similarly differentiated. Providing a universal service in all markets in all sectors to all companies reduces the quality of service to all.
More needs to be done within Canada to prepare companies, particularly small- and medium-sized enterprises, for the rigours of international trade. We need to refocus on providing quality, targeted service to private sector companies.
To be successful in international markets, companies need a product or service and a team of people trained, dedicated, well-managed and innovative in their approach to their customers. They need customers. They need intelligence on market opportunities and barriers. They need to be seen in markets from Costa Rica to Hong Kong as credible suppliers, even though they may only have thirty employees or fewer.
They need to have the confidence necessary for their shareholders to assume the risk of approaching world markets. They need to be skilled at risk avoidance, and they need to get paid.
Our department plays a role in several aspects of that kind of analysis, and I'll outline some of the ways we play that role.
Let me start with a letter sent by our Deputy Minister of International Trade to the trade commissioners about 18 to 24 months ago.
- Our...main challenge is to provide our clients with the information they need to develop their
business strategies. We have to be as good at dissemination as we are at gathering information.
We have to bring to our clients information that they cannot ignore; strategic information that is
not general but targeted, information that results in changed corporate behaviour. This should
be information that extends beyond export opportunities to include market access, outward
investment, strategic alliances, technology transfer, and competitiveness issues.
Beyond that, each of those 128 offices is every day developing a network of contacts of senior decision-makers whose decisions could have an impact on employment in this country. From that network of contacts the trade officer, embassy and consulate draw market intelligence in its sharpest form, according to what our clients are interested in: business leads. Beyond that, the access conditions, networks of contacts, distributors and advice on how they can approach markets....
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But we don't stop there. The private sector and the government operate, to a greater or lesser extent in all of those posts, a program of promotions. We have fairs, missions, seminars, and cocktail parties, which bring buyers and sellers together and create venues in which Canadian companies can interact with local decision-makers in a way that helps them achieve their shareholders' objective.
In that regard, we seek to put one question in the minds of decision-makers around the world: why not Canada? If a business person in Costa Rica doesn't have that question in his mind, he will not necessarily bring a business opportunity to Canada. If he has that question in his mind, he also might not, but there's a chance that he will.
So together with the private sector we operate a cooperative promotional program in world markets, seeking to extend the networks of contacts we have in those marketplaces and change their behaviour; that is, that they will think of doing business with Canada and in one way or another approach the Canadian economy with a business deal.
Several of your witnesses have talked about approaching our posts and how busy they are, and I thought you might like a few statistics.
The 600 trade officers in the last fiscal year received 176,676 inquiries from Canadian companies wanting to do business abroad. In that same period, they received inquiries from foreign companies - that is, their networks of decision-makers - and processed 181,083 such inquiries.
During that same period they assisted 34,175 Canadian business visitors in a material way. They set up appointments, prepared reports, and guided.
As I mentioned, they're very heavily involved in promotion, and during that same twelve-month period, that network of 128 posts organized 5,941 events, fairs, missions, and seminars. Approximately half of those were at the specific request of companies; that is, company A is going into market B and they want to meet and hold a technical seminar on, say, Canadian mining technology, and the post organizes it.
The other half involved some public funds - a government stand at a trade show, a fair, a mission, or some other form of promotion involving public funds. It is important to note, though, that in a government booth at a trade show, for example, companies are providing, at a minimum, 70% of the cost of that government booth. We provide some seed money, but by the time you take in the costs that the individual shareholders of those firms have to absorb...in fact they are joining the Canadian government in a national effort in, say, the Chilean mining show to promote the industry as a whole.
We view our main means of impacting corporate behaviour, once the policy framework has been established, as the provision of market intelligence. The trade commissioner service was formed 101 years ago, and for the first 10 years of its existence it was called the Commercial Intelligence Service.
We know that market intelligence has the highest impact on corporate behaviour when it reaches a company that's not only capable of taking advantage of an opportunity, but willing and anxious to do so and prepared to do so.
There is one piece of research that I think very much supports the work your staffers have done in this committee, for example. Some while ago, the Canadian Federation of Independent Business, which, as you know, surveys its members with great regularity - about every two weeks - did a survey with the following title: ``Factors affecting my willingness to hire one more person''. It's interesting that 84.9% of respondents cited increased demand for their product as the first factor influencing a decision to expand.
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On one level, the Department of Foreign Affairs and International Trade delivers to Canadian industry demand information. We believe the most powerful piece of information we can give a Canadian company is the knowledge that somebody might want to do business with them. This leads to all kinds of other, more value-added advice.
Let me refer to a second survey. This was carried out by the Department of Industry among IT companies in B.C. in January. It produced what is certainly a counter-intuitive result. The survey was done by a professional and asked 80 Canadian IT companies to rank 20 factors affecting their ability to compete in world markets. First, second and third were something like market opportunity, technical standards - very important in that business - and contacts. Down about number 18 were tailored market surveys, totally consistent with what your research report has indicated. The consultant was surprised that market surveys were ranked so low, but then he took a look at his sample and realized that of the 80 companies, most were SMEs by any definition.
He concluded that SMEs are by definition niche marketers. Niche marketers don't need the 40-page report on the market for telephones in Costa Rica; they need to know the three people in Costa Rica who are going to influence the buying decision. So he coined a phrase that I really do like, and that is, perhaps for an SME the best form of market strategy is point and shoot.
In 128 locations around the world, we'll help the company point. The shareholders of that company will decide whether the trigger gets pulled or not.
Anyway, I thought it was quite interesting.
The network of trade commissioners around the world is linked by a computer network called WIN Exports. It's a database of Canadian corporate capability. Fundamental to the success of that very expensive network of trade commissioners abroad is data on Canadian corporate capability.
The chairman referred to making Trade Team Canada, the initiative announced by the minister in Fredericton, work. You'll all recall the Prime Minister's Team Canada mission to China last year. Of course, it was spectacularly successful. We've looked at why, and I think it's evident to the Canadian public why.
First of all, you had a group of 200 or 300 Canadian companies that knew exactly what they wanted, and they knew what role they wanted the government to play in assisting them to achieve their shareholders' aims. The government, at a very senior level, both provincial and federal, was prepared to play that role.
So the issue is, if Team Canada worked for nine days in China and 60% of our GNP is dependent on international trade because we import almost as much as we export, shouldn't Team Canada work every day? The essence of the minister's announcement has to do with making Team Canada work every single day.
As a part of that process, the federal government departments involved in international trade are organizing themselves into national sector teams - a very simple concept.
Who in the public service, federal or provincial, is an expert in a particular sector? Regardless of their department, have them work as a team. Publish a phone book for Canadian companies, not by government department or level of government but by product. We don't have that yet; the U.S. foreign commercial service does. But under the Trade Team Canada initiative, we'll soon publish a phone book where if you're in the apple business, you'll look under A for apples and it'll tell you who thinks they're experts in the international marketing of apples.
Let me give you an example of how that works at its best. As the Gulf War approached, the interdepartmental community on defence trade - the Department of Industry, DFAIT, my own department, DND, Public Works and Government Services, the Canadian Commercial Corporation, and one or two others - a group of people who'd worked together for years and trusted each other, who all knew their relative strengths, started to receive phone calls from allied governments, our own companies and foreign companies at an enormous rate. That group of officers set up a fax network. Whoever got a call took action and indicated who would take action. That group of eight people handled 15,000 inquiries in three months because they worked together, trusted each other and had no turf considerations.
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That model is behind the Team Canada announcement and the thought of national sector teams. By the way, there are many that work. They are in agriculture, automotive and seafood, and we're extending that. So that's a building block. Initially, at least, a national sector team will focus primarily on identifying Canadian industrial capability and sharing that knowledge with our network abroad.
Another part of that announcement is to take regional teams. In every province in Canada there are federal departments that work and there are provincial departments. The challenge facing Canada's effort to coordinate its international trade efforts is that there are about 21 federal departments with a real role in international trade, and about 110 provincial government departments that have been interested in international trade.
At a regional level, you take the federal government's regional operations and mesh them with the provincial government's international trade operations and create for the client in New Brunswick, Quebec or Ontario a network of organizations that will respond as one. When the minister made his announcement in Fredericton, Premier McKenna gave him a copy of the trade team New Brunswick business plan. All New Brunswick departments of government and five federal departments were working off a common business plan.
A further element of -
The Chairman: Mr. Treleaven, I'm sorry to interrupt you, but if we're going to have comments by Mr. Mundy and Mr. Campbell, there will be little time for questions. Were you going to give the overall view and then they'll be available for questions?
Fine.
Mr. Treleaven: A further element of the Team Canada announcement was a focus on the delivery of market intelligence to interested and capable companies. As I've already said, companies have told us that what they want more than anything else are trade leads. So we've established an interdepartmental organization in Foreign Affairs that takes leads from our posts abroad, where they cannot find a company that's interested and capable of responding at the moment and deliver that information to that company.
In creating Team Canada, ministers have also agreed that what used to be called the international trade business plan, which is federally published but cleared through the provinces, should become the planning document and a resource allocation tool for Trade Team Canada. So Canada's international business strategy, the preparation of which is now under way and does involve all 10 provinces and all federal departments with an interest in international trade, and does involve our clients through the minister's sector advisory groups on international trade, and is less a document than a process aimed at making best use of our resources abroad and in Canada - that will be the planning document for Trade Team Canada. That process does involve our client through trade associations and should result and is moving in the direction of a true contract between the private sector and the various levels of government that have an interest in international trade abroad.
A number of your witnesses have talked about exporter preparation. As I said before, we do our work best when we are dealing with companies that are prepared and willing to trade abroad. You will be hearing from Dieter Hollweck, from the Forum for International Trade Training later in this process. HRDC, ourselves and Industry Canada have collaborated - it's mostly an HRDC project - to bring through the community college system in Canada a body of knowledge that does prepare exporters to take advantage of world opportunities.
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It's one of the main issues, I think, facing the country's ability to meet Minister MacLaren's challenge to Trade Team Canada, which is to double the number of active exporters between now and the year 2000. We estimate about 8,000 Canadian companies account for 94% of our trade abroad. His challenge in Fredericton was to double that. Clearly, doubling it involves SMEs.
As you have heard, Minister MacLaren takes a keen interest in strengthening SME exporters. He takes a very keen interest, as you well know, in the issue of finance. He has encouraged EDC as well as the banks to sharpen their focus on SMEs, involving export financing and insurance needs.
Several innovative products and approaches have resulted from dialogue initiated by the minister. These include EDC's emerging exporter team, a guaranteed program for foreign receivables, and in the medium term, framework agreements between EDC and the banks. You will have had references to some of these during the course of these hearings, and EDC will describe them further, I think, tomorrow.
If Trade Team Canada worked for nine days in China, how much more of an impact would world markets have on employment in Canada if we worked every day? If you look at the numbers with the new GATT round in place, estimates of an immediate increase in world trade of, I think, $1.073 trillion U.S., if you look at the U.S. market alone currently importing $800 billion worth of product - within ten years it will be at $1.8 trillion in imports - the issue facing SMEs and Canadian companies is far less one of opportunity - there's lots of it - than one of tackling it, preparing for it, avoiding risk, being paid, and knowing how to invest wisely their shareholders' capital. Thank you very much.
The Chairman: Thank you very much, sir. I have Messrs Penson, Volpe and Alcock andMs Torsney on my list.
Mr. Penson: Mr. Treleaven, I think the Trade Commission Service and our embassies overseas do a pretty good job of gathering market intelligence.
We're studying small- and medium-sized businesses here, and what I'm concerned with is that there's not a good trade environment at home with our small- and medium-sized companies, and there's not awareness that when we negotiate these big trade deals there are advantages out there but there are also opportunities for companies from other countries to come in and nip us here at home. I don't believe our small companies, and medium-sized companies to some extent too, are aware that they are vulnerable, that this protected Canadian market they have had for some time is not necessarily going to be there for them. I think there's a role for the Trade Commissioner Service to be playing, that you must get much more aggressive here at home and build that awareness.
I understand you are working through the community colleges, and I think that's an excellent way for that to happen. But I think it has to be expanded beyond that, because if these companies do not have that awareness, I think they haven't been provided with the time advantage they need in order to adapt and become a lot more aggressive. What would your comments be in that regard?
Mr. Treleaven: I agree with you completely.
Anecdotally, I was delighted to see a couple of weeks ago that it's not just the community colleges that are behind turning Canada from a trading nation to a nation of traders. In fact, the Beavers, the Cubs, this year for the first time, will award a badge in international trade.
The Chairman: Don't train them to point and shoot, or we'll all be.... Stick to other forms of analogies.
Mr. Treleaven: One of the things your son would have to do to qualify for this badge is to take a chocolate bar, read the ingredients and figure out where they came from. The ninth qualifier is to compare any two currencies - this is a seven-year-old kid - to the value of the Canadian dollar.
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Anyway, I agree with you totally that there's a very large job to be done in this country by all kinds of partners, including trade associations most especially.
Let me suggest one small way that we're trying to change corporate behaviour in that sense. We are receiving trade leads from posts abroad very regularly. Where we have a post that has a hot trade lead from a quality contact that's time sensitive, we send the lead to this centre that I mentioned in the Pearson building.
In its pilot stage, that centre handled 1,300 trade leads and phoned 9,000 companies. So 9,000 companies, small and large - they're all in a way an exporter through trade associations - got a message. Suddenly they got a call from the federal government saying, hey, there may be business for you in Uganda. The effect of that on the company is quite interesting, and by the way, many of these companies are not on WIN and we add them to it.
The minister, of course, each year gives out an award to Canadian exporters at the CEA annual convention. That's part of the process of signalling to the Canadian business community that not only should it be done, but it can be done, and it can be done spectacularly.
I agree with your comment, though, that what's happening with the free trade movement is that our domestic market is becoming somebody else's export market. All I can suggest is that anecdotally there's not a community in Canada - not one - that doesn't have within it very successful companies tackling world markets.
I spent a day a couple of months ago in Renfrew, Ontario, and in Renfrew there were six companies. One had just won a printing contract in Geneva with the UN. Another shipped hardwood flooring - you would understand that - to Japan. A third small firm was in the athletic tape business. That company, by going to one trade show a year, ISPO in Germany, had agents and distributors in 30 countries. He tackled world markets from Renfrew by going to one trade show in Germany. He had a good product.
Now, how you pull all that -
Mr. Penson: That's my concern. I think we have to step back even one more level.
Let me give you an example of what I think has been successful. Last year, in my home community in northwestern Alberta, there was a regional conference to do just what we're talking about. They invited the Trade Commissioner Service from Edmonton to come up and speak, along with some other people that had been exporting in the past. I think we have to get down to that very basic level where trade commissioners have to go out and sell this thing in the communities, and from there it will start to grow.
So I guess we're on the same wavelength, but I think it has to start at one level further down than what you're talking about yet.
Mr. Treleaven: I agree, and if you look at the concept behind regional trade networks in that Team Canada MC, what we're looking at is pulling all the players together.
If you look at WD, for example, it has 76 offices in western Canada, never mind the provincial governments. Now, suppose in Alberta - and it is a team - there was a predictable level of service that had an international trade bent from the Wetaskiwin office of WD, and that you wouldn't have to go to Edmonton to get it. There would be some triage. Plus, as you're suggesting, there would be some promotion.
If you have that whole network that's out there in the province of Alberta interested in identifying companies that are capable and interested, or could be, in world markets, some promotion and some feedback into the system, it would be very powerful.
Mr. Penson: I have one more short question with regard to the Canada business centres. Is that a division that is also shared with your department?
Mr. Treleaven: Yes, in fact, WD. The regional development agency is one, but we are definitely strong partners.
Mr. Penson: We are conscious that the Asia-Pacific area should be one of the targeted areas. We have some strengths in terms of people in the Vancouver area knowing the business culture, the language, and so on. But one of the comments that was made here was that in the Canada business centre there, there was nobody that worked there that had any knowledge of the Chinese culture and the language, and I think that's a real shortcoming. If we're going to make these things work, surely we have to take advantage of some of our strengths and tailor it to the needs of the business community.
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Mr. Treleaven: Absolutely. You might be interested to know that the Hong Kong-Canada Business Association is the world's largest bilateral business association between any two countries, and it's all across the country. On the CBSCs, their role is mainly triage - the first point of contact. The partners will provide the specialized advice. That's the concept.
Mr. Penson: But even so, they should have a knowledge of the language.
Mr. Treleaven: Yes, or on the first bounce, to be able to direct the business inquirer to the agency or organization that does public or private....
Mr. Volpe: I really enjoyed the presentation. It gave me a sense that the Government of Canada is actually doing something. But allow me to play devil's advocate for a second. If the Government of Canada is doing all of this, and I'm deferring to my colleagues and the chairman in particular, what's this committee doing? Why are we conducting these hearings?
The Chairman: We're here because we have to educate Mr. Penson about what we're doing and that there's more activity in Toronto for the Asian market than there is in Vancouver.
Mr. Volpe: I'm sure Mr. Treleaven is a sharp individual. He wouldn't take that bait.
Go ahead, Mr. Treleaven.
Mr. Treleaven: I won't comment on the role of the committee, but to go back to your comments and the fact that with exports of $225 billion and 11,000 jobs per billion dollars worth of exports, if six companies in Renfrew, Ontario can get together for coffee every day and tackle world markets, there's not a community in Canada whose economic prosperity isn't vitally linked to this process.
There is also an awareness issue and systemic issues. You're dealing with the finance issue. It's not as if the place isn't without problems and couldn't do with some adjustment here. In announcing the Team Canada initiative in Fredericton, Mr. MacLaren was not saying that we should become a nation of traders and trade's important; he was saying that trade's important and we're doing well, but we have to do better. So let's sit down together and figure it out. We are doing well, but where do we make some changes, whether in resources, coordination or identifying new financing products or whatever, that will allow us to do better.
Mr. Volpe: On that theme, Mr. Treleaven, I went through some of the figures that you provided for us. I don't want to go into anecdotal accounts of what might or might not be happening, but I would like some reaction here. You're well aware of what the witnesses before this committee have been saying. When I see that our 600 missions abroad answered some 181,083 inquiries from foreign companies, that comes out to about 300 per mission per year, or one per day.
Slightly less than that are from Canadian companies. Assuming they didn't all go to foreign missions, or that all of them went to foreign missions, that means that they got two phone calls per day on average. Under the same circumstances, with an increase in inquiries alone, we had the same number of events, including fairs, missions and seminars - some of these have been panned by the witnesses who have come before the committee.
I agree with every theme that you raised in your presentation - that every time we provide opportunities and contacts we create businesses and jobs in this country. This isn't so much a question, but in your presentation you focused indirectly on the importance of the North American market. Since our trade with the U.S. consists of approximately 45% of their imports.... Is that success based on the kind of work that we're doing as a government, or is it the natural flow of things and the government is present post factum?
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Mr. Treleaven: First of all, in the numbers that I gave, there are 128 posts. The arithmetic comes out to -
Mr. Volpe: I'm sorry, then it must be 600 officers.
Mr. Treleaven: That's correct.
On the issue of where we add value, first of all, we tend to deal on the margins. Once companies have their agents, distributors and what not in place - we're there to assist them if they need it, but we tend to move on and deal with new companies. On the 34,000 business visas, that's clearly just the margins of the business people who are travelling in this country.
Mr. Volpe: That number, by the way, is less than the number of visas we issued to Chinese business people who wanted to come here to look at investment opportunities in Canada.
Mr. Treleaven: That's interesting. We don't have those numbers.
But it's clearly on the fringe.
Mr. Penson: As it should be.
Mr. Treleaven: Yes, exactly. We're not in business to -
Mr. Volpe: You're not yet espousing his philosophy, though. We want our questioning to be tough.
Mr. Treleaven: The issue of the United States market is very interesting. We are the envy of many countries in the world, simply because we are right beside the United States. It gives our exporters, particularly our SME exporters, a golden classroom. It's not easy - no market is easy - but we have programs in place that bring new exporters to border states, for example.
The issues facing an exporter going to Buffalo, Bangkok or Beirut are essentially the same. If they haven't been there before they have to know that there is a market, get some contacts in place, work those contacts, work that market and make their own business decisions. It is quicker for us to do that in Buffalo than in Bangkok.
Mr. Volpe: Are we abandoning more traditional markets because of that? I guess that's where I'm headed, Mr. Treleaven. While our exports have been increasing in absolute numbers and dollar values, in more traditional markets, Europe and Asia, for example, they have actually gone down in both value and percentage terms.
Does that indicate that as a government we should adopt a different strategy? Or should we continue along the lines that appear to be successful in North America for a whole variety of reasons - you've indicated that it is a natural workshop for us - and therefore probably outside the realm of any resources that we might expend as a government?
Mr. Treleaven: Our resource allocation process, done collectively with our clients, is opportunity-focused. We have shifted resources considerably over the last 10 or 15 years. We've shifted to Asia and more recently we've shifted to Latin America, particularly Mexico, because of NAFTA. The workload on that post has skyrocketed. In the effort to reduce our costs but maintain the same level of service, we have gone through a process of adding locally engaged staff and removing some Canada-based officers in Europe and elsewhere.
We have also almost entirely pulled out of some regions, and tropical Africa is a case in point. We've taken almost all of our trade commissioners out of tropical Africa. We have one or two. We have some locally engaged commercial officers.
So to the best of our ability and in concert with our clients, we do adjust our resource base to where we and Canadian industry see opportunities growing.
Mr. Volpe: Many of our witnesses, including you, have emphasized that one of the crying needs - I think you are partially addressing them through some of your programs - is not only the access to data, but the interpretation of the data and the significance for the person who is asking. Traditionally, that's not somebody who is starting from scratch but somebody who is already engaged in business and wants to expand business to the export market.
The one thing that seems to be lacking is a direction. Once you have the data and an interpretation of that data, is there any thought in International Trade about providing a direction - I think a previous witness said something in terms of industrial strategy, sectoral focus - or beginning to choose the winners and losers? If I'm not mistaken, along with the absence of a direction is the question of financing.
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I am asking this because many of our SMEs say the big problem with competing in a market like the Asian market is that their competitors, the Europeans, Germans, French, Italians and English, go there with a financing package in place, and ours don't. They'll never be able to strike a deal because our government doesn't have a strategy for providing our exporters or investors with a complete package for doing business, and the Asians are not interested in wasting time trying to work out a financing package.
Is that an accurate assessment, Mr. Treleaven? If so, do you have something in the works that we might bring back as good news?
Mr. Treleaven: You have a two-part question. One is the issue of focus.
Mr. Volpe: I had to give you a two-part question because the chairman wouldn't allow me to go on for another ten minutes.
Mr. Treleaven: On the issue of focus, last year the minister asked Red Wilson and a group of business people to look at the international business development program and suggest places where we could make changes - cut and adjust. That Wilson task force report provided much of the input that later came out in the Team Canada announcement, and among other things challenged the government not to pick winners but to focus resources both in terms of sectors and markets through the Canadian international business strategy process.
It's not that this hasn't been done. If you look at it from a country focus perspective, in a sense the FTA grew out of an early policy by the government to focus on the United States and an agreement resulted. For two or three years now we have had an action plan for Japan where we've come together with the private sector, taken sectors, taken that market and put resources in place. We've done the same thing on occasion for Hong Kong. A similar document is now in preparation for the Prime Minister's visit to India. It's a thorough analysis of that market, Canadian capabilities and what's needed to pull it together.
On the issue of financing, I'll defer to John Mundy, but EDC is not without having put in place lines of credit that are a precursor to a commercial launch. It is an issue, and one of your witnesses pointed to the anomaly where a trade commissioner will say, come and do business in Iran, and then the agency back here says, just a minute. So in looking at Canada's international business strategy as a resource allocation process in which EDC, CCC, CIDA and all are involved, we're hoping and aiming to produce a coherent, strategic resourced view of the world from the view of the Canadian exporter and act on it.
Mr. John Mundy (Director of International Finance Division, Department of Foreign Affairs and International Trade): On the question of competitive financing services - I think you used the example of Asia - there are well-defined international rules on the rates, terms and conditions for officially supported export credit that's delivered through the public sector in Germany, France, Canada, the United States and others. Our mechanism for delivering that export credit is through EDC, which is in a position to offer terms and conditions that are fully competitive with any other export credit agency.
There are circumstances where other countries use their aid program to subsidize export credit. In the 1980s, this area of credit mix was a difficult area. It involved large subsidies and a distortion of aid funding into export credit activities.
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In the early part of this decade, there have been a number of international agreements that have greatly restricted the ability of foreign countries to use aid funds to distort the supply of export credit.
What we hear from the export community is not that additional concessional financing is needed to help our exporters, but rather that the overall risk capacity of the Canadian government to offer hard terms of export credit needs to be enhanced.
The Chairman: Thank you. Does that answer your question?
Mr. Volpe: Mr. Chairman, you want somebody else to ask the next question, right?
The Chairman: Mr. Alcock has been patiently waiting, and we have Ms Torsney andMs Beaumier on the list, as well.
Mr. Volpe: Patience is a virtue that needs to be rewarded. Let me be the first to be magnanimous and say, here's your reward: ask the question.
Mr. Mundy: I hope I answered the question.
Mr. Volpe: No.
Mr. Alcock: I actually hate to break the flow. If you want to finish off with another....
Mr. Volpe: No, that's okay.
Mr. Alcock: I want to come back to a couple of things.
First, I have a small question on WIN Exports. Is this an External resource available to the trade officers, or is this something that can be accessed externally and searched by the public at large?
Mr. Treleaven: It's not available to the public at large, because we seek from companies to divulge in that document material they might not wish to go to a competitor. The companies themselves fill out the application, and they decide what to put on the database.
Mr. Alcock: One of the things that has been discussed a little bit at the committee here is the situation encountered by companies that are exporting, particularly in developing markets, and that is the request for payments for services. They're known as bribes here.
Frankly, I was rather surprised in asking a question about this to earlier witnesses to receive a rather lengthy description of how you hid them and how you actually paid them, as opposed to any kind of comments on whether or not you should pay them, or alternatives to paying.
What do you do? What recommendations do you give to companies who are approached for these payments, and are you able to assist them at all with foreign governments?
Mr. Treleaven: I've had six postings, and in my career I have not been approached for such advice. I've been approached by Canadian firms saying, how do I get into this market, who are the decision-makers and how do we get at them, who are the agents and distributors, and all of that sort of thing.
I am a public servant, and at a given point fairly early on in the business process, the company takes over and makes the business decisions. Obviously, I'm asked in every post and in every situation, who has the decision-making power that can swing this deal, and that sort of thing, but I have not ever been asked that question.
Mr. Alcock: So it doesn't occur?
Mr. Treleaven: Oh, I'm not saying it doesn't occur.
Mr. Alcock: People at your posts haven't been asked that question?
Mr. Treleaven: It's not an issue.
Mr. Alcock: It's not an issue?
Mr. Treleaven: It's not an issue that has been brought to me for resolution as a Canadian government trade commissioner.
Mr. Alcock: You're the director general of operations.
Mr. Treleaven: Yes.
Mr. Alcock: So that means you relate to the various trade officers in the one hundred and some odd posts.
Mr. Treleaven: All of them.
Mr. Alcock: Has it never been raised with you?
Mr. Treleaven: In my six postings -
Mr. Alcock: I'm asking you, as the director general of planning and operations.
Mr. Treleaven: It has not been raised as a systemic issue.
Mr. Alcock: It has been raised with me three times in the last couple of months by companies who are trying to do work: one in the Ukraine, one in China, and now one in Jamaica.
So you have no advice to offer people who are encountering this problem.
Mr. Treleaven: No, that's a pretty delicate issue and it has to do with, among other things, the financial aspects of the overall business deal. That's what it's about, the sharing of the profits. Normally we do not get involved in corporate conversations on the issue of how much, do I charge a 10% premium? When it comes to the money, we're out of the running. Regarding the price, the willingness to sell...that's not what we do.
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Mr. Alcock: I don't want to sound horribly naïve, although in this environment perhaps I do. But it's the little guy; we're talking about the small businesses.
I have one example that just rings for me of a little guy who has never done business before, who has a product to sell and has been approached by a representative of a foreign government to get active in their market. He does so and goes over there in good faith. He's doing all the stuff he feels he's supposed to do, signing all the agreements and lining up his financing. Everything's going really well, and at the eleventh hour he gets asked for a cash payment.
He doesn't have the sophistication of those who have already built it into their cashflow planning and have accepted this as the cost of doing business, and he comes to you and asks, what do I do? He came to me and asked me that.
Mr. Treleaven: I would argue that it is a decision for his shareholders to take, because if he has to make a cash payment, then it's going to come out of some part of the financial equation behind that business. I cannot advise him on the dollars and cents involved in a business negotiation.
Mr. Alcock: Okay, thank you, sir.
The Chairman: Let me follow that up a little bit because we are going to have to address this issue in our report.
You're telling us basically that, from the government's perspective, this is an issue that you just don't give advice on. Really, concerning what to tell small- and medium-sized businesses if someone came to you, from the point of view of Mr. Alcock's position and other witnesses we've heard, at least wouldn't it be helpful if the Government of Canada, in this market information, all this market intelligence, could say, ``People, if you are going to go to X country, you'd better be ready to address this issue; don't invest $500,000 of your money and your time and energy and then be surprised by this''? At least even that would be helpful -
Mr. Alcock: That would be helpful, yes.
The Chairman: - and let the private people make up their own minds as to how they wish to address it.
They'll have to get legal advice. Having practised law myself and having dealt with this issue, they can be breaking the law in Canada. So we're talking here about very serious things. You may be breaking the law of the country where you are and be running very serious consequences.
There are moral, political and legal issues here, but at least it would be helpful if the government could advise Canadians abroad where this arises on a regular basis - because you must hear about it and get rumours. There must be circumstances where the Canadian government could go to bat for people and go to the officers, or the politicians, or whatever involved, and say, look, as a government, we find this unacceptable, and deal with it.
I've been at some foreign posts where the ambassador specifically said that it has been raised at the highest levels with those governments, saying, look, this is something we don't have in our culture or tolerate, and the Canadian government won't go to bat. Is that being unreasonable to assume that we might get that type of support from our government?
Mr. Treleaven: I would suggest to you, as I've mentioned, that we do on a daily basis specialize at a post abroad in knowing decision-makers and people who can influence decisions, business decisions. To the best of our ability we will give the Canadian company a range of what we consider to be options for them to enter that marketplace. Of course, they're free to go and choose anybody they wish, and part of the process of selecting a representative is looking at how that representative is going to act on your behalf.
To say the least, it's not an easy business for companies to go abroad. There are many trading conditions that are very much different there than they are here.
The Chairman: Thank you. Ms Torsney.
Ms Torsney (Burlington): Thank you. Although that was a fascinating conversation, I'd like to focus on some of the development at this end. I certainly think our role can be to help facilitate access so that businesses can create jobs.
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In my riding we did a seminar on how to export. We had terrific participation from local businesses that were hugely successful internationally, and they gave them some pointers. One of the things people also focused on was human capital, so I'm glad to hear that you're working with the community colleges to prep exporters.
I wonder about a couple of things. It's logical for us to be doing business in big numbers with the United States, but in terms of growth, opportunities and where the huge youth populations of the world are - Mexico, China and India - those are the opportunities that exist. I'm not sure why we're focusing so much on putting all of our eggs in one basket with the U.S., especially with rising protectionism.
Second, are we using the huge resources of all kinds of communities across Canada that have mondialization committees, that are already twinned with good...? They're set up, they have contacts and they have people visiting back and forth between the two cities - Burlington and Itabashi, Japan, Hamilton and Osaka.
Third, what are we doing to advise young entrepreneurs about where the market opportunities will be in five years, where they need to be focused? For instance, water technologies are a hugely successful area for my city. They're all over the world doing water systems and having opportunities to make potable water in all kinds of countries. Five years ago people might not have focused on that if they were lay people trying to get in somewhere. Since young entrepreneurs are going to be the way of the future, how are we telling young people where they should be thinking about creating businesses?
Finally, I have heard from community colleges and universities that we're not taking advantage of the huge potential of selling spots in universities and community colleges around the world, particularly to the United States. These colleges are becoming extremely proactive. They are businesses and they are going after people. It creates a whole bunch of linkages for future business people, when they all graduate and go on their way, for solid connections. All kinds of money can be brought into Canada in terms of all the spin-offs in the community, yet the education sector tells me that when they talk to our trade people in some of the offices, particularly in the United States, they're told to talk to the cultural affairs people, that if you want to do education exchanges, that's where you belong. No, it's a business. How do we focus people on that?
Mr. Treleaven: Do you realize that it's very expensive to educate a child in Canada?
Ms Torsney: Yes.
Mr. Treleaven: A friend of mine in Hong Kong complained to Allen Kilpatrick, who was the commissioner at that stage, that it cost him $500,000 to send his son to school for one year in London, Ontario. How did that happen? First there was buying the condo, then the car and then the trips home.
When I arrived in Hong Kong in 1981, there were 25,000 Hong Kong students studying in Canada and 2,500 studying in the United States. When I arrived in Costa Rica, the president of Costa Rica was a graduate of McGill. The president of the only Costa Rican government agency that could borrow freely on world markets, the electric power utility, and they also ran the telephone company - he graduated from the University of Toronto in 1922, and all of his children and grandchildren were going to U of T rather than to other great institutes.
I have seen the enormous benefits to this country of welcoming students from abroad.
Starting with your last question first, we are putting renewed effort on treating education as a business, which it is. It's a wonderful business, but in the past it has been sort of serendipitous. There's one example of a young Hong Kong student back in the 1950s coming into the commission and asking for the book published by the AUCC on community colleges in Canada. It fell open at St. Dunstan's University in P.E.I., so Albert Young went to St. Dunstan's, and about eight years ago he gave them a building.
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I agree with you that we need to take a more strategic approach to that business, and we have been. There's the Canadian Bureau for International Education, and we've done education fairs and all that, but within the department - newly reorganized, you'll be pleased to know - there is a unit that will be focusing on education as a business, training our officers abroad in the techniques, and I couldn't agree more.
On the issue of youth, you're right again. In the Team Canada approach we are fundamentally seeking to involve any organization or level of government, private or public, that can affect the bottom line of the country.
The federal government doesn't own the school systems in this country. Some years ago my high school students in Sudbury used Inco as a threat. It was a good school and there were good teachers, but once a week in the classroom you would hear that if you didn't go to university, you'd have to work at the stacks. We should have been sending our best people to work at the stacks because the livelihood of 100,000 people depended on what comes out of those stacks.
It would be of huge advantage to Team Canada if international trade training was adopted as early as possible in the school system. If cubs in this country are earning a badge in international trade, then maybe a student in grade 10 might be given some exposure to how his or her mother or father earns a living and how the community functions. I think it's important.
In terms of making information available to young entrepreneurs, in keeping with every other organization, public or private, we have a Web site, we have fax back, and there's a large information dissemination process. The Canada Business Service Centres are a part of that, and we welcome, regardless of age.... Students can phone the information centre if they're doing a class project and they'll get the literature, because we recognize that we're trying to grow a nation of traders.
In terms of what we can do beyond that, I think Mr. Penson's suggestions about the need to increase awareness - let's focus where we'll have the most leverage.
The issues you raised were preparation and twinnings. Japan was my last post, and we definitely facilitate twinnings in posts abroad. It works where the community puts a lot of effort into it, but it's like any other relationship. Some people go along for the trip, some people see that it's the goodwill mission from X to Y, and others do their homework. The city will only choose a partner where there is a natural economic link. Where that's the case, that's very beneficial.
I would hope that in a Team Canada approach we would take a strategic look at the twinning situation and see where it can work to our advantage. One that I think has been a huge success for the province of Alberta is the twinning with Heilongjiang province. The economies are quite similar and there's a need for technology. It has cost the province a lot of money to keep it going. I think the province has been very assiduous in that regard, and I believe there's been a good return.
The cities of Vancouver and Yokahama are both Pacific ports and they have an interesting relationship. The port of Vancouver is interested in getting more ship traffic. Where those kinds of relationships are based on the fundamentals of a community, apart from simply people to people, which I recognize in and of itself is interesting...but if you're going to get taxpayers' dollars and private sector participation, one way or another there has to be a degree of resonance there. So where they work well, I think they're great.
The Chairman: Did you get a satisfactory answer to your question?
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Ms Torsney: No.
On the face of it, Burlington and Itabashi don't have much in common, but because they've developed a relationship.... If somebody is going into Itabashi and for whatever reason has picked that as an area they want to focus on, do our computer systems tell them that contacts have been made with that community so that business people are aware of Canadians and Canadian industries on the basis that they have had friendships? Who better to do business with? For instance, as far as the SMEs go, it's very easy. The contacts have been made and developed over years.
For instance, stores in downtown Osaka and downtown Hamilton have switched goods between the stores and are opening up a market for Canadian goods being sold in Osaka. It would otherwise be difficult to get into that market, but now there's some exposure.
So when people are looking for who the suppliers are and how we are going to make those connections, they should be in our data bank of connections. Connections are important.
Mr. Treleaven: I agree that it's an important asset for Team Canada and I agree that we could probably exploit those relationships more than we are doing. It goes back to the issue of the community level and what is happening. This is the community level. How do you pull that together? It's a challenge but a very pleasant one, because we can do it.
Ms Beaumier: This is not to diminish Team Canada or to criticize Foreign Affairs, but I think the best that I can hope to get out of this committee is some accountability to take back to my riding.
To use NorTel as an example, how can we justify to the Canadian people investing Canadian dollars and risking more Canadian dollars to create jobs and set up research and development facilities in third world countries? In so doing we reduce Canadian content requirements in our EDC loans, and the direct result of that is a loss of jobs in Canada.
I understand that these companies are private businesses and if they are going to move their labour force out of Canada, they are going to do it, but how do we justify to the Canadian taxpayers that we are providing gold-plated Samsonite for them to move?
Mr. Treleaven: Is it that the Canadian government is providing financing for NorTel to expand abroad?
Ms Beaumier: A $200 million consumer credit was given to China for this. I don't want to go on about this, but how do we and how do you justify helping companies to set up and eventually move out of Canada with Canadian taxpayers' dollars?
Mr. Treleaven: I may be wrong but I believe the only time taxpayers' dollars are used to assist companies in establishing joint ventures or manufacturing offshore is through CIDA's industrial cooperation program, where CIDA believes developmental objectives can be achieved.
That is against a background - I don't have the numbers but they are widely available.... The extent to which trade is increasingly becoming a product of investment, such as intercompany transfers, etc.... Canadian companies, if they're going to be successful in markets, will have to look at ways of putting local content into their product in order to ship more, expand and achieve a greater market share.
There's nothing natural in business, but there's a bit of an evolution from selling the finished product to engaging a strategic partnership in a foreign market in order to expand sales. For example, the partner may suggest that they look at the product and if there's a piece of metal that they could make locally to reduce the final cost of the product, together they'll ship more. There's that kind of evolution.
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I might be wrong, but I think only in the case of CIDA do you have a program. That was called CIDA Starter Studies. I'll get the information for you. There it was a question that you have developmental objectives in a place like - it doesn't really matter where - country X, and there's a way of bringing Canadian transfer of technology and what not. It's private sector held, of course, so it has to be taken out or there has to be some business incentive for it to go there, for it to be transferred. I'll check, but I do believe they have programs.
The Chairman: CIDA is coming next week, so we can ask specifically about that program.
Ms Beaumier: And also the $200 million consumer credit to China. I don't mean to be -
The Chairman: Was that for purchase of Canadian exports or for purchase of -
Ms Beaumier: This is getting very specific, and I don't mean to be picking on one.... Well, I sort of do; it's in my riding and it affects my constituents.
I was told unofficially that this company gets the lion's share of development money in China. Certainly regarding the research in our office, every time you go to one area they say, I'm sorry, that's confidential and that's confidential, so you get very little.
I understand what development is and what your responsibilities to your shareholders are, but I also understand what my responsibilities to my constituents are, and there seems to be a conflict here.
Mr. Treleaven: If I could ask John....
Mr. Mundy: This is a very tough issue, because you can be pulled in two ways.
You're absolutely correct that EDC has lowered the threshold on Canadian content for export financing. I think this is certainly something you can pursue tomorrow when EDC testifies. But I think this is a function of the globalization of the Canadian economy, where it's becoming harder and harder as a manufacturer in Canada to produce a Canadian product with a very high Canadian content because of the globalization of the economy, particularly because of the interconnecting relationships with the United States, but certainly not just the United States.
So if you set a threshold too high - and this becomes a judgment issue - then you risk sending a message to companies that Canada may not be a competitive manufacturing base, and that if they really have to have a series of components that are not being manufactured in Canada, if you have to have those as part of your product, if our Canadian content is too high, then that company, which can move around the world, may choose a different location to manufacture that. So you have a judgment issue that, by maintaining too strict a policy, you may be losing manufacturing capability in Canada.
I think a good example is flight simulators, to get off the specific example of Northern Telecom. Canada is probably the most competitive country in the world in providing flight simulators. It's a marvellous high-tech industry. But the actual Canadian content of that flight simulator is rather low.
Ms Beaumier: Is that basically in the intellectual property value of it as well?
Mr. Mundy: It becomes all wrapped up. But in many ways you tend to protect the high value-added part of the Canadian export by being amenable to looking at the Canadian content and, on the margin, reducing Canadian content in order to protect a Canadian capability to offer export finance overseas.
But I agree with you. It is a very difficult issue, and it is an issue that requires judgment calls.
The Chairman: Mr. Volpe had a very quick question. We're running ten minutes over.
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Mr. Volpe: My colleague Ms Torsney was asking about education as an industry. I think of it as two: the exporting of education and the importing of students.
I realize that, at least on the latter part, there is an immigration component to it. Is there a policy coordination between the Department of International Trade, for example, and the immigration department on selling immigration abroad and here?
Mr. Treleaven: You're right to point out the issue. In my experience, in Hong Kong in particular, there were great sensitivities on the immigration side, and rightly so. I believe now the sensitivities are still there, but we're dealing with them in a way that focuses on what this country wants to achieve.
I'm quite certain that there are detailed discussions between that portion of our department that deals with education as an industry and our colleagues in the immigration department. I'm not privy to them, but I'm sure that that's the case. But you're quite right to point out the issue.
If you were looking at constraints to growth in that industry, that's one issue that has to be dealt with. The schools can't; it has to be the two federal departments or -
Mr. Volpe: But you do have schools that are going over there actively trying to recruit, but can't get the business, though, because the immigration department says, hold on, there's a different consequence here that we're looking at. It has nothing to do with the trade and the other potentials that emanate from it; it's strictly an immigration issue.
Mr. Treleaven: I agree, and if we are to be successful in growing this industry as much as we can, we have to handle that issue. I'm not briefed on exactly where the issue stands, but I would be happy to get some information for you.
Mr. Volpe: Would you get back to us on it?
Mr. Treleaven: Absolutely.
Mr. Volpe: We'd appreciate it. Thank you.
The Chairman: If you're going to do that, obviously another dimension of this problem is that because higher education is the responsibility of the provinces, and setting fees....
There's no question that in my own university in Toronto, where I came from, we had this phenomenon that we talked about for years. As you said, leaders of countries came to Canada and they got a wonderful education.
McGill was another good example. Many Americans came to McGill because they could get the equivalent of a first-class American degree for about one-third of the price.
As you know, visa students now pay much higher fees than anybody else, and it has been said that this is inhibiting a lot of foreign students from coming to Canada, in a way.
Would your department be recommending to the federal government - the provincial governments are not going to change this policy because they say, listen, we have a revenue shortfall here and we're looking at this as revenue-creating; I know from the university administration that they have to deal with this. Are you saying that as a parliamentary committee we should be looking at recommending that the Government of Canada thereby subsidize these students as a way of -
Mr. Treleaven: No.
The Chairman: But this is going to be a problem, because this phenomenon is not going to exist if our price gets so high that we're not an attractive venue.
Ms Torsney: There are probably some thresholds, but, for instance, from 1982 to 1985, I was paying $570 Canadian for tuition at McGill and my American room-mate was paying about $4,500. That was acceptable to her because that was a huge saving over Harvard, or anywhere else. So there are different thresholds and it will be what the market can bear, but there are a lot of people who believe you could charge $20,000 per year and still sell, as long as the quality is there, in different sectors, whether that's at the college level in cartoon design, or whatever.
Mr. Treleaven: Or at Queen's University. There is that radical MBA program for $20,000 for a ten-month curriculum.
The Chairman: That's provided, of course, we arrange our affairs in such a way as to keep our dollar so low that it is more attractive to them. We'll leave that discussion for another committee.
Thank you very much, gentlemen, for taking the time to be with us. We appreciate your information very much.
I would remind members of the committee that Mr. MacLaren will be before us at 9 a.m. on Thursday. The meeting will be in room 371 in the west block.
Thank you very much. We're adjourned until 9 a.m. on Thursday.