FAIT Committee Meeting

STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, November 2, 1999

• 0937

[English]

The Chair (Mr. Bill Graham (Toronto Centre—Rosedale, Lib.)): Let's get started.

Before we move to the EDC, we're going to deal with future business. Has everybody got the future business document? Here's the report, which is the second page here. Any comments from members who were not there? Questions?

This is the steering committee report. Do you want me to take you down this item by item?

Ms. Jean Augustine (Etobicoke—Lakeshore, Lib.): Yes, please.

The Chair: Okay. Well, we obviously agreed that the committee would do the EDC report, which we're going to start this morning. We agreed we would have two hearings on the human rights situation in Colombia, which you may recall came up last spring. I think an undertaking was given by letter by Madame Beaumier or somebody that we would look at this. So that's a follow-up of an undertaking we gave in the spring.

I'm going to write the chair of the natural resources committee. Mr. Robinson was anxious for us to revisit MOX fuel. I really strongly view that MOX fuel is, in terms of the environment issue, an environment issue within Canada. If you want to get into the foreign policy dimension of it and whether we should do it, whether we could save the Russians from blowing us all up and all that, I guess we could do it. But my view is we've done it; let's let the environment people who really have time to look at these things do it.

So for the moment, I'm going to send it off to see whether the natural resources.... But Mr. Robinson made the point that if they don't do anything about it, he'll be bringing it back here.

On November 16, 1999, which is the week after the break, we will have a meeting with Mr. Pettigrew to speak to the government's response to our WTO report. That will be filed in the House on Monday, November 15, 1999. Isn't that right, Mr. Speller?

• 0940

Then we agreed that we would hear from the Minister of Foreign Affairs on circumpolar cooperation, because of our former report on that issue.

[Translation]

Today, we will be meeting with Mr. Papandreou and, on November 18, with Mr. Carlson. Then, we will proceed to examine documents and reports, if that's amenable to you. We've already agreed to undertake a study of Canada's interests in Eurasia, in conjunction with our country's foreign policy. A draft report of sorts has already been drawn up, and we are now going to ask our research officers to draw up a proposed travel itinerary, work plan and so forth.

[English]

There is a proposal in your package, as the clerk points out, and somebody may want to discuss that.

It was also suggested that we do a study on trade and economic institutions of global governance prior to the next G-8 summit, focusing maybe on the G-20, which would be a follow-up of our trade and economic work. So one would be political and the other would be trade and economic, if you like.

This is Mr. Robinson's missed opportunity to get Lord Robertson yesterday, whereby we would have a look at Canada's role in the war in Kosovo. But we drew to the attention of Mr. Robinson and everybody else here that the Senate is doing an exhaustive hearing into this. So before we go looking at this, let's see what they do, because we have a lot on our plate. So let's see what the Senate does, and maybe that will answer nine-tenths of the questions.

Mr. Robinson.

Mr. Svend J. Robinson (Burnaby—Douglas, NDP): Mr. Chairman, on this I wanted to suggest a slight amendment to the way in which it's worded. I've asked Gerry, our researcher, just what the Senate is up to, and apparently what the Senate is doing is a very comprehensive study of the whole issue of NATO and peacekeeping, and so on.

[Translation]

However, many questions remain about Canada's role in Kosovo and what happened exactly. For example, what role did Canada play in the reconstruction of Kosovo in Serbia? There are many other questions as well. I personally sent a letter to the Chairman regarding this matter.

[English]

I don't want us to have this thing wide open, waiting until the Senate has reported something about NATO and peacekeeping. I want to suggest we make it clear that following the presentation of the report—because we were told this should be by the end of November; if it's not by the end of November, though, then in any event, no later than the first week of December—then the committee will look at where we're at and consider holding hearings on this issue and examining the questions. I want to add this as an amendment, that in any event it be no later than the first week of December that we then take up this issue.

The Chair: Do you have any comments on it?

Mr. Gerald Schmitz (Committee Researcher): Just to say that I think the Senate committee is going to Washington this week. Their schedule is more or less timed to the retirement of the chair of the Senate foreign affairs committee, Senator John Stewart, but whether they will in fact meet their deadline I can't say, because I can't speak for the internal process of that committee. But I'm sure they are hoping to get that report in before the end of this year.

Mr. Svend Robinson: All it says is it's suggested that we not wait indefinitely for the Senate, that if they haven't reported by the end of this month, then the committee come back and re-examine the issue.

Mr. Gerald Schmitz: And if they haven't addressed the issues that you want, yes.

Mr. Svend Robinson: And if they haven't addressed the questions that we want addressed, yes. So perhaps it could be amended to reflect that.

The Chair: Ms. Augustine.

Ms. Jean Augustine: It's a completely different topic, so I'll let you finish.

The Chair: Okay, we'll just finish this. I have just one last point then on that.

I have spoken to a couple of senators. They seem to be very interested in the issues you're interested in. If you've not spoken to Senator Stollery, you might wish to. He says this report is going to be quite exhaustive in terms of both the successes and failures of the NATO campaign. So hopefully they'll do a good job on that and thoroughly examine it, and if we want to follow up, it will be a short follow-up rather than a big one.

Mr. Svend Robinson: Depending on how comprehensive their work is. But perhaps we could just amend this to reflect that we will come back to the issue at the beginning of December.

The Chair: There's no problem with that. We're going to come back to it. We'll come back to it, sure.

• 0945

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): If they're anything like our House, they're going to have the report in just in time to table it before they leave. Their scheduling is generally the same as ours, so I doubt we're going to see anything from them by then.

Mr. Svend Robinson: Well, let's see where we're at.

The Chair: I think there's some desire on their part to finish that report prior to Senator Stewart leaving, and he leaves in November. So we'll see.

[Translation]

Are there any other comments concerning the tabling schedule?

An hon. member: No.

[English]

The Chair: Ms. Augustine, you wanted to add something else.

Ms. Jean Augustine: I was going to take us back to the third paragraph, which looks at convening two hearings on the human rights situation in Colombia. I'm very concerned about what's happening in Sudan and where we are on the issues in Sudan. I wonder if there is somewhere this committee could address Sudan.

The Chair: We've put that on the order of the day. It's a bit confusing, but on the order of the day, we have, one, future business and the presentation of that report, and then two, a hearing on Sudan with the Honourable Lois Wilson. That's on page 1 of your agenda. It got buried in a funny place.

I totally agree with you. I think everybody is interested in Sudan at the moment, so we put it on there for discussion.

I would assume, members, that we can take it for granted that everybody would like to have a hearing with Lois Wilson about Sudan, and maybe—

Mr. Svend Robinson: And departmental officials.

The Chair: We might want to call some other people as well.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): [Editor's Note: Inaudible]

The Chair: No, not today, because we already have too much...it won't be until before Christmas.

[English]

Is that all right, Ms. Augustine?

Ms. Jean Augustine: Yes.

Mr. Sarkis Assadourian (Brampton Centre, Lib.): Can I ask a follow-up on that question? Are we going to call our government officials and Sudanese government officials? Is that what it is?

The Chair: Well, I don't think we're going to call any Sudanese officials, unless they want to come.

Mr. Sarkis Assadourian: The atmosphere or whatever—

The Chair: I don't know if members recall, but a couple of years ago we had a fantastic breakfast here with two very interesting Sudanese women, one Muslim from the north and one from the south. They had some very interesting ideas. If there are people like that, from NGOs or others, who we could use as resources, we should hear them at the same time, yes.

Ms. Beaumier.

Ms. Colleen Beaumier (Brampton West—Mississauga, Lib.): Talisman is on the Hill today. I'm wondering if anyone other than me is meeting with him.

Ms. Jean Augustine: I am.

The Chair: Don't take any stock options if they offer them.

Ms. Colleen Beaumier: It depends on the price.

Voices: Oh, oh!

The Chair: Is that it? Have we covered everything?

The last item is the humanitarian disaster relief. Again Mr. Robinson is of the view that we should study that. We'll put that on the list. It's going to go to the subcommittee.

Mr. Svend Robinson: About this subcommittee that I understand exists, through you to Ms. Beaumier, what's happening with the subcommittee? Is it going to be meeting soon or what?

Ms. Colleen Beaumier: It will be meeting tomorrow, I believe. I'm having clerk problems, so we're working at sorting those out today.

Mr. Svend Robinson: It would be nice if we had some notice of meetings ahead of time.

Ms. Colleen Beaumier: It would be nice, yes. It would be nice if we had responses from our clerks when we called them as well. That will be taken care of.

Mr. Svend Robinson: So tomorrow we're meeting?

Ms. Colleen Beaumier: We'll have a meeting to discuss future business.

Mr. Svend Robinson: Okay.

The Chair: Is there any other business that should be brought up as future business?

Monsieur Bachand.

[Translation]

Mr. André Bachand (Richmond—Arthabaska, PC): I was looking at the committee's agenda for the coming weeks and months and I was wondering if we could set aside some time to hear from persons appointed by Order in Council. Would that be possible?

• 0950

The Chair: Anything is possible, but committee members should realize...

Have all parties received the list of Order in Council appointments made during the summer? In any case, you all know who these persons are. As a rule, when one opposition party makes a request of the committee, that request is put on the agenda. We've never had any problems in the past. However, members should remember that there is a deadline noted on the letter circulated by our clerk.

Mr. André Bachand: Yes, of course.

The Chair: For example, if a person was appointed on a given date and the deadline is November 30, and the list is already fairly long... therefore, it may depend on when exactly a person's name is suggested to us. Consequently, if you have someone in mind, you are well advised to submit that name immediately to the clerk so that the matter can be placed on the agenda.

Mr. Robinson.

Mr. Svend Robinson: Mr. Chairman, I understand that CIDA has a new president. Ms. Labelle has stepped down from this position. I think it's important for the committee to hear from the new president of CIDA.

The Chair: Yes. Mr. Bachand, do you have anyone in particular in mind?

Mr. André Bachand: Mr. Sergio Marchi.

The Chair: Yes, Mr. Marchi. Any other suggestions?

[English]

So those are two requests.

Mr. Assadourian, was this another request for an Order in Council?

Mr. Sarkis Assadourian: If it's possible for the next couple of minutes, can we have a comparison of this report with the previous report we had on the future of business? How far off are we in terms of what was achieved with regard to the report, and how far have we gone with it? Perhaps we can have an assessment of that.

The Chair: We can do that next time, yes, but we can't do it now.

Mr. Sarkis Assadourian: Maybe you picked up some items from the previous one. That's what I'm trying to get at.

The Chair: Yes.

Look, there are other ideas. I don't see on this list, for example, the idea of transnational crime, which I think is going to be very important, and which I'll bring up at the next steering committee meeting.

I'm telling you, I've had a lot of discussions recently with people in the country, and there's a wealth of opinion, a wealth of expertise, around the issue of drug trafficking and money laundering and everything.

It's probably an idea whose time has come. If you look at it, it fits into the free trade of the Americas agenda and into a lot of things. It could well be something we might want to look at.

I don't see why we couldn't, while we were doing the Caucasus study, get something like that going as well. You know, there's room; we can get a couple of things going at once.

Mr. Sarkis Assadourian: Which shall be continuous from the G-8 conference a couple of weeks ago in Moscow.

The Chair: Exactly.

We will be able to add other ideas to this as we go along, so we'll definitely do that.

I now want to canvass the members.

Do I have approval to call Mr. Leonard Good as a witness before the committee with regard to an Order in Council appointment?

Some hon. members: Agreed.

The Chair: That'll have to be done by December 10.

Do I have the approval of the committee to call Mr. Marchi, as an Order in Council appointment, before the committee before December 3?

Mr. Sarkis Assadourian: No, it's too early. Let's have him here next year. Let's give him time.

The Chair: Our chance to call him is dead as of December 3.

Mr. Sarkis Assadourian: Why not February?

Mr. Bob Speller: When we've done this in the past, we've generally used it as an opportunity to bring in people to highlight their departments at a time when maybe this committee wanted to look at a certain issue. We used these Order in Council appointments to do two things—not really to bring them in and grill them and figure out why they were appointed to the job but to learn more about their particular area of expertise and what they have planned in terms of the agenda of the particular area in which they were appointed.

In this case, I'd like to know Mr. Bachand's views on why he would want to bring forward a former distinguished Minister for International Trade, who obviously fits in well with the position there in Geneva. Is it to learn more about what we're doing in Geneva? If it is, it might be well to do that in our role within the trade subcommittee, for instance, which feels it's important to at some point travel to Geneva to see Mr. Marchi in the office there, prior to the WTO discussions.

• 0955

So if that's the case, it might be better, Mr. Bachand, to take part in the trade subcommittee, at which time you can go there and get a better understanding of exactly what we're doing in Geneva.

[Translation]

Mr. André Bachand: Mr. Chairman, I don't quite understand. Mr. Marchi was the Minister responsible for International Trade for quite sometime before deciding to embark on a different career, all the while remaining in the same field. There have been a number of changes in the duties to be performed by a person who, admittedly, is qualified in the field of WTO negotiations.

Therefore, I think it would be important and perhaps even very useful, on the eve of the Seattle talks, for our ambassador to meet with the committee. It would be an opportunity for us to ask him how things are going. After all, we haven't seen him for some time now.

Furthermore, it would be an opportunity for us to gauge his views and intentions insofar as the upcoming talks are concerned, so as to get a better grasp of the issues that we will face in the coming years. I think that's important.

I'm certain that Mr. Marchi would be delighted to meet with the committee. His job is extremely important to Canada's economic future and can have a major impact on the country's social fabric. Therefore, I think it's quite natural for Mr. Marchi to appear before us and for us to give him a warm, courteous welcome. There are questions that we'd like to ask him.

[English]

The Chair: Members, you'll recall that at the moment, technically we're operating under Standing Order 111, which gives the committee the power to call Order in Council appointments for the purpose of examining the qualifications and competence of the appointee or nominee to perform the duties of the post to which he or she has been appointed or nominated. We have in the past called people for that purpose, so that's what the recommendation is.

Did anybody else want to speak to that before we put it to a vote?

Madame Lalonde, then Monsieur Obhrai.

[Translation]

Ms. Francine Lalonde: Mr. Chairman, the upcoming World Trade Organization talks are very important and the press has raised some doubts about Mr. Marchi's competence, comparing his qualifications with those of the previous ambassador. Mr. Weekes was widely recognized as a highly qualified individual. Although he has announced that he is stepping down, it appears that he will nevertheless be in charge of the negotiations initially.

Far be it for me to be critical of Mr. Marchi in advance, but I see nothing unusual with the Foreign Affairs Committee, which has a responsibility for such matters, wanting to hear from former Minister Marchi, who has been appointed chief negotiator. Because that's what will happen, namely he will be the one negotiating. It's one thing to be minister, and it's quite another to be a negotiator. In my opinion, this would be an opportunity to reassure the public as to the actions he intends to take to defend the interests of the provinces and of Canada during this round of talks.

The Chair: Thank you, Ms. Lalonde.

Mr. Obhrai.

[English]

Mr. Deepak Obhrai (Calgary East, Ref.): Thank you, Mr. Chairman.

I concur with my colleague over here. It's a good idea to have Mr. Marchi come in front of us prior to the WTO, so that we can understand exactly what's going on. It's even more cost-effective, instead of the committee going over there, to have him come here, since he is going down to Seattle. We could have him here before he goes to Seattle.

Aside from it being cost-effective, some of us do have some questions, and perhaps he can answer them and allay some of the fears we have. It's a good move.

Mr. Svend Robinson: Mr. Chairman, the purpose of the standing order was to enable the committee to review the appointment of significant officers, particularly Order in Council appointees, by the government.

The practice has been, as I understand the committee—and I've been a member for some time—that when members of the committee feel there is a significant appointment, they can bring that forward, and the committee will then review the appointee.

• 1000

I can't think of an appointment that would be more significant than a senior trade position in Geneva, in terms of the role of this committee. Mr. Bachand has suggested that we hear from this representative. I suppose technically there could be a vote and the committee could vote down this application, but I would hope that when a respected colleague on the committee asks that a senior appointee appear before the committee for examination under the terms of the standing order, we'd respect that request.

The Chair: Does anybody else wish to speak to it?

Do you want to speak again, Mr. Speller?

Mr. Bob Speller: Certainly I agree with the honourable member that it's important that at some point in time this committee seek the advice of Mr. Marchi on these issues. I was just suggesting a better way to do it.

I thought the intent was to learn more about the issues, not to learn Mr. Marchi's qualifications and to study them. But it seems to me the other side wants to take the political route. We have no problem with doing that, frankly. I have no problem with bringing Mr. Marchi in and having him talk about his qualifications. He did a wonderful job in his previous position. Certainly I would support it, if that's the feeling of the opposition.

I was just suggesting another way. If the goal is to learn more about the WTO, it would probably be better to do it through the trade subcommittee in Geneva.

But I would certainly support bringing him over.

The Chair: I take it then everybody has agreed that we're going to do it, so we might as well do it. It's pretty well been the practice of the committee that when a significant number of members want somebody brought in, as a rule we don't stand in the way.

Ms. Jean Augustine: I'm sure he'd be happy to come.

The Chair: Yes. I don't think Mr. Marchi will have any trouble with this. It's not as if this committee never did it the past. In fact he may give Mr. Bachand some problems, with his Kemo Sabe falling out of the tree, or whatever it was he did last time he was here.

I take it there's no need to put that to a vote then. We have the consent of the committee.

Those are the only two we need to worry about. That's excellent. Thank you very much.

We'll move on then to future business and the Export Development Corporation.

[Translation]

Ms. Francine Lalonde: I'm sorry, but I have a question. I'm new to this committee. Regarding the previous point raised, may I inquire as to how many appointments are political, and how many are purely government ones?

The Chair: The only way of knowing that is...

Ms. Francine Lalonde: However, you could get that information for us, because we don't have it.

The Chair: Ms. Lalonde, does your office not receive...? Every month, I receive a list which I glance at and I believe I noted three appointments... there aren't many, but one can consult the list.

Ms. Francine Lalonde: Fine. In the future, I will pay closer attention to that list.

The Chair: You can ask the clerk to see the list, and you'll know, within a few minutes, which names interest you.

• 1005

[English]

Colleagues, we're going to start our hearings into the Export Development Act and the Export Development Corporation.

We have Mr. Gillespie, who's the president and CEO of the corporation, with us; we also have Mr. Ross, Mr. Siegel, and Mr. Hodgson.

I believe, Mr. Gillespie, you had an opening comment, and then I know the members have some questions for you. Welcome to the committee, sir.

Mr. A. Ian Gillespie (President and CEO, Export Development Corporation): Thank you very much indeed, Mr. Chairman and honourable committee members.

I'd like to just quickly introduce my colleagues at the table, if I might, and then proceed to provide a short opening statement on EDC mandate review.

Eric Siegel is executive vice-president, medium and long-term financial services. Gilles Ross is premier vice-président du contentieux et secrétaire, and Glen Hodgson is director, government and international relations.

Mr. Chairman, the EDC mandate review had two principal objectives. The first was to determine if EDC is meeting its mandate to support and develop Canada's export trade and Canada's capacity to engage in that trade and to respond to international business opportunities.

[Translation]

In other words, making Canadian companies more competitive internationally.

[English]

How does EDC do this? First, by creating the capacity for exporters to expand their international sales. Lower export sales mean more jobs here in Canada. Second, by minimizing the risks associated with international business. Thus, we help create jobs and we help protect jobs.

[Translation]

Are we meeting this mandate? Clearly, yes. The Gowling's Report on the Review, I believe, is a strong endorsement of EDC's performance over the last five years.

[English]

But more interesting is that they went even further. Canadians told Gowlings that EDC is doing a great job, they're making a difference, and we want them to do more.

This brings me to the second key objective of the EDC mandate review. How well is EDC positioned to meet the challenges exporters and investors will face in the future? In this regard, the report says:

There would be very little public support for any major changes to EDC's operations. EDC is a recognized “centre of excellence” for trade finance in Canada—its staff are highly skilled, innovative, and provide prompt, knowledgeable service.

Why has EDC earned such a positive endorsement from Canadians? Because we are a business model that works for Canada. This is the message I want to leave with you today. Our business model works. We are meeting head-on the needs of Canadian businesses of all sizes, whether they are a multinational or a first-time exporter.

Anecdotally and factually, it can be demonstrated that there is a strong need for the solutions offered by EDC. The Gowlings report says on page one:

Export financing and risk management services are crucial ingredients in the ability of Canadian businesses to compete on a world stage. In this regard, (EDC) has played an important role in supporting Canadian exporters' increasing dynamism.

[Translation]

Canada is a trading nation. One in every three Canadian jobs depends on exports. Exports account for more than 40 per cent of Canada's gross domestic product.

• 1010

[English]

Canada's dependence on international trade is not going to slow down. In fact, the pressure is mounting for all nations worldwide. Globalization is here. It is an intractable and relentless force. This means that exporting is no longer an option for Canadian businesses; it is a necessity. The EDC business model was created from the needs of Canadian businesses of all sizes going global and it provides solutions to meet these needs.

[Translation]

From here, I will outline what Canadian businesses have said they need, and how EDC works to meet these needs.

[English]

First, Canadians need exports and foreign investment for job creation and economic prosperity. This is EDC's mandate. We are an export maximizer, not a profit maximizer. Last year alone we supported more than $34 billion in international sales and investments.

[Translation]

And our support grows each year. A chart in your kit shows our growth in support over the past five years.

[English]

Secondly, Canadians need small business. Small business is one of Canada's most important areas of economic activity and was responsible for more than 70% of all new Canadian jobs created last year. Almost 90% of all of EDC's clients are medium and small-sized businesses. We work hard to understand the specific needs of small businesses and we create solutions accordingly. Last year EDC supported $5.8 billion in small business exports, an increase of 21% over the previous years.

Canadians need to crack new markets. As detailed in our submission called Creating Capacity, Canada needs to diversify its export markets. In addition to the benefits of diversifying, the emerging markets offer high long-term potential. Canadians need a reliable and consistent financial partner who is committed to these markets. EDC is open to do business in some 200 countries. Last year we supported $8.9 billion of business in higher-risk markets. This represents a full quarter of all our business activities.

Canadians need to have confidence in their financial institutions. Last year, indeed for three of the past five years, EDC has been awarded the Auditor General's Award for Excellence in Annual Reporting. This award promotes enhanced accountability through improved disclosure of information on corporate performance by crown corporations. EDC also has a strong governance model. Eleven of EDC's fifteen board members are drawn from the private sector, thus ensuring our governance model reflects commercial principles and business realities.

[Translation]

EDC also has a strong code of business ethics which includes a code of conduct which all employees and directors must sign.

[English]

After extensive public consultations, EDC also recently introduced a strengthened environmental review framework. This framework helps safeguard the high standards of environmental protection that Canadians expect, while ensuring that exporters are not unfairly hindered from competing internationally. Although certain NGOs will not be completely satisfied, indeed some would prefer that Canadians not engage in any infrastructure development in emerging markets, EDC strives to create a balance between ensuring environmental integrity and encouraging the development of trade.

Canadians need access to trade finance expertise. EDC houses the largest pool of trade finance expertise under one roof in all of Canada. This breadth of expertise includes structured finance, information technology, treasury operations, underwriters specialized by industry sector, and specialists in risk management, credit analysis, economics and small business solutions, to name just a few.

• 1015

Canadians need more financial capacity. International competition is intense, and Canada is a relatively small fish in a big sea. Surprisingly, I think, what is not fully appreciated by many Canadians is that most of our largest and most successful corporations are small and medium-sized enterprises outside of Canada. This makes raising financing critical, particularly for smaller businesses.

To create more financial capacity for Canadian businesses, EDC partners with the public and private sector alike. And examples of these partnerships are contained in our Creating Capacity submission.

Canadians need relevant trade finance services. Our customers need to get value from our service. For this reason EDC conducts a customer satisfaction survey each year to gauge where we have done well and where we can improve.

The independent study conducted by Environics on behalf of Gowlings confirms EDC's results. The quality of EDC staff and services are also evident by the significantly higher scores achieved by EDC relative to private sector institutions, as shown in the Environics research.

[Translation]

The main point here is that EDC customers are highly satisfied, particularly our smaller customers, and consistently rate their satisfaction at the 80 per cent mark. A chart highlighting this research is included in your kit.

[English]

And Canadians need a return on their tax dollar. EDC operates at no cost to the taxpayer, not even an opportunity cost. Their shareholders' investment in EDC has reaped dividends of exports, related jobs and resulting tax revenues that would otherwise not have taken place.

And there is a chart in your kit that shows the investment in EDC by the shareholder, and how this investment has been leveraged over the years for the benefit of Canadians.

During my opening remarks I said that Canadians want us to do more. In fact EDC's vision is to be the recognized leader in providing groundbreaking commercial financial solutions to companies of all sizes, helping them to succeed in the global marketplace and create enduring prosperity for Canada.

Canadians want us to do more, and EDC has the capability to do more, but only if we are able to operate with our current flexibility. My concern is that although the Gowlings report is a strong endorsement of EDC, certain of its recommendations would limit EDC's ability to respond quickly and would limit our flexibility to develop solutions according to customer needs.

All indicators show that we are increasingly meeting these needs as the Gowlings report concluded, and again I quote:

The review supports the development of EDC's commercial ethic because we believe this will provide the best service for exporters. EDC's flexibility, adaptability, and rapid response capability demonstrate the benefits of this evolution....

We believe that these are some of the critical success factors in the years ahead, and that all of Gowlings recommendations must be considered in this light.

In short, the interests of Canadian exporters and investors must remain paramount.

[Translation]

In short, the interests of Canadian exporters and investors must remain paramount.

[English]

Mr. Chairman, EDC's objective is to create and deliver capacity, capability, and opportunities in support of Canadian companies of all sizes pursuing international business. To do so, we are using a balance of public principles and private sector methods that is most advantageous to Canada's particular trade circumstances. Not only does this unique business model work, but Canadian exporters are speaking up loudly that they need it more than ever before.

Thank you, merci. My colleagues and I would be pleased to answer any questions.

The Chair: Thank you very much, Mr. Gillespie.

I have perhaps one observation and one quick question, and then we'll turn it over to the members for questions. The observation would be that you mention the Gowlings report, and obviously there will be NGOs and others who will be coming here before the committee to comment on your operations. At the moment we don't have something scheduled for you to return to the committee, but I'm assuming that members may want you or someone from the corporation to come back at some point to respond to observations that will be made. So I'm assuming you'll be following the hearings and will be ready to come back and deal with any questions we might have at the end.

• 1020

Mr. Ian Gillespie: I'd be pleased to.

The Chair: Thank you very much.

I have one quick question. You mentioned this Environics report and you say it shows that the EDC scores higher than private sector institutions. Is that actually in the Gowlings report or is that...?

Mr. Ian Gillespie: Mr. Chairman, it is in the Environics survey. Parts of it are referenced in the Gowlings report, but there's a separate document that is available, and if we have not given it to you, we'd be pleased to give it to you. It is also on the website.

The Chair: Okay. If we don't have that, we'd like to get it. But we can get it from your website. This is wonderful. If I knew how to search your website, I'd be much more appreciative, but Mr. Schmitz knows how to get there, so that's good.

Colleagues, remember, we agreed the other day it's five minutes, and we go five all the way down to the opposition and then back and forth. Cinq minutes.

Mr. Obhrai.

Mr. Deepak Obhrai: Thank you, Mr. Chairman.

I would like the thank EDC, our guests here today, for appearing before this committee. I had an opportunity for some short briefing yesterday from your colleagues who came in, and we had quite an interesting talk. I understand what you're saying and I do appreciate that you have acquired the expertise in this area and what you have stated in reference to your clients' satisfaction and that everything is fine. I think that would be okay. That's your niche market. But neither your colleagues nor your opening statement has convinced me yet as to why we should not let you loose, or, to put it bluntly, cut your ties with the government and let you privatize. You haven't convinced me, because you have created a niche market, and I think Canadian exporters and Canadian businesses would benefit far more if that were to happen, because you'd be far more responsive. There would be more accountability and transparency on your part.

I know the counter argument to that is that it's a public policy and that you are constrained by public policy on this thing. But I would venture to say that you have created a niche market for yourself, and that is your mandate, even if you are privatized. If you don't fulfil that mandate, you'll be out of a job, even if you're privatized, as you know.

I was told that you would be held hostage to your shareholders, but I would counter that by saying that the shareholders would appreciate the niche market you have created, allowing you to expand very rapidly and fulfil the needs that Canadian exporters have. And you're right, this is our trading market.

Having said that, perhaps you want to comment strongly on that, to say why you shouldn't be let go, because of the points I stated.

I have two other short points. I do understand that there are other departments in the government that have the same mandate as you. Exporters at times go to other departments that help them out, as well. They do not refer them to you, but they seem to have a mandate themselves as well to help the exporters, which would tend to tell me that there is a duplication of what you are doing and what the other departments are doing.

Also, your mandate is to be self-sustaining, and I think that includes your ability to offer domestic credit insurance, which goes contrary to allowing you to compete with the private sector. I read your argument. When you're not paying taxes and all those things, you have said that is still the same thing, but I would venture to say that in the bigger thing letting you loose would help Canadian exporters, a bigger client base than you already have. You yourself have said you're pretty good at it, so sell your expertise.

The Chair: Mr. Gillespie.

Mr. Ian Gillespie: Mr. Chair, the honourable member raises a number of very interesting questions there that I'd like to respond to.

The Chair: The honourable member is always trying to get tax relief for other people. It seems quite extraordinary that he now wants some people to pay taxes, but there you are.

Mr. Deepak Obhrai: No.

The Chair: Life is always full of inconsistencies.

• 1025

Mr. Ian Gillespie: With regard to the question about EDC's mandate and the fact that there may be other government departments engaged in export-related activities, I think it's fair to say that only EDC has the mandate to provide financial services that every Canadian company needs in order to do business internationally. Other government departments are not in the business of providing those financial services.

I think I would also agree with the honourable member when he said that the issue for Canada is really about how we create more and more capacity and make it available to exporters and foreign investors. The EDC model is one that we believe may ultimately redefine the role model for crown corporations in terms of being the best of public policy and the best of private sector methods. Is that likely to be a better vehicle than privatizing EDC and having the private sector deliver those services? That, of course, is a legitimate debate, and one that the government itself may wish to opine on at some point.

However, I guess the issues around that would be what will provide that capacity, and whether the private sector would be prepared to operate in the some 200 countries in the world. Would they be prepared to accept the returns and the vagaries of the returns in the emerging markets, as EDC has to do? Would they stay in the market longer than EDC? Would they have better customer service than EDC? Would they operate at no cost to the taxpayer?

I think it is fair to say that there are some elements of EDC's portfolio that the private sector could pick up and do itself. However, there is much in EDC's portfolio that the private sector would not wish to touch without a backstop from the government. At that point, you start to create a cost for the government that the government is now not facing with EDC in the current structure.

So it's really how best to provide that capacity. We think the EDC model is one that is likely to deliver the best possible results to Canadian exporters, at no cost to the taxpayer and at no opportunity cost to the taxpayer.

Mr. Deepak Obhrai: Do I have time for a supplemental?

The Chair: No, I'm afraid your time's up, but I'm sure I'll have the time to get back to you again.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: Your first recommendation concerns the upcoming negotiations. I'd like you to elaborate further on your statement. You express some concern about the fact that EDC practices may not withstand the upcoming talks and you recommend the following:

To facilitate Canada's constructive participation in this context, consideration should be given to 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 and its market-based activities.

Can you be more explicit? Previously, I sat on the Industry Committee and I was very concerned about what transpired when the Technology Partnerships Canada program was challenged. This program was supposed to comply with international rules, but as it happened, it did not.

[English]

Mr. Ian Gillespie: I'd like to thank the honourable member for her question. I will ask Glen Hodgson to respond more fully in a minute.

If I understood the question correctly, it's with reference to the Gowlings recommendation that talks about how EDC's corporate structure may have to evolve over time in order to respond to the demands of the international marketplace, including some of the issues having to do with the WTO. I think we have clearly said that we may have to change EDC's corporate structure over time in order to best deliver the services for Canadian exporters and to ensure that we fully comply with all of Canada's obligations with regard to the WTO, as we are doing now.

• 1030

Clearly it's a very dynamic marketplace. Globalization is causing changes, and what we are saying is that EDC will have to be able to adapt and respond, as necessary, to those changing circumstances.

Glen, I'm not sure whether you'd like to make a further comment or not.

Mr. Glen Hodgson (Director, Government and International Relations, Export Development Corporation): Thank you, Ian.

Perhaps the one added comment that I'll make is just to clarify that EDC now is bound by both WTO rules and by the rules of the OECD Export Credit Consensus, which is in fact subservient to the WTO. As our recent WTO case has demonstrated, we're fully in compliance with both consensus and WTO rules. There's no question about that. The more interesting issue is one that Ian raised, and that is how our system will evolve as the needs of our exporters evolve and as the international trade rules evolve.

[Translation]

Ms. Francine Lalonde: You're not answering my question. In the document prepared by the Library of Parliament research branch, mention is made of the fact that although the WTO did not call into question in August 1999 the loans and proprietary interest of the EDC, Canada could still face a larger number of challenges given that no distinction is drawn between its dual mission.

[English]

Mr. Ian Gillespie: Sorry, I didn't quite catch the specific question.

[Translation]

Ms. Francine Lalonde: What changes will need to be made to ensure your compliance with the new rules that are likely to emerge from the WTO negotiations?

[English]

Mr. Ian Gillespie: None. We have—

The Chair: Answer the question. You don't have to speculate as to what new rules will emerge from—

Mr. Ian Gillespie: We don't have to make any changes.

The Chair: You don't have to make any changes?

Mr. Ian Gillespie: That's correct.

The Chair: But if the WTO makes changes in the future, obviously you'll have to respond to those, whatever they would be, but we're not going....

That was sort of the thrust of the question,

[Translation]

isn't that right, Ms. Lalonde?

Ms. Francine Lalonde: If we maintain that Canada must be prepared to debate this issue, it means that there is a lot at stake, export subsidies for one thing. Although it is not supported by the government, there is the export development assistance fund. Could this initiative not be challenged by other governments?

[English]

Mr. Ian Gillespie: Perhaps I can ask Gilles Ross to speak on the specific WTO decisions, because I think there may be some further clarity that we can bring to bear.

The Chair: It goes on by itself.

[Translation]

Mr. Gilles Ross (Senior Vice-President, Legal Services and Secretary, Export Development Corporation): Mr. Chairman, the WTO appellate body ruled that the support provided by the EDC from its own account did not violate Canada's commitment under various accords. However, the appellate body upheld the panel's ruling and found that the Canada Account administered by the EDC, as used to financially support regional exports of aircrafts, had since 1995 violated Canada's commitments under the WTO.

In the coming days, Canada will have to explain how it intends to meet these commitments. Quite simply, Canada will have to confirm that, within the framework of the Canada Account, EDC financing will be provided in accordance with the provisions of the agreement respecting export credits.

For now, these are the only adjustments required. Obviously, if the WTO accords were to be amended, we would need to revisit the question.

The Chair: Fine then.

[English]

Ms. Francine Lalonde: There's no money.

The Chair: Madam Bulte.

Ms. Sarmite Bulte (Parkdale—High Park, Lib.): Thank you, Mr. Chair.

Thank you very much for your presentation. As you were making your statement, Mr. Gillespie, I was delighted that you said 90% of all EDC clients are small and medium-sized business, and then you talked about all businesses.

• 1035

Perhaps you could help me. I was on a trade mission to the Baltic states approximately a year ago, and one of the major complaints received by members on that trade mission of Canadian corporations was either a lack of EDC presence or interest in the Baltic states. This may have something to do with the emerging markets that you're talking about. Secondly, what they found was that while they could get financing from the European Bank for Reconstruction and Development, which has much higher environmental standards than EDC, EDC was not at the table. Again, maybe it's just an anomaly, or how do you decide which emerging markets you will support?

My other question is along the same lines. When you talk about small and medium-sized businesses, is it the amount of the loan that makes a difference? People say it's easier to get $10 million from EDC, but when you're looking for just minimum support, it's not there. So I'd be interested in knowing, of the 90% of the small and medium-sized businesses you help, how big is the average loan and how do you get to define a small and medium-sized business?

Mr. Ian Gillespie: There are a number of questions there. Let me try to tackle them.

In terms of the Baltic states, I might ask Eric Siegel to give a further comment in a minute, but I would say that one of the difficulties we have is obviously ensuring that we have creditworthy counterparts with whom we do business, and so we have to assure ourselves that there's a reasonable expectation of payment by the borrower, by the foreign buyer in terms of the sale by Canadian companies of goods and services. So when you ask which countries we are prepared to do business in, in a very naive sense I can say in all countries, but you have to go further. You have to look at the actual parties you're doing business with and be able to satisfy yourself that there is a reasonable expectation of their ability to perform under the commercial contract and also under the financial contract. That is where sometimes there is some frustration. We can't find the evidence that they are going to be able to honour their obligations when they come due.

As you might appreciate, as EDC is a commercial financial institution, we can't underwrite hope. We have to have some basis on making those financial judgments.

Eric may have something further to say on that in terms of those particular countries in a minute.

With regard to the definition of small and medium-sized enterprises, we use a definition where medium is sales less than $25 million and small is less than $5 million. I would also further point out that with regard to our total number of customers, of the 5,100 that we project for this year, approximately half are what we call emerging exporters, where their export sales are less than $1 million. It's not just on the lending activity that we're providing services. The biggest program we provide is our short-term insurance, where we are covering those companies' accounts receivable against the risk of non-payment for commercial or political reasons.

Ms. Sarmite Bulte: I'm sorry, Mr. Gillespie, what is the average amount of the loan?

Mr. Ian Gillespie: Again, if it's an insurance, it may be literally $5,000 or $10,000 where the Canadian exporter is selling to a foreign buyer, whether in the United States or elsewhere in the world. Whatever it might be, the usual sticker price of their goods or contract is what we are ensuring against those risks of non-payment virtually for any reason that is not avoidable by the exporter himself or herself. When it comes to loans, we have a number of different vehicles to provide loans for smaller Canadian companies. One is through our SME financial services unit, which is dedicated to delivering loans and different financing vehicles to this end of the market.

As well, we have some partnerships, one being NORTHSTAR Trade Finance, which is perhaps the best example of a public-private sector initiative where their mandate is to provide term financing for smaller transactions where their shareholders are several of the Canadian banks and where EDC is providing insurance to NORTHSTAR to back up that risk.

• 1040

Mr. Eric Siegel (Executive Vice-President, Medium and Long-term Financial Services, Export Development Corporation): Perhaps I would just add to that.

On the issue of trying to structure financing in the Baltic states, we have had some examples of success, but as Mr. Gillespie points out, the frustrating part is trying to find, as we say, a creditworthy counterpart at the other end who is prepared to act either as a borrower or ultimately as an on-lender and help us judge the credit of the final buyer per se.

You have to add to that as well the difficulty you face in those markets in terms of the lack of legal jurisdiction, the inability to take security in ways that would be more typical of more developed markets. So we've used a variety of means. We have structured lines of credit. We have also structured on-lending facilities with other countries which, because of their familiarity with the market and their actual on-the-ground presence, may be in a better position to actually take a credit position.

On the issue of variety of means, I think Mr. Gillespie has covered a variety of vehicles that we've put in place that are really geared towards very small and simplified arrangements.

Ms. Sarmite Bulte: Thank you.

Thank you, Mr. Chairman.

The Chair: I would like to follow up quickly on that.

When we were doing our small and medium-sized business study too, the whole complaint, the preoccupation of all small and medium-sized businesses was access to capital and the financing. It was practically 90% of all the worries we had to deal with in that report.

The matter had come up before. We had people coming before us saying, we can't get EDC to do this, but we've been able to go to some European institution or Ex-Im Bank or something else, and they did it.

Mr. Siegel, I understand you don't understand what's on the ground—you don't have the facilities to know exactly, so you don't want to throw your money away—but if the European institution that Madam Bulte referred to was able to do it, wouldn't you have a network with those institutions where you could backstop them or enter into agreements with them where you would work together on these sorts of things?

Mr. Eric Siegel: We do, very much so. We do seek those out wherever we can find them. The particular institution that the honourable member mentioned, the European Investment Bank, is not an institution that we can access through. It is available to European members; it acts as a development institution and therefore has typically provided terms that are quite different, often longer than what export credit agencies such as EDC would provide. But we do seek out those types of institutions.

For instance, one of the great difficulties is accessing markets such as the “stans”—Uzbekistan, Kazakhstan, Turkmenistan, and so on. We have put in place a facility with Turk Eximbank. The Turks have a very strong presence in those markets. They have on-the-ground presence both in terms of their own domestic companies, and Turk Eximbank has more experience in financing exposure in those markets.

So while we're looking at those markets to go in directly and provide financing against certain creditworthy parties, we also have this facility with Turk Eximbank where we can lend to them and they can, in turn, use EDC financing to on-lend in support of the Canadian sale.

So that's one example of exactly what you are referring to.

The Chair: When the committee does our study into the Caucasus, we'll visit Turk Eximbank as part of that. We'll send Madam Bulte to the Turk Eximbank.

Mr. Ian Gillespie: Mr. Chairman, I would like to add a couple more comments, because I think it is a very important area.

First of all, our customer satisfaction ratings from small business are actually higher than they are for the larger customers that we have to deal with.

Secondly, I think it was the honourable member that may have mentioned Ex-Im Bank. They were active in approximately 81 markets last year. We were active in some 160 markets last year. I think it is also public knowledge that U.S. Ex-Im Bank has seen EDC as truly the leader in small business delivery mechanisms and also direct marketing to small business in Canada, and they have sent several delegations to EDC to see how we actually deal with this constituency, because I think we are seen as far more successful than they are in the United States.

The last thing I would mention is that on pages 88 and 89 of the Gowlings report there is a statement not only of our customer satisfaction ratings according to Environics, but also the statement that 74% of small and medium-sized exporters could not think of one single thing EDC should do differently or better in meeting their needs, which I thought was a pretty telling statistic. We obviously want to do better than that, but I think it's a pretty good indication as to how well we're trying to respond to their particular needs.

• 1045

Ms. Sarmite Bulte: Mr. Chair, if I could just have—

The Chair: We'll have a chance to get back to you. It's really Mr. Obhrai's time. We've gone well over the time, so we'll go to Mr. Obhrai and then we'll come back.

Mr. Bob Speller: It was just a point of clarification.

The Chair: Well, I keep stopping other people from asking for clarification, and I cut him off before.

Ms. Sarmite Bulte: That's okay. I'll wait.

The Chair: We'll bounce back to you. I'm sure this issue will keep coming up.

Mr. Deepak Obhrai: To go back to the question, I listened intently to the answers you gave me. I have no problems recognizing that you do have a niche market in this thing, but it still comes down to the fact that being a crown corporation curtails your ability as well as accountability, because under the Privacy Act, you say you're a crown corporation. We can't get much accountability from that aspect. If you privatized, there would be more accountability right away.

This leads me to the second question, which is on the Canada account. You're administrating the Canada account, and because there's no accountability, you got $13 million out of that. How much government interference is in there for their pet project, without having accountability on it? We feel that because it's closed, the Canada account is used by the government to have its pet project go through.

This leads me to the third question, which you did not answer, on the insurance business you are in. Your mandate is to be in high-risk insurance. Madam Bulte brought up a good point, and perhaps you can tell me this. Out of the 5,100 customers you have, how many are in higher-risk countries and how many of them are in the safest countries?

Mr. Ian Gillespie: There are several questions there. Let me try to tackle those. I'll also ask Gilles Ross shortly to explain what Canada account is, just so that we're all perfectly clear.

With regard to accountability, I would take issue with the honourable member when he suggests maybe EDC isn't fully accountable. I would go so far as to say EDC's accountability structure is far more rigorous and extensive than it is in the private sector. Not only do we have a governance structure in the form of a private sector board with a private sector majority, but we also have the Auditor General's special examination every five years, the Auditor General as the auditor of EDC on an annual basis, the corporate plan, the corporate plan summary, and these meetings.

There's extensive accountability and disclosure on what EDC is doing, to a much greater extent than you would find in the private sector.

I'll ask Gilles in a second to speak to the Canada account.

With regard to insurance, I believe you asked a question around domestic credit insurance in particular.

Mr. Deepak Obhrai: I asked about high-risk and low-risk countries.

Mr. Ian Gillespie: Right.

With regard to the domestic insurance, if I understand your question, it's to the effect that EDC may have certain advantages vis-à-vis the private sector. It's important to understand a couple of things.

Again, from the Gowlings material, the customers—exporters and investors—clearly said they like EDC's service. It is rated some 20% higher than what they give to the private sector insurers and financial institutions, banks.

EDC, they also comment, is more expensive than the private sector. So clearly EDC is not using what you might refer to as EDC's privileged position in that regard as a way of undercutting the private sector. We are bringing some capacity as an alternative to the private sector.

Obviously we have been very successful with regard to the growth in our business, because not only do we have excellent customer service, but we have the products, and we have a reputation for paying claims, which is obviously exceedingly important when you're seeking insurance from any part.

The principal Canadian company involved in domestic credit insurance is a company called ACI, which is in turn owned by a company called Euler. Their credit services are run out of Baltimore. The ultimate parent is in Paris or, if not, indeed in Germany, and is owned by the Allianz Group. It's a huge transnational organization, and they in fact make three times more than EDC's entire capital base. So it's not a David and Goliath argument, as you might think.

• 1050

So we are providing an alternative offering to Canadian customers in a very reactive way and obviously receiving substantially positive customer satisfaction scores. Indeed, the customer satisfaction score for those who use our domestic insurance is the highest overall.

With regard to the higher-risk markets, it's very difficult for me to comment on how many of those customers are in higher-risk markets, because we have two principal programs: one is the credit insurance field you just referred to, and one is financing. Some customers will deal with us in both high-risk markets and OECD markets on both the financing side and the insurance side. When customers come and seek those insurances from us, they want to cover all their international activities, which may include the higher-risk market. So it's very difficult to say that of the 5,100 customers we expect to serve this year, 50% of those are engaged in higher-risk markets. I just don't have those statistics. It's not that easy to break out in the way you describe.

Mr. Deepak Obhrai: Is it—

The Chair: No, wait a minute, you're over your time now.

Mr. Ross, you were going to comment very briefly on the Canada account. Can you do that briefly, please. It's important for us to get our minds around it.

Mr. Gilles Ross: Very briefly, Mr. Chairman, the Canada account was introduced in the Export Development Act at the time it was enacted in 1969 as a safety net in a way, given the corporation's mandate to operate on a self-sustaining basis. In other words, Parliament included the Canada account in the act so as to ensure that the government would have a window or a facility pursuant to which it could authorize transactions that are of a risk too high for EDC under its own account, but that are regarded by the government as being in the national interest.

Therefore, the responsibility of the board of directors of EDC vis-à-vis the Canada account is not to approve transactions that are undertaken under the account. Those are approved by the Minister of Finance and the Minister for International Trade. Our board is basically responsible for the management of transactions made under the account, and the funds that are necessary to actually discharge the corporation's obligations under those transactions are paid to EDC out of the CRF, or the treasury, in effect. I think that's a bird's-eye view of how the account operates and what the purpose of the account is.

The Chair: So that the committee understands, the accountability is through the ministry, the Auditor General, etc., through that system. The accountability for the actual management of the moneys is to you. You're responsible for the management, but you're not responsible for the policy decision as to whether or not to put it there.

Mr. Gilles Ross: That is correct.

The Chair: Okay. We may have some more questions about that.

But I'll now go back to Madam Augustine, please.

Ms. Jean Augustine: Thank you, Mr. Chairman.

Thank you for your presentation, Mr. Gillespie.

Maybe I'll ask a very basic question to start. When was the initial act set up, and when were the last major changes made to the act?

In light of globalization and access to capital, new markets, etc., I notice that some comments were made about the guidelines EDC should follow in light of human rights and those issues in countries where we might be doing business that seem not to either adhere to or respond to the same concerns we have as Canadians. I'd like you to speak to that a bit.

Also, with regard to the faces of Canadians who represent us abroad via EDC, I notice the faces representing us today at this table, and I'm just wondering how that is reflected as we look at your various offices wherever you go around the world and how representative that is of the major urban areas of our country.

• 1055

Mr. Ian Gillespie: I'd like to thank the honourable member for her questions. I will ask Gilles Ross to speak to the question about the actual EDC Act and when it came into being and the changes.

With regard to human rights, I think it's important to understand that EDC follows government policy. EDC does not make government policy. So we are in constant communication, dialogue, and consultation with the Department of Foreign Affairs and International Trade.

With regard to EDC's offices around the world, we don't have any offices around the world. We have a representative of EDC in the Canadian embassy in Beijing, although we are certainly looking to put a representative into Mexico City and into Sao Paulo, Brazil. That is under development at the present time.

Perhaps I could ask Gilles to speak to the questions on the EDC Act.

Mr. Gilles Ross: Yes, certainly, Mr. Chair.

The Chair: Perhaps, Mr. Gillespie, you could answer Madam Augustine. You're envisaging three representatives. Obviously the point of her question was how representative they would be of the Canadian population as to gender balance and things like that.

Mr. Ian Gillespie: The representative in Beijing has Chinese language skills and is a female. The two individuals we're looking to put into Mexico and Brazil are involved in negotiations, so I'd rather not make any comment about that at the present time.

The Chair: So you only have one person. Okay. Thank you. That's helpful. Then there was another answer.

Mr. Gilles Ross: Thank you, Mr. Chairman.

The Export Development Act was enacted and came into effect in October 1969. It was amended on several occasions thereafter. The most recent amendments were enacted in June 1993. Those were, I would say, the most comprehensive amendments made to the act since it was originally passed in 1969. I could go on for quite a bit of time here talking about the Export Development Act. I was involved in many of its amendments. But certainly—

The Chair: I hate to discourage you, but if we have to go through all the details of your life, then I'm just a little nervous about all of this.

Ms. Jean Augustine: What about the human rights aspect?

The Chair: I think Mr. Gillespie answered that they follow government policy rather than make it.

But we will be hearing from a group of NGOs and others that have given us an indication they wish to come and talk about that. I thought maybe when we've heard from those, that would be something we might want them to come back and comment on, what is the best way for the EDC to make sure that human rights, the environment, labour standards, etc., are recognized in their work. At the moment we have the one answer. Presumably, we'll be pursuing this quite a bit when we hear from the various NGOs that want to come before us.

[Translation]

Ms. Debien.

Ms. Maud Debien (Laval Est, BQ): Good morning, sirs. I have three questions.

Firstly, can the EDC, pursuant to its mandate, get involved in strictly commercial real estate transactions here in Canada? For example, can the EDC purchase or build a commercial property?

Secondly, what is the rate of return on your portfolio? Also—and I hope you will make the connection—what is the total amount of money that developing countries owe to the EDC? Specifically which countries in Africa and Latin America are indebted to the EDC?

Thirdly, will it be necessary to amend the EDC Act to allow it to convert the commercial debt of developing countries, particularly the poorest nations, into social investments? As you know, some countries are doing just that. Switzerland and England, among others, have erased the commercial debts of certain countries, notably Peru. I understand that Peru is indebted to the EDC to the tune of nearly $600 million. As you know, since 1998, Peru has been forced to pay back nearly $2 billion in order to escape economic sanctions. Therefore, could the EDC, pursuant to the existing legislation, convert the debt of the poorest countries into social investment projects, as Switzerland and England have done?

• 1100

Since CIDA now has a business mandate, perhaps EDC could be assigned a development assistance mandate.

[English]

Mr. Ian Gillespie: I'd like to thank the honourable member for her several questions. With regard to the first one, I might ask Gilles Ross to respond. Again, I think this is a technical question with regard to the ED Act and what is allowed in terms of domestic activities. I would also ask Glen Hodgson to speak to the heavily indebted countries and some of the Canadian arrangements that are being considered there too.

I think the other question was with regard to the profitability of EDC, if I understood correctly. We have provided a slide in the package that indicates that last year EDC had a net income of $135 million. That was after certain provisions that we made for doubtful accounts, given the high-risk nature of our business, of approximately $433 million.

Gilles, perhaps you could speak to the specific question on domestic activities.

[Translation]

Mr. Gilles Ross: If I've understood your question, you're asking if EDC could, of its own accord, decide to build plants or put up buildings. EDC is authorized to acquire an interest in buildings and plants for operational purposes. However, EDC cannot act as an exporter.

Ms. Maud Debien: However, it can invest in such ventures.

Mr. Gilles Ross: Yes, it can, but solely for its own purposes. For example, it could invest in a building where it plans to relocate its offices, but it could not build a plant or operate that plant.

Ms. Maud Debien: This poses a problem in terms of competition. Rumour has it - and you can correct me if I'm wrong - that EDC built a gymnasium in Ottawa. Is this rumour true? Apparently, EDC put up a building housing a gymnasium.

Mr. Gilles Ross: Mr. Chairman, to my knowledge, EDC did not build a gymnasium.

Ms. Maud Debien: I see. That answers my question. You wouldn't be able to do that.

Mr. Gilles Ross: EDC could, as part of its operations, have facilities designed to help employees be more productive, but it could not build a gymnasium for commercial purposes.

Ms. Maud Debien: You've answered my question. Thank you.

[English]

Mr. Glen Hodgson: Mr. Chairman, with respect to the debt of the poorest, there are a number of points I would make. First of all, it's the Government of Canada that makes Canadian policy with respect to international debt negotiations. In fact, as I recall, the Prime Minister made an announcement last spring with respect to higher levels of debt forgiveness for poor countries.

Historically, I believe Canada has engaged in debt-for-equity swaps. To this point, it has not been part of government policy that I'm aware of to engage in swaps between debt and productive expenditures, but it's something that perhaps government representatives could be asked in the course of discussion.

I would say that I was in Paris last week representing EDC at the multilateral negotiations we engage in on world trade rules, and we have been pushing a number of agenda items that might be of interest to the committee—for example, trying to come up with ensuring that our lending to poor countries is only for productive expenditures and having information exchange amongst the OECD countries to ensure we're not lending for military purposes.

We haven't come up with a common definition of a productive expenditure, but I think we all know what it really means. In fact, I pushed for more public information to be released on the progress we're making. We've not yet gained consensus on that, but I think we're heading in the right direction, just as we have pressed for a code of conduct for all export credit agencies with respect to how they lend and how they engage with the poorest countries.

So we are trying to advance the international agenda on a number of scores.

• 1105

The Chair: That's a very interesting question because most of the loans of EDC in the past would have been obviously for purchases of Canadian goods. I mean, that's what you're in the business for. So it's not like an IMF loan or a loan generally to the country.

Is it proposed that some of these loans be forgiven, apart from a normal commercial process of writing off bad loads just because...? You know, lots of banks write off loans too because they're just not productive. Have you had a practice of writing off these loans under the instruction of the Government of Canada?

Mr. Glen Hodgson: That's effectively been the government policy since 1989. The government is the one who decides to write the loans down in the context of an institution called the Paris Club. Then the government keeps EDC whole for those political decisions. Those are policy decisions taken by government and EDC of course follows the government's will on that.

The Chair: But I would have thought the Paris Club was deciding things like concessionary loans and bilateral loans of Canada, etc. I know there's the London process and the Paris process, but I didn't realize it actually governed EDC loans as well. So we're learning something.

The former minister is nodding her head, so obviously she's been writing these off like mad. She can tell us how many she wrote off while she was there.

[Translation]

Did you understand the question? No?

Ms. Maud Debien: Could we possibly find out how much developing countries owe to EDC and which countries are indebted, particularly in Africa and Latin America? I'd like a clear answer once and for all.

You mentioned Canada remitting debts. As I understand it, bilateral debts incurred between countries can be forgiven. However, this bears no relation to debt incurred with EDC. Therefore, I was wondering if legally you can either forgive debt or convert it and, if not, could the legislation be amended to this effect?

[English]

The Chair: I have two questions. The first question is, can you give us a list? Can you give us a breakdown?

Mr. Ian Gillespie: We'd be happy to provide that information, Mr. Chairman.

The Chair: That would be helpful.

Mr. Ian Gillespie: I think the second question was a very technical one with regard to the ED Act.

The Chair: Well, it may be technical, but it introduces some very interesting philosophical questions.

Ms. Diane Marleau (Sudbury, Lib.): How can I say this? It is possible to do what madame asks, but they have to be reimbursed. So when you convert debt into programming, it has to come out of a budget somewhere, and they would have to be reimbursed by the FISC for whatever was there. But it's doable, there's no doubt about it.

I don't know whether it's actually done with EDC debt or not. I know it's been done with other debts in other countries. CIDA was doing a lot of converting in certain countries, but a lot of it was also CIDA debt because there was a lot of debt owed to CIDA.

The Chair: It was ODA, it wasn't EDC.

Ms. Diane Marleau: At one point. It wasn't EDC. I think it's possible, but it would have to be a special arrangement between the FISC and EDC. It wouldn't be EDC doing it.

[Translation]

Mr. Gilles Ross: EDC has the legal authority to forgive debts. Obviously, in such instances, EDC would want to be compensated, but it does have the authority to forgive debts.

Ms. Maud Debien: And does it exercise this authority?

Mr. Gilles Ross: Yes, EDC has forgiven a number of debts further to multilateral agreements concluded with the governments of different countries. My colleague alluded to similar agreements in terms of the Paris Club.

The Chair: However, your policy is not like that of certain banks, which view these debts as bad debts and have erased them from the assets side. I take it you expect governments to broker some kind of agreement to reduce these debts.

Mr. Gilles Ross: Yes, Mr. Chairman. When it comes to debt remission, EDC normally expects the government to conclude a multilateral agreement allowing EDC to put in place the necessary mechanisms for debt forgiveness.

Obviously, like any organization governed by accounting principles, EDC also has the power to write off debts.

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The Chair: Therefore, it can proceed two ways.

Mr. Gilles Ross: Yes.

The Chair: One process is commercial in nature, while the other is political.

Mr. Gilles Ross: Correct.

[English]

Mr. Ian Gillespie: I think it's important, Mr. Chairman, that everybody understands the Department of Finance represents Canada at the OECD in relation to these arrangements.

The Chair: Dr. Patry.

Mr. Bernard Patry (Pierrefonds—Dollard, Lib.): Mr. Gillespie, I want to come back to human rights, because you gave an answer to my colleague and you said to us that EDC follows guidelines but is not making guidelines. For me that's a banking answer, it has nothing to do with human rights.

Because we have the Gowlings report and the Gowlings report recommends that EDC ensure that its activities do not conflict with Canada's human right policies, I ask you as president and CEO if there will be changes. Do you agree that Canadian exporters who apply for EDC services should be asked to indicate on a voluntary basis whether they have adopted their own codes of conduct that ensure respect for human rights, and ethical businesses? In fact, do you agree that human rights guidelines to EDC transactions should be put in place by government?

Mr. Ian Gillespie: Mr. Chairman, I think we may not have been sufficiently clear earlier, but the Department of Foreign Affairs and International Trade, obviously in conjunction with External Affairs, establishes government policy with regard to human rights. I think everybody would understand that. And EDC looks to the government for direction in relation to the companies in the countries that it can do business in. Obviously EDC has its own due diligence process with regard to every activity in those countries to ensure that we're completely satisfied with the risk assessment we're taking on.

Sorry, I've forgotten the second part of your question.

Mr. Eric Siegel: Asking for codes of conduct.

Mr. Ian Gillespie: Around the code of ethics, right. EDC has established its own code of conduct, code of business ethics, after consultation with the Clarkson school of ethics in Toronto to make sure we had something that was clearly approaching best practices, and we have compared that with other codes in the marketplace. I think this is certainly something we would want to encourage our customers to introduce on a voluntary basis themselves. It is not something, however, I think we would want to make as a condition of EDC support, whereby they have to have such a code of conduct themselves, simply because, as I mentioned earlier, 90% of EDC's customers are small and medium-sized businesses and they may not be in a position to respond. So all that would do, I think, is hurt a lot of Canadian companies that are trying to enter the export field.

But it's clearly an issue that we are trying to take very seriously, both in regard to the code of conduct as well as in areas such as the environment—which we can talk about, if you'd like—and I think it's certainly something where we can assist, act as a catalyst, in bringing some of these best practices to the forefront for our customers.

Mr. Bernard Patry: If you allow me, Mr. Chair, you talk about the environment. The Gowlings report talks also about the environment and they say to “adopt a substantively and methodologically clear and transparent environmental framework”. That's what is marked there. What should the EDC be doing as a response to that Gowlings report?

And I have one very specific question. Should EDC activities be subject to annual review by the commissioner of the environment and sustainable development in the Office of the Auditor General of Canada?

Mr. Ian Gillespie: I'd like to thank the honourable member for this very important question, Mr. Chairman, and I'll ask Eric Siegel to speak more fully to it.

As I outlined in my opening statement, we have been hard at work—long before Gowlings was—with regard to developing a strengthened environmental review framework. And this was done after extensive public consultation across Canada, and after engaging the services of a leading environmental consultant to ensure we had something that was responsive to the needs of Canadians, as well as to the needs of Canadian exporters and investors. So we are trying to achieve that balance, which I think is absolutely critical.

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Perhaps I could ask Eric Siegel to more fully talk about exactly what we have done and perhaps how we compare internationally.

Mr. Eric Siegel: In terms of the Gowlings recommendation, I think in simple terms we feel we have met that through the introduction in March of this year of our environmental framework. It really articulates a very clear, simple process for exporters and all applicants to EDC as to the information they would have to submit to allow EDC, in a very efficient and timely manner, to be able to judge what the environmental effects are of the projects that it's being asked to support and then to draw a judgment.

Very clearly in the framework we set out two principles. One is that we believe these reviews are essential and are supportive of sustainable development philosophy, and secondly, we reserve the right, very clearly, and believe that EDC should, to decline support where we're not convinced, after an assessment of the environmental effects and all the mitigating measures that can be brought to bear, that there aren't significant adverse environmental effects that cannot be justified by the positive benefits of the project. We make it very clear in the framework that we should decline support for that. So the framework is very clear now. It's out there.

It is not something new in the sense that EDC has always done this historically, but what we have now done is put a very clear framework out there. It's in the public domain. Everyone can see it. The process is very clear.

In terms of how EDC stacks up against other export credit agencies and international financial institutions, in fact EDC is a leader in this area. We are not the only institution that has such a framework. The U.S. Ex-Im Bank has a framework, but EDC's framework was developed to be a flexible and responsive one, and we have used that framework to effectively take a leadership role in the multilateral community and urge others to adopt similar frameworks.

We've made progress in getting the basic principles of our framework adopted by the other export credit agencies through the consensus framework that Glen Hodgson spoke about. We have organized conferences in that regard. We have become the only export credit agency that is a member of the United Nations environmental program and we are using that as a forum to promote it. So we very clearly see it.

Your last question was on the auditing, I believe. Our compliance and our adherence to the framework is subject to annual review by the Auditor General as part of the annual audit of EDC. It's not a separate audit, but we envisage that in the course of doing their audit they would also check the adherence of EDC to the policies and practices of the framework.

Mr. Bernard Patry: Merci, monsieur le président.

The Chair: Monsieur Rocheleau.

Mr. Deepak Obhrai: Why do the Bloc get two questions?

The Chair: Mr. Rocheleau hasn't had a chance yet.

Mr. Deepak Obhrai: Yes, but they get two questions. It's more than we get.

The Chair: Excuse me.

[Translation]

Mr. Yves Rocheleau (Trois-Rivières, BQ): My two questions concern the transparency of data and the exporters that EDC supports financially.

Some persons are of the opinion that your corporation lacks transparency and that it is unable to adequately justify its expenditure of funds. First of all, I'd like you to respond to this contention and then to share with us any objections you might have about your corporation being subject to the Access to Information Act.

Secondly, can you give us a breakdown by province of the exporting firms that rely on your support?

[English]

Mr. Ian Gillespie: I'd like to thank the honourable member for his questions. I'm not sure I understand his opening statement with regard to the transparency and some concerns with regard to that. Perhaps he could elaborate a little more fully on that.

With regard to the issue of access to information, I'd like to ask Gilles Ross to speak very directly to that one.

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With regard to the exporters by province, for reasons of confidentiality, as you might expect, we don't provide a list of our total customer base, but we can certainly provide information with regard to EDC support across Canada, in terms of the kind of business activity we have supported against the Canadian industrial base, if that would be helpful.

Perhaps Gilles Ross could speak more directly to the issue of access to information.

Mr. Gilles Ross: Thank you, Ian.

Mr. Chairman, the Gowlings report goes into quite a bit of length in analysing EDC's transparency model. When one looks at the report, it's quite obvious they have weighed the various options. In relation to making EDC subject to the Access to Information Act, that option has been discarded or not recommended by Gowlings in that it would not be appropriate for EDC, having regard to its commercial character, having regard to the obligations it has to respect the commercial confidentiality of its customers, both Canadian and foreign, and having regard as well to the likely negative effects it would have in terms of the willingness of our customers—in particular, foreign sponsors of projects, by way of example—to be willing to provide to EDC the information it requires to support exporters in various markets.

On the other hand, the Gowlings report does recommend a particular model of disclosure by EDC. We agree in broad terms with that model, and we are presently looking at developing our own model, which will adopt the broad terms of the Gowlings recommendations in this regard in terms of disclosing on a regular basis the corporation's exposure on the basis of factors such as industrial sectors, countries or regions. So in effect, we agree with the recommendation that has been made in the report by Gowlings in that regard.

I hope that answers the question in terms of the downside that the application of the Access to Information Act would have in the case of EDC.

The Chair: Okay.

Madam Beaumier.

Ms. Colleen Beaumier: Thank you.

One of the downsides of being near the end is that most of your issues have been addressed and the questions asked. However, the upside of being near the end is you can comment on some of the answers we've received from the panel.

As far as the accountability goes, you were talking about Canadians being very pleased with the EDC. However, it seems to me that the people you survey are successful clients, not necessarily potential clients. I dare say that there are probably even fewer people in Canada who know what the EDC is or who you are than those who know who I am—and trust me, that's not an enormous number of people.

Stop laughing at me; you'll only encourage me.

The Chair: People love the EDC as much as they love you, though.

Ms. Colleen Beaumier: We talk about transparency and accountability. However, because it isn't covered under access to information we have no idea of really who you are lending this money to. We deal with rumours and people coming to us and saying EDC is lending money to go into certain countries and is involved in projects that are neither respectful of human rights issues nor sustainable development nor the environment. So I think most Canadians could be quite shocked at what our money is going to support.

I think Canadians do care about human rights and we do care about sustainable development, so what I would like you to do is comment on what kind of process we could have for applying human rights and sustainable development guidelines to EDC transactions. You did say earlier that you have your code of ethics. I'm wondering if you could send that to committee members.

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I have a zillion others. The other one was, does the Canada account not duplicate the work that CIDA Inc. is doing, and if not, what's the difference? Thank you.

Mr. Ian Gillespie: Mr. Chairman, there are several questions. Let me take a stab at some of them, if I might.

With regard to the code of business ethics, I might bring the honourable member's attention to page 77 of our annual report, where we lay out EDC's code of business ethics. I'd be happy to talk about that further.

Ms. Colleen Beaumier: We don't have that here.

Mr. Ian Gillespie: You do not have the annual report. We will get you the annual report.

The honourable member raises a very important issue with regard to EDC's visibility in the marketplace. Obviously we are not sufficiently well known. We are pursuing a number of different initiatives in that regard to make sure EDC is more visible in Canada in order to increase the number of customers we serve and to ensure much greater visibility overall, not only in terms of business development and having people in the regions to a greater extent in order to reach out to more potential exporters, but as well, it goes to the heart of even EDC's own name and whether we should perhaps have a bilingual signature in order to ensure a greater brand awareness of EDC. Overall, those are some of the initiatives we're looking at currently.

With regard to the issue of more disclosure, I think Mr. Ross has already mentioned that we agree in principle with Gowlings in terms of the need for more disclosure. I think the benchmarks are the ones we might disagree on with Gowlings to some extent. But very clearly there is in the marketplace a demand for more and more disclosure, and we will be pursuing that direction.

But I would like to underscore this concern about the lack of transparency of EDC. Again, I think it's important to understand our governance model with a strong board of directors chosen from not only the private sector but also the public sector. I think that is critical in order to ensure that issues such as human rights and the environment are properly considered in relation to different transactions, because we do have on our board the Deputy Minister for International Trade and a representative from the Department of Finance, and we have had on our board the president of CIDA. So a lot of those issues are brought to bear at EDC.

So the suggestion that perhaps EDC is a closed society of some kind is one I would take strong issue with. Also, the Auditor General is the auditor of EDC, and he does conduct a special five-year examination, which we have just gone through. Perhaps I could just take this opportunity to say that removing the Auditor General as the auditor of EDC is a recommendation we would disagree with Gowlings on. I think it is important to ensure that Canadians have confidence in EDC.

The Chair: Now, there were some other issues.

Mr. Ian Gillespie: There was an issue with regard to the Canada account.

Ms. Colleen Beaumier: May I interrupt? I'm going to give you an example. I don't like to name companies, but I've been told—and I have no way of verifying this—that Northern Telecom gets the lion's share of all the EDC money in China. That may be a totally false statement, but can you answer that question for me?

Mr. Ian Gillespie: Northern Telecom does not get the lion's share of EDC support in China.

Ms. Colleen Beaumier: Could you reveal to us how much they do get?

The Chair: Do they get the tiger's share?

Some hon. members: Oh, oh!

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The Chair: Let's be careful with our analogies here.

Mr. Ian Gillespie: The short answer is that I don't know what the Northern Telecom activity in China was last year. I'm not sure what the concern or the issue might be. Clearly, Northern Telecom—I don't think it's a great secret—is one of EDC's largest customers. It is the largest Canadian company. That's also a fact. They are the company that represents 25% of the non-governmental R and D spending in Canada. So clearly we have a very strong relationship, and we are trying to support them in all the markets of the world, as we do for all our customers. The other fact is—and I mentioned it in my remarks—that the Northern Telecoms are small and medium-sized businesses on the world stage today.

Mr. Eric Siegel: Maybe I could add a supplemental. Just to take the China example of disclosure, EDC has a line of credit in China, which has been fully disclosed and promoted in fact, for some $1.5 billion. It operates three lines of credit in China.

With regard to Northern Telecom, we also disclosed a while back that we had a financing facility in support of their manufacturing operations and their sale to their manufacturing operations in China, and it was some $250 million. It is not the lion's share. I have to say that Northern Telecom's activities in China have gradually ratcheted down as well, as responses slow down in China. It is publicly disclosed. These are lines of credit and facilities we have advertised at various times or disclosed during various fora, such as the Canada-China Business Council, and we have issued press releases in respect of them.

The Chair: You've given us the information that 90% of your loans are to small and medium-sized business, and 10% are to the large businesses in Canada. But we know that the large businesses in Canada represent about 90% of our exports. So would it be fair to assume that if you took the dollar value of your loans, about 90% of the dollar value of your activities would go to the 10% big companies, and only 10% of your financing activities would go to the 90% small companies? That would be common sense, because that replicates, basically, the way exports in Canada operate. It's GM, Nortel, etc., that represent our big exports.

Mr. Ian Gillespie: It's pretty close, Mr. Chairman. Ninety percent of our customers are small and medium-sized, and they represent approximately 20% of the value of our support. So it's the 10% that represents 80% of the volume.

The Chair: If you cut up the export pie and looked at exports for Canada, it would be about that.

Mr. Ian Gillespie: That's right.

Mr. Eric Siegel: The top 100 exporters in Canada account for 60% of Canada's total exports.

The Chair: Right.

Next is Mr. Obhrai, who has been very patient. Thank you, Mr. Obhrai.

Mr. Deepak Obhrai: My pleasure. I'm trying to be nice today.

The Chair: You're working hard at it, and you're doing a good job.

Mr. Deepak Obhrai: Thank you.

As I said in my statement before, we don't seem to have any problem in reference to expertise. But more and more reports are stating some of the recommendations coming out, including whether in keeping with more commercial orientation the Auditor General of Canada should be replaced by a private sector auditor. That's not to say something is wrong with the Auditor General of Canada, but this is one of the recommendations over here.

There's an article here that talks about your insurance and about the fact that Canada is the only nation that has not made a kind of change that will not be subject to WTO challenges, that we are out of step with our trading partners over there. Then it goes on to the Canada account and the fact that you are just keeping it really, and why should you have it. Send it back to DFAIT, which can do it so that there's more accountability.

This goes down to the criticism that your presence over there with your mandate has, to a degree, curtailed the private sector involvement in export markets. I don't know if Northern Telecom could easily go. It's a huge company that can get credit anywhere it wants to go. I don't know, but that is one of the criticisms.

So all of these things again lead to the fact that you should be let loose to go out on your own. Are you really worried about the fact that your opposition to this kind of situation is because you feel you're going to lose your niche market over there and somebody else will take over? It's EDC. Privatization doesn't mean EDC is closing down. It just means your expertise is going over on the side.

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Mr. Ian Gillespie: Again, the honourable member had several interesting observations and questions.

I'm not worried about EDC. I'm worried about Canadian exporters and investors and how they get the capacity.

Mr. Deepak Obhrai: So are we.

Mr. Ian Gillespie: If the banks can do it, terrific. I said at the Senate banking committee about a year ago that I didn't think the merger strategy was about helping Canadian companies go global. It may have been about creating shareholder value in big North American banks, but it wasn't about helping the Northern Telecoms and others and the 90% of customers we serve to help them succeed in the global marketplace.

Our EDC vision is all about taking that leadership role in bringing the financial services to bear, but not in a self-serving way, because we don't have the balance sheet to do it ourselves. We have a relatively small balance sheet. The government has invested $1 billion in EDC, roughly speaking. That has grown through the creation of retained earnings by another $600 million to $700 million. You have some slides in your package to that effect. We have set aside some loan loss provisions of another $2.5 billion to ensure that if there are hiccups we can manage that.

We need the private sector. We need to develop those partnerships in order to bring the necessary capacity. So we are working extensively with Canadian financial institutions by including the Canadian factors in designing programs that allow them to deliver this service more fully.

There is not a scarcity right now of capacity. We are not having to choose between certain customers. Very clearly, in order for Canada to succeed, we need more and more Canadian companies going global to a much greater extent. And the demands on them are becoming greater and greater in terms of having to use their own balance sheet to succeed.

So it's a matter of EDC taking a leadership role in order to create the capacity from the private sector along with ourselves to make sure the solutions are made available. We've already covered the Canada account to some extent, plus the fact that, again, in the slides the Canada account activity is very modest. It's almost a non-event. It was $400 million last year, as Glen has shown on that slide, against the total EDC support of $34 billion.

On the private sector auditor, we believe the Auditor General should remain EDC's auditor. That is our position. And to the extent that the staff there doesn't have the specialized skills required to audit EDC in relation to treasury activity, for example, in derivatives and some of those sorts of issues, they can hire in the private sector expertise to supplement their own skill set. So we're entirely comfortable and we would welcome the continued participation of the Auditor General of Canada.

With regard to the short-term insurance—

The Chair: Could I interrupt? You mentioned your capital of $1.7 billion. Do you have the same limits on what your loans would be as a commercial bank, which would be 13 times that? If you have $1.7 billion in capital, what multiple of that can you make loans of?

Mr. Ian Gillespie: I'll ask Gilles in terms of the borrowing capacity of EDC. It is a stipulation in the act in terms of what we can borrow, which is, in effect, a different way of expressing that leverage.

The Chair: What's your leverage multiple?

Mr. Gilles Ross: Our borrowing capacity, Mr. Chairman, is 15 times the equity of the corporations.

The Chair: And your equity is $1.7 billion?

Mr. Gilles Ross: That's correct.

Mr. Ian Gillespie: With regard to the short-term insurance question and the fact that we're the only country in the world that has such a program, I don't think that is completely accurate. The point I want to make more particularly goes back to what works for Canada. What is the capacity that's available to Canadian companies to secure such services?

In Europe there are many different credit insurers. It is something that has been around for years and years. In Canada the only alternative is really part of the big Allianz Group in Europe that is providing services through Canadian operations. But that leaves Canadian companies subject to the vagaries of the marketplace with regard to what's happening in certain emerging markets, for example, and the ability of some of those companies to withdraw company capacity or even buyer capacity. So right now the EDC model is the right one.

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We also concur with Gowlings in recommendation 12, where they talk about EDC acting as a catalyst to bring more capacity to the Canadian marketplace. That is the solution, and we are certainly looking to see how we might be able to create more Canadian competition in the private sector with regard to domestic insurance in particular, which will allow us in time to remove ourselves from that activity. That is the right direction to go.

The Chair: That's interesting. We might get more on that.

I go around to Madame Marleau.

Ms. Diane Marleau: I'm going to talk about transparency, but I want to talk about transparency, not to mention the word “corruption.” That's what I'm talking about, and it's not about you specifically.

I know you have a code of conduct that says you will not support or participate and so on. But we all know that internationally the lack of transparency, not to say the word “corruption”, is very high. How can EDC help Canadians who are honest people, who by and large never participate in this, but who may have some serious challenges in dealing with these issues in many countries where they do business? Do you have any kind of mechanism whereby someone can call you and say, “Listen, I'm having this problem. Can you help me?” Do you have that in place?

Also, can EDC do anything to help further transparency at the international level? We know there's an organization called Transparency International, a fledgling organization, which is trying to work at eradicating some of these very serious problems. Many countries have wonderful laws, but they don't apply them.

It's really a serious challenge for everyone, as we move to a more globalized trade environment. We realize these problems are very prevalent in many parts of the world. How do you deal with them with your clients? What else can you suggest we do at the international level to counter these kinds of very serious challenges?

Mr. Ian Gillespie: Mr. Chairman, the honourable member raises a subject that is extremely important and becoming more and more important. The short answer is I don't have too many good answers for her in that regard.

I will ask Gilles in a minute to speak about EDC's obligations in relation to the Canadian legislation, because it's important that all honourable members understand that.

With regard to the kind of helpline we may have available, the answer is we don't have one.

Ms. Diane Marleau: Could you set one up somehow?

Mr. Ian Gillespie: I would suggest in that particular case that there are embassies, trade commissioners, and extremely effective organizations around the world. They are on the ground. They are in these countries, many of the ones people are concerned about. I would turn to their advice as a way of dealing with this issue. Again, fundamentally, at the end of the day, it's an issue for the government to set the policy, as opposed to EDC to set an independent policy.

There's no question it's a serious challenge. We can conduct our own due diligence to ensure we are not involved or maybe supporting, directly or indirectly, some activity in this regard. But it's one where exporters need to talk to the local expertise from the embassies and trade commissioner service for assistance.

Perhaps Gilles could make sure all the honourable members understand exactly what our own position is vis-à-vis the Canadian legislation.

Mr. Gilles Ross: Thank you, Mr. Chairman.

A very important step was taken by the OECD countries recently in relation to this matter, which resulted in Canada enacting what's known as the Corruption of Foreign Public Officials Act, which applies to all Canadian companies carrying on business in foreign countries, including EDC.

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As the president said earlier, the corporation has adopted a code of business ethics, a code of conduct, wherein the corporation has as an operating policy that it will not, simply will not, pay or offer bribes to conduct its business.

Under the Corruption of Foreign Public Officials Act, a corporation has to conduct a due diligence process when it is considering support for exports. It has to be satisfied that it will not knowingly benefit indirectly from a contract that may have been obtained as a result of improper activity.

In that context I suppose it would be fair to say we are in a way conducting a certain education process, because in carrying out this due diligence, we have to ask our clients what are their policies and practices in relation to carrying on business in foreign countries; in relation to monitoring their agents, for instance; in relation to paying their agents and what kinds of agency fees they will consider; and so on.

The introduction in Canada of this new statute will be very helpful in terms of Canada's participation in the development of new ethics standards worldwide. I just happened to attend a conference not too long ago dealing with, among other things, this matter. The philosophy behind the convention is to curtail the practice by working at the supply end, as opposed to the receiving end, because it's easier. We agree with that principle, and we are certainly very active in the education process in that regard.

Ms. Diane Marleau: I happen to believe we really need to have some form of helpline for corporations. Let's say they've agreed to ship equipment to a country, and at the last minute, something comes up. All the other work has been done, and they're told, “Well, we can't receive it unless you do certain things.” Is there a place where corporations and individuals can go to say “Help, I'm running into this problem”?

If there isn't a place such as that, not just EDC and the Government of Canada but internationally, we need to try to work to set this up. Even though you can try, you need to offer help to people who are placed in that position at the last minute, or for that matter, on bidding for contracts, it's not unusual for someone to call and say “They won't give me the contract unless I do this other thing.” It's so very difficult for corporations to be behaving ethically when these kinds of demands are constantly there and there's no place for them to turn.

Mr. Ian Gillespie: Perhaps I could ask Eric Siegel to respond, because he's been involved in some of the international initiatives around this kind of issue.

Mr. Eric Siegel: We're entirely sympathetic to the situation you're describing. It becomes an even greater problem when we talk about encouraging private sector flows for private sector development in developing markets. The whole issue of the transparency and the clarity of regulatory frameworks and the judicial system, and indeed, at the environmental level, the ability of countries to undertake projects and then monitor those projects and have the competencies is a concern of the World Bank and its sister companies: the IFC, MIGA, EBRD, etc. It has also become a concern of bilateral financial institutions such as EDC and development finance institutions.

Indeed there was a series of meetings this year, which Mr. Hodgson and I directly participated in, where a series of work projects was undertaken. One of those projects is to set up an information exchange mechanism whereby each one of these agencies can report their experiences in respect of the enforcement of laws, regulatory frameworks, and what have you.

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As you can appreciate, there are some issues of confidentiality. Countries are not anxious to get a report card on their own activities, but this is being coordinated through the IFC. At the same time, we are also pushing for a similar type of arrangement with respect to environment. We feel we need to have the ability of the multilateral banks to take the lead in scoring countries and grading countries in their capacity to take on some of these projects. We need to be able to have the regulatory framework needed to be able to give companies confidence that when they go into that market, they are going to be treated fairly consistently; they are not going to have the rules changed on them, and they're not actually going to be handed the burden, in the end, entirely of having to meet a constantly changing set of rules and regulations.

I know that only partly answers your question, but there are activities internationally that are coming together bringing a variety of players together. We are an active participant in that in terms of trying to develop an information exchange that can then be funnelled back to countries, not on a project-specific basis but in terms of giving them an advanced look at what they're going to face when they go into a country. We can make them more educated, make them more knowledgeable, so that they are structuring accordingly, and we hopefully will begin to see a reduction in these sorts of incidences.

The Chair: As part of your study, are you looking at campaign financing in certain jurisdictions close to us, where it is alleged that it is part of the endemic corrupt problem of the system? I'm thinking of Senator McCain's campaign at this time, but perhaps we'll let that one slide by.

This has been very interesting, and I think we'll have another opportunity to hear from EDC when we've heard from.... You can see the types of concerns that members have, and these will be reinforced by the NGOs and others who come before us. It would therefore be good to hear your reaction.

We would perhaps specifically like it if you could be more explicit with us about the recommendations of the Gowlings report. You mentioned in your introduction that you had some problems with some of the recommendations, but I don't think this morning quite brought that out. Maybe even by note you could send us a letter saying what specific ones you had problems with, Mr. Gillespie.

Again, I understand there is some possibility of amending the Export Development Act if that's necessary. If any amendments are necessary, we should know about those that we would have to address when we're writing our report.

Mr. Assadourian asked me to ask you a question about representatives abroad. You've already answered that in that you only have one in Beijing and you're looking at two others. I suppose this is, for you, a trade-off. You have the trade officers in the embassies already, so you can use them. This is quite expensive for you to set up, so there would be some inhibitions for you to set up too many, but you are looking at the idea of having more representative offices abroad, I take it?

Mr. Ian Gillespie: That's correct, Mr. Chairman, and obviously we want to be very clear that it's something we've spend some considerable time on with DFAIT in order to ensure that we are not replicating the trade commissioner's service. They have a very important role to play, and we have a complementary but different role to play.

The Chair: I have just one technical question.

You mentioned that you are more prevalent in emerging markets than, say, the Ex-Im Bank in the United States. To what extent would you say that is because the Ex-Im Bank has a restriction on what business it can do? As you know, by its charter, it's not allowed to compete with commercial banks. There must be a lot of business that the Ex-Im Bank does not do that you do because you are competing with commercial banks, whereas it's not allowed to. Is that a factor in the types of markets you end up in?

Mr. Ian Gillespie: Mr. Chairman, I'm not sure. That's the short answer simply because you are absolutely right: U.S. Ex-Im is a lender of last resort model, whereas EDC is not. It operates at the other end of the spectrum. EDC makes money and supports $34 billion; Ex-Im Bank actually supported $17 billion last year, although those were U.S. dollars, mind you, but less than EDC overall. Its annual appropriation is $750 million U.S. a year to support less business than EDC does without any draw on the Canadian taxpayer.

With regard to the emerging markets, I think it's probably fair to say that the reason they may not be as prevalent in some of the emerging markets is both the model that they are using plus, I suspect, the fact that there is more politicization of their activities. That may preclude them from doing business in countries such as Iran, etc., where EDC is involved. So that may narrow the scope of their activities more than the fact that the commercial banks are doing it in those markets.

The Chair: They're not very active in Cuba is what you're telling us.

Some hon. members: Oh, oh!

Mr. Ian Gillespie: They haven't put an office in there yet.

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The Chair: Okay, thank you very much. As I say, we'll have you come back. That was a very helpful introduction to our study. Thank you, Mr. Gillespie, and thank you very much for coming.

We're adjourned until 3:30 p.m.