INDU Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 8, 2000

• 0905

[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): I call the meeting to order pursuant to the committee's mandate under Standing Order 108(2), a study concerning productivity, innovation, and competitiveness.

I'd like to welcome everyone here for our first meeting of the year 2000. We're very pleased to have with us, from the Department of Foreign Affairs and International Trade, Louise Fortin, director general, trade commissioner service, planning and policy bureau; and John Curtis, senior policy adviser and coordinator, trade and economic analysis division. From the Department of Industry, we have Rocco Delvecchio, executive director, Investment Partnerships Canada.

I understand that Mr. Curtis is going to begin and then we'll have Ms. Fortin and then Mr. Delvecchio.

Mr. Curtis, whenever you're ready.

Mr. John Curtis (Senior Policy Adviser and Coordinator, Trade and Economic Analysis Division, Department of Foreign Affairs and International Trade): Thank you, Madam Chair. Let me welcome you and many of your colleagues back to Ottawa. Some of us have suffered in exile here through the months of late December and early January. I speak as an expatriate Vancouverite, for those who are from that part of the country.

[Translation]

Madam Chair, thank you for the opportunity to appear before this committee to comment on the influence of international trade and investment on productivity and competitiveness in the Canadian economy.

In my capacity of Senior Policy Advisor and Coordinator in the Trade and Economic Policy Groups of Bureaus in the Department of Foreign Affairs and International Trade, I advise the Department on a broad range of trade and international economic policy issues and oversee its applied economic research program.

Since I'm a native of Vancouver, I would prefer to make my presentation in my first language.

[English]

The thrust of my remarks is that international trade and investment have a pervasive influence on our economy, on its structure, and on its performance, and thus on the quality of life of all Canadians.

Trade and investment impact on the summary statistics at one level. They capture some aspects of our economy with which this committee is very much familiar, of course, such as gross domestic product, which we call in the discipline GDP—economists love acronyms—per employed person, commonly referred to as labour productivity. I understand the committee looked at this issue late last year. However, the significance of trade and investment runs far deeper—in other words, deeper than the macroeconomic numbers. The very nature of our economy, the sorts of jobs it provides Canadians, the tools with which they work, the source of revenue for our firms and other commercial activities in every part of Canada, all depend on the existence of a vast global economy of which Canada is a part, of course.

By way of background before I make my two or three central points, Madam Chair, let me go over some of the macro contexts very quickly for you.

The committee will be aware that Canada accounts for about one-half of 1% of global population, which is now just over 6 billion people, while our GDP—that's all the measurable economic activity that goes on within Canada—which is now upwards of $900 billion Canadian, is about one-fourteenth the size of that of the United States, our major economic partner, and about 2% of global GDP. In a global economic context, therefore, ours is a very small economy.

Smaller economies such as ours tend to be more open to trade and investment as a general rule. This reflects the limitations that small size places on the scope for the division of labour as well as the ability to meet the capital and knowledge requirements to efficiently produce the full range of products that the marketplace demands and that is technologically feasible. As well, geography predisposes Canada particularly toward openness.

• 0910

As the committee well knows, most of Canada's population lives and much of our economic activity takes place in the comparatively narrow strip within a few hours of the United States border, and over the years our economic policy has embraced and promoted openness to the world as a means to higher standards of living, both by providing leadership in building a rules-based multilateral trading system and by negotiating more secure access to the United States market, our largest market of course, through the United States-Canada Free Trade Agreement and its successor, the North American Free Trade Agreement, the NAFTA. As a result, Canada is the most open of all industrialized G-7 economies.

A statistic often cited—and perhaps many of you are familiar with this—to demonstrate how open our economy is is that exports of goods and services now account for over 41% of our gross domestic product, and imports account for just slightly less, because our exports, certainly of merchandise, are larger than our imports. In some respects, however, this understates the degree of integration of Canada into the global economy.

In this regard, I would note that the gross domestic product, being an attempt to capture all the activity going on within our borders, reflects government expenditure as well as imputed rent—that's the estimate of rent—for all our stock of privately owned housing. If you take those components of gross domestic product out of our calculations—take out, in other words, the imputed rent and take out government expenditure, much of which is done within the country—we find that the number is even higher. The exports of goods and services represent over 57% of the remainder, which may be characterized as commercial economic activity. By the same token, imports represent slightly less, about 55%.

All members will know, of course, that economists love playing with numbers, but this still underestimates considerably the actual degree of openness today of the Canadian economy, for we have yet to take account of the implications of two-way cross-border direct investment. This is over and above the movement of goods and services across international borders. In 1999, this past year we've just completed, although we don't have all the numbers yet—we won't have all our numbers until the end of March of this year—it has been estimated that worldwide sales of foreign affiliates abroad exceeded, for the first time, the volume of cross-border trade. This is really quite extraordinary. This is worldwide. In the case of goods, it rose to 1.7 times the volume of cross-border trade in the case of services. In other words, sales from the things you own abroad are greater than the actual movement of goods and services across the border. That's even if a good or service is produced locally. Within Canada, for example, it may be produced in fact by a foreign investment company.

Further, if one considers the pedigree of any good or service, whether locally produced or acquired abroad, it is likely to reflect inputs from more than one country, whether a stereotypical pattern of, for example, European design, United States technology, Asian components, and Canadian assembly or some other combination. Thus, even if a product or good is produced locally by a Canadian-based company, it may well be the end product of a complex set of international transactions.

The point of all these observations—and I hate to do this to you at nine o'clock in the morning—is not to suggest that you fix on any particular number as a measure of openness, but rather to emphasise the point that trade is a two-way street and openness means integration on a deep and thorough basis. In a dynamic sense, the integration of our economy into the larger global economy means that the Canadian economy is co-evolving with the global economy, it is shaped by it, and it is adapting to it. In turn, this understanding raises many questions as to what we might mean when we speak of the competitiveness of the Canadian economy or compare the level of productivity that we observe domestically—and that is estimated by many economists and statisticians, and I think you've had some of those individuals in front of you before—to that observed in other countries.

• 0915

Allow me then to turn to several quick points. The point I've made in terms of background is basically how open our economy is and how important the two-way flow of goods, services, and investment is and how careful one has to be in terms of the numbers.

Point number one, I would stress to you, is that trade and competitiveness are inextricably linked. Canada has to be competitive in order to sell goods and services abroad, or even to sell goods and services domestically in Canada, in the face of foreign competition. By the same token, given the fact that Canada accounts for a very small fraction of worldwide research and development and technological innovation, we have to trade and embrace two-way international direct investment in order to acquire the capital equipment, the technology, and, very importantly, the managerial and organizational skills that we need to be competitive. Moreover, given the fact that our Canadian market is only 2%, as I've said before, of global gross domestic product, we have to trade to gain access to the economies of scale and scope that underlie competitiveness. We compete when we trade, and we trade to be able to compete. It's that simple. It's a two-way flow of influence and connections.

Second, when the focus shifts from the overall economy to its major sectors, the principle of comparative advantage—that old term that some of you probably learned at university, unless you could avoid it, right back to Adam Smith—tells us that Canada's pattern of international trade, that is the sectors in which we have comparative success, is determined in large measure by internal competitiveness of various industries and economic activities within Canada. To put this in perhaps more concrete terms, Canada's manufacturing sector will find that its competitiveness in international markets is, to an important extent, determined in the long run by its relative strength, not against similar U.S. or even overseas competitors, but against our resource and service sectors and vice versa. In other words, how the domestic sector does depends on how competitive it is against other sectors, even within our own country.

I'll skip the more pedantic point, but we can discuss that later, Madam Chair, if you like. I'll turn to my third point.

When the focus shifts from sectors down to the firm and the product level, we realize that while in the final analysis it is the actual product that competes in the international marketplace, it is not simply the product quality that determines success, or even its price. The firm's marketing know-how, its distribution, the effectiveness of all its channels of distribution, and its ability to forge partnerships internationally also come into play.

So that's at one level, the firm level, and then there are also country-specific features—and I know my colleagues will be referring to these—things such as:

—branding, the “made in Canada” label, which is and can be fostered by government export promotion activities, and about which my colleague, Louise Charron Fortin, will be speaking in a few moments;

—advantageous negotiated market access, through the World Trade Organization, NAFTA, FTA, etc.;

—economic stability deriving from sound macroeconomic fundamentals—the fiscal framework of Canada—which support lower capital costs, and from well-functioning international trade and investment regimes, providing stability to Canada at appropriately valued currency;

—well-established clusters of firms in products and businesses;

—strong microeconomic fundamentals—and this is quite important because this is where economics and social come together—such as a skilled labour force, labour training, business-friendly legal/institutional/regulatory frameworks such as effective intellectual property norms and enforcement; and importantly,

—the quality of life, what it's like to live in Canada.

These are all factors in terms of our basic competitiveness. My colleagues who are with me from both my own department and Industry Canada will develop these ideas further.

In short, Madam Chair, the closer we look at the concept of competitiveness, the more complex it becomes. But one thing is clear: the basis of Canada's present-day competitiveness in international markets is its history as a trading nation.

The links between trade and productivity are, if anything, even more complex than I've said. In the first instance, this reflects the fact that labour productivity is a ratio of two very large numbers—total output and total employment—and is influenced by every factor that impacts on each of those two. These obviously include cyclical—that's the business cycle—and short-term, very transient factors as well as structural factors, the actual nature of our economy, such as the shifting composition of output and employment across our economic activities.

• 0920

The influence of trade is felt on both parts of the ratio. For example, the output of a trading nation such as Canada is influenced strongly by external demand conditions. The rate of growth of our trading partners, be it the United States, the member states of the European Union, or Asia, have a very strong impact on how well we do year by year on our exports and, to some extent, on our imports. As well, the pattern of Canada's comparative advantage shapes the profile of our industry, which in turn feeds through to employment, with a whole range of other factors coming into play, as we've discussed before: technology, and the cost of labour and cost of capital. All these considerations suggest to me that one has to be fairly cautious in drawing any simple and direct relationships between any particular policy or any particular structure, in saying this is or isn't what the number is.

To conclude, the issues being addressed by your committee, Madam Chair—productivity, innovation, and competitiveness—are really very complex and interdependent. International trade and investment have, over the years, played a pervasive role in shaping our economy and thus have, in a sense, determined the level of competitiveness and the level of productivity in our economy, as we see it at present, both of which in turn play back into how well we're doing as Canadians and as Canadian-based enterprises and activities in Canada's international trade and investment performance.

Thank you.

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

We're now going to turn to Madam Fortin.

[Translation]

Ms. Louise Charron Fortin (Director General, Trade Commission Service, Planning and Policy, Department of Foreign Affairs and International Trade): Madam Chair, thank you for the opportunity to appear before this committee to outline FAIT's programs and services. I am one of two directors general responsible for the Trade Commission Service and in charge of administering departmental programs and services geared to expanding international trade. Canadian companies look to these programs and services for support in their efforts to gain a foothold on world markets.

[English]

By way of background, the department's international business development mission is the creation of jobs and prosperity by encouraging Canadian companies to take full advantage of international opportunities and facilitating investment and technology flows. Through its programs and services, the department facilitates the growth in the number of exporters and the value of exports and, through foreign direct investment and technology acquisition, the creation, expansion, and retention of jobs.

John Curtis has provided you a description and assessment of the international environment in which Canadian companies must operate. It is in this competitive and very fast-moving marketplace that the department operates, in conjunction with its domestic Team Canada Inc. partners, through the trade commissioner service at our foreign mission, and of course in concert with the private business community.

Trade is but one of the elements that make up international business activity. It is part of a continuum that can include exports and imports, as material inputs; investment, both incoming and outgoing; technology development and acquisition; research and development; strategic alliances; and securing venture capital. Firms will follow a strategy incorporating those elements that will produce the desired objectives. Regardless of these objectives, firms have to be, and remain, competitive. The international market is demanding and, we could say, merciless. Companies that do not stay ahead of the wave in productivity and innovation simply will not survive. They will not be competitive. The department's programs and services are designed to fit into this model of international business activity, and we work as partners with companies to achieve their goals.

• 0925

As John has mentioned, productivity is an economic measurement of a firm's effective use of inputs of land, labour, and capital, and much more so now including technology. Trade is not one of these variables. Rather, a firm's capability and ultimate success in export markets is a complex blend of its product or service, its relative cost, its marketing strategies, and so on and so forth. If productivity affects the cost of the good or service and the cost is an important determinant of success, then a successful company will strive to have high productivity. As John said, it is a complex issue.

In examining the department's programs and services, it is instructive if we look at both the domestic and foreign sides of the government's international business efforts.

Domestically we have in place a network of public sector departments and agencies and private sector associations that have joined forces to provide companies with the knowledge and expertise to be successful overseas.

The brochure “Roadmap to Exporting”, which should have been provided to all the committee members, is a guide to federal government services and is indicative of the number of public service departments that are in fact contributing to this process of preparing companies. You will see that they go to the heart of what companies need to know and to do to be successful globally.

A key one, skill development services, delivered by FITT, the Forum for International Trade Training, teaches companies, among a myriad of topics, how to assess their products or services against the competition, what is needed in pricing and marketing strategies, and how to remain competitive in a demanding marketplace.

Through both our domestic counselling services and our trade commissioners abroad, we work with our clients to assess their level of export preparedness, to develop a sound, consistent, and doable export plan, and finally to help the companies implement the plan. These services are available regardless of the product or service and for all 130 markets where we have trade commissioners on the ground.

Companies need information and intelligence to be successful, to maintain their competitiveness, to stay on the cutting edge. The department provides this through the production and regular updating of market reports. We currently have 560 reports covering approximately 25 sectors for virtually all our major trading partners. We produce 220 new updates per year.

These reports are available online—that is, all day, every day, from anywhere in the world. Users need to have instant access to this information. The global market moves at a pace that, frankly, will leave the timid in its wake. We have 17,000 registered clients using these reports.

I have already alluded to the services provided by the approximately 530 trade commissioners in 130 offices. Through a comprehensive client survey undertaken last year and being repeated this year, in fact next month, we were told what our most important and valuable services are. At the top of the list and for purposes of today's discussion is market intelligence.

Trade commissioners enhance the information in the market reports by adding specific market intelligence to the picture by knowing about their particular market, how it functions, who the major players are, which companies are most active and therefore are the competitors to Canadian companies, and by offering advice on how to crack into the market. Without this information and intelligence, companies new to the market would find it very, very difficult to get started, to develop a plan, and to put it into effect—in short, how to be competitive.

The department also has programs to introduce companies new to the market to experts who can advise them face to face on what is required before taking the first steps. The new exporters to border states, better known as the NEBS program, and also the NEBS Plus—here I go with the acronyms, John—to take exporters further into the U.S., new exporters overseas, and new exporters to South America all have the same objective: to give companies the knowledge to be successful.

• 0930

It is important to remind ourselves that the U.S. market is the most competitive market in the world. Canadian exporters face the best the world has to offer, in addition, of course, to U.S. domestic producers. The Canada-U.S. Free Trade Agreement and the NAFTA established the preconditions for easier entry into the U.S. market. The robust U.S. economic performance has drawn suppliers from every conceivable country. It is not sufficient that Canadian exporters offer their products and services at low cost. They also must have a marketing strategy that attracts and holds discerning customers, goods that are the equal to, if not better than, what the world has to offer, and a constant desire to innovate and improve. This is in fact the essence of exporting.

The model we follow is implicit in the new exporter programs I mentioned a few minutes ago. Companies start in the U.S., where the customers are close at hand, business practices are similar and familiar, and help is readily available. Once the near markets are well established, companies can move to further ones in the U.S. I would argue that if a company can make it in the most demanding, most competitive market in the world—that is the U.S.—then it can go anywhere. In addition to having the credential of being successful in the U.S., it has a wealth of experience and the confidence to try more distant and foreign markets.

Knowing that our clients cannot always come to us, we have an outreach program that brings trade commissioners back to Canada to meet new and existing clients, to bring companies up to date on market developments, to highlight new initiatives, and to discover for themselves what is happening in their assigned sectors. In 1999, 140 trade commissioners met with 885 companies in 115 municipalities.

The Team Canada Inc. partners have recognized that we need to place emphasis on sectors that show the most promise in creating jobs and growth in Canada. In 1996, we prioritized 23 industrial sectors, assessing them on the basis of growth potential, export performance, and the potential impact of government action. These priority sectors represent a mix of both traditional industries—forest products, automotives—as well as those that have the possibility of generating higher dividends for the country, such as information technologies and telecommunications, aerospace and bio-industries.

Ranking the sectors does not mean that we do not provide full service to lower- or non-priority sectors. The depth and breadth of our market reports and the assignment of trade commissioners to sectoral responsibilities ensure complete coverage. Companies exporting services are the single largest users of the trade commissioner service. They're estimated at about 18%, followed closely by firms in information technologies and telecommunications—I'd say about 14%. Agricultural, agrifood and fisheries companies are in third place, with about 12%. So you can see we assist a broad range of firms.

As I said earlier, trade does not stand alone in the business continuum. It includes investments, which I will leave to Mr. Delvecchio, and technology. The department recognizes that firms need to stay current with innovations in their fields if they are to remain competitive and therefore maintain their place in the market. We have clear proof that trade follows investment and is often nurtured through international collaborative technology research and development.

The department's broad objectives for Canadian companies are to expand collaborative research and development opportunities and to enhance Canadian business competitiveness by gathering and disseminating strategic international S and T information.

• 0935

We have in place a network of science and technology counsellors in those countries that are leaders in scientific and technology developments and in the industrial application of technology. Six science and technology counsellors are located in the U.S., U.K., Germany, France, the European Union—that is, in Brussels—and Japan. They form the backbone of Canada's international science and technology intelligence and help Canadian research organizations and firms to forge international R and D partnerships.

A large number of technology development officers and of course trade commissioners at key Canadian missions abroad help enhance Canada's technological capacity and competitiveness by assisting Canadian companies in sourcing, assessing, and acquiring cutting-edge technologies not available in Canada, gathering international technology intelligence, and brokering international partnerships in technology development.

The department is also active in introducing Canadian companies undertaking R and D to sources of foreign capital. From our 1999 client survey, we learned that 27% of our business service users secured science and technology partnerships.

We have just completed a thorough assessment of our programs and services to determine how we can more effectively tap international sources for new technologies and research collaboration. I have provided you with an overview of the results of this work that explains in more detail how we intend to proceed.

I hope that in this brief and perhaps too-long presentation I have shown you how the department contributes to Canada's export performance and competitiveness. I have tried to show you that to be successful in trade, firms must be competitive and innovative. Conversely, by exporting, firms will retain their market edge domestically, and their international presence will bring them into contact with leading-edge technologies, thereby either promoting internally generated innovation or leading to technology partnerships or technology acquisition.

Research and experience show that governments must both embrace a global strategy and provide a positive environment fostering competitiveness and innovation in order to facilitate higher productivity. Our departmental strategy is results oriented, forward looking, subject to ongoing evaluation and explicit performance measurements. By establishing and following practices akin to those in the private sector, we are confident that we can work effectively with our business clients to continue Canada's impressive growth in global markets.

[Translation]

Thank you very much.

[English]

The Chair: Thank you, Madame Fortin.

I'm now going to turn it over to Mr. Delvecchio.

Mr. Rocco Delvecchio (Executive Director, Investment Partnerships Canada, Department of Industry): Thank you, Madam Chair.

I have a very brief presentation that was circulated in advance of the meeting. Perhaps just before I start, I could give you a bit of context and describe Investment Partnerships Canada, who we are and what our role is.

We were established a little over three years ago as a joint venture between two departments, Industry and International Trade, an experiment of sorts in addressing the challenges presented to us and to Canada in competing for investment with other global players. It's a recognition of the fact that no single department on their own can do this job effectively, and so the decision was that we should set this up as a joint venture between the two departments.

Our role is primarily to promote investment in Canada, so we're working on reinvestment within Canada as well as bringing foreign investment to Canada. It's a very competitive business, as some of you will appreciate. I've had the privilege and pleasure of working with some of the committee members actively in the field in trying to promote investment in Canada, and I think those experiences would show members or others involved in working to promote investment that competition is getting increasingly fierce, and as a result, the challenges are becoming perhaps more intense, particularly in a fast-moving economy where investment is increasingly driving growth, particularly in the high-value-added, knowledge-based segments of the economy.

• 0940

Perhaps I could just cut to the presentation and take you briefly through that. I understand the format is to have discussion or questions subsequently.

I provide you with some quotes on some of the current literature that tries to describe the process of globalization. Increasingly, our sense is that the global economy, particularly in the developed economies, is moving from a resource-based to more of a knowledge-based economy, as evidenced by a variety of factors. Worthy of note is that in this context, knowledge-based industries are much more footloose than resource-based industries. In a sense, you can't assume that some of the knowledge-based industries—for example, software development—would be anchored in a particular region or part of the country or part of the world.

It's part of the reality that makes the competition for investment—particularly in knowledge-based, high-value-added, high-growth sectors—that much more intense. I think you will see almost daily evidence of countries and jurisdictions competing, not only within Canada but between Canada and other jurisdictions, for investment.

We're not a policy shop, but our sense, based on our experience in working with investors, is that an investment broadly, including foreign direct investment, is a strong driver of economic growth. It supports improvements in productivity, creates jobs for high-value-added opportunities for Canadians and others, and in many respects contributes to the agenda the committee has set for itself in its terms of reference for the study it has undertaken.

That's the backdrop. If we turn to the third chart in my brief presentation, there's evidence here of how Canada is faring in competition for investment. The good news is that over the last number of years, and we show on the chart from 1985 to 1998, foreign direct investment has grown from about $90 billion to about $217 billion. These are the sorts of stocks, if you will, so these are cumulative investments that foreign firms have made in Canada.

If you look at that in the context of what's going on within North America and globally, we would note that between 1985 and 1998 Canada's share of North America's inward foreign direct investments declined from about 25% to just over 13%. Over 90% of this decline is due to reduction in Canada's share of U.S. outward FDIs. So in terms of cumulative impact we're doing okay, but in relative terms we're not doing so well. I think that's one of the first major messages I would wish to convey to the committee.

If you look at the share of U.S. outward investment, which has traditionally been an important source of capital and technology for Canada, we see that Canada's share of U.S. direct investment abroad has declined from about 20% in 1985 to a little over 10% in 1998. We continue to receive a smaller share of U.S. direct investment abroad across all industries. The U.S. direct investment abroad has been directed more toward developing economies in Latin America and the Asia-Pacific region.

Europe, based on our analysis, roughly maintains its share, the U.K. being the largest draw within Europe of U.S. foreign investment. I think in fact about 40% of all U.S. investment in Europe is in the U.K., which speaks to that country's ability to attract investment. I think there is evidence of the importance of that when you look at the economic growth we have witnessed within the U.K. in the last number of years.

Mexico's increase was marginal and really does not account for Canada's decline.

So the pie chart you have in the presentation shows you the distribution of investment.

Notwithstanding the fact that our share is declining, we believe we have a very good story to tell. The World Economic Forum, for example, has ranked Canada as increasingly competitive. And the chart demonstrates over time the success we've enjoyed in moving up the ranks, if you will. The Institute for Management Development ranks Canada as the best fiscally managed country in the G-7, the first country to move from deficit surplus. That's recognized by the IMD. The Economist intelligence unit ranks Canada highly in terms of overall business climate. You'll see our ranking relative to other countries in the most recent report from that group.

The message here is we do have a good story to tell, but our sense is we're not telling it very well. That's really the point of the last chart, which speaks to how Canada is perceived globally and internationally, which in turn is the major driver in terms of the opportunities we have to attract investment to Canada.

• 0945

When you look at what are considered to be the major drivers for investment, which are listed on the graph on the right-hand side of the chart, and you see U.S. versus Canada, the U.S. in many respects is our major competitor for capital, because whether it is U.S. firms or firms in Asia or Europe, any investment in Canada would inevitably be directed toward serving the NAFTA market and the U.S. market in particular. Of course, investors then would always have the option of locating facilities in the U.S. directly if that is the market they wish to serve. So in some sense the competition for capital is really with the U.S.

Less than 50% of the key U.S. influencers, site selectors—these are firms whose profession it is to advise companies on where to best locate or site their facilities—are familiar with Canada's macro-economic successes. While we have made great strides in improving our fiscal position performance, the good news is not generally well known or shared. Again, those of you who have travelled outside of Canada, perhaps even within Canada, would have noted that there is much more of a story that needs to be told.

Global investors—how are we perceived? Canada was ranked 17th out of 25 as a preferred investment destination. This was based on a foreign direct investment confidence index prepared by A.T. Kearney, which is a global business advisory consulting firm.

Finally, based on a survey done two or three years ago, European investors ranked Canada poorly on investment drivers. Again, you will see on the chart how we rank in comparison to the U.S. in major factors such as market growth, location, cost, business climate, and so on, in the eyes of European business people and investors.

To summarize, I would say investment is increasingly becoming an important part of driving growth in our economy, particularly in the knowledge-based segment of the economy. Our share relative to the U.S. on a global basis is declining.

We have a good story to tell, which means we believe we have good prospects for reversing that, but the challenge is to get the message out to make sure people understand the importance of recalibrating and upgrading people's perceptions of Canada so that when major investment decisions are taken, Canada increasingly is one of the countries or locations that is on the short list, or on the radar screen, I guess—the metaphor has evolved.

That concludes my remarks. Thank you very much.

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

I will now turn to Mr. Penson for questions.

Mr. Charlie Penson (Peace River, Ref.): Thank you, Madam Chair. I would like to thank the departmental officials for coming this morning. I thought it was quite informative.

Mr. Delvecchio, I would certainly like to pursue at some other point this whole investment strategy in terms of why Canada may not be attracting the kind of investment we want. But time is limited and I do want to talk to Mr. Curtis this morning. I would hope that we could get you back at some point to pursue this further, or it might be picked up by other committee members.

Mr. Curtis, you are a senior policy adviser to the Department of Foreign Affairs and International Trade. You have told us this morning that in order to sell abroad we must be competitive, which seems to be common sense. You have also said that where you have comparative advantages, that works to the benefit of that particular industry, maybe even sucking some away from other industries.

Let me put to you a scenario of an industry that has had a comparative advantage over the years. Let's just take the agriculture community, for example. It probably meets the criteria. It has cheap land, reasonably cheap labour, a lot of capital investment, and yet they can't hold their own in a declining industry, largely because they face terrific subsidies, which limit their ability to compete in other countries. What is your department going to do about that?

You talked about the need to get market access through the WTO. It seems like we haven't been able to crack that. Are there other cards that can be played in order to force people to stop this destructive practice against a very basic industry that we have in Canada? Historically, it has been competitive year after year, and now, in the last 10 years, due to something like $70 billion in European agricultural subsidies and $50 billion in the United States, the Canadian farm industry is on the rocks. What else can you do to provide them an opportunity to take advantage of this comparative advantage they have?

• 0950

Mr. John Curtis: Madam Chair, would you like me to respond immediately as each question comes?

The Chair: Yes, please.

Mr. John Curtis: I'd be happy to do that.

Mr. Penson, you're quite right. Agriculture particularly, and I assume you're referring particularly to western-Canadian-based grains, oil seeds, red meat, and the areas in which we are traditionally very strong—

Mr. Charlie Penson: Yes.

Mr. John Curtis: You're quite right. It's a traditional area of Canadian strength and continues to be, as an economist would measure it, an area in which we would state, I think quite confidently, that Canada has a comparative advantage. But perhaps you also know that economists use the phrase “other things being equal”. You're pointing out the fact, which we are all cognizant of, that in fact other things are not necessarily equal. In particular, you referred to the massive amounts of subsidies that are both domestic and international, I think your reference was, which of course is the subject matter of an international trade department, if I can put it in those terms.

From the perspective of the department, our principal means of dealing with this—and I think it's always fair to say that governments of any colour in any country are limited in what they can do. We live in an international world where we have governments that are responsible for the territory they control. That's the essence of the nation state, which for better or worse we've been living in since 1648, under the Peace of Westphalia as we call it.

Our primary objective as a trade department is in fact to get better and further international disciplines on all sorts of government policies and practices, which include the granting and the impact of subsidies. This is something we share, of course, with the responsible department, which is the Department of Agriculture and Agri-Food Canada. But our particular departmental mandate is, with them, to attempt, as you quite rightly said, through the World Trade Organization and through whatever other bilateral or regional instruments that are available....

Mr. Charlie Penson: Mr. Curtis, because time is short, can I just interject to ask you a question in that regard? The traditional method of negotiating at the World Trade Organization and the GATT before that has not been very effective in terms of agriculture. I'm asking what your advice is to the department on how to save this basic industry. It seems to me if you don't have an agriculture industry in a country, you don't have a whole lot to build on in terms of food security and that type of thing. Because of the stress and crisis in agriculture, are you exploring other things?

You say we don't have a lot we can do about this. But I would suggest that maybe we do. What about some of our security arrangements through NATO that help the European Union? What about some of the industrial tariffs that we have negotiated down over the years? Are we going to sit idly by and just acquiesce, saying, well, we would like to do this through negotiations through the WTO? In the meantime our farm industry is going to disappear before our eyes.

Mr. John Curtis: From our perspective, Mr. Penson, as you recognize, we have a particular departmental mandate, and that is primarily, as I was stating, through the instruments that are available to us, to in fact develop negotiating strategies and work with our trading partners to bring more discipline into the industry. That is our particular responsibility. It doesn't mean everything gets solved. The trade system and trade rules can't carry the whole load. In fact you're asking a very serious and very profound question. We recognize that. As a trade department, our particular mandate is to attempt to bring international discipline.

Mr. Charles Penson: Just step back from the goal in the trade department for a moment and think about this in terms of.... You've had a long distinguished career. Wouldn't it seem reasonable to you that we would use whatever method we have, whatever strengths we have, at the table to try to save this industry? If that means saying to other countries, “Look, we can't be part of allowing you to wreck this agriculture industry; we're not going to be cooperating with you on a couple of other levels if that's the case”, wouldn't that seem a reasonable approach?

• 0955

Mr. John Curtis: I can't speculate on what our ministers would or would not like to do. I think from the perspective I have and in the area for which I would claim a certain amount of responsibility.... And I'm not speaking as a private citizen, because obviously we all have our own views and my judgment is probably no better and probably worse than yours, coming from part of the country that you do come from. My own sense is that what we can do in a departmental sense—I'm afraid I'm going back to the original question—is work with our colleagues in the federal Department of Agriculture and Agri-Food and in the provinces and in the private sector in an attempt to bring more discipline. I realize that the problem is an immediate crisis, but trade and trade policy and all these programs that my colleagues have been talking about are in fact long-term structural problems. So it will probably require more than just a trade solution. But I'll have to leave that to others to clarify.

My own sense is that what we have to do is work just as hard as we can in partnership to try to bring longer-term discipline into this sector. Agriculture was outside the system, as you probably well know, until 1994, when we brought agriculture into the world trading system. And we're not there yet. It is a slow process. It's of great concern to my colleagues, I know, and we're working—

Mr. Charlie Penson: Mr. Curtis, thank you. I agree with you that we need those long-term disciplines. Unfortunately, I have a concern that long-term solutions are not going to address this problem we have right now, because there's an immediate crisis situation in the industry.

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

Mr. Pickard, please.

Mr. Jerry Pickard (Chatham—Kent Essex, Lib.): Thank you very much, Madam Chairman. I would like to follow up on some of Mr. Penson's questioning. I think it is significant. But before I do that, I want to go back to Mr. Delvecchio.

In your graphs and presentation, you pointed out that we are losing percentage share of U.S. investment in Canada by approximately 50%. But you also pointed out that our increase in global investment is in the neighbourhood of 100% increase. Is it an anomaly that Canada...? I guess I'd just put it this way: Is Canada capable of accepting a 400% increase in investment in the span of a few years? If we were to maintain the same U.S. investment, the scenario would be that the increase would be at 400%, or am I misjudging something here?

Mr. Rocco Delvecchio: I think the issue here is differentiating between what are called stocks and flows of capital. So you've seen an increase in stock—

Mr. Jerry Pickard: Yes.

Mr. Rocco Delvecchio: When we're talking about the declining share, we're talking about the flow or the rate at which capital is distributed or, in this case, is attracted to Canada, and of course the cumulative effect of the flow is to build up the stock.

To speculate on whether or not we would be able to accommodate higher rates of growth in investment is interesting. My sense is that there are no really clear limits. If you look at the rate of growth in investment in certain parts of the U.S., for example, in California and Silicon Valley, there are just huge growth rates, and you can see that in terms of the GDP and the growth in output of these sectors, particularly in information technologies and life sciences, some of the high-growth sectors.

So I don't believe there are constraints on the amount of capital one can absorb. I mean, clearly in certain sectors you would have certain limitations, but increasingly in the knowledge-based economy the constraints are on the knowledge-based workers. In other words, it's on the labour side. If you look at the U.S., for example, the major constraint on growth really, I think, is the relatively low unemployment rate, 4%, which I think is the lowest rate in the last 30 years. Canada's is 6.8%, I believe the most recent statistics show—not where the U.S. is at, which in a sense is our comparative advantage, which shows you that at least from a labour availability perspective there is room for us to grow relative to the U.S.

So I can't really deal effectively with the notion of limits to accepting or being able to absorb investment, but certainly if we look at the factors that support growth in investment, we have relatively more capacity than the U.S. The U.S. is relatively more tapped out than we are, so I would say there is increased opportunity for us to gain share, if you will.

• 1000

Mr. Jerry Pickard: The other question that came to mind was this. You said we had lost basically 10% of U.S. investment, going from 20% to 10%. Has their foreign investment escalated dramatically over that same time period? Are we talking about a dramatic percentage increase of U.S. foreign investment?

Mr. Rocco Delvecchio: I don't have those figures, but my sense is, yes, that U.S. investment has grown significantly over the period. I don't know whether my colleagues would have....

Mr. Jerry Pickard: The only reason I ask the question.... I think it's important. From my own perspective, I don't see that we've lost in the area I live in; I see we've gained a fair amount of foreign investment, particularly U.S. But that may be just a limited perspective that I have from the area I live in, southwestern Ontario. Is that generally—

Mr. Charlie Penson: [Inaudible—Editor]

Mr. Jerry Pickard: I think it's important, though, Charlie, to understand it.

Mr. Charlie Penson: Come and check out B.C. and see what's happening.

Mr. Jerry Pickard: Yes.

Mr. Rocco Delvecchio: I think the U.S. outward flows—which we don't have here, but we could get them—will show significant increases. When you see a lot of the activities—the fact that the U.S. economy has been so strong, the dollar has been strong; you've seen high share prices, which tend to be the currency for much of the investment that goes on—you basically have most of the factors that would support very aggressive investment on the part of U.S. firms, and I think you see that almost daily.

I think you also see, though, the push back from Europe and from other parts of the world, where you'll see increasingly concentration, I would say, but at least some higher level of aggregation in certain sectors. Some recent investments with AOL-Time Warner, for example, are evidence of that.

Mr. Jerry Pickard: Madam Chair, I might just slide back to the agricultural side of the questioning as well, because I think it's pretty relevant right across Canada. Some sectors are doing extremely well, and I could point out a few of the sectors that are doing very well in expanding products and moving into the U.S.—very high-tech industries. But in general, as Mr. Curtis mentioned, agriculture was not part of the World Trade Organization.

We have, as a Canadian society, tried very hard to bring the agricultural side into world trade, and quite frankly, I have to agree with much of what Mr. Penson said. We are perceived as not dealing with the immediate problems. Certainly we can talk about long-range planning. We should be able to resolve some of these problems through world trade negotiations. We should be able to resolve some of the problems by instilling some international discipline. But quite frankly, the U.S. is not using international discipline, nor is the European society, and we are perceived as boy scouts in the approach we're taking.

Quite frankly, I think it is time that some strong recommendations come. Either we put the money into the system, the same as the U.S. and the European Union do, or we take some other steps in order to resolve the short-term crisis. As everyone knows, you can't say “Well, in the long term we're going to do that” when you're having disastrous short-term effects. And that's what's happening.

What do you recommend—and I would open this to the three of you—as reasonable means by which to deal with the short-term problem?

The Chair: Does anybody want to respond?

Mr. John Curtis: I'm happy to answer that only by saying that my understanding of this particular committee's work and our role as a trade department is in fact to make the point that trade is part of a longer-term structural issue that affects every sector of the economy. I can't speak as a professional public servant in front of you about short-term issues that are not uniquely trade related. The essence of what we do is structural and longer term.

• 1005

I'd have to suggest that if there are serious concerns—of course I'm a reader like the rest of you, and live in the society that we all do—these are short-term concerns that I would have thought would have to be addressed to other public servants and ministers from other departments.

The role of trade, like technology, like management, like the standard of living, the quality things Rocco was referring to—these are longer-term conditions. The problem you're addressing, which is of great concern to all of us as Canadians, is very much a short-term problem. I would suggest to you that the trade vehicle will not solve the short-term problem.

This is perhaps blunter than I have to be, but this is simply outside my own level of competence.

The Chair: Madame Charron Fortin.

Ms. Louise Charron Fortin: If we're talking short term, I cannot be specific, but there's not a bilateral briefing note that's prepared with some of our guilty partners for a ministerial or even prime ministerial visit where the issue is not raised. We can say that in the short term, at the advocacy level and political discussion level, these issues are constantly raised. But that's all I can say within my present mandate.

I just wanted to mention, related to the longer-term efforts that are made with our partners, that being responsible for international financing, I'm also very much involved with the OECD and the consensus group. In fact the Canadian government has been a prime mover for the last twenty years in ensuring that there are disciplines in place to ensure that there's no distortion in the market. However, quite obviously, Mr. Penson, there is a mega-distortion for the agricultural sector, and agriculture has been in fact on the agenda. At times we've had—

Mr. Charlie Penson: Would you come out to my riding and tell people that?

Ms. Louise Charron Fortin: How hard we try, and show the scars on our fingers.

This has been, at the OECD—OECD being a carve-out of the WTO agreement—a discussion. And believe me, it's constant, it's steady. I won't say it's aggressive, but short of being that, we have been very forthcoming. But again, in the short term we have not seen the results we were hoping for—some partial results, but the distortion is indeed still there.

The Chair: Mr. Delvecchio, do you have anything to add?

Mr. Rocco Delvecchio: No.

The Chair: Okay. Thank you.

I'm sorry, Mr. Pickard, I have to move on.

Mr. Jerry Pickard: Okay. Thank you, Madam Chair.

The Chair: Mr. Brien.

[Translation]

Mr. Pierre Brien (Témiscamingue, BQ): I have a question, either for Mr. Curtis or Ms. Charron Fortin. On the international front, one thing concerns me at the present time, namely the fact that the price of a barrel of oil seems to have increased for good. OPEC countries have managed to agree amongst themselves on restricting the supply of oil. Rising energy costs have become the leading cause of inflation in Canada today.

What is your department's position on this issue and what can Canada do to counter the actions of OPEC nations? Can we put some kind of pressure on OPEC, or do you think that the agreement in place is tenuous at best and that oil prices will fall to more affordable levels within the next few months or years?

[English]

The Chair: Mr. Curtis.

Mr. John Curtis: Well, we'll have to ask Mr. Penson if constituents in his home province are benefitting from the increased price of—

Mr. Charlie Penson: Well, the farmers are going to work in the oil fields.

Mr. John Curtis: That's what we call structural adjustment in the business.

To answer the question very specifically, the essence of the trade system is in fact to promote a better-functioning market, a freer market—not free market, but a freer market. Commodity prices, in particular oil prices, are part of that. So my basic answer to you is no, we're not suggesting that this industry be re-regulated or that there be particular stockpiles or whatever kinds of interventions were often done in the 1960s. This is a phenomenon—I think you've pointed your finger in the right direction—of supply. It's a limited resource. Certain countries control much of the supply of that resource, and in fact this is part of the vagaries of the marketplace.

• 1010

We track the movement of prices, as you suggest. We know that commodity prices, in particular oil prices, in the very short term.... Again we're back to the short term, which I realize is a concern of all of you who are elected officials, but in fact I think one can have every confidence that given the perspective of movement of demand and supply for these commodities, prices will begin to fall sooner rather than later. I won't call it long term, Madam Chair.

[Translation]

The Chair: Mr. Brien.

Mr. Pierre Brien: I have several questions for Mr. Delvecchio. On the last page of your submission, you state that Canada has made significant improvements in terms of productivity and that its ranking has improved as well.

You mention this at the close of your presentation, as if this were something people needed to be made aware of, particularly the Americans. I may be wrong, but the productivity gap between Canada and the United States has not been narrowed. Is it possible that the negative perception Americans have of Canadian productivity is accentuated by the fact that US productivity is vastly superior to ours?

Mr. Rocco Delvecchio: That may well be the case. That may explain their perception of the Canadian economy. However, if we consider other factors, such as production costs, for example, the data shows that the cost structure in Canada is much lower than it is in the US. It's really a matter of perception on the part of people who are not familiar with the Canadian reality.

Mr. Pierre Brien: How do you propose we go about changing this perception for the better?

Mr. Rocco Delvecchio: Right now, we're devising a strategy to improve the flow of information about the development of the Canadian economy. The aim of this ongoing initiative is to come up with optimum ways of communicating information to change the perceptions of investors throughout the world, and in particular investors in the United States. This strategy is beginning to take shape.

Mr. Pierre Brien: If there's one thing we should be focussing on in the short-term to improve our competitiveness, what would that be? In your view, what concrete proposal should this committee ultimately put forward with a view to enhancing productivity, as this appears to be our main weakness?

Mr. Rocco Delvecchio: It may indeed be a question of perception, but I believe that if we can succeed in increasing the level of investment here in Canada, this will have positive spinoffs for productivity, exports and other sectors of interest to committee members.

Mr. Pierre Brien: Therefore, in your opinion, we need to take steps to promote additional private sector investment. Is that correct?

Mr. Rocco Delvecchio: Absolutely.

Mr. Pierre Brien: I see.

[English]

The Chair: Thank you.

Mr. Murray, please.

Mr. Ian Murray (Lanark—Carleton, Lib.): Thank you very much.

Just following on the previous discussion, we seem to have a serious image problem abroad. It's interesting that in both Mr. Curtis' and Mr. Delvecchio's presentations the question about branding was raised. I assumed in Mr. Curtis' that the made-in-Canada label was supposed to be a good thing. It may be a good thing for maple syrup and maybe for other products, but it seems that it's not necessarily a good thing if you look at the results of this graph Mr. Delvecchio has given us.

As a long-time subscriber to The Economist, I've always thought that Canada could claim victory if The Economist some day said something nice about Canada. They've never treated us seriously, it seems to me. If you look at this poll, it shows that they think the Untied States is way ahead of Canada on something as fundamental as resources. That's not just something wrong with this poll; that's a very damning indictment of our communications abroad.

• 1015

I guess my question is really a kind of mélange of this question of branding, our trade commissioner service abroad, and whether we should be focusing more on perhaps more direct investment in Canada, as opposed to trying to find opportunities for Canadian exporters abroad.

Madame Charron Fortin, I'd like to ask about the trade commissioners generally. Roughly what percentage of them would have significant experience in the private sector before they become trade commissioners? I remember years ago when the Department of Industry, Trade and Commerce existed and you had some pretty crusty trade commissioners there who would tell you very bluntly what you should do with your idea if you wanted to go abroad. I think that has changed somewhat over the years. It may be that we're not using these people to the best advantage if we have this problem of credibility as a G-7 country with some significant players in the world of technology in particular and we have these kinds of results of the perception of Canada. So should we be refocusing our approach perhaps, because investment is important?

It may be—Mr. Delvecchio, you might refer to this—that with the tight employment situation in the United States, perhaps there will be a spillover effect into Canada. I think it's probably already starting, as they look for some talented individuals who can do the work that needs to be done.

That's a pretty fuzzy question, I know, but I'm just going to throw it out for discussion to all of you.

Mr. Rocco Delvecchio: Your name was mentioned.

Ms. Louise Charron Fortin: My name was mentioned, and I heard “crusty”, so we'll react to that.

In terms of the ability profile or skill profile of the trade commissioner, we are in fact doing the utmost in our recruitment efforts to try to capture and bring to the department trade commissioners who have more.... In fact a lot of them now have experience in the private sector before they join us. It's no longer a recruitment limited to universities.

As you will recall, the trade commissioners were joining the department at age 22, after completing one or two degrees. But now the trend has changed, because we've opened up our selection criteria. There is still university graduation required, but because of the situation of the market out there in certain sectors, we are in fact getting the benefit of a crop—and that has been the case over the past many years now—of trade commissioner recruits who are recruited for just that: their sense of entrepreneurship, their experience in the private sector. So the profile has changed.

In terms of those who might slip in with the thick crust—

Mr. Ian Murray: I didn't mean that in a negative way at all.

Ms. Louise Charron Fortin: No, I understand. But you're dealing, as I said, with a whole new culture there.

When we did the review of the programs, as I mentioned in my statement, and spoke to the private sector a few years back, they did say that they felt they wanted trade commissioners to be more aware of what they were all about. In this context, we have created a training and skill development program and in some cases an exchange program with the private sector to ensure trade commissioners are fully aware of what's going on out there. We bring them back and bring them in contact with the private sector. I believe I mentioned some figures for the 1999 outreach program. It's all part of the dynamic of ensuring that trade commissioners keep the pulse of the industry and have this talent for entrepreneurship themselves. So that's my answer to the profile: we're building up on those aspects of the program.

On the branding image, in the context of the review of the program, we realigned in fact the services and responsibilities of the trade commissioner to remove what one might consider as being secondary duties—I'll let you guess what those are, anywhere from logistics to other housekeeping-related duties—to spend more time on outreaching with the client, not only to find this intelligence I spoke about in my statement, but also to raise the profile of Canada as a potential partner in all aspects, as a trade partner, as a technology partner.

• 1020

So the action of the trade commissioner is much more focused and much more outward going than it was a few years back. I understand your point very well, and measures have been taken to improve and enhance our capability and our action in this area.

The Chair: Mr. Curtis.

Mr. John Curtis: I have a very basic point, if I might, Madam Chair, and that's to suggest to you and the committee not to be quite as pessimistic as the tone I hear now, especially in The Economist magazine. You have to remember that magazine is a British colonial relic, so one has to....

But more fundamentally, I think as Canada resumes its growth path, which has been really quite dramatic in the past three or four years, as investment levels increase both in and out—because it's often Canadian-based firms that are investing abroad, that are in fact bringing in the technology and the knowledge and the management—as prospects for growth in the Canadian economy.... Granted, the very serious sectoral problems in several of our sectors and several of our regions of Canada still will attract the headlines of The Economist magazine over time, and the Financial Times, and The Wall Street Journal, and others, but my sense is that a good solid record of growth and optimism that is pervading parts of this country, and the numbers that we're seeing, will in time turn around.... This country has been through seven or eight tough economic years, and certain sectors continue, but in fact the economy has turned around really quite dramatically. So I wouldn't be overly pessimistic.

The second point is that—and it goes back to the earlier question—the structure of this economy is still somewhat different from the United States economy, so we say our productivity is weaker. It is weaker in certain sectors, but it's not that much weaker in other sectors. I think this is perhaps a point that was made to the committee earlier. As for the two sectors that are growing most rapidly in the United States—and those are electronic equipment and industrial equipment, which is computers, telecoms, and all those areas—the share of those sectors within the United States economy is twice as large as the share within the Canadian economy. That's why the rest of the world, including Canadian investors, are investing in the United States. That's what makes the difference, when we sit next door to them with one-fourteenth of their size, appear to be a little overwhelming.

If you dissect it, if you go through and look at the furniture industry, at our agrifood industry—outside of the particular province that Mr. Penson was referring to—and at a broad range of sectors in this economy, you see that in fact we have done reasonably well through the past tough decade and we're going to do an awful lot better. Somebody in New York is going to say “Buy that Canadian dollar. This is worth getting into. That's a country that's been underpriced; they have the natural resources and they have the human resources.” My suspicion is that The Economist, although the British are always a little bit behind the times, will in fact realize that they have a pretty strong economy in the northern half of the North American continent.

The Chair: Thank you.

Mr. Delvecchio, do you have something to add?

Mr. Rocco Delvecchio: Just briefly, The Economist, going back about four or five months, had a feature article on Canada that was surprisingly positive—at least surprisingly to some.

My sense, coming back to the branding issue, is that we need to develop a strategy that allows us to be better known within the world so that we can better participate in globalization and get a larger share of the investment flows and technology flows that are driving growth in these sectors. We do this. This is our job, and every day we're competing for major investments.

What I might suggest to the committee—I see you're talking about case studies—is to look at some of the major strategic investments that have taken place in Canada. I would cite perhaps two. One is a major investment in Cape Breton Island, a pulp and paper mill, an investment by a Swedish-based firm, Stora, of $750 million. Just to see how that investment has transformed that part of the country, look at two scenarios, with and without that investment, at where you would see that part of that regional economy going. Another would be IBM establishing a new software development centre focused on an electronic commerce facility to be built in the Toronto area over the next twelve to eighteen months. If you just look at the specifics of those investments and the implications those investments have, I think you can extrapolate and see that investment is a very critical part of growing our economy, and to succeed in attracting investment we need to be better known and Canadian strengths have to better understood.

• 1025

We are now actively, and perhaps with the support of this committee, developing strategies that will allow us to better measure and increase Canada's mind share with investors. We're looking at piloting various ways of doing this. The traditional approach for some countries has been to get into some advertising campaigns, but of course the downside of that is that it's not only very expensive but it's not focused; you're not really sure who the audience is.

From our perspective, we believe the audience should be first-order investors, broadly defined. So with that target audience in mind, we're actively developing pilots that will give us a better sense first of all of how we're presently perceived—going beyond the survey results I've shared with you and others I could share with you—but also looking at the sorts of strategies we could cost-effectively pursue to increase mind share and therefore increase probability of attracting some of these important strategic investments to Canada.

The Chair: Thank you.

Mr. Jones, please.

Mr. Jim Jones (Markham, PC): Thanks, Madam Chair.

I thank you all for your presentations.

I have a lot of figures I'd like to get clarified. What is the size of the U.S. economy?

Mr. John Curtis: It is about $9 trillion U.S.

Mr. Jim Jones: So the Canadian economy in U.S. dollars is about six—

Mr. John Curtis: It's $660 billion U.S. That's why I use the one-fourteenth.

Mr. Jim Jones: And what was the ratio in 1985 of the Canadian economy to the U.S. economy?

Mr. John Curtis: I just don't have the figures at hand.

Mr. Jim Jones: And also in 1975, what was the ratio?

Mr. John Curtis: With the permission of the chair, I could look those up. I'd prefer not to—

Mr. Jim Jones: Because I think there's something significant here. I have the gut feeling that the U.S. economy is growing at a quicker rate than the Canadian economy.

Mr. John Curtis: That's true.

Mr. Jim Jones: Right? Because at one time back in the 1980s or late 1970s, when I worked for IBM, we always said that we were roughly one-tenth of the U.S. economy.

In comparison to the world economy, what size is the U.S. economy to the world economy?

Mr. John Curtis: Again, I don't have the numbers in front of me, Madam Chair, but if I were to say about 25%, 24%, 23%—about a quarter of the world economy....

Mr. Jim Jones: A few years ago I was watching either the State of the Union address by Bill Clinton or an address by Bill Clinton saying that the objective of the U.S. government and U.S. economy was to grow from 25% to 35% of the world economy. How can a country like that have that type of objective when every country is trying to expand? They're in a growth mode, and I believe in the same period of time we have decreased as our share of the world economy. Why is that?

Mr. John Curtis: I'm not sure that in fact the United States.... That might have been a vision, like landing a person on the moon.

Mr. Jim Jones: But they're 25% of the world economy, with 270 million people over five billion or six billion people. So they're only a very small fraction of the world population, yet they have 25% of the world economy.

Mr. John Curtis: It's an economic success story of the nineties, there's no question of that. In fact, as members will know, on February 1 they entered the 108th month of continuous economic growth, which makes it the longest period of economic growth that has been measured that the U.S. economy has ever had. It compares to the 1870s, the 1890s, and the 1960s, which ended of course with the Vietnam War inflation.

They've had a particularly successful decade. I can't verify that the economy as a share of the world is any larger than it was; it probably would be a few percentage points, because it has been the economy of choice. That includes some of the numbers Mr. Delvecchio has mentioned.

The mathematics shows Canada declining. It's really more that the United States has grown.

Mr. Jim Jones: If you could look ten years ahead, what would be the size of the U.S. economy and what would be the size of the Canadian economy as a percentage?

• 1030

Mr. John Curtis: If I were in the private sector, I'd ask you to pay me for it and I'd make that forecast. I don't know about the Minister of Finance.... I think he'll be speaking toward the end of the month publicly, so I wouldn't want to scoop anything the minister might offer.

My hunch, if I may offer only a hunch, is that the Canadian economy relative to the U.S. economy over the coming decade will grow slightly more. So in fact that disparity, which is one to fourteen at the moment, will be somewhat smaller a decade out, probably because we have underperformed for much of this decade and they have overperformed. Like everything else, nature likes its own balance, and I suspect the Canadian economy will in fact outperform the U.S. economy, broadly speaking, over the next decade.

Mr. Jim Jones: Mr. Delvecchio, you had a chart on U.S. foreign investment. In 1985 Canadians were receiving 21% of foreign investment of the U.S. Is that correct?

Mr. Rocco Delvecchio: Yes.

Mr. Jim Jones: And in 1998 it was 10%.

Mr. Rocco Delvecchio: Right.

Mr. Jim Jones: Where did that investment go?

Mr. Rocco Delvecchio: The share of U.S. investment that was reflected in our loss of share has largely gone to Latin America and Asia, in China. That's where you see the U.S.-based firms increasingly growing in those markets. That was the point of one of the other charts when we were commenting on basically where the shares have gone. The share that's directed to Europe has remained more or less constant, but the growth really has been in Latin America and Asia.

So it comes back to your point about the relative growth rates and how a U.S. economy can sustain such a strong position with such rapidly growing economies, notwithstanding the Asian problems in the last couple of years, but over time the rather spectacular growth rates in different parts of the world.

It would be interesting to look in a greater level of detail at the comparative performances of the two economies with respect to growth, productivity, and income growth. These are all very important indices of how we stack up against the U.S. I don't know whether you've got into that in any of your research, but there's a lot of that data available from Industry Canada.

Mr. Jim Jones: You also said in your charts that Canada ranked 17th out of 25 as a preferred investment destination.

Mr. Rocco Delvecchio: Yes.

Mr. Jim Jones: That was in 1999. Where did we rank in 1985 and 1975?

Mr. Rocco Delvecchio: The problem with the time series on this is that the A.T. Kearney report was almost a one off. I don't know how far back in time we could go to look at how that particular group ranked us. You get different rankings. At the UN, for example, we're ranked number one consistently in terms of quality of life. If you look at some of the other measures that bring in some more of the business factors, we tend to rank relatively lower. Again, I've given you three different groups who've ranked us in different ways.

The ranking of the A.T. Kearney group was basically an assessment of the business community with respect to how we're perceived. So in a way it kind of amplifies the point that we aren't terribly well regarded within the international business community.

Mr. Jim Jones: We aren't?

Mr. Rocco Delvecchio: We are not terribly well regarded within the international business community with respect to being an attractive place to invest or place their businesses. This is reflected in the declining share of investment that we show on some of the charts.

Mr. Jim Jones: When you talk about branding, is that branding translated into really high taxes? Is that the image, that they won't invest here because of our high taxes and risk in comparison to going to other countries in the world that have a more favourable climate for taxation for corporations?

Mr. Rocco Delvecchio: In some cases taxes are a major issue. In other cases it could be availability of skilled people. It really depends on the investor and the specific circumstances.

We see, for example, in the venture capital community and capital formation to promote growth of smaller companies that there are certain tax advantages the U.S. enjoys, which tend to help that segment of the industry or economy grow more quickly than here. And you get into the tax treatment of share options and that sort of thing, on which there's been some press and which I think are important considerations.

There's no simple answer. I think it's a combination of factors. It depends. For example, if you're talking to German-based firms and you look at the cost structure of Canada versus Germany, we are very, very competitive, whereas if you were talking to certain groups in certain parts of the U.S., for example South Carolina, maybe that cost advantage would not be as marked or as different.

• 1035

So the concerns of investors really depend on the nature of the business they're in and also where they're located, the sort of range of options we're looking at. It would be difficult to generalize. There is a range of things. Regulations are often issues, particularly in the life sciences area. We see that there are issues related to skill availability, which tends to be a contributing factor in both information technology as well as life sciences, which are the high-growth, high-knowledge-intensive industries.

We see, for example, in the life sciences that once you get beyond intellectual property issues, which were recently debated here through Bill C-91, you very quickly get into the quality of the research that's done, for example, and the quality of the skilled labour, which is increasingly more of a factor in the investment decisions, particularly in the high-growth sectors.

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

Mr. Jim Jones: One last question, a quick question.

The Chair: Briefly.

Mr. Jim Jones: Mr. Curtis, in your presentation you said that trade is 41.3% of Canada's GDP. What percentage of that 41.3% is with the U.S.?

Let me just go further. If it is a very high number, doesn't it behoove us to emulate more the U.S. tax policies and the things they have down there to stimulate investment and growth?

Mr. John Curtis: I can answer the first part of the question with more confidence than the second part.

Mr. Jones, 41.3% is in fact Canadian exports, the share of exports as part of our GNP, not trade. If you added imports, and of course imports are part of exports and re-exporting—

Mr. Jim Jones: No, but what percentage of 41.3% of all Canadian exports go to the U.S.?

Mr. John Curtis: If you want an exact percentage, it's 81.7%, so about four-fifths, which means, if I can put it in other terms, that about a third of all our Canadian domestic activity is in fact accounted for by trade with the United States.

Mr. Jim Jones: And you're not going to answer the second part?

Mr. John Curtis: Mr. Delvecchio has it. It's everything. We have to work on our whole range of economic, political, and social subjects. I think that's the subject matter of what this committee very wisely is doing, but I suspect it's not any one thing. It's that Canadians are modest. We know that. We're just nicer Americans, and we don't like to get out and boast quite as much.

Mr. Jim Jones: But this is not a nice world.

The Chair: Okay, thank you, Mr. Jones.

Madam Jennings, please.

[Translation]

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): Thank you, Madam Chair.

[English]

I have one question, and that has to do with the awareness gap. It seems that we're not on the map when it comes to investors. That's overall. Is there any particular industry sector where we are on the map and from which we could possibly learn, whether it's the European investors, whether it's the Asian investors, whether it's the American investors that are looking to invest outside of their particular country or continent, where Canada is seen as a place to invest their money because they're going to get a comparable or better return on all of these key investment drivers? If there is, that might allow us to develop our brand in the other sectors. Is there one, and if there is, what have you learned from it that can help us in the other sectors?

Mr. Rocco Delvecchio: I think traditionally the image of Canada, at least on the industrial side, was a resource-based economy and well known for our mining and forest products. In fact, if you look at the trade figures—

Mr. John Curtis: Cars, lots and lots of cars.

Mr. Rocco Delvecchio: —there are lots of cars, lots of forest products exports.

If you were to talk about sectors where we are well known, and I guess sort of the first rank, if you will, within terms of a global industrial structure for investment, I would say the auto sector is one. It's not a story that's perhaps as well known as it could be or should be, but we've been very successful in attracting investment in Canada, partly because of the comparative cost advantage that we offer—and Madam Chair might know more about this than many of us. The comparative cost advantages in terms of lower payroll costs are certainly a driving force in some of the investment.

My recollection is that we assemble about 20% of the cars sold in North America, whereas we account for about 10% of the market. So there is a clear advantage to us, particularly on the assembly side, offset to some degree by the deficit on the parts side, which we're working to redress.

• 1040

If you look at the Japanese investment in the auto sector, some of those plants, like Toyota and Honda, are clearly among the most competitive and productive in the world. These are all part of our ongoing marketing strategy when we're talking to prospective investors.

Another sector that is emerging is in telecommunications. It's an area of great strength. My sense is that there is a convergence that's taking place with respect to three major sectors. One is consumer electronics, the second is the computer systems area, and the third is telecommunications. Whereas we've never been a strong player in consumer electronics or the computer manufacturing area, we have traditionally had great strength in telecommunications. With the convergence of these sectors, I see Canada gaining some prominence in this area. Nortel and BCE are clear examples, particularly with spectacular performance in the stock market, which tends to attract the interest of investors.

I would say that if you talked to people and asked them for their views on Canada, they would say we have a resource-based economy with a significant presence in autos, although not shared broadly with an emerging awareness of our strengths in telecommunications.

Ms. Marlene Jennings: So what are we doing in order to inform them? You talked about having some pilot projects, some plans to attempt to brand us for the investors and those who do the influencing. A company that wants to invest goes to some specialist who looks around at what's happening in the world and determines where that company is going to get the best bang for its buck. How is your plan, or the plans you're attempting to develop, going to go out to get and inform those key influencers that in those three areas there is a convergence happening, that our market is undervalued, and that this is a place where they want to put their dollars?

Mr. Rocco Delvecchio: In terms of the work we're doing, when we talk about about a pilot, what it's not is a broadly based campaign to inform the public at large. It's very focused—

Ms. Marlene Jennings: We're talking about the influencers.

Mr. Rocco Delvecchio: Yes, the influencers and decision-makers.

It's starting with a very systematic effort to first of all identify the decision-makers and to get a better sense of how they presently perceive Canada, if at all, as well as to get a sense of what their values are in terms of what drives their decision-making.

The second step, then, is to take a look at where there are gaps. For example, if we're dealing with investors and we understand their value systems, how do we stack up as a country? Our sense is that we'll end up with certain information gaps that reflect the fact that they're not really up to date with what's going on in Canada. Those gaps can be closed by simply communicating better.

We also expect that there will be certain policy gaps, that there will be areas in which we are well known but are not particularly well regarded because those factors are not positive factors in the minds of investors. So we will have a policy agenda that will emerge from that.

The net result will be that we will have an information or communications strategy and a policy agenda, and that we will then work with the channels we've identified to get to the key decision-makers and influencers, so that in the first order we get a larger mind share with prospective investors. Our belief is that if we get greater mind share and get the attention of investors, we do have a good story to tell, particularly in some of the sectors I've mentioned.

Ms. Marlene Jennings: What's your timeline on that?

Mr. Rocco Delvecchio: We're saying twelve to eighteen months.

Ms. Marlene Jennings: Steps one and two will then have been completed?

Mr. Rocco Delvecchio: Step one we hope will be completed within twelve to eighteen months. We would then be in a position to a have more robust strategy that would be geared toward increasing mind share and toward better communicating Canadian advantages to prospective investors.

Ms. Marlene Jennings: My concern is the time period you're aiming at. The indicators are that there is a convergence that's happening. In globalization and with increasing technology, such convergences take place a heck of a lot more quickly now, with a complete restructuring of a marketplace or an industry, than even five years ago. I'm wondering if there's not going to be a time lag by the time you're prepared to advise the government or the industry sectors. You've identified who the key influencers are in particular sectors, and they're already going to have invested their money elsewhere.

Mr. Rocco Delvecchio: In response, what I'd say is that the branding pilots we're developing are not the only thing we're doing. We continue to work very aggressively from day to day. When I leave here, we'll be working on prospects, because that's our job. We've enjoyed considerable success in a number of areas. The telecom area is really hot. We have a great focus in Canada, and in this region in particular. We have much to offer.

• 1045

Part of the challenge will be to continue to persuade people that Nortel is in fact a Canadian company, because Americans tend to adopt companies that are successful. But it's been a spectacular success, and it draws attention to us. Our challenge, of course, is to leverage that awareness so that when people see that Nortel has been so successful, they ask why that is and what it is they're not seeing or overlooking that Canada has to offer. That's very much a part of our marketing campaign. But we're doing that every day in addition to the branding initiative.

The Chair: Thank you, Madam Jennings.

Just to pick up on that very briefly, I think Mr. Delvecchio clarified that in his last response. Obviously our ministers and any groups that are out representing Canada are constantly trying to expel the myths, but are also trying explain to people who haven't visited here in 20 or 25 years and who are making these decisions that the United States has grown, but so has Canada. That's a big challenge sometimes when we're overseas, because people haven't been.... I mean, I met with people when I was over in Taiwan and Malaysia who haven't been to Canada since 1971, and they're thinking the United States has changed but Canada hasn't. So we do have a large education factor that we have to consider.

Just before I go on to Mr. Penson and Mr. Cannis, Mr. Curtis, you were talking about size in response to Mr. Jones. When we say it's one-fourteenth, are we taking into account the fact that the Canadian dollar is low versus where it was, or are we not?

Mr. John Curtis: No, Madam Chair, these are U.S. dollar figures. You're right, it is translating what the U.S. dollar is now in terms of—

The Chair: Well, when I go back to the 1975 numbers, the Canadian dollar was equal to the U.S. dollar, or maybe a couple of cents higher.

Mr. John Curtis: That's right, so that is part of the mathematics of what you're doing. But the point is—and I think this is what Mr. Jones was asking me—if you looked at the last twenty years and measured everything in United States dollars, including the output of Canada, what would be the change? So, yes, the exchange rate at any one time influences how you undertake the mathematics, and it has had an impact on all sorts of things. But if you take U.S. dollars—which the international institutions and many businesses do for the whole world, of course—although I don't have the 1975 or 1985 figures, in United States dollar terms, I suspect the Canadian economy compared to the United States economy is somewhat smaller now than it was then, taking into account the movement of the two currencies.

The Chair: Okay, thank you.

Mr. Penson.

Mr. Charlie Penson: I just have a short question.

First of all, Mr. Delvecchio, I would like to say that it seems to me that instead of trying to go out and brand Canadian products for investment purposes, we would be better off to try to remove the brand that's already there. That can take many forms, as we know. Investors consider a lot of things when they make investments. Taxes are one of them. There's political stability. There are all kinds of things. I would suggest government policy for mines. The mining industry in Canada essentially picked up and went to Chile, making substantial investments down there.

Considering the strength of the U.S. dollar, do you share former premier Peter Lougheed's concern about the U.S. buying up Canada? He's saying it's sort of an alarming trend that's happening. With the strength of the U.S. dollar, it gives the Americans the ability to make bargain-basement investments here. Do you share that concern?

Mr. Rocco Delvecchio: I would respond by saying that the part of the investment game we're in or business we're in is really to attract investment to Canada to grow businesses in Canada, either to establish new businesses or to grow businesses that are already here. We're not caught up in the merger and acquisition part of that, so I don't really have a view on it except to say that when we're working with a company and are targeting a company, it's with a view to having that company establish or grow a business in Canada. Invariably, that sort of investment is good for Canada. Without it, we would not have that sort of economic activity.

Mr. Charlie Penson: With that, they would bring new technologies—

Mr. Rocco Delvecchio: New technology management.

Mr. Charlie Penson: —or price sets, for example, and so on.

Mr. Rocco Delvecchio: The interesting thing about investment, and particularly high-level investment, is that when you get these global companies looking at making a major strategic investment decision that will determine the future of their company's performance, they're looking for an area in which they can derive the greatest competitive advantage over an extended period of time. That relates to a variety of factors you've mentioned, and they will vary from company to company and sector to sector.

• 1050

The other thing they will bring, because they want to have strong returns.... Essentially, they will bring in whatever is necessary to be successful. If you look at the example of the Stora paper mill in Port Hawkesbury, what you will find is that the $750 million not only brought in world-class papermaking equipment—which makes it probably the premier papermaking facility in the world right now in that grade of paper—it also caused a transformation of the workforce. It has brought in new management and a variety of things.

The whole investment has transformed that region of the country and that particular company's operations in a whole variety of ways, ranging from the capital equipment that has been brought in to the management techniques and the financing that comes with being linked to a larger company that can have a stronger presence in the marketplace to market those grades of paper and so on. If you look at that spectrum, you'll see that—

Mr. Charlie Penson: Yes, I certainly agree, just as long as we don't have to entice them in here with government money. That's the only thing.

Mr. Rocco Delvecchio: Could I just comment on that?

Mr. Charlie Penson: Yes.

Mr. Rocco Delvecchio: I don't know if you've looked at this particular example, but there's not a single federal dollar on the table in support of that investment in Canada. It's $750 million without any federal government incentives. We pride ourselves on this, in that when we're looking for strategic investment, we're looking for firms who aren't looking for incentives or subsidies; we're looking for firms who want to make the decision in favour of Canada, because we do have the fundamental strengths and assets to offer that will attract that particular company into Canada.

The Chair: Thank you.

Mr. Cannis, please.

Mr. John Cannis (Scarborough Centre, Lib.): Thank you, Madam Chair. I'll be very brief as well.

Panel, as you've heard, I think, the most common denominator around the table—and there have been many good questions—for most of the members who have asked questions is the concern we all have about the awareness gap, or where we find ourselves on the map, or how we sell Canada. Just to refer to Mr. Delvecchio, who repeated this a couple of times, we have a good story to tell, I agree. We all agree. It's a matter of how we get that story out. I'm pleased to hear that a strategy is being developed to make Canada more aware.

But if we have a game plan, as good as the game plan on the table might be, do we have to tools to execute that plan? What I'm referring to is this: I'm happy that Madam Fortin referred to the quality of the people representing us abroad and who are out there, but as good as they are, unless they have the ability to do their job, they can't accomplish it and we can't accomplish what you referred to, Mr. Delvecchio, in attracting investment.

Are the means there? I know that as a government we've gone through some restructuring over the past many years. The plan is now in place, you tell me. Aside from the plan on paper, are there other tools? You know exactly what I'm referring to. Are these trade commissioners that find themselves abroad able to go out and compete, like the U.S. representatives are, to liaise, to do good PR initiatives out there? Are those tools there?

Lastly, when we go out and compete with other nations—with the U.S. or what have you—we know other countries are not set up structurally like we are, with the different levels of government. When we go out to attract investment, do you find that there is cooperation among the provincial counterparts in working with the federal side? We know some barriers exist domestically—for example, province to province. Are the provinces as cooperative? Can you tell us, please? I'm sure you deal with the provincial counterparts as well.

Mr. Rocco Delvecchio: In regard to the first part of your question, Mr. Cannis, I would say that for the skill set required to do this job well, I don't know that we're clear on those requirements at the moment. Part of the piloting I've talked about will determine what our strategy should be, what kinds of channels we need to establish to better communicate with prospective investors. That in turn will give us, I think, a better sense of the kinds of skill sets and core competencies we need in order to do this well.

My sense is, though, that it will be, to some degree, different from the current skills. Dealing with trade and trade promotion, in my view, is very different from promoting investment. You're dealing with different people, different levels, and different kinds of messages. In the case of investment, we're selling the country. In the case of trade, we're helping another company sell a service or a product. They're fundamentally different. The skill sets are different. Part of our pilot process will be to determine that.

• 1055

With respect to collaboration, my sense is that increasingly we are working better with the provincial governments, but also with the municipalities. What I find interesting in the investment business is that the municipalities are becoming more actively involved in this game. An investor will very quickly go from looking at Canada to saying, well, perhaps Toronto is a place I should look at—or Vancouver or Edmonton. You very quickly get investors focusing on a particular region. That in turn means that we must have very good working relationships with the regional municipalities.

We've had this, for example, in some of the investment successes I've mentioned, IBM being one of the more recent ones. My sense is that partly what drives that higher level of collaboration is that when municipalities and provinces step out into the world, they discover pretty much what we discover, which is that we're not very well known. Sometimes the first question a mayor or regional chair or provincial minister will be asked is a question about Canada, like, “How's Canada doing?” or “How are you doing fiscally and in other respects?” and “What about skills?” and so on.

So when they're promoting their particular jurisdiction, they have to be well informed and they have to be able to offer constructive comments on what the country has to offer. Increasingly we find that when we step out to market Canada, we're able to work very effectively with provincial and municipal colleagues and counterparts. In that sense, I think things are becoming more robust.

In fact we're getting away from some of the rivalry we saw earlier, when investment was considered to be something within Canada and you had a number of things going on within the country, which created some stress between regions. As we look outward, those tensions really aren't there or aren't as strong, because we are looking outward in bringing investment to Canada. As for where they locate in Canada, it really is up to the other partners to make their best case. I think the partnership works well now, and can work well as long as we're focused on strategic investment opportunities outside of the country.

Ms. Louise Charron Fortin: May I add to that?

It's a crossover between trade and investment. In terms of integration with the other players, including the provinces, there are regular ministerial consultations, so at the policy level people are talking, and right down to the working level.... We have, as I mentioned earlier, the Team Canada Inc. arrangement. The arrangement runs from having, in international business development, a common business plan where people agree on objectives and share the task.... The input for that plan works right through what we call the regional trade network. There is a component on investment in the business plan and those networks feed into the business plan.

It might sound like a lot of bureaucracies, but it does bring people together. It does bring people to the table. At least we have succeeded, after a year and a half or two years of this, in setting common goals so that people are not shooting all over the place. It's important that we do this, because our resources are still limited, and it's important that everybody who invests in the process of developing trade or investment or technology acquisition does so in a rational way and avoids duplication. We have lived situations where we have had a number of clients going out there and knocking on the door of the same client, and that's no good: if you want to bruise your image, that's one way of doing it—we look like fools. That's my last little point.

The Chair: Mr. Delvecchio.

Mr. Rocco Delvecchio: Just as a point when we talk about municipalities and trying to get better levels of coordination, we have a program—which was approved about two years ago, I think—called PEMD-I, which is a program for export market development, for the investment side. It's a program that allows us to work directly with municipalities, to get them focused on what their assets are, on what their strengths are, on how that relates to what prospective investors might be interested in, and on how to better position themselves so that they can be effective in attracting investment. It includes something as important as collaborating on developing a website so that we, together with the provinces and municipalities, are adequately represented and so the data that investors, particularly in the U.S., are looking for when they're making their decisions is available and current in U.S. formats.

We've been able, through this program, to do that very effectively, so there's a certain amount of nation-building going on through this process and through this program. I hope that the committee, if it has an opportunity to consider this, would see the merits of it and would come to some conclusions as to where this program should go in the future. I think there are perhaps two years remaining in the funding, but it's such a critically important program and it's so important to get all the partners together and working on the same wavelength. The fact that we need to present an effective, coherent presence to investors is really what drives people to collaborate. But, as you mentioned, we need the resources and tools to be able to do that effectively, and we have some of that in that particular program.

• 1100

The Chair: Thank you.

Mr. Curtis, do you have a final comment?

Mr. John Curtis: I know you have to wrap it up, Madam Chair, but very briefly, if I might, I'd like to go back to Mr. Penson's question just before this last one when he referred to a fellow Albertan. One thing I learned from growing up on the other side of the mountains is that you never take on either a former premier or an opposition critic from immediately across the mountains.

In terms of your ultimate work, I think it's important for the committee to recall that on the investment side Canada is now exporting more than we are importing. So the takeover or the hollowing-out concept at least should be thought of in terms of the two-way flow of investment, and that as well will be part of our branding. Canadian firms buying into the United States market or further abroad are all part of this very rapidly changing economy.

So I would hope that as this committee continues its work, it will focus on both in and out and how the economy is changing very quickly. On the whole, I think our branding problems in the future are going to be much less of a problem than they have been over this really quite tough decade, to repeat that point.

Thank you, Madam Chair.

The Chair: Just before I let you go I want to ask Madam Fortin if she could reconcile something. When we had Serge Nadeau from Industry Canada here, we talked about our exports, and he basically said that it could fall within five very distinct groups or companies, including the auto companies, the Grain Commission, and Nortel. In your opening comments you made it sound as if it was much broader than that. I'm not sure if I misunderstood something or....

Ms. Louise Charron Fortin: I made reference to the fact that in order to strategize and prioritize our action, in 1996 the government had approved, in fact espoused, a list of 23 strategic sectors. In fact, 12 of those sectors have been retained for particular action. I don't know if you're referring to—

The Chair: I was talking specifically about exporters. I'm sorry, I didn't make that clear in my question. When you were talking about us being a nation of traders, you were suggesting that there were many companies that fell within the exporters. Are they really small? When we had Mr. Nadeau here, he talked about how five of them dominate our export market.

Ms. Louise Charron Fortin: Five do dominate, but we do have a number of larger companies that account for a large part of our volume of exports.

However, we have more and more SMEs. In fact we have been very purposeful and strategic in our approach to SMEs in order to equip them with the program and services to allow them to start piercing markets even though they are small. We have an inventory of let's say 20,000 export-ready companies. Some are already active, and some are prepared. It's called the WIN system. I would say that approximately 80% of those companies would fall under the category of SMEs.

We do have a service, in fact it's in my bureau, that has the mandate to create awareness of the importance of supporting SMEs, to recognize the contribution SMEs have brought to the Canadian economy domestically and that they could bring as export partners, and to devise tools and programs to assist them. Some programs are not for regular companies. Let's say the medium and the larger companies are not adequate for the SMEs, which are very small and in most instances will lack, at least in the initial stages, the experience and resources to pursue export endeavours. We are trying to recognize the contribution SMEs are making to the economy by supporting them in a very special way in export endeavours, but they're still small in terms of volume vis-à-vis our total exports.

• 1105

The Chair: That clarifies it for me.

Just to leave you with a parting thought, we do recognize how large the agricultural export sector is to Canada, and in light of Mr. Penson's and Mr. Pickard's questions, I hope we'll keep that in mind. We also should recognize that in our trade position with the United States we had about $400 billion, I believe, in trade for 1998, with only a $4 billion deficit to Canada. That's pretty balanced for a country that's fourteen times larger than we are. So I say that's pretty good for a country like Canada. But I do hope we'll look at how important those agricultural exports are to Canada and keep in mind what else we have to do to make sure they're still there.

I'm going to adjourn the meeting. Thank you very much.