ON FOREIGN AFFAIRS AND
DES AFFAIRES ÉTRANGÈRES ET
DU COMMERCE INTERNATIONAL
[Recorded by Electronic Apparatus]
Tuesday, November 23, 1999
The Vice-Chair (Mr. Deepak Obhrai (Calgary East,
Ref.)): Good morning, everyone. Bill Graham, who
normally chairs the meeting, is on a plane and should
be here in about 20 or 25 minutes.
Hon. Diane Marleau (Sudbury, Lib.): I was wondering
whether something had happened.
The Vice-Chair (Mr. Deepak Obhrai): Madame
Beaumier is not here, so I have the privilege of being
in the chair today.
We have exciting witnesses in front of us here, so
we'll do what we normally do. The witnesses will
introduce themselves and do their presentations, and
after that, we'll go to our usual questions and
Gentlemen, you can introduce yourselves. According to
the list we have here, Paul starts. Paul, will you be
making the presentation?
Mr. Paul Kovacs (Senior Vice-President, Policy
Development, Insurance Bureau of Canada): Mr.
Quenneville will speak for our group.
The Vice-Chair (Mr. Deepak Obhrai): All right.
Mr. Jules R. Quenneville (President and Chief Executive
Officer, Guarantee Company of North America, Insurance Bureau of
Canada): My name is Jules Quenneville and I'm from Guarantee in
Good morning. We appreciate the opportunity
to present our views to the committee today on behalf
of Canada's insurers.
I am Jules Quenneville, president and CEO of the
Guarantee Company of North America. We've been serving
Canadians since 1872, and we are a member of the
International Credit Insurance Association. I am also
the chairman of the credit insurance committee of the
Insurance Bureau of Canada.
With me today is Bob Labelle, senior vice-president
and chief agent of Euler American Credit Indemnity
Canada, based in Montreal. The Euler Group is the
largest supplier of credit insurance around the world
and the largest supplier of domestic credit insurance
in Canada. The Euler Group is also a member of the
Also with me is Paul Kovacs, senior vice-president of
the Insurance Bureau of Canada.
IBC is the voice of
private insurers in Canada. Companies that belong to
the trade association provide more than 95% of the
insurance sold in Canada.
I have some brief introductory remarks, and then we
will be pleased to discuss any questions any
members of the committee may have.
Canadian insurers believe the federal government
should establish a new partnership, where the Export
Development Corporation and private financial
institutions begin working together to better serve the
needs of exporters. Canadian public policy in this
area lags behind improvements that have been introduced
in other OECD countries. We should bring our policies
in line with international best practices. The result
will be increased exports, more jobs, better jobs, and
rising prosperity for Canadians.
The Export Development Corporation was established in
1944 to provide financial assistance to Canadian
exporters. Around the world, the banking and credit
insurance industries at that time were not offering
several services needed by exporters, so public
agencies stepped in to fill this gap. Eventually,
dozens of banks, insurers and reinsurers entered these
lending and credit insurance markets with an array of
attractive products, lower prices, and other
improvements that were of value to exporters.
The public agencies in all of the OECD countries, with
the exception of Canada, transformed themselves several
times to complement the growing skills evident in the
private sector. For example, all of the agencies,
other than EDC, eventually exited the short-term export
credit insurance market, apart from servicing some
As insurers in all of the other OECD countries largely
assumed responsibility for the provision of short-term
export credit insurance, the various government
agencies were able to target other areas where they
could assist exporters. In particular, a great deal of
energy has focused on the medium- and longer-term
financial needs in many export transactions.
I understand that last week the representatives from
Bombardier appeared before this committee seeking
increased support of this nature. We agree that EDC
should direct its resources away from short-term
projects and increasingly toward longer-term projects.
Lending and insurance are highly capital-intensive
businesses. EDC and the other government agencies
around the world each hold many hundreds of millions of
dollars on behalf of taxpayers. The other agencies
continuously redirect these scarce public funds, so
they support exporters by complementing the skills
available in the private sector. EDC is alone in that
it still has almost all of its resources tied up in
providing services that banks and insurers have been
supplying for many years in other countries.
In recent years, EDC has pursued its mandate to
support exporters in a way that is different from the
other OECD agencies. The result is that Canada stands
apart. Financial institutions have largely
been crowded out of the market of supporting Canadian
exporters with the products banks and insurers supply
to exporters in all of the other OECD countries.
It is important that EDC continues to support Canada's
export community. But the international evidence
demonstrates that this is most effective when public
resources are used to complement the skills of the
The recent report of the expert panel reviewing EDC's
operations, the Gowlings report, provided advice on
a broad range of activities by the agencies. The
Gowlings report did not directly address the primary
concern of Canada's insurers—our advice that EDC
should largely exit the business of providing
short-term export credit insurance. Nevertheless, the
team's advice on other issues was encouraging, if the
intention was that it would also be applied to export
In particular, the first recommendation of the
Gowlings report is to consider new institutional
arrangements, which would bring the structure of
Canadian official export credit support more in line
with the practices of other OECD countries, including
consideration of a more distinct separation of EDC's
consensus in market-based activities.
Real action here would address most of the fair
competition concerns critics have raised in Canada and
We suggest that EDC could have one company that
competes with insurers, paying taxes, complying with
insurance regulations, and so on; another company that
competes with banks, which would similarly operate on a
commercial basis; and a third company that supports the
federal government's non-market activities, such as
medium- and longer-term export credit insurance.
Alternatively, EDC could commit to considering the
provision of credit insurance only in markets not
covered by private insurers. Canada is the only
remaining nation that has not changed the role of its
government agency in the provision of short-term credit
insurance. We are out of step with trading partners in
the United States, Germany, France, Britain, and
elsewhere. EDC should, however, remain the lead
provider of export credit insurance, where the agency
is clearly acting as an instrument of public policy.
This is most evident in those circumstances when the
full term of the financial arrangement extends over a
period of more than 12 months.
The federal Minister of Finance, Paul Martin, has stated that
if government does not need to run something it
shouldn't, and in the future it won't. This should
apply to EDC.
Around the world, governments have largely exited the
short-term credit insurance business, because under
conditions of fair competition, government agencies
could not match the low prices and quality service of
private insurers. It's now time for the federal
government to bring Canadian credit insurance policy in
line with our major trading partners, as the best
approach to helping exports.
Those are the prepared comments I wanted to read into
the argument here. I would like to add some other
I think one of the major facts is that insurers and
reinsurers are increasingly willing to take on this
kind of business, especially in large groups around the
world. For example, the Guarantee Company of North
America is a surety company as its main line of
business. It's been known for that. It was a pioneer
company in North America. We were the first company to
issue bonds in North America, back before Canada was a
country. We've survived over all those years as a
We do reasonably well in the marketplace, and we are
involved in guarantee bonding. We're not involved in
credit insurance as a product right now from inside our
company, but we would like to be. We have investigated
it many times, and we haven't been able to come to
grips with the fact that we couldn't arrive at the kind
of relationships that would be required to carry on the
Those determinants, by and large, are now largely
removed. There are many reinsurers now on the market
that would be prepared to support Canadian industry in
carrying out this kind of product. There are other
primary insurers around the world in this product line,
which are forming large international groups that allow
these primary carriers to cooperate with each other and
be able to provide the products on a free-market basis
around the world. It isn't a perfect system yet. They
haven't covered every country in the world yet, but
neither have the export credit agencies of the various
governments around the world.
The point is that the private sector is increasingly
willing to underwrite these risks. That wasn't the case
back in 1944 or 1945, but it is today. Canada is
changing and the economy is changing. We're becoming
more able to do these kinds of things, because there
are more players willing to step forward and help
Canadian companies do these things.
The other point is that the governments of many other
countries have sought to reduce their range of
activities, and by that I mean putting less of the public
purse's assets against the risks that really should be
assumed by other mechanisms. It's not just other
companies or other organizations, it's mechanisms.
When an insurance company takes a risk, it
intermediates the risk. It takes the risk, takes a
view of the risk, and charges a price. It then divides
that risk among all the arrangements it has made with
other insurers and reinsurers, so the risk is
dissipated across a very large market. An
intermediation takes place.
When a government agency takes the risk, they often
put the risk against the assets on their
balance sheet, without that intermediation process.
That process, in itself, winds up putting the public
assets of Canada against these contingencies that, by
and large, are not always easily quantified. So when
crises happen in various parts of the world, they can
have a dramatic impact on the balance sheet of the
export credit agency, which has basically put up our
credit rating, as Canadians, against their operations.
I think we have a duty to avoid unnecessary exposure.
When we have public assets and assets to work with, we
have a duty to try to determine how we can avoid
putting all assets against unnecessary risks.
That's basically the end of my comments.
The Vice-Chair (Mr. Deepak Obhrai): Thank you, Mr.
It's been our past practice to allow all
the witnesses to give their presentations before we go
to questions and answers, so I'll call now on
SNC-Lavalin to do their presentation. Jacques.
Mr. Jacques Lamarre (President and Chief Executive Officer,
SNC-Lavalin Inc.): I'm pleased to be here today to represent SNC-
Lavalin Inc.. I would like to thank the committee for giving us
time to express our views on a subject as important as the
legislation concerning the operations of the Export Development
Corporation of Canada.
First, let me say a few words about SNC-Lavalin before getting
to the crux of the matter.
SNC-Lavalin is one of the largest engineering firms in the
world. We provide services in the industrial, transport, power,
infrastructure and building sectors. The company's sales totalled
$1.5 billion last year. Sixty percent of the company's sales were
Not only do we have a significant number of employees, but in
addition, and this is one very important aspect of SNC-Lavalin,
we've purchased approximately 3 billion dollars' worth of goods and
services within Canada which we exported on the international
market in the past three years. As a result of this procurement
activity, I can estimate that we have helped maintain over 30,000
jobs in Canada, directly or somewhat indirectly.
Financing is a key element of our international operations. In
the U.S. market, this component may be somewhat less important, but
on the rest of the international market, it is almost as important
as the technical aspect.
This element is part of the competition process. It cannot be
isolated or distinguished clearly enough to say whether financing
is more important than the technical aspect, but these two elements
combined form an essential component.
It is therefore essential to be extremely careful as to how we
treat the Export Development Corporation because this could help or
hinder very significantly the volume of exports, especially those
to countries other than the U.S.A..
Another essential aspect that I would like to highlight in my
initial comments is that the EDC must maintain a fair balance in
its loans portfolio between developed countries and financing to
There is no doubt that it is sometimes easier for the EDC to
take a step in the United States than in a developing country, even
if the needs for products and infrastructure in the developing
countries are huge. For the EDC as for everyone else, it is much
easier to take on a risk in the American market than in any other
It is therefore necessary to strike a balance in the
operations carried out through the EDC. This is essential for
Canada's economy, because it will reduce our dependency on the
American market. Therefore, this is an aspect that you should bear
in mind when you draft your conclusions. If we want to reduce
Canada's dependence on the American market, the EDC must be obliged
to follow rules that force it to maintain a certain percentage of
its loans portfolio in developing countries or in countries other
than the United States.
Therefore, while I agree with the direction of many of
the recommendations of the Gowlings report, I do not
believe the refocusing of some of these activities
should be done by way of changing the law.
I am of the opinion that there are sufficient
safeguards in place, such as the EDC board of directors,
on which several government departments are
represented. The regulations, the reporting line to
the Minister for International Trade, and the Auditor
General's review would ensure policy-makers and the Canadian
taxpayers that EDC is following the spirit and intent of
the EDC Act.
Changing the law and maintaining all these reporting
rules will be a double and unproductive investment.
I would now like to comment more specifically on various
aspects of the Gowlings report, namely those that we have some
Recommendation 14 calls for the creation of a
special program through Canada accounts to provide
guarantees to banks for consensus loans. Resources at
EDC have already started to analyse transaction and
The creation of a separate program whereby risk
analysis and management would be duplicated is quite
risky. We are strong believers that the one-stop shop
approach would best serve the interests of Canadian
We recommend that EDC be encouraged to improve the
characteristics of its current guarantee program under
its own corporate account and be required to allocate a
certain percentage of its annual lending volume to
guarantees on terms competitive with other export
Another subject I would like to talk about—and
I know it is a sensitive one—is related to
the environment and sustainable development. The thing
we have to be careful of is this. We are in a competitive
world. If someone were to go to the World Bank, the
World Bank would negotiate a loan, and they are not
in a competitive environment. But when you have four,
five, six, or seven people competing to get a job, and if
you come with very strict rules, the people will get
lost in the system. We will get lost in the
bureaucracy; it will be a catastrophe.
It's not because we're not strong believers in
the environment. No engineer of
SNC-Lavalin will ever produce a job that doesn't meet
the ISO criteria for environment.
If over and above that there is regulation and there are
all kinds of assessments that need to be done by
the public, all kinds of things, it will kill our
competitive chance to get any kind of project. That's
why we have to be very careful. It's not because we're
not very strong on the environment. We are very
strong, but we are against a process that in fact will
kill the intent and will kill any chance we have
to sell a job.
For me, if I were to ask any engineer at SNC-Lavalin to
design a project that doesn't meet all the
environmental criteria, nobody would do it. On the
other hand, if we
have a process that will kill our chances to get
a job, we will all be at home doing nothing. For me,
that's something we have to understand. The
environment is part of our life; we don't do anything
that does not fully respect the environment.
We have to be very careful of the process we
will impose on EDC.
Already they have a framework, and it's a framework
that has some flexibility. For me, that's something
that is already in advance of many other countries in
the world. For the time being, we should not ask for
Again, I know human rights are very sensitive,
and again it will be to ask
all the business people in Canada, do you have a code
of conduct? Normally, if we don't like a restaurant
we don't go back.
If we ask all businesses everywhere to have a code of
conduct, again from our point of view, the
process will kill it. It's not the intent. For
us, at the same time as we make a
trade, we export our values. We believe in our values,
but at the same time the process could kill the intent.
Is the bell ringing because I'm too long?
An hon. member: No, that just announces that the House has
Mr. Jacques Lamarre: Very well. It's not because of me.
Do I still have 10 minutes?
The Vice-Chair (Mr. Deepak Obhrai): You're fine.
Mr. Jacques Lamarre: Okay.
The last point I would like to make is on the small
exporter. In the Gowlings report, they say because someone
is small or medium—I don't know if we are small or
medium; I don't know where we stand in that regard—we
have to be very careful. They say we don't need a
legal opinion. The people won't need to be responsible
for collecting their money. EDC will be responsible
for collecting the money. The banks will have to provide trade
to help the small and medium firms, and the Canadian
banks will have to have sufficient expertise and will need
to be trained by EDC. Already they don't have
sufficient people to provide all the services they
In my opinion, we have to be very careful. Already people
like us retain a lot of small and medium
enterprises, and maybe that's a very good mechanism. We
take care of all the aspects of international financing.
But it's very dangerous to open that door. If you
don't have a legal opinion, if people are not
responsible for collecting their money....
It's something that
EDC should be very careful of, because all of a sudden you
will have the same committee asking how come we have
such a large number of accounts that are not
collected, because to collect
the money in the international market is a most
difficult thing. The technical aspect is fun; to
collect the money is a hell of a job.
If we don't have people like us to go to
our client and to get the money...otherwise it would be
so much fun to deliver and not worry about the payment.
And that's something we have to be very careful about in
those recommendations, that EDC doesn't take on its
shoulders something that would be impossible to meet.
In conclusion, there are three components: Minimize the changes
to the act. Do not add restrictions that will create
impediments to trade and distract EDC from its
preliminary proposal of directly
or indirectly supporting Canadian exports. EDC should have
a more balanced lending portfolio. We
are of the view that they are not lending enough in an
The third one is that we would like EDC to
be able to provide
a competitive bank loan guarantee program to help us
leverage commercial financing where needed.
Thank you very much.
The Vice-Chair (Mr. Deepak Obhrai): Thank you,
Next, from the Canadian Financial Insurance
Brokers, we have Mr. Clive Aston.
Mr. Clive Aston (President, Canadian Financial
Insurance Brokers Ltd.): Thank you very much, Mr.
I want to open with an apology, really. I've been
down with pneumonia and my written presentation has
only been just received, so I am advised by the clerk
it's available afterward.
I've been a specialist credit insurance broker for
approximately 20 years, longer than anyone else here in
Canada. I have a doctorate in economics from the London
School of Economics. You can tell from my funny accent
I used to work at Lloyd's of London. I was an executive
vice-president of a Lloyd's broker for about 10 years,
specializing in credit insurance. I've been the
assistant director of trade at the International
Chamber of Commerce in Paris—and I still can't speak
French—and today I run what's probably the largest
independent specialist credit insurance brokerage here
I turn over somewhere around $5 million a year. My
clients range from small companies—actually smaller
than myself, embarrassingly—the pay perhaps a low
four-figure premium up to some fairly large corporate
household names and Canadian financial institutions.
Let me immediately say that any comments I make today
are purely mine. They're personal comments. They
don't necessarily reflect those of my clients. This is
all I do for a living, nothing other than credit
insurance. I live this stuff all the time.
Here in Canada, I have five potential markets I
can go to: EDC, which of course you all know; ACI, the
American Credit Indemnity; Gerling Global of Germany,
which is a new entrant into credit insurance here in
Canada; the American International Group, which is one
of the largest, if not the largest, composite insurance
companies in North America; and the Continental Group
of the United States, which in Canada writes under the name of
We also have my old shop of Lloyd's of London, which does
have an international trade credit facility that's
available. Very embarrassingly, it's extremely hard to
sell Lloyd's of London security here in Canada. They
had some fairly well publicized problems a few years
ago, and I still have a hard time selling it.
Secondly, there is a five-hour time delay between the
market there and clients over here, and quite frankly,
they don't have the infrastructure to be able to bring
clients in Canada the service that I think they need
We also have what I referred to as non-admitted
carriers operating here in Canada. Those are insurance
companies that aren't licensed to operate here
directly, but they do so on the back of writing North
American policies. You may have an American client who
has a Canadian subsidiary or a European head office
company as a Canadian subsidiary, and the policy is
written on the back of that. There are issues involved
for me as a broker in dealing with a company like that.
Suffice it to say, I won't deal with them, so they're
denied to me.
I also have some fairly large entities that I can deal
with, such as the World Bank Multilateral Investment
Guarantee Agency, depending on what the risk is and
what the requirement of the client is.
I deal in three distinct types of products: domestic
credit; export credit and politic risk, which I tend to
consider as a single one; and kidnap
or ransom insurance, which I don't suggest as a topic
we discuss today.
There are other companies that
operate with a similar product, such as Accord Business
Factors, by providing a factoring
operation. Most of the major financial institutions
will margin receivables, which are a similar type of
Of the private sector markets that I can go to,
American Credit Indemnity, ACI, is the
dominant company here in Canada. I don't know what the
exact percentage would be, but it's certainly the
largest private-market company that I have here. It
enjoys a virtual monopoly in writing short-term
domestic credit in Canada.
The American International Group, AIG,
is a fairly
new entrant into Canada. It's been here for half a
dozen years. It has two underwriters, but most of the
claims work is certainly done in the States and the
administration is done in the States.
Gerling Global equally is a new entrant. They've
been here for two years. They sustained some major
losses in their first year, but they have responded
admirably, are still in operation and are still
writing. Again, they have a small staff. There are
only two people as underwriters, with backup.
And then there is CNA, the Continental
group that only operates in Canada via a
very small agency force. All of the policy work is
actually done out of the States. There is no direct
When a client considers credit insurance, there are a
number of different reasons for why they may consider
it, but I won't get into them today. There are two
areas in particular that tend to be the ones that I
think are the most important. For today's purposes, I
will assume that the solvency of each company is the
same. From my point of view, they are. I have no
security issues with any of the companies that I deal
with. The two major elements really are cost and the
service that comes behind it, particularly the claims
My market, the credit insurance market, like most
financial markets, has what we can euphemistically
refer to as market rates. The political risk market,
for example, is fairly well codified. You can actually
get copies of the market rates through some specialist
trade magazines such as International Trade Finance out of
London, England. You'll find that, by and large,
generically, political risk underwriters are charging a
spread of rates for a particular country's risk. It's
quite well defined.
We have the same thing, by and large. It's a
market-driven rate in domestic credit insurance and
export credit. It's not as codified and it's certainly
not written down, but there is more or less a market
rate. You'll find that, by and large, all of my
underwriters will write within that market rate.
I've heard it suggested that EDC enjoys particular
advantages over the private market because it's funded
on the Bank of Canada, on the back of the government;
it doesn't have to buy reinsurance treaties; and it
has a number of other benefits that give it an unfair
advantage over the private market. I've never heard it
defined as to what that unfair advantage translates
into, but we presume it to be cheaper pricing for the
clients. I'm afraid that's patently untrue in my
experience as a broker. EDC is always in the market
range—if I can use that expression—although frankly
it's always on the high side. It tends to be one of
the more expensive markets that I can go to.
Currently, over the last few months, I would say the
market that has been charging far less than market
rates is ACI. I've had examples recently in the food
sector, for example. Food in Canada is usually written
between, say, 12 and 15 basis points. I've had an
example recently in which EDC came to a client with a
15-basis-point rate. ACI came to the same client with
a 2.5-basis-point rate. That's a considerable spread.
Computer companies in Canada are usually charged about
30 basis points. My client was offered a policy by EDC
at 33 BPs, and ACI came in at 15. So I
think any suggestion that EDC enjoys an unfair
advantage isn't put forward into a formal term sheet,
into a quote—at least, not in a way that I can
The other area that clients need to concern themselves
with is service. I don't think the adage “You get
what you pay for” has ever been more true than in my
sector. If you have a wild variation in rates, it
tends to be more symptomatic of bad underwriting than
anything more professional than that, in my opinion.
Service is the single most important thing a client
needs. If you submit a request for a credit limit, you
need to know you're going to have a fairly quick
turnaround, particularly in some sectors like
computers, in which, for the two peak periods of the
year, you may virtually have a client on the phone who
wants to buy a product from you immediately.
Most of my companies are now fairly automated, as you
can imagine. I've found the turnaround times to be
fairly consistent, although EDC's turnaround time is
far superior to anyone else's. If the automated system
can't automatically approve a credit limit, that
request is defaulted to a human underwriter, who will
then look at it separately and come back with an
informed decision. In my opinion, ACI
doesn't appear to do that.
You get a computer printout of a comment
that I find hard to understand—and I've done this for
nineteen years. Very frequently, I don't understand
the logic behind it.
The other important area, of course, is claims
handling. Let's face it, the reason you buy an
insurance product in the first place is to get some
protection and to get compensated for any losses you
sustain, assuming you have been in compliance with your
ACI's claims handling service of late has been
severely letting them down, in my opinion. Anything
handled by ACI's Canadian operation has just been
sterling. Anything handled by ACI's Baltimore
operation has been deplorable. It's been far less than
satisfactory. Claims handling in particular has been
an area that I think is costing them market share.
I've had clients of mine move to other underwriters
simply because of ACI's claims handling problems. And
I've certainly had clients who self-insure, which makes
it even worse for me as a broker, of course.
EDC's claims handling has been second to none. I have
had a major claim denied by EDC. Quite frankly,
however, that was justified because my client wasn't in
compliance with the policy conditions at the date of
That's probably a good place for me to really come to
a conclusion, but I do have a request that I would like
to put forward to the committee as well. One of the
problems I have as a broker is that frequently the
capacities that I need on a particular credit aren't
available from the private market.
As the dominant market force here in Canada, ACI tends
to be the one accessed by most clients to get the
limits they need. It's currently very hard, if not
impossible, to get limits written on certain clients in
the consumer electronics sector, for example. Now,
it's for justifiable reasons. I'm not suggesting that
we throw away the standard underwriting criteria and
start doing ridiculous things. Very frequently, EDC
will have the availability. Because of the restrictive
nature of its act, though, I can't go to EDC for a
domestic-only insurance placement. I can only take a
client to EDC if the client has the requisite export
quotient as well.
In the case where my client can't get the capacity
needed, why can't I go to EDC as a market of last
resort, again subject to EDC's appetite for that
particular risk? The private market would then have
the first bite of the cherry, as it were. If they
wanted to take the risk, they could certainly do it.
If they didn't want it for whatever reason, give me the
ability to insure or to allow that client the protection
needed to enable it to grow, by taking it to what is
currently the most superior market that I can bring to
The Vice-Chair (Mr. Deepak Obhrai): Thank you.
We now have Chairman Mark Perna, from the Canadian
Mr. Michael Teeter (Director, Industry-Government
Relations Group; Canadian Factors Association): We
have copies of our
presentation available as well, and we'll leave them
The Vice-Chair (Mr. Deepak Obhrai): All right, thank
Mr. Mark Perna (President, Accord Business Credit;
Chairman, Canadian Factors Association): My
name is Mark Perna. Aside from being the chairman
of the Canadian Factors Association, I am also the
president of Accord Business Credit,
which is Canada's oldest and largest Canadian-owned
factoring company. As a matter of interest, nearly all
factoring companies in Canada are Canadian-owned and
I know some of you are probably saying to yourselves,
I know what a credit
insurer does, but what does a factoring company do?
Well, many small and medium-sized factoring companies in
Canada actually purchase accounts receivable for cash.
The larger factoring companies in Canada specialize in
guaranteeing that the customers of their clients will
pay their bills.
In short, they guarantee the accounts receivable of
their clientele in much the same way as EDC and
private credit insurers deal with their clients. The
main difference is that the factorer will usually
ledger and collect the accounts receivable as well.
In 1993 the government permitted EDC for the first
time to offer domestic credit insurance to exporters
under certain guidelines. The government never
consulted with the factoring industry on this issue at
the time. However, the insurance industry did have
input, and they vociferously objected to the incursion
on their domestic business.
It is important to
remember that whatever comments may follow, our quarrel
is not with the EDC itself, but with their recent
ability to sell domestic credit insurance products to
exporters in competition with private sector credit
insurers and factorers. I can tell you from my own
personal experience that EDC's management and staff are
experienced professionals, and they have continually
improved their efficiency over the last number of
Coupled with some unique advantages afforded to them
as a federal crown corporation, they are a formidable
competitor and dominant player in the marketplace.
I do not plan on doing an exhaustive critique on
chapter 5 of the Gowlings report, entitled
“Domestic Credit Insurance“. While our
association does not agree with Gowlings' conclusions
on the domestic credit issue, most of the material
presented was well balanced. However, I would like to
highlight what we feel are a few of the major
First, it must be recognized that those entities
cited in the report supporting EDC's involvement in
domestic credit insurance have an inherent conflict of
interest. Considering the possibility that EDC may
have an unfair advantage over the private sector, why
should exporters care? They want the best deal
possible for their companies, period. If it comes at the
expense of the private sector, so what? Ditto for the
presentation of the specialist credit insurance broker
who had “high praise for EDC's domestic credit
insurance product”. High praise indeed, and if that
highly regarded product comes as a result of an unfair
advantage, so what? The broker is compensated directly
One area where the report's credibility is badly
stretched is its speculation that EDC's entry into
domestic credit may have actually helped the credit
insurance industry to grow, as it may have “increased
awareness in Canada of the benefits of credit
To an active participant in the industry, this comment
borders on absurdity. The main reason credit insurance
has grown in Canada over the last five years is because
of the trend toward globalization in the insurance
industry. Worldwide insurance conglomerates have come
to dominate the global credit insurance landscape,
making it relatively easy for them to offer insurance
services in developed countries such as Canada.
Secondly, many of these global companies offer credit
insurance along with other forms of business insurance.
Parenthetically, this is one reason you do not usually
see purely Canadian-based credit insurers in the
market. Size matters, and global companies and
alliances have become the dominant trend. As pointed
out before, the factoring industry is mostly Canadian
based, and in contrast to the insurance situation,
there has not been one new entrant into the service
factoring field since 1994, when EDC began to offer
domestic credit insurance.
One area where we agree with the Gowlings report is
their conclusion that the really small exporters are
underserved in their ability to secure domestic
insurance and factoring services due to minimum fee
We would define small exporters as those companies
that have annual total domestic and export sales less
than $1 million.
One solution that could have been implemented back in
1993 would be to provide inducements to private
sector insurers and factorers to service small
exporters in the same way as governments provide loan
assistance programs via banks for small business.
Instead, the government embarked on a maverick plan to
have EDC provide domestic credit insurance and compete
with the private sector providers.
The problem with maverick plans is that sometimes you
just don't know what the negative ramifications will
be. While EDC's involvement in domestic insurance has
given the smallest exporters some assistance, on the
middle- and large-sized exporters this new domestic
credit policy has managed to kick the collective groins
of the credit insurers and factorers along the way.
As a case in point, while our association, and in
particular my company, has managed to lose some
significant business to EDC since their domestic
insurance product has been introduced, a situation that
occurred exactly one year ago topped the list as our
worst-case scenario. One of our ten largest clients,
Parasuco Jeans of Montreal, was dealing with us
on their domestic receivables only. About half their
business was exports, but that was being handled
separately by a U.S.-based factoring company.
While looking for alternatives to handling their
export receivables, our clients started to look at
EDC's services and discovered that they could have
their domestic receivables insured as well. This
client of seven years terminated their relationship
with us, and we were not even handling the export
component of their business, only the domestic piece.
Their customers with us were retail clothing stores in
places like Robson Street in Vancouver, St. Catherine
Street in Montreal, Yonge Street in Toronto, and Bank
Street in Ottawa. What does EDC's insuring these
stores have to do with facilitating export sales? I
asked myself that question many times as I watched that
client walk out the door taking $96,000 in annual fees
I can tell you, as chief executive of my company,
losing that client was painful. The whole experience
was an embarrassment to Accord Business Credit and EDC
as well. I know that EDC didn't want to be seen as
taking a large and purely domestic piece of business
away from us, but that is what happened. Unfortunately
that is not the end of this story, as there was another
big loser in this transaction.
Assuming our lost revenue to be incremental, about
$36,000 in annual corporate income taxes vanished along
with our client. Unlike factors and insurers, EDC
doesn't pay income tax. Does this whole situation make
any sense? Or, as the comedian Jackie Mason so
often intones, can someone explain this to me? As I
said, you just don't know what the downside is going to
be with maverick solutions that infringe on the private
Allow me to shift our perspective a bit. There's a
worldwide group of factoring companies, 150-member
strong, called Factors Chain International,
headquartered in Amsterdam. Through state-of-the-art
data links and a standardized contract, they allow
us, as a Canadian member, to offer factoring services
worldwide, sometimes in competition with EDC and other
I am an elected member of the nine-person executive
committee of Factors Chain International. The people
on that executive committee are some of the most
talented people in the world when it comes to credit
risk management and procedures. I can tell you
unequivocally that my colleagues on that committee are
astounded that Canada—a G-7 country, no less—has an
export credit agency that engages in domestic credit
insurance in any form.
This is unique on the world stage, and for the wrong
reasons. Canada has come to be considered as somewhat
of an embarrassment internationally in our industry. It
also acts as a strong deterrent to new service
factoring companies setting up shop in Canada, which
hasn't happened since this policy has been in effect.
Is less competition and less choice in the best
interests of the predominantly Canadian SME customer
base that our industry serves?
I don't think so. At
face value, the issue at hand doesn't seem all that
difficult to tackle. Out of all the issues brought
forth in the review of the Export Development Act,
this may be the most clear-cut and, as the Gowlings
report itself cites, the most controversial.
I'm reminded of a current radio commercial, one that
says “What we need here is a large, heaping helping of
common sense.” It is within your power to end the
domestic credit experiment launched in 1993. Let's get
the private sector service providers back on track
doing what we do best without unnecessary government
sanctions and interference. What we don't need is a
continuation of a domestic experiment for another five
or ten years. What does insuring Hudson's Bay, Sears
Canada, and Canadian Tire have to do with promoting
Our association respectfully calls upon you to take
action now. Thank you.
The Chair (Mr. Bill Graham (Toronto Centre—Rosedale,
Lib.)): Thank you very much, Mr. Perna.
That's it for the witnesses, then, as I understand it.
We'll go to a period of questions.
Mr. Deepak Obhrai: Thank you. Actually, I like
being back here so I can question you. I didn't know
if I could question from there, so this gives me that
opportunity. I'm happy to be back in my chair.
Thank you for your very interesting presentation. I
can understand the concerns you have raised in
reference to EDC, but what I would like all of you to
answer is this: is it necessary to have EDC as a
With most of your businesses, if EDC were not a public
corporation, with some of the niches that you have
indicated EDC is very good at.... Agreed, EDC is
very good at some of those things, and nobody is asking
for EDC's dismantling of what it has gained over the
years, the experience and the niches. Many of you have
dwelled on that. But from all the presentations I have
heard, you are saying take this away from EDC or get
EDC to do this. Would it serve Canada better if EDC
were not a public corporation?
Mr. Jacques Lamarre: I would like to have the
first shot at it.
It would be a catastrophe. This is
the second time I have come before this type
of committee. The last time I came, I said we should
allow the banks to come together, because on the
world market we have nobody with us. Nobody is coming
with us; we are all there alone and surviving alone.
The only people with us are EDC, because they
have some kind of big balance sheet with the
Canadian government, and they can come with us.
For sure, by coming with us they get involved in all
kinds of things, and they have a temptation to come on
the domestic market because they say if the
international operation is so big, maybe they could get
a bit of the small, and it is very difficult for them
to exist. But on the world market, if we don't find
any banks, we don't find anybody, and we are there
making all those kinds of deals—when I say the world
market, I would exclude the U.S. market—that is a
big problem for exporters like us. We are alone to
assess those risks. If we want to take an
insurance in Libya, in fact if we want to take any
kind of thing anywhere, in any country that is not the
U.S., we are alone.
That would be a catastrophe. Otherwise, we would have
to change everything. Let's create a big bank. Let's
permit the merging of the banks and have a great big
financial institute with a lot of financing; otherwise
it will be a catastrophe. If you want to access
markets, because it's a risky operation, you need to be
able to have that kind of balance sheet that permits
you to take that kind of risk.
As much as I understand the problem of the
insurance people in the domestic market, on the other
side, if we want to penetrate the world market, we need
to have an institution such as EDC with a strong
balance sheet...as the Canadian government.
The Chair: Mr. Kovacs was going to add to that.
Mr. Paul Kovacs: EDC is into a wide variety of
different businesses right now. We find it helpful to
try to identify those areas that are often very much
public policy, longer-term types of transactions: a lot
of the big engineering projects around the world and
some other projects that extend over a long period of
It is true, in our view, that in today's market many
of the banks and many of the insurance companies have
more difficulty handling these long, multi-year types
of projects. Having a public agency play that role can
be very helpful.
Our sense today, though, is that the majority of EDC's
resources are currently focused on issues where the
private sector can handle it very, very well—and
probably better than EDC, if it were not getting tax
advantages from the public and a variety of other
factors. So if EDC's business helping exporters deal
with.... We often draw a line between contracts that
are concluded within a year and those contracts that
are over a longer period time—the export community is
just doing a transaction, and it's all done in a short
period of time. If EDC is currently competing with
private companies in that area right now, they should
not be doing it on the current basis where they have
all kinds of public advantage. Instead, they could
change the way they're structured, as other countries
have done, so they can compete fairly on the short-term
It's only in these specialized areas where it's
multi-year, long term, that companies that are trying
to come from Canada as a base to succeed in these world
markets need a company operating like EDC is doing. And
other countries have chosen to do the same thing in
these long-term lending and insurance markets.
Mr. Clive Aston: May I comment on that point?
There are two issues I'd like to raise.
First, I'd caution against being mesmerized by what
other countries have done. What may be germane to one
particular jurisdiction is not necessarily transferable
to another. Just because England has done one thing or
France has done something else doesn't mean necessarily
that we should do the same thing or that we could even
do the same thing here in Canada. So I caution against
Secondly, in terms of the term that could be available
for potential contracts, I can place policies out to
twenty years with the Multilateral Investment Guarantee
Agency. I can do five years very easily to Lloyd's of
London. Potentially I can go out to eight and half to
ten years for some of the American insurance companies I
deal with for political risk insurances. EDC has a
similar tenor that's available, potentially. EDC does
occasionally cooperate with the private sector for
medium and long-term on reinsurances.
I have a situation in front of me currently where
we're looking to reinsure with the private sector for a
short-term credit risk, as well. The capacity isn't
available, by and large, with the private sector, so
we're looking to do what in my previous world at
Lloyd's was referred to as a slip policy—that EDC will
do the first layer and the private sector will come in
excessive to that first layer. That's great
cooperation, exactly what a private company would want
here in Canada. And that's currently available.
The Chair: I can
understand what you're saying and what the Insurance
Bureau is also saying. The problem is that if we start
taking things out of other areas we will probably make
EDC less efficient as a corporation to operate. But
that doesn't answer my question. I've been with your
president on trips to Africa, and I've heard him say
that. And congratulations to your company for a job
well done. But it doesn't answer my question.
Is EDC, if it's not a public corporation under
government, and some of those public responsibilities
can be transferred to other departments.... I mean,
it's not going to be killed, as you want to say, but if
EDC is removed as a public corporation and let go,
would that not open up markets, private sector and
everybody else, to expand and help Canadian exporters
from all aspects? Is the EDC, by being there,
curtailing the expansion of the private sector opening
all this market as we go into globalization? So would
that serve Canada well if EDC was there, but not as a
Mr. Jacques Lamarre: The only answer I could give
to your question is, why can we not interest the banks
in coming with us? Why is nobody interested right now?
Why is that so? For me, if you could answer that
question, you could answer the other one.
But right now the private sector is not interested in
that type of business. What they are talking about is
domestic business and also arranging some kind of
collateral with other international financial
institutions. But they are not interested in that type
of risk. What they are interested in is the domestic
I could give you a long answer as to why the
government has to be there, but the best answer to that
is to say that no private financing institutions are in
this market right now.
So I cannot give any other answer. We could spend 10
weeks analysing why the banks don't like that kind of
risk. If you go to see a Canadian bank, they will never
take that risk.
Why is that so? I don't know. In fact it could be a
very long answer. But they don't want to take that kind
For us, after that, if we want to stick with the U.S.,
maybe EDC can become a private enterprise.
But if you want to move out a little bit and
have diversion in your exports, in fact the only way
is to have EDC, because right now nobody else is
Mr. Robert J. Labelle (Senior Vice-President, Chief
Agent, Euler American Credit Indemnity Canada; Insurance
Bureau of Canada): I think what has happened in the
G-7 countries, excluding the U.S., is that they have
more or less privatized the EDCs of the world.
But there's still a component that does take care of
the situations Mr. Lamarre is talking about on the
financing side, the longer terms and all that. It's
really split into two operations.
There is the credit
insurance, which should be handled by the private
sector. That will promote more and more activity, because
then all of the market's components will come into
play, whether it be through brokers, agencies, or
Then you have the financing on the other side.
When exporters need
additional support or special support on long terms or
special contracts or special equipment that needs to be
sold, this is handled by that same corporation but on
behalf of the needs of the exporters. It is
supported by the local government.
Therefore, you have private enterprise doing what
private enterprise should be doing, and when it gets to
the point where it isn't in the best interests of
the private sector or there are risks that are not
normally handled through that, there's a component that
does take care of that. So it does both of them at the
same time, actually.
Mr. Clive Aston: Because I'm a broker, I'm used to
Your question seems to imply that EDC is a
barrier to entry for other insurance companies wanting
to come into this particular field. I'd suggest that's
not correct at all. The barrier to entry into
either domestic credit insurance or export credit is an
information base, a database. It's the administrative
expense of getting up and running in the first place.
There's a finite pool of expertise available here in
Canada, but let's presume that we can poach more people
from EDC and then privatize them, rather than the entity
It's important to be able to provide clients with the
studied knowledge they need so that they know that a
particular limit has been put in place and that there
is a buyer in Turkey—let's stay with the example of
Turkey for a minute—that will be solvent until the end
of this particular contract. It's the single most
important thing an export credit or a domestic credit
insurance policy brings to a client. Because of the
structure of that policy, a client will always bear
some risk themselves. There's usually a deductible,
and there's certainly co-insurance.
So if you have a
major contract, a client could be bearing, say, 10%
co-insurance, which could be $1 million plus,
plus a deductible on top of that. If they have credit
approval in place and therefore they feel that buyer is
creditworthy, they'll go ahead and ship. If the
information is faulty, if the information wasn't as
professionally acquired as it could have been or should
have been, if it was done on a more cursory basis, that
client has incurred a loss by doing what the credit
insurance policy allowed them to do.
My major concern on any
suggestion of privatization, besides what I mentioned
earlier about not necessarily trying to extrapolate
from one jurisdiction to another, is whether a privatized
entity would be as efficient as it currently is. My
answer to that is emphatically no.
One of the major things again, in my opinion, that EDC
brings to the market is that by being a crown
corporation, it's able to handle claims a lot more
expeditiously and a lot more professionally than my
private market equivalents can do. I have examples
where the claims individuals have jumped onto the next
plane and flown to wherever to try to work out that
particular claim situation before it actually became a
claim, and they thereby saved the client his
co-insurance and his deductible. They can work with
the commercial attaché in that particular country.
They can use potential CIDA money and other government
programs as another encouragement for that country to
ensure that the deal is paid out and doesn't result in
a claim. We can't do that in the private market. Now,
if you take that away from EDC, I think you're going to
find that clients are going to suffer as a result.
The Chair: We're well over the time on this one.
I'm sure this is a theme that's going to come back
through the questions.
I'm going to go to Mr. Marceau.
Mr. Richard Marceau (Charlesbourg, BQ): Thank you, Mr.
Chairman. Mr. Quenneville, in the summary of the document that you
tabled with us, you approvingly quote a statement attributed to
“If it's not necessary for the government to do something, it
should not do it. And in the future it will not do it.” The same
should be true of the EDC.
I'd like to hear your comment on that quote in more detail,
especially after Mr. Lamarre's comments, according to which one of
the reasons why the EDC is important and should continue to exist
without any major changes in the Act is the fact that the private
sector could never make commitments in many different sectors or
Doesn't this go against what Mr. Martin said, confirming the
statement made by Mr. Obhrai to the effect that it is not necessary
to maintain the EDC as is because even if changes were made to it,
the private sector would not get involved in certain countries or
Mr. Jules Quenneville: I will answer in English because it's
easier for me. There are many technical terms here.
We have here a situation where the Export Development
Corporation is privy to certain of the information that
has evolved over the years, because they have been
in the business in Canada since the end of the Second
World War. Private Canadian companies have not been
this product line. The knowledge base has largely been
concentrated in private companies in Europe and in ECAs
in European countries, where ECAs were gradually
I can give you my own experience. I became the
president of the Guarantee Company of North America
in the fall of 1994. One of the things I found
out was that we are a member of this International
Credit Insurance Association. I had never been to
a meeting, so I said, okay, I'll go and see what that's
all about. Then I found out that we were really a
member of an overall association that's divided into
two sides: a guarantee side, which is the business we
do, the surety business; and this credit insurance
business, which I really didn't know very much about.
I started finding out more and more about it.
I'm a member of the management committee of that
organization, and I do attend their credit insurance
discussions. I can tell you that 90% of the credit
insurance in the world is placed in Europe. But as the
world is globalizing and as opportunities are becoming
available, we as Canadians are being left in the back
seat, because we have not had the experience private
enterprise has had in order to be able to get into this
Every time it's evaluated, you're going to have to
compete with the government. How are you going to do
that? It's easier for my colleague here from ACI to do
this, or for Trade Indemnity, his predecessor company,
because his Canadian operation is incremental to an
already large international organization. He
already has an organization in Baltimore or somewhere
else in the world, so his installation in Canada is
only incremental to that. If I were to try to do what
he does, I'd have to create it from scratch here in
The message I'm trying to convey is
that we're prepared to do this. Back five years ago,
we would probably not have been able to raise the
support in the world to be able to enter into these
kinds of product lines, but today we are able to.
There is reinsurance available, there are people
willing to step forward and allow Canadian companies to
start to get into this product line.
One of the things that the International Credit
Insurance Association has done in the past year is set
up an international institute to try to promulgate
education of underwriters around the world, which again
is something that has never existed. If you wanted to
learn how to write credit insurance, you had to work
for a European company, learn how to do the forms,
learn how to do all the different types of things that were
Then if you were lucky, I suppose, you had a
relationship with the Export Development Corporation as a
broker maybe, so you learned how the Export Development
Corporation did it. Maybe you had experience somewhere
else in the world so you could play the market in other
companies that had incremental operations here. There's
only a handful of brokers in our country today who are
doing this kind of business.
There are now globalized brokers who want to transfer
this knowledge into our country, who want to create this
marketplace and bring these products, and they are going to
be looking for organizations to be able to write the
product. If we have to evaluate whether we should
write the product or not against competing with
a government organization, I don't need to tell you I
don't have to do the math for very long before it's
going to come up, for all the reasons we've set out in
our earlier paper, that there won't be any competitive
level playing field.
So the responsibility I think we have is to
determine what level playing field we can create in a
transitional way so that we can develop some sort of
partnership with our ECA in order that this ECA gradually
withdraws from the market and the private sector comes
Mr. Richard Marceau: Yes, Mr. Aston.
Mr. Clive Aston: There are a couple of issues
around that. Perhaps the committee needs to be
reminded that the majority of underwriters we have
in Canada specializing in this sector are ex-EDC.
There is certainly no problem in bringing an
underwriter over from Europe, as Trade Indemnity
have done in the past. The major issue is local
knowledge. You can't just transfer a product in from
4,000 miles away without having a fairly in-depth local
knowledge here, and that is the greatest impediment.
Equally, perhaps we need to be reminded that the
European market has perhaps a 40% penetration rate for
our product versus somewhere between 7% and maybe 10%
here in Canada. And it's served quite well by perhaps
six underwriters, and no more than that, so there isn't
a need for twenty underwriters in Canada.
Mr. Richard Marceau: Thank you.
Mr. Lamarre, you're the only one who referred to human rights
in your presentation. I would like to know how you think the EDC
could take human rights into account. Let me give you a very
It was brought to my attention that the EDC provided financing
of $18 million, I believe, for a $400 million dam building project
in Columbia. Because of this dam, certain Aboriginal nations would
completely lose the territory they have been occupying for hundreds
of years. This Aboriginal nation contacted me and asked me the
following question: How can a Crown Corporation, a public and
government-owned corporation, lend money to a private sector
company that makes us lose our ancestral land without the
Government of Canada or the EDC conducting a very concrete
assessment of this problem?
You are often involved in very large-scale development
projects. In your opinion, what should the EDC do to ensure that
such a situation does not occur?
Mr. Jacques Lamarre: As I told you earlier, on the fundamental
question, I am in complete agreement with human rights and respect
for the individual.
What makes me nervous is always the process. We have to be
careful. When we export products, we are also exporting our values.
We meet these people, because we have to meet them, and we have to
talk to them. We spend long evenings and long days with them. They
get to know us and start to understand our values.
In our discussions with them, we tell them that it will not be
possible to displace people without reorganizing them. For the good
of society as a whole, a dam must be built and take up some
territory, but nevertheless these people must be better organized
than they were before.
In the course of these negotiations, we come as we are. I
would say that this export of our values is extremely important and
that this cannot be done exclusively through commercial trade. It's
the best way to do it. If we had a process that prevents us from
being flexible and competitive, we could no longer export our
values and that would be even worse.
Why force people who want to start taking into account this
type of consideration? The very fact of conducting trade leads to
the export of values. That may be the most important phenomenon.
When somebody wants to buy a Mercedes, are we to tell him that he
should buy a Volkswagen instead? The whole issue of value judgment
is involved in this and that is very, very delicate.
If you start deciding what and how people should buy, then you
will have to become the bosses of the world. Everything will have
to be managed and organized. Let us assume someone wants to buy a
particular type of car. Is it up to us to tell him that he needs
another type of car? We have to be very careful. Let us imagine
that a part of a population of the country does not like a
particular project and would rather have it done in another way...
There are always conflicts in society and eventually
compromises are made. In the long run, when people do business with
us, they see how it has been possible to settle such conflicts here
in Canada because we have the same type of conflicts that are
settled through a similar process.
If you impose an obligation, it is as if you are setting
yourself up as some type of dictator. I do not see this as the
appropriate mechanism. What we need are other mechanisms to achieve
the same results. In the business world the mere fact of trading is
the best way to export our values.
Mr. Richard Marceau: Generally speaking, I agree. If the
country is a democracy, it would be possible to reach some type of
compromise. You probably are more familiar than I am with
developing countries, which are not always very democratic.
Sometimes governments may force through projects in spite of a
strong opposition on the part of certain elements of the
I return then to my question. I agree that when we trade, we
also export certain values. But what do we do when one of our
values is not respected? If that is the case, then no matter what
the local population may think or no matter what its needs may be,
will we disregard these concerns and still go ahead, even if it
means pushing them into a small parcel of land?
In other words, should EDC at least ask whether certain people
have been consulted and what their comments have been on a
particular local development project in order to ensure that
certain basic democratic practices are respected?
Mr. Jacques Lamarre: At the present time all these precautions
are taken. No one wants to be involved in bad projects. All these
things are done because a corporation such as ours works with
engineers or professionals who want to be sure that the project
actually respects their own values.
But later on, when people go back and want to play the role of
an arbiter, when someone expresses frustration about a particular
project, it is very difficult for EDC to say that he should have
gone about it differently. In such a case, the Corporation would no
longer enjoy the client's respect. In my opinion, we cannot go any
farther than that. We must simply be conscious of the fact that we
do have values and in our discussions with these people, we find
ourselves exporting our values at one point.
As I see it, if we give them specific instructions, we won't
sell them our product and we will merely stay home. No one will
want to buy our product because the people will say that we do not
respect them as a society and that we do not think they are able to
look after themselves. So we can just sit at home and twiddle our
In my view it's an extremely sensitive point. When I visit
these different countries, including Muslim countries, I explain to
people who I am and I am not ashamed to let them know what our
values are. As a matter of fact, they drink in our words. They need
this breath of fresh air because if they do not have this fresh air
from time to time, they die.
When we meet them, they ask us questions about how things take
place in Canada. We explain it to them. There are times when they
are so eager to listen to us that it is quite extraordinary.
But if we were to impose artificial constraints, we would set
a boundary and that would be a calamity. You should see how we
speak to these people face to face to tell them that we disagree on
certain points. They accept that and they accept our points of view
because we have not come to impose anything on them. We have simply
come to tell them what we think. In my mind, it is extremely
important to remain at that level.
Basically, I entirely agree. Regarding procedures, I want to
remain extremely cautious.
The Chair: Before finishing, I would like to add, as a
follow up to your idea, that procedure, if I understand you
correctly, Mr. Lamarre,... Is a problem of great concern to us.
Some situations are clear. During apartheid, the sale of
machine guns to South African police was banned. If the EDC had
wished to fund such sales, it would not have been allowed to do so.
That was Canadian policy. But let us compare this to another rather
more complicated case, like building a dam, as was mentioned the
other day, and regarding which there are divergent opinions in the
client country, whereas some banks are on board, etc...
You mentioned procedure. Should the EDC have a clear and
transparent process for reviewing these issues? Or are you among
those who believe that policy should be left up to the Canadian
government and inasmuch as it has not imposed any obstruction, that
the EDC can fund whatever it wants? Policy if left up to the
Mr. Jacques Lamarre: I am certainly a believer in free trade.
I believe that trade is the best way to help those populations. It
is also the best way to keep them in touch with us. It is essential
to bring them this breath of fresh air. With an excessively strict
process, we cannot make any sales. We must remain flexible and
competitive. Concurrently, we can bring them a breath of fresh air.
I have travelled to those countries for the past 30 years and
I believe that we have had an incredible impact on the process by
telling them how we live and how our people are treated.
One of the best examples is the one mentioned by Mrs. Lalonde,
namely the search for some form of sovereignty for Quebec. We spoke
about this openly. I spoke about it in Turkey. This is very
important for those people. And even when we are not discussing
values, I do not like to step in and impose constraints on them.
We, ourselves, would not like to have constraints imposed on us.
These are very sensitive matters. I would prefer to trust our
exporters and the EDC. I am convinced that the EDC people are
The Chair: Thank you.
Mr. Bernard Patry (Pierrefonds—Dollard, Lib.): I am
addressing this to Mr. Quenneville from the Insurance Bureau of
Canada, because I want to carry on with this discussion. In your
presentation, you made several statements that I would like to have
First, I understand very well the essentials of IBC's position
regarding unfair competition by the EDC. I have no problem in
On the other hand, on page 1 of your summary, you state that
the other OEDC countries have withdrawn from short-term export-
credit insurance but not from the medium and long term.
On page 2, in the first paragraph, you state that the EDC “are
not skilled in addressing the needs of the domestic credit
insurance market, and their experience serving exporters has been
of no assistance in this area”.
If I understand your position, you are saying that the EDC
should entirely withdraw from the Canadian credit-insurance market,
but only from short-term export-credit insurance and not from the
medium or long term.
Why aren't the IBC and the other insurance companies present
on the medium and long-term market?
I will put my three questions to you because afterwards, I
will have to go to the House. Here is the second question. If the
EDC is not qualified for the Canadian credit insurance market, how
do we explain its meteoric rise and the very great satisfaction of
its clients, who are even ready to pay an added premium to do
business with it?
My third question may not be within the mandate of the IBC.
The Gowlings report states that the Auditor General of Canada
should be replaced by a private auditor. I would like to know your
opinion about this.
Mr. Robert Labelle: Regarding the middle and long term,
generally speaking, private enterprise has great difficulties
evaluating and accepting middle or long-term risks. As Mr. Lamarre
said, these sectors often require funds that are much closer to
credit insurance. This is the difference between the short term,
namely the transactions with a time line of less than 12 months,
and the longer term, which means anything with a time line of 3, 5,
10, 15, or 20 years. This sector deals above all with large
projects. We think you should let private enterprise deal with
this. Euler produces more than a billion dollars' worth of credit
insurance worldwide. We have companies in almost every country,
especially in Europe and America. We have offices in Mexico and in
Asia. Private enterprise, with the aid of groups, can deal with the
short-term market, but medium and long-term markets are much more
difficult because of their attendant factors.
Mr. Jules Quenneville: I would like to add to that.
Investment transactions, which we haven't discussed
very much, are a medium- to long-term form of credit
insurance, where the ECA is making an investment in
the project or in the build, own and transfer type
situation, which Mr. Lamarre is probably involved with quite
frequently. But this role is the kind of thing that has
not moved easily into the private sector market
elsewhere in the world. I think where we are as
Canadians is in a catch-up situation. We need to
catch up. I don't think we want to transplant what
exists somewhere else here.
What we want to do is understand why we are where we
are. Why we are where we're at is because we've
allowed a monopolistic situation to exist for a long
period of time and consequently we need to catch up. We
need to say, okay, we take the view that the short-term
business, whether it be domestic or whether it be
international.... I think that distinction is gradually
disappearing. I don't think credit insurance
today is evaluated in the same way as it was 10 years
ago. Today we would tend to think more about the division
between short-term business and medium- and long-term
business than we would about domestic and
international. If you look at it and say,
if all you're going to do is allow domestic insurance
to be done in the private sector, by telling
the EDC they shouldn't do that any more, how
much domestic insurance is there anyway?
The business to be had, or the business that should be
cultivated over time, is the short-term business. Then
there should be some means by which business that is
not meeting the acceptable criteria, or let's call it
consensus business, what I said in the paper is
consensus business.... In other words, there is
business there that needs some sort of reasoning behind
why it should be done, which is because it's in the best
interest of our trade policies or in the best interest
of our country. That business should have a way of
being done. That can be left inside the ECA.
The ECA doesn't have to disappear. It's a
relationship that needs to grow in terms of insurance
and reinsurance and who handles the client and who
handles the risk. So a partnership should evolve. I
think that's the way we see it.
The third question...I don't know if we did the second
The Chair: It's the second question. The third
question was Auditor General.
Mr. Robert Labelle: It dealt with client satisfaction. No
doubt, EDC's clients are satisfied, as in the private sector, the
clients are, generally, satisfied, otherwise no progress could be
made. We certainly have not come here to say that the EDC is a
dysfunctional organization, because that is absolutely not so.
Mr. Bernard Patry: You said that it was incompetent.
Mr. Robert Labelle: Well, it is incompetent in some sectors,
especially short-term insurance.
Mr. Bernard Patry: Do you have an opinion on the Gowlings
report concerning the Auditor General?
Mr. Jules Quenneville: I didn't study that
part of it.
Mr. Bernard Patry: I just wanted your opinion.
Mr. Robert Labelle: Well, I will tell you what I think of it.
If the EDC was audited by an independent auditor in the same way as
we are, we could make comparisons. We could tell whether the EDC is
working properly and if its results compare with those of private
enterprise. That's what we could do, if we wanted to clarify the
figures and operations of the EDC a little. This is my opinion.
Mr. Bernard Patry: Thank you.
The Chair: Madame Marleau.
Ms. Diane Marleau: First of all, I'm going to say
that I agree with Paul Martin's statement when he said
governments shouldn't be doing something that the
private sector can do and can do well. I agree with
The problem is that oftentimes the private sector
doesn't do it if there's risk and if it can't make
money at it. And when you're dealing with small
business, by and large the private sector isn't
interested. I've had many experiences with the Federal
Business Development Bank. At one point we believed that the
Federal Business Development Bank should insure risk with banks
so that the banks would make riskier loans. I hate to
tell you, but it didn't work very well. They weren't
interested in that.
So how can we as a government...? We're
politicians. We respond to the people who call us and
who tell us, “We want to do business, but we don't have
any help and we can't get it. The private sector won't
look at us.” Therefore the government moves in of
course, because what we want is for business to
What you've said is an unfortunate occurrence. But
tell me, how can we promote what you do and yet serve
those businesses that really need the help to, one, sell
their products overseas, or wherever, and to grow?
Inevitably we're going to get the calls saying, “We
don't have any place to go.”
So I would suggest that we do have to develop a
partnership. If it's that good a market, the Export
Development Corporation will be happy to leave it to
the private sector. This is because I'm told—and maybe I'm
wrong—that they are on the high end of it, much like
the Federal Business Development Bank is on the high
end of it.
So while it may compete somewhat, if the business is
lucrative, why isn't the private sector in there
already at a bit of a lower rate?
Mr. Mark Perna: Can I respond to the question? I
think there needs to be some clarification on some
points of information.
About one-half of EDC's function is a finance
function. The other half is an insurance function. I
think most of the people on the panel today are here
really looking at the insurance side of things.
I think we would concede that on the finance side,
yes, there are difficulties. There are difficulties; and in
fact when the question came up before about EDC
being, for lack of a better term, privatized.... There
would be large problems there, especially on that
finance side. I think EDC really fills a very valuable
role for Canada in that area.
On the insurance side, we see things a bit
differently. And just as a matter of perspective,
I'd like everyone to think of this, because when we
talk about EDC perhaps having an unfair advantage and
being a powerful company, this is what we mean.
EDC has approximately a little over 700 employees. Let's
say half of them are working on the insurance side and
the other half are on the lending, or financing, side of the
business. That would leave approximately 350 employees
devoted to credit insurance, whether it's short term,
medium term or long term.
There are not 350 employees in Canada in all the
credit insurance business and the factoring business
put together, and when we ask that there be great care
taken when EDC is given extra powers, this is why: it
is a very large corporation and it can have great
effects upon us.
Also, I will say this. Our association has also
cooperated with EDC on the export front to combine the
services of factors and the talents of the Export
Development Corporation in its insurance granting.
But I think that everyone needs to bear in mind the
relative size here. It's a very large organization
that we must compete against. Do things like domestic
credit insurance and being involved in short-term
insurance have a bearing on what happens with us? You
bet. It has a bearing in a very big way in the
Mr. Michael Teeter: If I may, Mr Chairman...? I
think the dilemma for government is how you foster
cooperation rather than competition. What you really
want to do is to try to lever the resources of the private
sector to get more bang for your buck, not less.
What you're hearing today, I think, is that these
people feel like they're competitors of rather than
cooperators with government. There are all sorts of
practical ways to look at cooperation, and they're
doing them today. You have joint programs with EDC,
and we have one. At one time, the Business Development
Bank did the approach of three or more rejections; in
other words, if you went to the private sector, were
rejected, and had three letters of rejection, then you
could go to the Federal Business Development Bank for loans.
I'm not suggesting that's the way to go, but I don't
think enough creative juices have been put into the
issue of how we work together, how we get the leverage
from the private sector that really is essential. Why
aren't the banks here? I hope you're asking that
question, because that's a fundamental policy issue for
you guys. Where are the banks?
Ms. Diane Marleau: That's why we're having this
review and asking you how can we do things better.
Mr. Michael Teeter: I know, but we're here
The issue should be.... We want the banks to be here.
We want to cooperate. We don't want to compete, and
right now we're competing, not cooperating. That's the
Ms. Diane Marleau: It's a very big dilemma. I
don't think there's an easy answer to it. As I said to
you, having been at different levels and seeing what
happens.... On the one hand, there are complaints that
you're competing, but on the other hand, for the
businesses out there, there are needs that aren't met
unless there is an agency such as this to do it. We'll
keep working at it.
Mr. Clive Aston: If I may answer your questions as
to why the banks aren't here, in a previous life I used
to be assistant general manager for insurance for CIBC
and was tasked with designing the banks overall
insurance strategy, so I do apologize.
In answer to your question, one of the recommendations
that I put forward to Mr. Fullerton and to cabinet
was that CIBC get into underwriting short-term domestic
credit—I have an axe to grind. It came back that,
unashamedly, there wasn't enough money in it for them
to do it. It very straightforward, a commercial
decision. There wasn't enough return on the capital
that they would be required to employ versus the
returns that they could get from doing mortgage life,
creditor life, etc. There's your answer. It's very
Mr. Michael Teeter: Well, the dilemma for
government, in my mind, is how you make the returns
sufficient such that they want to be in the game.
That's the issue for government.
Mr. Jules Quenneville: I would like to draw a
parallel. If you were to set up an ECA today,
would your objective be to help small enterprise?
Ms. Diane Marleau: Both.
Mr. Jules Quenneville: It would be both?
Ms. Diane Marleau: It has to be both. It has to
be for those large enterprises that need our help to be
really big internationally—
Mr. Jules Quenneville: Okay, now let me ask you
another question which would be okay—
Ms. Diane Marleau: —and I think as a country we
need to do that. But we also need to help those
smaller ones grow and have access too.
Mr. Jules Quenneville: But you wouldn't want to
give credit to bad credit risks, even if you're an ECA.
Ms. Diane Marleau: Well, the private sector wants
to make money at any cost, and the more money it can
make, the better. Oftentimes a small corporation is
very hesitant to go into that business because the risk
is just a bit more than they feel they should take.
Now, that being said, that corporation may make money
if somebody gives it a bit of help to get started.
That's what you see across the country. That's the
What we as a government try to do, then, is to fill
the void, to try to help our small companies become
large, become successful internationally, as well as
the large ones who continue to be successful, and who,
by the way, started as very small corporations and
Mr. Jules Quenneville: I think that's what
happens, for example, in the guarantee side of our
business where we issue surety bonds. We have a
multitude of small contractors and we issue bonds to
these contractors. We still, though, have a
responsibility—for example, in dealing with public
works—to make sure that we pre-qualify those
contractors, that we're not dealing with people so
small that we're always going to have a constant flow
But we also have to provide a market for large
corporations, so we have—
Ms. Diane Marleau: But my experience has always
been that when you deal with government it's always
more expensive than dealing with the private sector.
Therefore, if that's the case, why isn't the private
sector doing well in those areas where you say you're
competing with the Export Development Corporation?
Mr. Jules Quenneville: I think it's because they
had a leg up for 30 years, which we basically have not
enjoyed. So it's a situation where, every time you
come along to try to evaluate it and you ask if you are
willing to compete with the Export Development
Corporation, the answer comes back, “Well, I don't see
how I can.”
The Chair: But is it the leg up or is it the cost of capital?
Mr. Jules Quenneville: No. It's—
The Chair: I think there are two factors in the
cost of capital that would be relevant. One would be
not paying taxes. Therefore, their retained earnings
would be significantly more than anybody else's
retained earnings. You would only be able to keep 64%
of your retained earnings. They keep 100%, so on the
one hand, they get a lot more retained earnings.
On the other hand, if they're getting access to
government finance capital at a rate that is lower than
you have to pay for your capital, that also, but I
can't figure out from listening yet...I haven't got it
straight in my mind as to whether you're saying they
have the advantage because they've been around longer
and have more employees and more expertise or because
they have cheaper capital.
A voice: It's a combination.
Mr. Jules Quenneville: It's both. I think it was
said earlier that the database, for example, in order
to do this kind of business, is very important. Well,
that database was seriously important 20 years ago.
Twenty years ago, if you didn't have a database you
couldn't generate a database; there were no
opportunities to generate the database. We're not in
that situation any longer. We're in a much more
computerized world. We have data provision agencies.
we have all kinds of ways of getting a database. So
that impediment is removed.
We had an almost non-existent credit insurance market
in North America. It was thought of as a European
product in a European market. Ninety percent of the
credit insurance that's in the world today is sold in
Europe. Well, that's changing. As that changes, the
opportunities open up. If those opportunities are to
be capitalized on, there needs to be a level playing
field so that private enterprise can seize on those
opportunities on a fair basis, as would your export
Now we're not saying to let the export credit agency
go away. We're saying to redefine its role in such a
way that it takes on a responsibility in each of the
three areas we've outlined in order that their
capital—which is our capital—is used in such a way,
to its most efficient means. That means vacating not
short-term domestic business but pretty much all
short-term business. That's the way we see it.
Ms. Diane Marleau: We thought—
The Chair: Wait a minute. We're way over time
Ms. Diane Marleau: —we wouldn't get all
complaints from the small businesses, but I'm not sure
we wouldn't get complaints.
The Chair: Mr. Obhrai has been waiting patiently,
so we'll go to him.
Mr. Deepak Obhrai: Let's go back onto the same
debate here. I'm still not satisfied with this thing.
I can understand the answers you've given me. You are
all players in the export market. With globalization
coming and everything, markets are moving. EDC is
basically—if I look at its report here—concentrated
73% in Ontario and Quebec, forgetting the rest of the
country exists. As you know, out in the rest of the
country, as well, things are moving in export markets
So EDC is just a small little player out there, I
would say, as globalization takes a bigger and bigger
Aside from the arguments you gave that there is a
need because there are no other players right now in
the market and they've had a thirty-year head start and
that it's a great time to change, would it serve Canada
well to go back into the whole thing, to the point that
Madam Marleau brought up? How do we get the private
sector involved in this thing? I would probably
venture to say that in the due course of time, EDC
will just remain a small player in the market. How do
we open it up to becoming a bigger player?
I'm questioning whether it would be great to have EDC
let loose with the same mandate while opening it up
with rapid development taking place. The private
sector will fill the niche. How are you going to
address the globalization that is taking place rapidly
within export markets that are developing all over the
Mr. Paul Kovacs: It's my sense that with EDC
operating like it does, it has crowded the banks and
the insurance companies out of supporting the export
community. It's the only corporation in Canada that's
trying to serve the export community, it is not paying
taxes, and it is not filing with regulators and explaining
what it is doing, as all the other companies have to
Mr. Deepak Obhrai: So it's a barrier to opening up
the market for other things. Is that what you mean?
Mr. Paul Kovacs: There's no question that a long
list of companies have said they are doing this
business and are interested in doing this business, but
they aren't doing it in Canada right now—at least, not
on the scale they'd like to—because of the rules that
EDC is operating under. Under rules by which EDC would
pay tax, would file with regulators, and would follow
the other rules that everybody else has to follow, you
would have a lot of companies coming into the market.
They would compete to serve the market. They would
compete to help exporters. That's exactly what other
countries do, and the outcome was not for small
business to be disrupted or for exporters to be
disrupted, it was to improve service.
Mr. Deepak Obhrai: So if EDC were let loose, then
probably it would have to follow many of the
regulations that the private industries do. That would
open up a level playing field, opening up a wider
market for other companies to come in.
I know what Mr. Lamarre would like, but there are some
areas—and I agree with Mr. Lamarre—that the private
sector would never fill. Those are the areas Mr.
Lamarre is concerned about, and I would probably
venture to ask if we really need a corporation like EDC
to have that small niche area left, or whether it
should be left to other areas in the government to
address that small section that you're looking for.
Mr. Jacques Lamarre: If I may, your
question is a very good one, but it's not easy to
answer. I did appreciate the distinction made by Mr.
Perna. In fact we have the financing side, the
insurance side, and EDC. I would say that people like
us buy as much private insurance as we're buying from
EDC, and normally they are very competitive. We have a
There are still some products that are not available
in the medium and long term, and for some countries. We
were trying to buy some things from Algeria and there
wasn't anything available in the insurance market, but
we were able to get it with EDC.
For the time being, on the insurance side, I must say
that I'm quite happy with what the insurers are doing.
They are doing a better job than the banks, and they
are coming onto the market with something valuable.
They are doing a very good job, and we appreciate very
much what they are doing, but it would be a bit too
early to ask EDC to quit that market. That's my
The insurers are not there yet in the medium and long
term, and in some countries they are not there. It
would be something very dangerous to make that kind of
If you come at the financing side, in Canada we are
small. Our biggest bank is maybe number 50, 60 or 100
in the world. We are so small that if we don't have
something like EDC on the financing side, we are done.
In fact we are done for the world market. In fact
we will be a small player.
We'll make more and
more trades, but not much more.
Mr. Deepak Obhrai: Is EDC that big that it makes a
Mr. Jacques Lamarre: Yes, because it has the
balance sheet of the Canadian government. It is the
kind of group that could take that kind of risk.
I was asking the Royal Bank why they don't take that
type of risk. Other banks in the world, the big ones,
were ready to take it because it was one portion of a
big portfolio. But for Royal Bank, the Bank of
Montreal, and the rest of the six big Canadian banks,
none of them want to take any of that risk. Some other
bankers were willing to take some part of it because it
was not financeable under EDC, because it was a local
content. It just goes to show that our banks are too
small. They're way too small. If we don't have EDC,
it will be a catastrophe on the financing side.
On the insurance side right now, it's true that we can
go to the private market for what EDC is supplying. The
insurance people are doing a better job. I would say a
lot of our programs are with the private market, and
we're quite happy with the services. Again, though,
right now would be too early. Maybe they won't agree
with me, but that's my opinion. At least, I am proud of
what they are doing. They are doing a hell of a job,
and they show interest. They're going into other
markets and are doing all kinds of things. They are
offering all kinds of packages. They are becoming more
and more efficient and very cost-effective, and we're
quite happy with what they are doing.
The Chair: Mrs. Lalonde.
Mrs. Francine Lalonde (Mercier, BQ): At last!
The Chair: Excuse me.
Mrs. Francine Lalonde: I am the very soul of patience. I will
try to address a slightly different sector. In my mind, I am
convinced that the EDC must stay.
What I found most interesting in your intervention, Mr.
Lamarre, is your emphasis on the importance of decreasing Canada's
dependence on the American market. The Gowlings report repeats
certain criticisms made about the EDC, which might have cold feet
regarding certain markets.
As we are about to make recommendations to the EDC, what would
you recommend for facilitating this aid to exports in foreign
I heard your statements regarding the recommendation in the
report, which states that for the specific purpose of preparing for
the WTO negotiations, we had to discard the one-stop model. I
thought I understood that you would prefer that we come back to the
Nor do you agree with some of the recommendations for small
and medium-sized enterprise.
Mr. Jacques Lamarre: Regarding the first part, we must be very
careful: I am strongly in favour of the American market.
Mrs. Francine Lalonde: Yes, I understand.
Mr. Jacques Lamarre: However, we recommend that development in
other countries should be fostered. During a presentation by the
EDC, its officials showed me a chart where the whole world was
blacked out, except the United States. When I looked at the chart,
I clearly saw that there was a problem. I admit that the Asian
crisis was going on at the time. At a certain point, even they got
cold feet. I told them that they should think of their future and
that other countries would surely be promising.
We wanted to undertake a project in Algeria, a resource-rich
country in resources which has always kept its commitments. We
worked very hard to convince them that we should stay in Algeria,
and we succeeded in getting the EDC to agree to make some modest
EDC officials would rather travel to Washington than to
Algeria. Even if distance seems to be an obstacle, investments in
such a country could prove very substantial. If we want to
diversify our investments, we must be ready to make this added
I think that currently, the EDC has a tendency to lose sight
of its original mission and its concern with having a balanced
It would be difficult for me to give you the percentage that
should be invested in developed countries and the percentage that
should be invested in developing countries, where the skills of the
EDC would be extremely important. This would be an extremely
important element to include in your recommendations. I would like
to think about a percentage and a formula and try to send you a
note about that. This would be a very important aspect. You've
asked an excellent question, but I do not have a specific answer.
Regarding the principle of this, the committee should absolutely
The Chair: Please send that to the committee.
Mr. Jacques Lamarre: Very well. Excuse me.
Mrs. Francine Lalonde: That is what I had understood.
The Chair: I place my full trust in Mrs. Lalonde. I am sure
that she wants everyone to share all this information.
Mr. Jacques Lamarre: Excuse me.
The Chair: And don't only recommend countries where you are
Mr. Jacques Lamarre: No, no.
The Chair: You must be absolutely neutral.
Mr. Jacques Lamarre: Currently, we are operating in 100
The Chair: So, you won't be tempted.
Mr. Jacques Lamarre: No.
Regarding recommendation 14, it has been said that there were
very scarce resources for risk analysis. I wouldn't want the banks
to go to another government department to ask it to develop the
same kind of expertise. This expertise must absolutely remain with
the EDC with a one-stop window. In recommendation 14, it was said
that banks could have a parallel organization with that of the EDC.
Resources are already very scarce. Sometimes the EDC is invited to
some country with us, but it does not have the qualified resources.
In my mind, duplicating these functions would be an error.
As much as I agree that the EDC should take a part of its
portfolio to provide guarantees for banks to arouse their interest
in the international market, as insurance has done, and to ensure
that at least they be less fearful of those countries, I am equally
opposed to creating another group of experts, because resources are
very difficult to find and train. I would rather have a one-stop
window, but the EDC should have to provide the banks with
guarantees so they can become competitive in entering the
Third, reference was made to small and medium-sized
businesses. We have to be careful not to play any tricks on SMBs.
I sometimes see small companies arriving on the international
market and I ask them what they're doing there. They have to start
one way or another. When small businesses get into this market,
they end up blowing a wad of money. We must be careful not to push
these small businesses too hard towards the international market
because it is a special world. You have to be careful and not
imagine that the international market is an easy one, with the
exception of the United States and certain countries that are
Sometimes we need up to eight years to negotiate a contract.
When small businesses show up, they have signed their first
memoranda and they are already starting to spend increasing amounts
of money. I tell them to be very careful. I give them advice so
they won't be taken for a ride. It is important not to create too
many illusions for small businesses. If we offer guarantee
programs, for example, small business will benefit from them and
the EDC will be in a bad situation. It will never be able to
recover its accounts. So we have to show a certain amount of
There are companies like ours that do not produce anything,
but whenever we make a sale, a whole range of small companies
follow in our wake and are slowly developed. They start getting
stronger and start to expand in this kind of setting. So we have to
be careful and not assume that the international market means
automatic success. It is a very competitive world and you have to
Mrs. Francine Lalonde: Are you talking about some kind of
networking between large corporations and SMBs?
Mr. Jacques Lamarre: That is something that we do quite
naturally and that should be done to a greater extent. At the
present time, we network a great deal. For all our projects we
bring in a huge number of suppliers.
I was once in Algeria with Canam Manac, which is by no means
a small firm. The guy told me that he'd never go alone to Algeria
from now on but would come with us as a sub-contractor. Since that
time, we've been bringing them with us and things have been going
very well. When someone shows up alone in this particular
environment, he soon finds out that it's a rather special world.
I have a note here on the number of suppliers. For us it is an
excellent way of proceeding. Let's encourage businesses like ours
to take on more and more projects and small businesses will follow.
Mrs. Francine Lalonde: I think that is what we are doing in our
Mr. Jacques Lamarre: And we should keep on doing it, but we
have to be careful. It was said that EDC would be providing lines
of credit to small businesses. I'm telling you to be very careful
because it will end up costing you a lot.
Mrs. Francine Lalonde: I find your remarks rather surprising.
When we work in our constituencies, we hear constant invitations to
SMBs to get involved in export. Export is touted as the future, the
assurance of growth and prosperity. I can understand your point but
I am surprised. I don't think I'm the only one.
Mr. Jacques Lamarre: You should invite me to talk to them,
because they must choose their countries very carefully.
Mrs. Francine Lalonde: They have to be careful.
Mr. Jacques Lamarre: Very careful. I know more companies that
went bankrupt in the international market than the domestic one.
Mr. Robert Labelle: Companies like Lavalin and Bombardier
acquire a huge amount of expertise in exports, but for an SMB it is
difficult to put up the necessary funding and human resources. Very
often the don't have a great deal of human resources and other
requirements. Often you are not doing them a favour. There may be
an acceptable level of risk, but are they really in a position to
see their way through without finding themselves in a situation
where there are all sorts of disputes, etc.? In the long run,
credit insurance does not settle anything. If the goods are not
delivered in accordance with the standards of the country involved,
people refuse to pay and there are disputes. There are all sorts of
things that can happen and the SMB will find itself in a fix.
Whether it be with a private company or EDC, the same phenomenon
occurs. That is the danger lying in wait for an SMB that
overextends its reach because it is "in" to export. The SMB must
first of all have a good grasp of North American markets before
putting the whole company at risk.
The Chair: Yes, but the risk would be different for them in
China and Italy, for example.
Mr. Robert Labelle: Of course. That's obvious.
The Chair: Every market has to be analyzed. You are
probably talking about developing countries, because you have a
great deal of experience there, Mr. Lamarre.
Mr. Robert Labelle: Not necessarily. Even in countries like
Italy, people have to be aware of regulations and statutes. But the
risks are obviously not the same.
Mr. Jacques Lamarre: You have to be careful, because the
exchange rate can constitute a risk as well. For example, you set
yourself up to sell a product in Brazil. But if you don't establish
an exchange contract, and the currency drops 40%, you're in
trouble. But you need certain skills to establish an exchange
contract. There is a whole structure there. I'm not saying you
should do this, you just have to be careful.
An hon. member: [Editor's note: Inaudible]
Mr. Jacques Lamarre: Yes, of course.
The Chair: Maybe we can wrap up with a couple of
questions from the chair.
Mr. Aston, you seem to be in favour of EDC having more
flexibility. That's what you say in your report.
Mr. Clive Aston: I do.
The Chair: Are you suggesting specifically more
powers to EDC than it presently has?
Mr. Clive Aston: Not more powers but an easing of
the current restriction that I face in using it.
The Chair: What restriction?
Mr. Clive Aston: Primarily the export requirement.
As I said, perhaps one idea of moving forward would be
to allow EDC to cooperate more easily with the private
market in doing what we used to do at Lloyd's all the
time through something called a “slip” policy. It
enabled the private market to take whatever
participation and particular risk they wanted.
When capacity is fully utilized, let me go to EDC if
they still have the appetite and they still have the
The Chair: Okay, but that's certainly not what Mr.
Perna is telling us, which is that they now have gotten
right into the domestic market, virtually. So the
line's pretty blurred already.
I don't understand what concrete suggestion you're
Mr. Clive Aston: I have an example right now of
what frequently will happen. A Canadian exporter wants
a $17 million credit limit on a particular buyer from
Mexico. EDC doesn't want to take that high a level of
risk on a single buyer. Neither, I'd suggest, would
any of the private market carriers.
We have a standard reinsurance arrangement, called
“facultative” reinsurance, where underwriters can
cooperate on one particular risk. This would be a
great example where we could potentially do it. Let
EDC take the limit they want, let me take it out to the
private market, and let's see what we can get in the
The Chair: What's to stop you from doing that now?
Mr. Clive Aston: The requirement from EDC that we
have to insure the entire portfolio. We also have an
export versus a domestic issue. In this particular
case, it's a single buyer.
The Chair: But that's not a legislative
impediment, that's just EDC policy.
Mr. Clive Aston: No, it's internal; absolutely
The Chair: Okay. I see what you mean. We can
call that to their attention, then. You're not
suggesting any legislative things. As somebody said,
how do we foster cooperation, not competition? That's
obviously what we should be looking for.
I want to come back to a very good point you made, Mr.
Quenneville, that ties in with Mr. Lamarre's point.
He's saying, look, the private sector is not there
doing it, you see? Well, the private sector is not in
there doing it because of the barriers to entry. We
can't get in. It's like the chicken and the egg;
you're going around and around.
If this committee were to recommend certain things
that eased your entry, we couldn't do it at the expense
of Canadian exporters who found that, when they went
there to get it, you weren't providing it. It was too
complicated, too expensive, too far away, etc.
One of the witnesses said a lot of the business is
done in Europe. I happen to know of Canadian exporters
who go to, say, German federal government
financial...and get it from them because they can't
even get it from EDC. So we've heard that as well.
Lots of people may go to non-Canadian institutions to
get export insurance or financial assistance.
What is this wonderful way in which you somehow could
create a world in which you're going to come in,
they're going to ease out, and the Canadian exporter is
not going to be left holding the bag?
Mr. Jules Quenneville: I think the point made was
that the risk should be intermediated. By that I mean
a portion of the risk is maintained here in our
company, and we would have reinsurance facilities.
Those reinsurance facilities would provide expertise as
well as connections to other places in the world.
The Chair: And reinsurance facilities are
available in short-term insurance, if I understand your
Mr. Jules Quenneville: They are, yes.
The Chair: —not medium- and long-term. Okay.
Mr. Jules Quenneville: These are relationships
that can be negotiated and put in place and that are
available today where people have made commitments—
The Chair: What would be the short term, five
Mr. Jules Quenneville: No, a short-term credit
risk is basically less than one year of risk. Of
course, that's other than Mr. Lamarre's issues, which
tend to be longer. He's really dealing in medium- and
long-term business. We're saying, no, we should try to
separate what our ECA is doing into short-term and
medium- and long-term business. By doing that, we then
should improve our position within the OECD and with
the World Trade Organization in evaluating how much
government subsidy, or whatever it is we're doing,
winds up in the final negotiation of the trade that's
The Chair: Right. I hear you.
Mr. Jules Quenneville: You know, the break-even
point to evaluate medium- and long-term business is
much longer than if you said, well, I'm going to have
an ECA that's dealing in that area. It doesn't have to
break even on a twelve-month basis. It can break even
on a much longer basis.
Then you will have used your capital, the capital
that's now in the Export Development Corporation, for
the objectives that I think it should be used for, and
you've allowed the private market to come in and do the
business, with its capital, that it's capable of doing.
To facilitate that, there can be reinsurance
arrangements made between even the Export Development
Corporation as it exists today and some transition
point down the road.
Ms. Diane Marleau: Have you made this type of
offer to the Export Development Corporation?
Mr. Jules Quenneville: No, we haven't, because
we're of the belief that as long as there is
legislative capacity for the Export Development
Corporation to compete with us, then other than in very
strenuous cases, or cases of hardship, we would not go
to the EDC.
There are reasons for that. Again, there's the
evaluation of whether or not you want to compete with
government. We see the Export Development Corporation
as an agency of the government. We have done
transactions with the Export Development Corporation,
but we would not today say that as a strategic business
We do not try to expand our business in the direction
of the Export Development Corporation's business, but
we would. If we have clients who want to work with the
Export Development Corporation, then we certainly would
do that. That's not an issue.
But I think there are mechanisms within the insurance
products that allow those risks to be intermediate. If
you charge a premium for a risk, keep 10% of the risk
within the Canadian company, and put the rest of the
risk somewhere else in the world, then that's what
happens in that intermediation process. If the Export
Development Corporation is part of the process, there's
nothing wrong with that.
The Chair: Interesting.
This is just a technical question. If you were more
and more this business, would you look at that as an
export of a service? I'm trying to get a handle on
what is an export of services and what isn't. This is
a totally different discussion for WTO and other
purposes, but I can never understand this. From our
statistics we know what our exports and our imports of
goods are, but services drive you crazy. I mean, you
can make an argument that a hotel is actually an export
of a service if it takes in foreign exchange, etc.
If you're insuring a foreign contract, is that an
export of a service or not?
Mr. Paul Kovacs: If the customer of the product is
a Canadian exporter who happens to be selling abroad,
my personal definition is that this is not exporting a
service. If you're providing engineering consultation
and advice, and you're building a road or a factory in
another country, that's certainly exporting a service.
But to export credit insurance, that would mean the
customer would be a foreign company selling to another
foreign company and needing insurance for that.
At this point in time, we're just looking to be able
to help Canadian exporters, not necessarily other
The Chair: That's helpful.
Mr. Robert Labelle: But services can be covered on
the export side for Canadian companies that would
render services to international companies elsewhere.
The Chair: Yes. I was in China recently, and we
were talking about opening up the Chinese market to
insurance and other exports of services under the WTO.
So it's a definitional problem as to what's what in any
That's helpful, actually. I think that's probably a
good definition of yours.
Colleagues, there are two petite cuisine issues.
We were asked by Mr. Robinson if we would subsidize
payment for someone to come up here from the CLC, the
Canadian Labour Congress. I'd like to propose a
First, if Mr. Robinson wants it to go through, he
needs a motion, and we don't have a quorum here to get
a motion through. So we have a problem in terms of a
motion. However, I would like to recommend this.
Normally the average witness costs us $1,200. They
want $2,500. The CLC is going to bring this person up
anyway, so I would say we could just apply the normal
policy and pay $1,200 of their fee. The CLC, which
isn't the poorest organization in the world, can pay
the other $1,200. Why should the Parliament of Canada
subsidize the CLC? I don't have any trouble
subsidizing them to the tune of a normal witness fee,
but I have some trouble with $2,500.
If it's all right with members, then, I'd like to make
Mr. Jacques Lamarre: Well, $1,200 was fine for us.
Voices: Oh, oh!
The Chair: Don't suggest this to Mr. Lamarre.
I'm sure, when Mr. Lamarre hears about these
This is not a witness fee; this is the cost of getting
here. I'm sure you'll be dying to come up here every
day and lose all your business opportunities.
Voices: Oh, oh!
The Chair: So that's my first recommendation.
The other one, colleagues, is this. You'll recall
that various opposition parties have requested that Mr.
An hon. member: You bet.
The Chair: The problem is, Mr. Marchi, immediately
after the WTO hearings, which would have been...you
know, possibly we could get him here. It's very
difficult, because that's exactly what's going on.
With your permission, then, I would suggest we put it
off to February and let him come then.
I'm making it clear that this is on the condition that
he understands, as the government has agreed, that he's
coming under sections 110 and 111 of the rules. He's
coming as a witness pursuant to section 111, which
allows the committee to examine whether the appointee
is qualified, or whatever the rule says, to do the job.
Mrs. Francine Lalonde: I do not believe the committee planned
to wait until February to have Mr. Marchi testify before us. Since
we do not have quorum at present, I would prefer us to bring this
up again at the next regular meeting.
The Chair: We could discuss it at our next meeting. In any
case, here is what I suggest. If we agree to this and Mr. Marchi's
appearance is postponed, we can still be sure he will appear under
the Standing Orders. We will not lose the opportunity to have him
as a witness.
Thank you very much. You've been very helpful
witnesses, and we appreciate your testimony very much.