Mr. Brian Kingston (Vice-President, International and Fiscal Issues, Business Council of Canada):
Mr. Chairman, committee members, thank you for the invitation to take part in your prestudy of the Trans-Pacific Partnership.
The Business Council of Canada represents the chief executives and entrepreneurs of 150 leading Canadian companies from all sectors and regions of the country. Our member companies employ 1.4 million citizens, account for more than half the value of the Toronto Stock Exchange, contribute the largest share of federal corporate taxes, and are responsible for most of Canada's exports, corporate philanthropy, and private sector investments in research and development.
We have recently changed our name. We were the Canadian Council of Chief Executives, just for those of you who hadn't noticed the name change.
Trade has long been a powerful engine of Canada's economy, and the Business Council is a strong proponent of Canada's participation in the TPP. In an era of slower global growth and increased volatility, it is critical that Canada do everything possible to create new economic opportunities and improve our long-term prosperity.
The TPP is a groundbreaking agreement that will support Canada's standard of living and create high-value jobs. If both the TPP and Canada's agreement with Europe were implemented, Canada's trade network would cover more than 60% of the global economy, giving Canadian companies preferential access to nearly 90% of existing export markets.
This would make Canada the only G7 nation with free trade access to the United States, the Americas, Europe, and the Asia-Pacific region, including three of the world's four largest economies. This wide-reaching trade agreement network would position Canada as a global export platform, attracting investment and jobs to communities across the country.
As with the North American Free Trade Agreement and pre-existing trade agreements, the TPP will spur innovation and productivity by giving Canadian companies new market opportunities, all while providing Canadian consumers with a wider variety of goods and services at more competitive prices.
There are three main reasons I'm going to go through today as to why TPP is critical to Canada's long-term economic prosperity.
First, Canada must diversify its trade relationships. According to the Bank of Canada the growth potential of emerging market economies is projected to be about four times that of the world's advanced economies. Emerging markets now account for 80% of global growth, but only 12% of our exports go directly to fast-growing emerging markets, while 85% go to slow-growing advanced economies.
If Canada's exposure to emerging markets matched that of the United States, demand for our exports would increase by $60 billion. Japan alone offers Canada significant new market potential as the country has an average MFN applied tariff of 4.2% and low import penetration, 21.9% of GDP. While Canada currently sells $4 billion of agrifood products to Japan—that's nearly 10% of our total agrifood exports—tariff reductions in the TPP will significantly boost our exports into that market.
Second, the TPP builds on the North American partnership. NAFTA is the cornerstone of Canada's international trade policy and is by far our most important trade agreement. Ratifying the TPP improves upon the North American platform that has driven Canada's economy since NAFTA's conclusion over 20 years ago. Even with the growth of emergent economies, the U.S. and Mexico are our most important markets in the TPP. As our largest and third-largest merchandise trade partners, nearly 78% of Canada's exports go to these two countries.
We must implement the TPP to deepen these strong commercial ties, enhance North American competitiveness, and ensure our countries are on the same footing when it comes to international trade standards. Failure to take part in a trade agreement with such important trading partners would be disastrous for Canadian companies integrated into North American supply chains. Whereas NAFTA has given Canada a leg up on global competition by building a strong North American platform, being left out of the TPP would see the erosion of that advantage to participant countries. Signing on ensures that Canada maintains strong relations with our North American partners.
Third and finally, the TPP sets a new standard in regional trade agreements. By setting reciprocal and forceful trade rules and establishing disciplines in key areas of interest to Canada, a high-standard TPP agreement will promote Canadian economic growth and jobs.
One example is in the services sector, which accounts for 13.6 million jobs and 70% of Canada's GDP. Canadian companies that excel at providing knowledge-intensive services, such as the financial services sector, will benefit from enhanced obligations covering a broad range of services. Through its potential expansion to new members the agreement will also provide the architecture for market-based rules to the growing economies in the Americas and Asia. For example, Indonesia and the Philippines have already indicated their intention to join the TPP. These two countries alone would add 354 million people to the TPP market and they would grow GDP by $1.17 trillion U.S.
With that I conclude my remarks and I'd be happy to take any questions.
Thank you very much.
Before we get started with our committee, I'd like to welcome, sitting in our back row, the Harvard law caucus, Canadian section, who are here to watch us and take notes. Can we give them a round of applause to welcome them?
Some hon. members: Hear, hear!
The Chair: We're going to have to be on our best behaviour here today.
We changed this around a little bit. We're starting a little early and are going to have four witnesses. We're going to give them each five minutes and then we'll go into our rounds of questions.
We have Mr. Wilson, from the Canadian Manufacturers and Exporters; Mr. Beatty, who is not new to this place—a former MP and minister—from the Canadian Chamber of Commerce; we have Corinne, from the Canadian Federation of Independent Business; and from this morning's meeting we have Mr. Everson, who is with Mr. Beatty.
Are you two splitting the time, or is just one of you speaking?
Mr. Mathew Wilson (Senior Vice-President, Canadian Manufacturers and Exporters):
Thank you again for your flexibility this morning concerning my scheduling challenges.
First off, my name is Mathew Wilson. I'm the senior vice-president with Canadian Manufacturers and Exporters. I'm pleased to be here on behalf of Canada's 60,000 manufacturers and exporters and our association's 2,000 direct members to discuss the TPP.
CME is the largest industry and trade association in Canada. We also chair the Canadian Manufacturing Coalition, which represents 55 sectoral and manufacturing associations. More than 85% of our members are small and medium-sized enterprises, representing every industrial sector, every export sector, and all regions of the country.
Manufacturing is the single largest business sector in Canada. Canadian manufacturing sales surpassed $600 billion last year, directly accounting for 11% of Canada's GDP. The sector employs 1.7 million Canadians in highly productive, value-added, high-paying jobs. Their contribution is critical to the wealth generation that sustains the standards of living of each and every Canadian.
Simply put, Canada's domestic market, however, is just too small for manufacturers to thrive. Manufacturing is an export-intensive business. More than half of Canada's industrial production is directly exported, either as part of global supply chains or integrated manufacturing or as finished consumer products in almost every product category. Manufactured goods account for roughly 70% of all Canadian exports and are growing in importance as natural resource prices remain weak.
While Canada and the U.S. markets remain a top priority for most Canadian exporters, a growing proportion of our members are looking to take advantage of newly emerging opportunities beyond NAFTA, especially with those countries represented by the TPP. Today this collective market represents more than 650 million people and $20 trillion in opportunities.
CME strongly believes that no trade agreement is worth signing unless the deal is principled and fair. First off, we think every deal should create a fair and level playing field for manufacturers and exporters, to make sure that they have an equal opportunity to access foreign markets as our competitors have to access Canada. Second, the TPP allows value-added exports from Canada, not just the export of natural resources. Finally, it does not undermine existing manufacturing supply chains developed through existing FTAs, especially the NAFTA.
CME has supported Canada's entry into and the signing, in principle, of the Trans-Pacific Partnership because of Canada's small domestic market, the export orientation of our manufacturers, and the deal's inclusion of our major trading partners and the significant opportunities this inclusion affords.
However, this support is not without reservation from many CME members. Concerns over certain elements of the proposed deal remain significant. Lowering content on automotive rules of origin, lack of additional measures to curb Buy American policies for government procurement in the U.S., and uneven tariff phase-out in certain sectors compared with those of our American counterparts are just some of the concerns that I hear about directly from our members.
However, despite those reservations we continue to encourage negotiators to work through these issues to ensure fair treatment of opportunities for Canadian exporters. It is critical to keep in mind that export opportunities start at home and are propped up by the strength of our domestic market, the innovativeness of our private sector, and the supports that Canadian exporters receive in accessing and succeeding in foreign markets.
To be blunt, Canada has a poor history of success in trade agreements. Aside from NAFTA, very few if any of the agreements have led to an increase in exports. On the flip side, we've also typically not seen massive increases in imports either. FTAs are signed, and business generally continues as before.
This time it will be different. We are entering into an agreement with many aggressive export-oriented and coordinated countries. If we don't have similar domestic strategies for success, Canada has the potential to lose. We need a national strategy that aims to support domestic competitiveness first and global exports second.
These trade agreements will open the door to increased competition. This can and should be perceived as a good thing. However, we need to be ready for that competition. While the private sector is willing and ready to compete on a level playing field, our business environment is often not level. While our corporate tax regime is world class, many other areas are not. Canadian companies face higher input costs, a much more costly regulatory burden, higher labour costs, and higher energy costs. Meanwhile, domestic supports for manufacturing investment and advanced technologies significantly lag those of our international competitors. We need to recognize that Canada is not an island and that these trade agreements make us less so. Our business environment must be world class at home to succeed internationally.
Second, while our trade support network is strong, it can and should be significantly strengthened. To start with, we need to do a better job of educating Canadian companies about offshore potential. Despite our success and high level of exports, very few Canadian companies are looking internationally. We need to set up programs to educate companies in new market opportunities and to increase their internal capacity and expertise for global trade—an export-intensive accelerator program similar to what is available in other markets, for example. Expanded foreign trade missions to connect companies with foreign buyers should also be supported. Exporters also need to have better market intelligence and improved connections to international business partners through an expanded trade commissioner service.
The TPP can and should be a major step towards achieving these objectives. CME recognizes and applauds the government's leadership in helping Canadian manufacturers grow their business in global markets through agreements such as TPP and CETA as well. However, we must remain focused on a principled approach to trade that grows value-added exports and does not undermine existing supply chains, while implementing a strong support network to allow companies to take advantage of these new market opportunities.
Thank you for your time this morning.
Hon. Perrin Beatty (President and Chief Executive Officer, Canadian Chamber of Commerce):
Thank you very much, Mr. Chair, for inviting me to speak to the committee today about the Trans-Pacific Partnership Agreement.
The Asia-Pacific region is an increasingly important market for Canadian businesses.
Trade is only one of the levers that we have to boost economic growth, but unfortunately this is an area where Canada has not been performing particularly well of late. In many parts of Canada, we have fewer companies exporting today than we did 10 years ago. Part of the problem has been our failure to diversify trade towards high-growth markets like the Pacific Rim.
Many of you will remember the warning of Mark Carney, when he was still Governor of the Bank of Canada, that our country was over-dependent on trade with mature economies like the U.S. and Europe, where growth will be modest for the foreseeable future. The TPP takes a huge step to correcting that dependence. A TPP that eliminates trade barriers will open up new opportunities for Canadian businesses in the Pacific.
Mr. Chairman, as a member of the cabinet that approved the most hotly debated trade deal in our history, the Canada-United States Free Trade Agreement of 1988, I know very well the political pressures that emerge. Each agreement does contain tough choices. There are workers and companies who face challenges, and those concerns deserve respect, but if we stop doing trade negotiations except in cases where no one is affected, we stop negotiating at all.
We believe that the work of this committee is not about “should we ratify the agreement?” We should and we must. The work of this committee must be about understanding who the challenged sectors are and what can be done to support their response to changing circumstances.
We've talked to those who will gain, those who will face new challenges, and those who are still trying to figure out what the TPP will mean for their businesses. That's why, at our AGM back in October, just days before the federal election, hundreds of chambers of commerce from across Canada passed a resolution calling for our country to implement the TPP, in a near-unanimous vote.
I'll give you three reasons why, but before we get into that, let me make this clear. None of the reasons I'm about to list are about the costs of being outside the TPP. Having the deal go ahead with our NAFTA partners of Mexico and the United States in, while we remain outside, would be catastrophic for Canada. None of the concerns we hear raised about autos, for example, are likely to be improved by walking away from the deal. If we do that, these other 11 nations will offer each other privileged arrangements, which we'll be locked out of.
However, framing the TPP as something that we're being dragged into sells the deal short. I believe that Canada is actually much better off in a TPP world.
Let's start first with the hard gains.
Various economic studies put the benefits for Canada at somewhere between $5 billion and $10 billion per year. What we do know today is that companies doing business with Japan, Vietnam, and Malaysia, countries where we currently lack trade agreements, will be big winners. Japan is still the world's third largest economy. Vietnam and Malaysia together make up 120 million people, and those economies have been growing between 5% and 10% annually.
Today, companies in agrifood, seafood, wood, chemicals, machinery, and equipment have to pay hundreds of millions of dollars each year in tariffs. Many of them have told us that they would be able to increase exports as a result of the TPP. Beef producers and processors, for example, expect to double or triple their exports to Japan alone, and more trade means more business for railroads, ports, and air freight.
That brings me to my second reason. The TPP makes some long-overdue updates to our trade rules. The World Trade Organization and NAFTA are over 20 years old now, and they're no longer adapted to today's realities.
Think about how much has changed since then, such as the Internet, for instance. Nobody could imagine 20 years ago how all-encompassing it would become. Today, over 10% of goods trade and 60% of services trade happens online. Knowledge industries like financial services, management consulting, and information technology are among Canada's top five fastest-growing export sectors, yet there's nothing in our current trade agreements that prevents countries from blocking data flows or imposing local data storage obligations. That's where TPP comes in. Simply put, it extends free trade into the online realm.
Let's also remember that the TPP requires participating countries to maintain and enforce strong environmental laws and regulations under the threat of economic sanctions. When the deal was announced, one environmental group went so far as to say that the TPP has the strongest environmental provisions of any trade agreement in history.
There are other meaningful innovations in areas such as state-owned enterprises, regulatory transparency, and small business.
My third and last—and perhaps most compelling—reason for Canada to back the TPP is strategic.
For a mid-sized, trade-dependent economy like ours, going toe-to-toe with giants like China, India, and Japan is a terrible alternative to our traditional leading role in multilateral negotiations. We generally fair best when we're working with others and we already have a wave of countries lining up at the front door wanting in.
I was at APEC last year in Manila when the presidents of the Philippines and Indonesia announced that they intended to join TPP. Overnight that would add another 350 million people to the TPP's market, increasing the size of the group by nearly 50%.
Taiwan and South Korea also want in. I like to call this the TPP multiplier. We have a once-in-a-lifetime opportunity here to work with our partners and to shape the future of the global trade regime. This is more than in our economic interest, it's in our national interest.
Ms. Corinne Pohlmann (Senior Vice-President, National Affairs, Canadian Federation of Independent Business):
Thank you, and thank you for the opportunity to be here today.
As mentioned, my name is Corinne Pohlmann. I'm the senior vice-president of national affairs for the Canadian Federation of Independent Business, and I'm pleased to be here to share CFIB's perspective on the Trans-Pacific Partnership.
Let me start by saying, though, that I'm not a trade expert nor has CFIB been as involved in discussions around TPP as some of the other groups that you have before you here today may be. However, I can tell you a little about small and medium-sized businesses in Canada and provide you with some of their reflections on international trade and how this deal may impact them.
You should have a slide deck and presentation in front of you that I'm hoping to walk you through over the next few minutes.
First, CFIB is a not-for-profit, non-partisan organization that represents more than 109,000 small and medium-sized businesses across Canada. Our members represent all sectors of the economy and they're in every region of the country.
It's important to remember that Canada's small and medium-sized enterprises employ 70% of Canadians in the private sector labour force. They're responsible for the bulk of new job creation and represent about half of Canada's GDP, so addressing issues of importance to them can have a widespread impact on job creation in the economy.
I want to remind you that CFIB takes its directions solely from our members through a variety of surveys, and we do this throughout the year. In all previous members' surveys around free trade, a strong majority of members have been supportive of free and fair trade. This is because most of them understand that trade is good for Canadian small business, for the economy, and for jobs.
We also know that many of our members appear to be in a position to benefit from TPP. A few others, including supply-managed producers and small auto parts manufacturers may have strong concerns. We continue to carefully listen to our members as more details unfold and will communicate any of their concerns to the government. One concern we have already expressed, for example, is the importance of ensuring that any economic harm to supply-managed producers as a result of the trade deal be fully compensated.
First, though, it's important to know how much small and medium-sized businesses in Canada currently trade. About one in five have sold goods or services to other countries, while about half have purchased from other countries, with another 6% planning to do more trade in the future. Where do those that trade do their business? The U.S.A. remains by far the most likely place that Canadian small businesses trade, followed by the EU, Mexico, Australia, New Zealand, and China. In fact, three of the top five are TPP countries, so those businesses would benefit from the lessening of trade barriers and tariffs that may be making it difficult for them to expand their markets in those countries.
Of those that are not currently involved in any kind of trade, a good proportion of them do not believe that their products or services are exportable. However, that still leaves about 38% of those that are not involved in exporting that could be, so making sure that trade deals like TPP address the barriers they face and that greater effort to highlight what the benefits of exporting can bring to their business in the community may result in more of them taking the plunge into new markets.
Ultimately what smaller businesses want to see in any free trade agreement is clear understanding of regulations and standards, simpler border processes, less paperwork and red tape, and lower costs. It would seem that the TPP does try to address many of these issues in some form.
Of the many features we understand the TPP will offer, those listed here are among the most important if we want to see more smaller firms engage in trade or expand their markets. They include lower taxes and tariffs; greater transparency around customs procedures; streamlining trade barriers, especially regulations and standards, by reducing paperwork and being more transparent about what is required; greater access to new markets, which is especially important for service providers, which is a growing and important segment of the small and medium-sized business community interested in trade; as well as a chapter dedicated to small and medium-sized businesses.
We're pleased to see a chapter dedicated to small and medium-sized enterprises, as it does indicate that the various TPP countries recognize that smaller businesses have unique needs and may need additional or different tools to successfully trade across borders. We also like that the chapter suggests that each country will have accessible websites that will be designed and tailored for small and medium-sized businesses. It will be very important that these websites be done in plain language and that they easily interconnect with each other where it makes sense.
Finally, that the committee on small and medium-sized businesses with representatives from each country will meet within one year to discuss small business issues is a positive sign. However, we also see some uncertainties, mostly concerning the fact that the committee will only be composed of government officials. We believe it should also have some representation from smaller businesses to ensure that it is truly addressing their needs and concerns.
Also, we hold out a lot of hope, but we do have some concerns that this law looks great on paper, but will small and medium-sized enterprises feel the impact on the ground and will it truly make a difference?
In summary, a strong majority of CFIB members has been supportive of free and fair trade. Many of our members appear to be in a position to benefit from the TPP, but a few do have strong concerns. We have communicated these concerns to government and have already stressed the importance of finding ways to mitigate any economic harm to sectors that may be adversely affected as a result of the trade deal.
We are encouraged, however, to see that the agreement has a dedicated chapter with specific measures to help small and medium-sized businesses take full advantage of the opportunities created by the TPP, but action must follow the words in order for it to have an impact on the ground for smaller companies.
As I mentioned at the outset, CFIB's position on issues is solely determined by our members, so we continue to carefully listen to them as more details unfold. We will continue to communicate any feedback shared by our members to the federal government as it moves through its consultations.
Thank you for the opportunity to present.
Mr. Mathew Wilson:
I'll start with that.
We have launched several initiatives to help companies understand global opportunities, so we host, with the trade commissioner service on a weekly basis, conference calls with our members across the country, and frankly, anyone who wants to join the call, talking about new market opportunities.
We launched something last year, with the trade minister at the time, called Enterprise Canada Network, which is a direct link to business opportunities in the European market, but also goes beyond Europe into about 80 countries totally around the world.
We also lead a bunch of trade missions to key markets in conjunction with Global Affairs Canada. Throughout the year we'll run three or four of them, as well as technology visits to ensure the companies understand what other countries are doing in terms of supporting technology adoption and what is available out there in the market for them to adopt back here at home.
We're quite aggressive in terms of supporting those things, but again, much more could be done to help small companies out especially.
Ms. Corinne Pohlmann:
We have not specifically asked about TPP at this point. Most of the feedback we've received has been through.... We get about 28,000 phone calls a year from members on a variety of different subjects, so it's been coming in through that source.
We have surveyed on international trade, generally speaking, but we haven't specifically asked about TPP. Every time we've asked about free trade agreements in the past, our members have been strong supporters of free and fair trade. The concerns we've been raising are those concerns that have been raised individually by various business owners from across the country, so that's how we've been assessing as it's been going along.
As new information comes out, we do try to feed that back to our membership to find out what it is they're hearing. We have 109,000 members. We don't have committees. We don't have conferences. We try to get to them through the survey process, so it may be a little bit different and more spread out in that regard, and it can be a little more complicated to get their feedback right away.
My sense is that many smaller companies don't really know much about TPP or what's going on. Those that do will definitely give us their feedback and input, and we encourage them to do that.
Mr. Peter Fonseca:
One of the things that have come up often is talk about levelling the playing field. I can't recall who brought up that a principled and fair agreement is what we're looking for.
We've heard from the U.S., and we can't find that there's any consensus from the U.S., be it from Republicans, Democrats, congressmen, senators, etc., on this, but one thing that was brought up just recently was the concern about a currency devaluation by countries as developed as Japan, but also a Vietnam or a Malaysia. Do you have any thoughts on that in terms of the levelling of the playing field?
It doesn't have to necessarily be focused only on the currency devaluation concern, but about levelling of the playing field when it comes to our labour standards and other standards that we have in a very developed country like Canada, as opposed to some of the other countries that are a part of the agreement.
Mr. Mathew Wilson:
I think I raised that, and maybe others did as well, so why don't I start?
On currency, currency is just one example. Regulatory issues are another example. Often what we see in trade agreements is that countries that want our natural resources aren't really too fond of getting our finished goods. It's a reality, and especially in a lot of Asian markets we compete with them in a lot of manufactured, value-added goods sectors.
They can use and have used very efficiently a wide variety of regulatory measures to block the import of value-added to preference their own domestic supply chains, and then re-export goods using our natural resources on the finished products back into North America.
We've seen it. It has been studied. I don't think that's largely up for debate. The question is, what do we do with it through a free trade agreement? It's something we pushed for back before CETA was started. We needed to make sure the regulatory environment is open and fair and transparent. Oftentimes in the past it hasn't been. This agreement goes a long way through the TPP process with those countries to level the playing field.
Currency is one area that wasn't covered off in the agreement. I know there are different groups out there pushing for different solutions, including in the automotive sector. I know in a study that I did about a decade ago that looking at just Japan's currency fluctuation versus the Canadian dollar, it made a difference of $5,000 on the price of a vehicle.
It was an additional $5,000 going into Japan and a savings of $5,000 coming into Canada on just a mid-sized, average Camry that was produced. That's a pretty big impact on an average product that someone would buy.
Currency can have a big impact on trade. We're seeing it now with our own dollar dropping and new export opportunities, but I'm not sure. I know there are solutions out there for challenges. I think we wish there would have been some mechanism put into the TPP to look at currency in more detail, because I don't think enough has been done around that, to look at the root causes of it and the challenges that it causes. But it's not there and it's maybe something that this committee could look at or other sources could look at going forward, because it is a significant problem.
Mr. Mathew Wilson:
I guess I'd start by saying that economic studies can be made to say all kinds of things. It depends on the economist you hired at any given time. I have a lot of respect for economists, but I don't put a lot of faith in any numbers they throw out. They use a variety of input and output models that are frankly guesses at best. There is no solid model.
We haven't seen any number that we actually believe is true. We think this will provide real opportunities if we get the framework right and that it could grow jobs and investment in Canada. I'm not really sure I buy into the job-loss numbers.
On the other side of things, in terms of support network, if you look at South Korea, which isn't in the deal right now but, as Mr. Beatty said, might be in the future, it has an entire manufacturing strategy that focuses on a couple of core sectors of the economy. We talk about not picking winners and losers, but they picked a couple of winners and they're winning. They picked technology and transportation as the areas they wanted to focus on. Their entire government support network went into supporting companies in those areas and allowing them to export value-added products out of South Korea.
They supported them through direct investment supports. People can call them subsidies or anything else, but investment supports happen in most sectors around the world. The regulatory system was set up to support them. The education system was set up to support them to make sure they're getting the talent they want. Then a trade commissioner service type of body was set up specifically to help those companies in those sectors find new market opportunities abroad and they are very active in finding and connecting South Korean companies with those opportunities.
The same thing has happened in Vietnam. I've met with Vietnamese officials on a regular basis, and now they can trade with Canada more. In Japan it's the same thing.
We have bits and pieces of those types of support in Canada, but they've never really been pulled together into a complete package. There are a lot of things—
Hon. Perrin Beatty:
Maybe I can take a crack at that one.
Rather than looking at it in terms of a study, individual companies have looked at it in terms of their business plans.
You were citing, for example, manufacturing particularly in southwestern Ontario. My home area, where I was raised and lived, was Fergus, which is 12 miles from Guelph, where Linamar is located. Linda Hasenfratz has been very clear in terms of the critical nature of the TPP for her automotive parts manufacturing company. Each company is going to look at it in its own way.
Government needs to take a look at the impact sector by sector and in an aggregate sense across the board for Canada.
We have certainly seen figures suggesting potentially billions of dollars of economic impact for Canada. It is also clear that a failure by Canada to participate if Mexico and the United States were to be part of TPP would be disastrous for Canada.
Why? Because when your area or my old area is looking to locate new plants, one of the issues investors will look at will be, if they want to put their NAFTA plant in one of the three countries, which one or which ones will have access to the TPP market? If Mexico and the United States have access to that market and Canada doesn't, an investor will go somewhere else.
Hon. Perrin Beatty:
You raise an excellent question.
Trade agreements open the door; they don't guarantee that somebody will go through the door. The challenge for us, and one of the areas that I hope this committee will focus on, is that once we have the agreement in place, how do we ensure that Canadian business takes advantage of it? For example, do we have people with the skills and experience to be able to go internationally to market Canadian services?
We have been mesmerized with the U.S. market over the course of the last several decades. We still do, and we will do in the future, most of our trade with the U.S. We need to be able to look beyond that, to look at the opportunities in fast-growth markets, often on the other side of the world.
One thing that's distressing is that fewer than, I believe, 4% or 5% of Canadian students have any part of their education outside of Canada. As a consequence, they don't have the same sort of multicultural and multilingual experience that people in other parts of the world may have. We need to build and put into place an environment that makes it attractive and efficacious for people to be involved in terms of going international and succeeding.
We had the same concerns when we brought in the Canada-U.S. free trade agreement, that the Americans would eat us alive. We found that once those barriers came down, Canada's market share went up significantly. I think we'll find the same here.
If I were to give a pitch to the members of this committee, I would say there's one area where I think there's a real deficiency in terms of our trade strategy. We have a great competitive advantage in Canada. We have a pluralistic, multicultural, multilingual society, with every country's first-generation diaspora coming to Canada, speaking the language, working well with others, having family and friends back home, understanding those cultures, and by nature being entrepreneurial. They've left everything behind to come to Canada. Yet we don't have a strategy for seeing this as an economic resource to enable us to be far more successful in terms of cracking international markets.
One area where I think this committee could be helpful would be to help encourage government to include the global diaspora that we have in Canada as a key strategic advantage to us in going global.
Hon. Perrin Beatty:
Thank you for that very important question.
At the time the FTA was done, the big issue was tariff barriers between Canada and the U.S., and when NAFTA was done, that was the same focus. We weren't looking at these new, fast-developing areas of the global economy. Increasingly, trade is being done as a result of information technologies over the Internet and through our ability to connect ourselves electronically with one another.
We are seeing inconsistent standards being brought in around the world. This makes it very difficult for Canadian businesses to be able to do business globally. What TPP does is bring in one set of standards. It helps to ensure openness in terms of borders so we don't find the global economy partitioned in terms of the ability to do business over the Internet, and it also helps to bring the intellectual property regime of the other members of TPP more in line with what Canada has today as well.
It's a more modern agreement. It reflects the contemporary realities of operating the global economy today, and as a consequence, then, with Canadian companies ready to take on the world through these new technologies, it's an advantage for us.
Hon. Perrin Beatty:
We are also hearing, obviously, from the automotive sector and it varies. Some elements of the automotive sector are very strongly in favour of TPP; others are concerned about it. It's important to pull back though and take a look.
The first decision that you have to make as parliamentarians is what the net interest for Canada is, on balance. When you add up the advances we make and the trade-offs that are there, is it in Canada's net interests? I think the answer strongly is, yes, it is.
The second one is what the sectors are that are adversely affected and what measures can be put in place to assist them. You will remember at the time of the Canada-U.S. Free Trade Agreement there was a belief that Canada's wine industry was going to be wiped out. We were producing wine with labrusca grapes, which are better suited for making jam than making wine. We discovered that others could produce poor quality goods at a lower price than we could.
Leaders in the sector came forward and asked the government for assistance in a transitional program that allowed them to upgrade their quality and today there are more acres under cultivation than ever before, they're winning awards, and the sector is more profitable than ever before. The focus of government should be how do we work with those sectors to ensure that they can successfully make the transition.
Hon. Gerry Ritz:
Yes, the last two Magna plants were built outside of Canada. That's the point you're making.
A couple of things have come under fire, and I take Mr. Wilson's point about the U.S. and our working jointly with them. I get that. One of the largest manufacturing sectors, of course, is agriculture and food production. From my perspective, we have too many eggs in the American basket.
We saw, when we were arguing with them over country of origin labelling, what got their attention more than anything was us renewing and invigorating markets into China and Japan, and pulling product out of the U.S. That got their attention.
I don't necessarily buy the fact that we're tied to them, joined to them at the hip, and can't move unilaterally. One of our strengths is Japan looking at us, the Mexicans looking at us, and the Australians looking at us to help buffer them against some of that U.S. forcefulness that they bring to these trade agreements.
There's a role for us to play in helping the Americans drive to the finish line on this sooner rather than later, so I think we need to play a leadership role in getting it ratified.
Mr. Mathew Wilson:
Could I just comment in terms of the integrated supply chain?
Yes, looking for new markets is important but there's a limit to how much you can diversify outside of a North American environment. If you're supplying auto parts to an assembler in Detroit, you're not going to be able to send them to South Korea, for example, or Japan. They have their own supply chains, which are local.
Agricultural equipment is the same thing. Mr. Hoback and I talked about a lot of suppliers in the Saskatchewan area that are suppliers to Case New Holland, for example. They tend to be regionalized supply chains, which are not all suddenly going to diversity outwards. On the other hand, there are companies that are able to do that. Magna, Linamar, Martinrea, those global companies have expanded their footprint.
My point is that you're not going to get someone with an existing production capacity in southern Ontario to start diversifying their markets automatically when they're already at, say, 95% or 100% capacity, which is typical of manufacturing plants today. What you need to do is help them grow overseas and invest more in Canada so that they can export more and seize those new opportunities. But right now, given the way we're set up, that's not going to happen. It's just a reality.