SINT Committee Meeting

37th PARLIAMENT, 2nd SESSION

Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

EVIDENCE

CONTENTS

Wednesday, February 26, 2003

¹

1530

Mr. Peter Barnes (President and Chief Executive Officer, Canadian Wireless Telecommunications Association)

¹

1535

¹

1540

The Chair

Mr. Stephen Poloz (Vice-President and Chief Economist, Export Development Canada)

¹

1545

¹

1550

The Chair

Mr. Peter Barnes

The Chair

Mr. Peter Barnes

Mr. Henri Souquiéres (Vice-Président, International Markets, Export Development Canada)

¹

1555

º

1600

The Chair

Mr. Mitch Kowalski (Vice-President, Hong Kong-Canada Business Association)

The Chair

Mr. John Duncan (Vancouver Island North, Canadian Alliance)

The Chair

Mr. John Duncan

º

1605

Mr. Peter Barnes

Mr. John Duncan

Mr. Peter Barnes

º

1610

Mr. John Duncan

Mr. Peter Barnes

Mr. John Duncan

The Chair

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.)

Mr. Peter Barnes

Mr. Murray Calder

Mr. Peter Barnes

º

1615

Mr. Murray Calder

Mr. Peter Barnes

Mr. Murray Calder

Le président

Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ)

Mr. Charles Bergeron (Director of Government Affairs, Canadian Wireless Telecommunications Association)

The Chair

Mr. Raymond Simard (Saint Boniface, Lib.)

Mr. Peter Barnes

º

1620

Mr. Raymond Simard

Mr. Peter Barnes

Mr. Raymond Simard

Mr. Peter Barnes

The Chair

Mr. Peter Barnes

Mr. John Duncan

Mr. Peter Barnes

º

1625

The Chair

Mr. Peter Barnes

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

The Chair

Mr. John Duncan

Mr. Stephen Poloz

Mr. John Duncan

Mr. Stephen Poloz

Mr. John Duncan

Mr. Stephen Poloz

º

1630

Mr. John Duncan

Mr. Stephen Poloz

Mr. John Duncan

Mr. Stephen Poloz

The Chair

Mr. Stéphane Bergeron

º

1635

Mr. Stephen Poloz

Mr. Henri Souquiéres

Mr. Stéphane Bergeron

Mr. Mitch Kowalski

º

1640

Mr. Stéphane Bergeron

Mr. Stephen Poloz

Mr. Stéphane Bergeron

Mr. Stephen Poloz

º

1645

The Chair

Mr. Murray Calder

Mr. Stephen Poloz

Mr. Murray Calder

Mr. Stephen Poloz

Mr. Murray Calder

The Chair

Mr. Raymond Simard

Mr. Stephen Poloz

Mr. Raymond Simard

Mr. Stephen Poloz

º

1650

Mr. Raymond Simard

Mr. Stephen Poloz

Mr. Raymond Simard

Mr. Mitch Kowalski

The Chair

Mr. John Duncan

º

1655

Mr. Mitch Kowalski

Mr. Stéphane Bergeron

Mr. Mitch Kowalski

Mr. John Duncan

»

1700

The Chair

Mr. Mitch Kowalski

The Chair

Mr. Mitch Kowalski

The Chair

Mr. Stéphane Bergeron

The Chair

---

CANADA

Subcommittee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

---

NUMBER 005

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Wednesday, February 26, 2003

[Recorded by Electronic Apparatus]

¹  (1530)  

[English]

    Mr. Peter Barnes (President and Chief Executive Officer, Canadian Wireless Telecommunications Association): Thank you, Mr. Chair.

    Thank you very much for the opportunity to appear before you. I think it's quite opportune that we do have this opportunity. I'll give you a brief rundown of some of our activities, particularly focused on Asia Pacific trade.

    As indicated, my name is Peter Barnes and I'm the president and chief executive officer of the Canadian Wireless Association. Accompanying me today is Mr. Charles Bergeron, who's our director of government affairs.

    I think the point I'd like to make is that we have just entertained and entered into, in the last year and a half or two, a partnership, a memorandum of understanding, with a sister organization in Hong Kong. They're called the Hong Kong Wireless Technology Industry Association. I signed a memorandum of understanding with the association on behalf of our association back in February 2002 to cooperate between our two associations to grow our respective businesses, both in Canada and in Hong Kong, and to share in facilitating wireless development and the exchange of information about new developments, trade opportunities, and the like.

    Now, maybe I should just give you a bit of information about our association, in case it's not a household name, which I'm sure is probably the case.

    We include cellular, personal communications, paging, mobile satellite--both service providers and manufacturers. We have anywhere between 225 and 250 members across Canada, ranging from small companies to very large companies.

[Translation]

    Our members are companies of all sizes—ranging from 15 employees to several thousands. The best known names are Bell Mobility, TELUS Mobility and Rogers AT&T, but there are also some small companies offering new services in the area of wireless telecommunications.

[English]

    Wireless in Canada has certainly been a success story. The reason we were glad to appear before you today was to tell you a bit about the success story in Canada, but also to tell you about why we thought we could do something more to grow upon that success in Hong Kong and China.

    In Canada today there are over 15 million Canadians with wireless devices, be it a cellphone, a pager, whatever the device, a PDA, a laptop. Just cellphones alone are 12 million. So it's a very big market, growing quite rapidly in spite of the economic slowdowns we've seen, both in the economy and in the telecommunications industry. Our industry, I think it's fair to say, is an integral part of both the social and economic fabric of Canada.

¹  (1535)  

[Translation]

    Our annual sales are some $6.5 billion, and to date we have invested some $12 billion in infrastructure in Canada. So ours is quite a large industry.

[English]

    Now, just to situate that around the world, there are more than one billion wireless phone subscribers. But I think the important thing is not so much how many phones there are, but how many people have yet to use a wireless phone. Over half the world's population has yet to use a wireless phone. Indeed over half the world's population has never even made a phone call. So the opportunity for growth for Canadian companies is phenomenal. That's the opportunity we wanted to work on when we signed this agreement with our Hong Kong counterparts.

[Translation]

    Since we are speaking about our colleagues in Hong Kong, I would like to say that there are many differences between the Hong Kong association and our own. The infrastructure in Hong Kong is very different from ours, and there are far more cellular telephones there. However, our association and our industry, and those in Hong Kong do have some values in common, including a desire to innovate and to promote the growth of all our members.

[English]

    And that's what we're looking for in our relationship and our memorandum of understanding with the Hong Kong wireless association. We wanted to grow our business, both through facilitating trade opportunities for our Canadian members and by making them more aware of developments in Hong Kong that would make their business easier. So to the Hong Kong counterparts we offer access to the north American market, and the Hong Kong counterparts offer us access to both the Hong Kong market, which is not inconsequential

[Translation]

There are 7 million people living in Hong Kong after all. It is not a small market. But what is particularly important, is that the people in Hong Kong are familiar with continental China and have contacts in this much larger market. The people in Hong Kong know about what is called Gan-xi in Cantonese and they therefore know how to do business with people in continental China.

¹  (1540)  

[English]

    So their business knowledge of both Hong Kong and the mainland Chinese market is one that we really wanted to grow into. Just to give you a couple of very short figures about the Hong Kong market, some of you may be familiar with something called text messaging--sending short messages from one cell phone to another. Well, just recently the Chinese new year was celebrated, and during that week-long period--they have 200 million cell phone users--they sent 7 billion wireless text messages. So 200 million people with cell phones in China sent 7 billion text messages over that period. So it's a very big market.

    On New Year's Eve alone, China Mobile customers--and this is just one of the companies--sent more than 50 million text messages. Now this is both text and in some cases picture messaging, because you can send photographs through a cell phone now.

    So you can see this is a very large market.

    Just to give you a comparison with Canada, in November of last year the total text messaging traffic in Canada was 21 million.

[Translation]

So there are 500 million messages a day in China, and 21 million messages a month in Canada. The growth potential is phenomenal.

[English]

    So we felt there was a growth opportunity. We spoke with our Hong Kong counterparts, signed the MOU, and we want to grow that opportunity knowing the Chinese market is opening up with the World Trade Organization commitment. There will be new rules for non-Chinese ownership in telecommunications infrastructure, and that will facilitate our members and other Canadian companies doing business in China.

    In addition, our Hong Kong colleagues have participated in our trade events here in Canada. We expect they'll be coming back in May 2004 for a trade event in Toronto that is a Canada-wide event. So there's a lot of back and forth trade opportunities we're working with. They have access to our website for trade opportunities.

[Translation]

    We are currently updating our website to enable companies in Hong Kong to visit it and find Canadian business partners through the Internet.

[English]

    Let's talk about the overall telecom economy so that we situate this again in a global context. I think the point here is one of optimism.

    There was a very significant trough in building and in capital investment in 2001. Things are starting to pick up, and the recovery, I think, is both here and in countries like China. So we think it's important that we position our members so they're able to benefit from this recovery.

    I know you'll be visiting or be hoping to visit the Asia Pacific market as part of your analysis. I hope at that point you will have the opportunity to meet some of the trade commissioners, because we found them to be very useful in our work, both with Hong Kong and with other countries. In that regard, we were quite pleased to see that the government added new funds to the trade commissioner budgets.

    We would respectfully suggest that there is a need for more money. I think if you were to do a cost benefit analysis of trade commissioner work, for every $100,000 spent there, what it generates in benefits for the Canadian economy is probably a considerable multiple of that, from our experience.

    One other recommendation that we do have is that trade commissioner and trade activities be focused on high-growth and high-potential opportunities.

[Translation]

    When we are spending public funds, it is important to ensure that the money is invested where it can get the best possible return. Of course, we are speaking in our own interest here, but we do think it would be a good idea if some of these activities were targeted more to high-growth and high-potential industries such as the wireless telecommunications industry.

[English]

    My other point is that the branding of Canada, the reputation of Canada, is very good, but I think there's also a need to continue enhancing the branding of Canada through the trade development activities. We're certainly keen to continue to work with the government at the Trade Commissioner Service and at other export development services to organize new events opportunities for Canadian businesses to showcase their know-how, to find business opportunities, to find investment opportunities, or to obtain investment and to make that a win-win situation from our trade relationship.

[Translation]

    I do not want to go over my allotted time. I would be pleased to answer any questions you may have.

[English]

    The Chair: Thank you very much.

    I thought we'd hear from the other witnesses and then open it up for questions and comments.

    From Export Development Canada, we have Mr. Stephen Poloz as well as Henri Souquières.

    So, Stephen, do you want to start first, or Henri?

    Mr. Stephen Poloz (Vice-President and Chief Economist, Export Development Canada): Thank you, Mr. Chair. I'll begin.

    I thought I would use the time to bring to light what I think are the major forces acting on Canada's international trade over the next few years, which forces obviously imply implications for our trade in Asia.

    The most important dynamic that I think we need to understand is that international trade is increasing in its importance in its determination of global GDP. Few people will dispute the benefits of trade, but few also, I find, understand just how important it is becoming. Consider, for example, that since 1990 the level of trade, relative to the economy in Canada, has gone from 50% to 80%. That's total trade divided by GDP. For other countries it's very similar. For example, for Mexico, the penetration of trade has doubled from 30% to 60%.

    The world is clearly becoming more interdependent. In fact, what is happening is trade is rising much more quickly than GDP and incomes, so we're doing more trade to generate each dollar of GDP, which is the key implication.

¹  (1545)  

[Translation]

    To put it into practical terms, increased trade penetration is the outcome of the rationalization of economic activity—companies break their products into their smallest components, farm out many of those components to other companies that specialize in such processes. For example, a product may be only 50% manufactured in Canada, whereas the other components are manufactured in other markets.

[English]

    This is the practical side of globalization. As companies become global or transnational in this way, the implication is that we get a lot more trade before the product is even complete, which is key to us to understand this. The indication of this is that the Canadian content of many of the products that we export is declining over time. It's down around sixty-odd per cent at the moment, on average, across the full export bundle. And this is a natural consequence of increasing our emphasis in Canada on increasingly high-value productivity activities. For example, within our own company we would take what we consider to be a lower-value task and assign it to people who earn less per hour than the more expensive workers in our operation.

    As Canadian companies see the world as their workshop, they will increasingly farm out those parts of their production to other parts of the world, where costs are even lower, and they will focus on the higher-value types of jobs here in Canada. That's profit maximization in action.

    The second implication of this trend is that foreign direct investment has become an essential element of trade. So in order to construct a global supply chain of the sort I've described, you need to have a partner or an operation in those other countries where you get those extra bits and pieces.

    Foreign direct investment is a trade enabler.

    In the old days we used to think of companies investing in a foreign country, in effect, to get around trade barriers. If you wanted to sell in China, for instance, you might make an investment in China, produce the goods there, and try to sell them in China.

    Now that the world is more open, one would make an investment in China in order to serve the entire world from that place. Therefore, FDI is fully integrated into the trade mechanism. In fact, it builds the platform for trade and it has benefits to Canada, whichever direction it is in, for that reason.

[Translation]

    Developing countries will play a big role in this rationalization process because they are lower-cost production centres. From their perspective, participation in this trend will ensure that their living standard continues to rise more quickly than that in the developed world.

[English]

    Accordingly, developing countries are going to grow more quickly, on average, than major economies like Canada, and that makes them an obvious place for Canadian companies to try to grow their businesses, to sell more goods and services. I think an even more important undercurrent for us to take into this analysis is that they will be participating in our supply chains. Our supply chains will be a complex network of producers, some of which will be in developing markets like Asia. As a consequence, our growth in exports to these markets may not be immediately obvious. It may not be finished goods in the normal sense of the words. It will be intermediate goods, it will be complex components, consulting, engineering, design services, machinery and equipment, of course, and also final goods. But we shouldn't expect it only to be final goods. So it's going to be a lot of bits and pieces moving around.

    In the developing world there are three big clusters of growth on the map--that's Asia, Latin America, and eastern Europe and Russia. We also have aspirations in Africa, but I would put them a little further down the chain in terms of when it's likely to emerge as a force. Canadian companies will see big opportunities in all of these areas if they understand it in this way that I've just described.

    Asia attracts a lot of focus right now, for a very good reason, and that's mainly because they're making a big comeback. Part of our de-emphasis of Asia over the last few years has been because they've been dealing with the Asian crisis of 1997-98. Back in the early 1990s, people talked about the nineties as Asia's decade. And that was severely interrupted in 1997. During the next few years it was the United States that did all the growing, and our trade with the United States grew the most. That's, in effect, an interruption, if you like, of a track of trade development in Asia that was already under way and which I believe now is resuming.

    Canada's trade patterns, I think, will shift back towards Asia in this natural way as the epicentre of global economic growth is now shifting back to Asia.

    Given that, I expect Canada's trade with Asia to grow quite rapidly over the next few years, especially in China. It's important to note that not only are they becoming members of the global supply chain network, but they are also becoming consumers. More than 75% of Asia's exports now are exported to each other and they remain in Asia. Only five years ago it was less than 50%. So there is much more of a consumer orientation there.

¹  (1550)  

[Translation]

    Last year, Canada sold about $18 billion in goods to Asia, just over $8 billion in Japan. Services are also an important export growth story, especially business and professional services, such as engineering and consulting. It is estimated that our exports of services to Asia are about $6 billion annually, with Japan taking close to one-third.

[English]

    The question I'd like to conclude on is where EDC fits into this picture. The answer is, squarely in the middle as an intermediary. EDC exists to facilitate international transactions to the benefit of Canada. This includes helping Canada's exporting companies complete international sales, which is the easiest to understand. It also helps foreign entities to purchase Canadian goods through financing, and it helps to manage the international risks that are faced with investing abroad, which I argue is a key part of building these trade networks.

    EDC is a financial intermediary that manages these risks through various means, insurance products in particular, but it also brings financial capacity to the situation. It operates on a commercial basis and generates annual profits that give us more capital to work with Canadian companies the following year.

    It's conceptually simple, but it's becoming more complicated, given what I've described before about the global supply chain network and how Canada's trade is evolving. We believe the drivers are very clear: there's more trade for every dollar of GDP being generated, and there's more foreign investment now for every dollar of international trade. Those things are linked. So small, higher-risk international markets are going to figure much more importantly in Canada's trade in the future because of that building of those networks. As a consequence, then, we would expect to see Asia become increasingly important as we go forward.

    Just to illustrate with a couple of numbers, last year EDC facilitated just over $50 billion in international transactions on behalf of Canadian companies, 7,000-plus Canadian exporting companies, 90% of those small or medium-sized. Of that, about $5 billion in our effort was in Asia, about $1.5 billion of that in Japan. We expect those numbers will grow above average over the next few years, given the backdrop I've described.

    Now my colleague, Henri, has some comments on the practical end of how EDC operates in Asia.

    The Chair: Before we move on to Henri, I know Mr. Barnes has another commitment. I just want to find out, before we let you go, what time you have to leave.

    Mr. Peter Barnes: I should leave at around 4:30. I have a 4:45 commitment.

    The Chair: Okay.

    Henri, we have your presentation here. We're going to consider it as being part of the minutes. So if you have some brief comments, maybe you can give them to us, and we'll move on to Mitch and then ask some questions, because we want to get Mr. Barnes before he leaves.

    Mr. Peter Barnes: Thank you.

    Mr. Henri Souquiéres (Vice-Président, International Markets, Export Development Canada): Thank you, Mr. Chairman. I will be extremely brief in my comments, as you require.

    What we want to illustrate is how we articulated the capacity of the corporation in order to take advantage of the potential offered by those markets in Asia.

¹  (1555)  

[Translation]

    We do this in four ways. First of all, we have a team of professionals in the international markets who are dedicated to business development activities, either with entities we already know because of our insurance products or our loans, or with new entities that we want to get to know better—which includes governments, the financial institutions with which we work, chambers of commerce and associations. We inform exporters of these business opportunities through our teams and our regional offices. At the same time, we try to provide them with information about the business risks involved and to help them cover these risks. We remove from their balance sheet the risk they must assume when they undertake an international transaction.

    Our second area of activity is the telecommunications industry, which was mentioned earlier. This is a unique industry. Transportation is also unique, as are mines, oil and gas. We are talking about transactions as well as insurance, but also about financing. Increasingly, financing is provided in the form of project financing. So, it is important to be familiar with the sector. We have 13 or 14 sectoral teams here in Ottawa, which specialize in Canada's major exporting sectors. We send out these teams to the most appropriate markets in Asia.

    We have a third promotional network. We have regional offices throughout Canada whose job it is to seek out clients and to encourage them to get into new markets.

[English]

    That approach responds to help the SME go to those markets.

    Certainly in a week from now, Stephen will start a tour of Canada outlining the opportunities around the world, the benefits you can have, and the risk. That's part of a promotion to attract the attention of our customers and potential customers--exporters--in those markets, and certainly Asia, which has been bruised with the crisis in 1997-98.

[Translation]

    The fourth aspect of our business development mandate is of course partnerships: partnerships with our colleagues at Foreign Affairs, but also with all the regional and sectoral business networks. We have a very significant presence at all levels to mobilize all our partners for the achievement of the same objective—namely Asia.

    Let me give you a few examples of what we have done to date.

[English]

    In terms of regional offices, Beijing was the first office we opened, in 1997. We have other offices now, but that was the first one we opened. Really, it is quite essential in a market like China, where basically 10 years ago everything was going through the governments and the banks, and now shifting to the private sector more and more often. In terms of covering the risk, we really have the need to be on the ground, to meet those counterparts face to face. It has been very useful.

[Translation]

    Another example of our partnership activities is the Indian market. Last year Minister Pettigrew led a trade mission to India, and following that, we identified a business opportunity with Indian Railways, which has long been an EDC client. With the company, we identified three major business opportunities: first, to mobilize close to 13 Canadian companies and to identify 3 windows within Indian Railways. Indian Railways has 1.5 million employees, which is huge. The company does a tremendous amount of business. The partnership is a sort of team Canada involving Foreign Affairs, CIDA and the Canada-India Business Council. Its objective is to bring other exporters into the Indian Railways network. That is the type of thing we do.

    In Southeast Asia, we almost benefited from the 1997-1998 financial crisis to promote all our products and to get into the telecommunications sector, since we knew that there would be problems in the area of financial capacity. We made our products available to give buyers the financial capacity they lost because of the crisis in 1997-1998.

    Now, we want to take advantage of the economic recovery, as Steven Poloz mentioned.

º  (1600)  

[English]

    I would like to thank you very much.

    The Chair: Thank you.

    Mitch.

    Mr. Mitch Kowalski (Vice-President, Hong Kong-Canada Business Association): Thank you, Mr. Chair. My apologies for arriving late at this meeting. My train was supposed to have had me in at 2 p.m. and it was way off schedule.

    I'll keep my remarks very brief.

    I'm the national vice-president and secretary for the Hong Kong-Canada Business Association. Our association was formed in 1984 as a national non-profit corporation to promote commercial and economic activities between Hong Kong and Canada and throughout the Asia Pacific region.

    Currently we're the largest bilateral trade association in Canada. We have chapters in ten cities: Vancouver, Calgary, Edmonton, Regina, Winnipeg, London, Toronto, Ottawa, Montreal, and Halifax. We're also a member of the Federation of Hong Kong Business Associations Worldwide. This is a very interesting concept that Hong Kong started a few years ago. It combines all these Hong Kong business associations throughout the world under one umbrella organization.

    We gather from all over the world each year in Hong Kong to talk to each other and find out more about what each other is doing. It is a very useful exercise to meet our colleagues and do business with them. That is our role; we're a business association and we help each other do business.

    We provide and foster an environment that facilitates and enhances bilateral trade. We promote contact and communication between business people. We provide forums for increased awareness through meetings, events, sponsorship of trade delegations, and presentations that are of interest to our members. We encourage cultural exchange and understanding between Canada and Hong Kong.

    Our focus is on the SMEs. That is our core membership. We've been telling our SMEs that because they are small and medium-sized they do not have the capital and expertise that a large company like Bombardier has to go directly into China or perhaps Asia. So it is useful to use Hong Kong as a springboard to that area and partner with somebody in Hong Kong who has already done all the groundwork, knows the people, knows what not to do, and knows what to do. They can form their partnerships there and then move forward.

    Structurally our association has a national board and it also has boards for each of our ten chapters. We meet semi-annually as a national board, and one of those meetings is in Hong Kong and coincides with the federation meetings. We have a national executive director who's a paid employee based in Toronto in our national office.

    We have a very good relationship with the Hong Kong government, the Hong Kong Economic and Trade Offices, and the Hong Kong Trade DevelopmentCouncil, and a reasonable relationship with the levels of government in Canada. We find, quite frankly, we don't have enough support from and interaction with Canadian officials. We have excellent support from and communication with the Hong Kong officials.

    In conclusion, we feel that Hong Kong continues to provide a good springboard into Asia. If nothing else, it's a very comfortable place for someone who is used to western culture and western ways of doing business to ease their way into Asia.

    Thank you.

    The Chair: Thank you very much.

    I have on my list so far Mr. Duncan, Mr. Calder, and Mr. Bergeron, and we will go for a second round. If my colleagues have any questions, ask Mr. Barnes first so we can release him before his time is up at 4:30.

    Mr. John Duncan (Vancouver Island North, Canadian Alliance): Does that mean I should only ask my Mr. Barnes questions in this round?

    The Chair: That's right, if you have any. If not we'll move to the next one and thank Mr. Barnes very much.

    Mr. John Duncan: Some of my questions are kind of generic, but I am curious about your penetration into China through your relationship with Hong Kong. Basically you're dealing with a Cantonese entity in what's overwhelmingly a Mandarin culture. I guess as long as you are more or less restricted in your origin you will be focused on Hong Kong, and then focused on the expansion of their influence. But now I'm sure a lot of your growth must be in Beijing and other areas that are primarily not Cantonese.

    I'm wondering what kind of complexity that's bringing and whether there might be another approach one could take to kick-start that kind of penetration through another port of entry.

º  (1605)  

    Mr. Peter Barnes: I think you've hit the issue on the nose. This is really our first attempt to establish a memorandum of understanding and a working relationship with a trade association outside of Canada. We thought we would select one that would give us high leverage. We knew, for example, that within China there were vast differences in culture and geography, but we also understood that because of the trading relationship Hong Kong has had with mainland China and given the fact that much of the intense economic activity in mainland China is currently taking place in the Pearl River Delta immediately adjacent to Hong Kong, it wouldn't do everything for us, but it would get us to first or second base, if I can use that analogy. It may well be that as the relationship matures, we then have to go to another level.

    We had begun discussions with associations in other countries, Korea and Singapore, and we may eventually conclude something with them. But we may not. You get these requests and you explore them.

    It may be that over time we have to do something more formal in mainland China. We wanted to walk and be successful first. We thought the Hong Kong approach was a good one because it would give us access not only to the Hong Kong market and expertise, but to a significant part of mainland China.

    Mr. John Duncan: Within the body of your report you talk about the need for more trade commissioners in Asia. I wonder if you could expand on that. The latest budget certainly injected more money into our U.S. market. Asia is our number two market, which a lot of people don't seem to know. Perhaps you could expand on why you would make that recommendation, what's there now, and what you think is needed.

    Mr. Peter Barnes: As we've worked with our Hong Kong counterparts and as we've been involved in business development activities, we've certainly benefited from the assistance of the existing trade commissioner service.

    I'm far from an expert on the comparative difficulties of doing business in the U.S. as opposed to Hong Kong or China, but what strikes me is that Canadian businesses need proportionately bigger assistance and more important assistance in a market such as China than they would in the U.S., for obvious reasons. The distance, culture, and regulations are different. It's a whole new ball game. I take Mitch's point about the western-like culture of Hong Kong, but it's still quite different, and when you get into mainland China, it's even different to a greater level. The trade commissioners have helped us understand fairly quickly what the differences are and also to find the right people to talk to.

    I think there's probably a greater per-dollar-of-trade requirement for a trade commissioner in a country like China than there would be in the U.S. That was the basis of our recommendation.

º  (1610)  

    Mr. John Duncan: I'm really asking for specifics. At some point this committee will make some recommendations. It doesn't help us very much to recommend more unless we know what that entails. Are there some specific holes that you're aware of in terms of location?

    Mr. Peter Barnes: No, nothing I could point to. We could go back to our members and get you more data in that regard. Certainly, we've had some generic feedback from our members. Maybe I could undertake to get back to the committee with more specific information.

    Mr. John Duncan: I would greatly appreciate it. Thank you.

    Thank you, Mr. Chair.

    The Chair: Mr. Calder.

    Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Mr. Chair.

    Peter, in your statement you said there are one billion wireless phones worldwide and 200 million cellphones in China alone. Have you done any studies on what the numbers would be in cellphone usage getting close to market saturation in that area?

    Mr. Peter Barnes: In China the growth is about 4 million new cellphones every month. So it's pretty mind-boggling, because when you think that Canada has had cellphone service for 15 years and we have 12 million, they get 4 million more a month.

    Again, it depends a lot on the market, but developed cellphone markets tend to plateau in the area of somewhere between 50% and 80%. There are some countries where there are more cellphones than people. Korea, for example, I think is at 105% or 110%. Hong Kong is very close to the saturation level. Canada is at 37% I believe. So the differences are significant, but obviously our wire-line service in Canada is a lot better than it is in many of the developing countries.

    The Canadian market maturity or market saturation point, let's call it, might be at 55% or 60%, whereas in certain of the developing or less developed countries it could be 80% to 100%. There has been a considerable slowdown in the European growth and in the more developed Asian countries as far as growth is concerned. China is obviously leading the pack and at 4 million a month is tracking very quickly.

    Mr. Murray Calder: What I see happening right now in the Asian countries is the fact that they're skipping a step we had here, and that's wire. They're just going directly to wireless, period.

    In Mongolia, for instance, five years ago if you would ask them what a cellphone was they'd look at you funny. Now everybody has one, and it's increasing. How then do you see us improving our sales technique in terms of Canadian technology and wireless as compared to what we're doing right now? I know for what happened in 1997 we have slipped. It's time for us to get very aggressive and move forward. How do we do that?

    Mr. Peter Barnes: I think there's a couple of things we can do. One is we have to do more of what we've done, the memorandum of understanding with wireless associations in other countries, because we have to make those countries aware of Canadian business and technology expertise.

    It was, if I can use the term, an “easier” sale in Hong Kong because a lot of Hong Kong business people have very close links already to Canada. A lot of the people I'm dealing with...for instance, the chair of the Hong Kong wireless association is a Canadian national. He's Hong Kong Chinese, but he's a Canadian national. It's an easier fit between Canada and Hong Kong.

    If you're talking with other Asian countries, there's less knowledge of Canadian expertise. There's more, if you're thinking of North American technology, of a tendency to say, I'll talk to the U.S.

    I think the branding of Canada is important. The establishment of relationships between sectors of the industry--for example, the wireless telecommunications industry--is important, so that the Koreans, the Singaporeans, and others get to respect and know our technology and our expertise. Getting that out will make us more able to participate in those growth markets.

º  (1615)  

    Mr. Murray Calder: I know the perception of Canada over there is still that we're a country of natural resources. We have a long way to go to change that. Would one way of changing that be that Chinese students, Asian students who are going through university, hopefully educated over here, would take that if they're going back to their own country? Obviously China will be looking at extending that way. We would come up with a better home education program as to what Canada's all about so they take that information back with them.

    Mr. Peter Barnes: I think that would be an excellent way of moving the yardsticks of the knowledge about Canadian technology and Canadian expertise. There's a big hurdle. I think it's the issue of mind-share, a question of when there's a business person in an Asian country and they're thinking about finding a partner or importing a technology, getting that person to think of Canada and making it easy for that person to think of Canada. That's the challenge.

    As I mentioned earlier in my comments, one of the initiatives we've taken is that on our website we have a product and a service catalogue. It's not a catalogue but it's an electronic component. We're working with the Hong Kong association so that their members can quickly drill down within our website and find partners and find people who can give them what they need.

    But for them to come to our website, you have to create the mind-share. That can be through education programs such as you mentioned, it can be through trade missions, or it can be through sharing arrangements between associations. There are many ways of doing it.

    I think conceptually the issue is when you can get the business person in that country thinking and making the equation between Canada and high-tech telecom wireless as one. Then the tools can work out from there. But that's the real challenge.

    Mr. Murray Calder: I'll stop there, Mr. Chair, so my colleagues have time.

[Translation]

    Le président: Do you have some questions for Mr. Barnes, Mr. Bergeron?

    Mr. Stéphane Bergeron (Verchères—Les-Patriotes, BQ): I have a question of a more general nature that Mr. Barnes would perhaps like to answer, but there may be some colleagues who more specific questions for him. I know that Mr. Bergeron would like to add something to the answer.

    Mr. Charles Bergeron (Director of Government Affairs, Canadian Wireless Telecommunications Association): Thank you. I would like to add something.

[English]

    I think there is a question of education, which we just talked about. The other issue of importance here is that Canada's geography shares a lot, for example, with mainland China. We have very similar weather patterns. We don't have necessarily tropical weather, unfortunately, right now.

    Right now you can start a wireless call from Quebec City and drive to Windsor without your call being cut off. That is tremendous. You can drive for many hours without your wireless phone being unconnected. That is an example we can market to, in this case the Chinese market.

    To answer your colleague's question earlier with regard to our members' thoughts in regard to trade commissioners on the ground, what I've heard from our members often is that the more you have eyes and ears on the ground, the more you have opportunities to hear about contracts and to deal with companies from the various provinces throughout China in terms of potential deals and contracts for wireless companies.

    As an example, the chair of the Wireless Technology Industry Association in Hong Kong is an economic adviser to the Government of China for the Hunan province. The province has 67 million people. So you don't necessarily have to be all over China. In this case, just a partnership of this nature in that province opens doors, and the opportunities for our members are tremendous.

    The Chair: Mr. Simard.

    Mr. Raymond Simard (Saint Boniface, Lib.): I have a few questions specifically for Mr. Barnes.

    I'd like to know what percentage of the technology that is currently in China is Chinese. In other words, is the majority of the technology American? And if it is Chinese, why would they welcome Canadian firms as partners?

    Mr. Peter Barnes: Right now, the technology is predominantly either European or American. At the present time, the Chinese government is looking at instituting a Chinese standard for something called third-generation cellular services.

    It looks as if, from what we can understand, they will be looking for co-existence of the Chinese standard and the North American and European standards, so that they would have five or six service providers with this third-generation service, one of two of them, probably those where there's the most state involvement, using this Chinese standard. But there would still be an opportunity for the standards that are used here in Canada.

º  (1620)  

    Mr. Raymond Simard: Excellent.

    My second question is with regard to branding, a subject that seemed to come up a lot with our witnesses. I thought I heard you say that you thought maybe the private sector has a role to play in helping the government brand Canada, not only as a great place to visit but also as a high-technology place.

    Are you currently doing this in your efforts, in the trade shows and that kind of thing?

    Mr. Peter Barnes: Yes, I think in two ways. One, when we held our last trade show, our last telecommunications trade show, in November 2002, we hosted an international business centre and worked together with partners from the Canadian government and from the Hong Kong contingent. I think there were 17 countries that visited that particular business centre, so there was some branding there. The Trade Commissioner Service brought these people through, so they were being brought to a Canadian venue and seeing what Canada can do.

    Then, in a number of cases, we have, with assistance from the government, either spoken, or appeared, or participated in events offshore to brand Canada. In February, Monsieur Bergeron was at the Hong Kong information infrastructure conference and spoke to the delegates there about what was going on in Canada. I did something similar about a year prior.

    Next month I go to CeBIT, which is the biggest technology trade show in the world, in Hanover, Germany. We've pulled together four or five Canadian wireless companies to showcase their product and expertise at this event. Some of them are household names now. Research in Motion, for example, the makers of BlackBerry, will be part of that group. So under the auspices of the Canadian government, that will provide a hands-on branding opportunity.

    Mr. Raymond Simard: Do you feel our trade commissioners are visible enough in Asia? Obviously we've been told that they're overworked. I'm not sure they're underpaid, but they're overworked. And hopefully we're going to allow them more funding, but it's obviously not only funding.

    If I understand correctly, they work out of the embassies. Would it be more visible if they had their own trade building, or is physical infrastructure important as far as you're concerned?

    Mr. Peter Barnes: I don't know that I know enough about that. I know we had the undertaking to get back with specific information on trade commissioners, recommendations, and maybe we could look at that as well and see.

    The Chair: Does Mr. Duncan have a very brief comment?

    Mr. Barnes, we'll let you out of here before 4:30.

    Mr. Peter Barnes: I appreciate it very much, and I thank you for being so cooperative.

    Mr. John Duncan: You're not the first person to bring up this branding. We've had an opportunity to think about it. I actually think Canada is quite schizophrenic on the branding, because when we talk to Americans or Asians we always say we're a lot more than Mounties in red clothing, and maple syrup and so on. Then you go to a trade show and what do you get? You get Mounties and maple syrup. Look at how we promote our diamonds. We put a polar bear on them. How do we promote our bottled water? We have mountains of snow.

    When it comes to high tech we don't want to play to our strengths. What's wrong--and this is just food for thought; it's not really a question, I don't think--with promoting our high-tech products with polar bears, spawning salmon, maple leafs, etc.? Why not play to your strengths? I think we are actually quite schizophrenic on this whole thing.

    Mr. Peter Barnes: I don't know about electronic salmon, but every Mountie with a cellphone and a pager, maybe that's the way to do it.

º  (1625)  

    The Chair: Mr. Barnes,

[Translation]

Mr. Bergeron, thank you very much for being here today.

[English]

    As Mr. Duncan has stated, if you have some specific recommendation to the committee, I think it would be most useful. Thank you very much, and good luck with your next meeting.

    Mr. Peter Barnes: We'll do that. Thanks very much, and thank you for your cooperation, Mr. Chair.

    The Chair: Thank you. Now we move on to the second round of questions.

    I think, Monsieur Casson, you may have a question to ask of our remaining witnesses.

    Mr. Rick Casson (Lethbridge, Canadian Alliance): No, I'm good.

    The Chair: Who wanted to go to a second round?

    Mr. Duncan.

    Mr. John Duncan: I have a question for the EDC, because you have the broadest mandate here. You were talking about how our trade is becoming a bigger part of each dollar of GDP, and when I look at our trade statistics, our percentage of trade with the U.S. keeps going up, but our percentage of trade, particularly on the export side, keeps going down with our other trading partners. Our trade deficit with our other trading partners is going down, which to me is a very worrisome thing because in actual fact, in our attempts to diversify our markets, we're actually becoming even more dependent on the surplus we generate with the U.S. in order to have some semblance of balance.

    My question to you is, does this trend worry you or not?

    Mr. Stephen Poloz: No. First of all, I would point out one thing, which is that we've had a major disruption to history in the 1990s, which was the Asian crisis, which was followed by several crises in other developing markets, and the reaction or the adjustment process the world went through was one in which the U.S. dollar went up a great deal and the U.S economy was the centre of strength for the world.

    So it's true that just about everybody's trade share with the U.S. went up during that long period of adjustment. The U.S. was the buyer of last resort for the world. And it's lasted from about 1997 until the slowdown in the U.S. about 18 months ago, so it's a pretty big piece of history.

    On the structural front we have a free trade agreement with the United States, and so the process I described, of rationalization and having your business straddle the border, is much more in play with the United States and Mexico than it is with other economies.

    This is the sort of thing I think will occur in a natural way at a slower pace, but I think we're at that cusp right now.

    Mr. John Duncan: I guess my point is our trade deficit with our Asian trading partners has grown considerably over the last several years.

    I'll move into another question. Based on EDC dealings with Asia, if EDC were to recommend to the Department of Foreign Affairs and International Trade a target country to be the first country Canada should select for a free trade agreement initiative in Asia, what country would that be?

    Mr. Stephen Poloz: I get to pick just one?

    Mr. John Duncan: Well, two, three, four. You set the terms of reference. It's okay.

    Mr. Stephen Poloz: I would think China would be the most obvious choice. They have by far the largest potential of benefit. It would also be a difficult set of negotiations.

    I do want to say something about the deficit issue, because it is quite natural for us to have deficits with some areas of the world and surpluses in other areas in multilateral trading arrangements. We shouldn't be preoccupied with bilateral trade deficits or surpluses. It just so happens we sell a lot of extra stuff to the United States, and we buy a lot of extra stuff from Asia at this particular time.

    Now, China is by far the biggest thing that is going to hit the world in the rest of our lifetimes. It will more than double in size. By 2020 it will be bigger than the United States, almost certainly. It is the one thing we can't possibly afford to miss as an opportunity to grow business. So I would focus my efforts there.

º  (1630)  

    Mr. John Duncan: A final question for EDC would be, does EDC consider the other country in the world most like Canada, that is Australia, to be in Asia? Actually none of the witnesses today even made reference to Australia.

    Mr. Stephen Poloz: No.

    Usually, as an economist, I think of Australia and New Zealand as part of the dollar-bloc countries. We call them that because they have a dollar. But they are part of the more advanced OECD-type network. In some markets they are major competitors for us. In many commodity markets they have a much bigger presence in Asia than we have, and they were impacted much more by the Asian crisis than we were.

    So we look to them, you're quite right. They have a very similar kind of structure, and often if we watch their currency or other financial markets, they will lead developments that also affect Canada later on. So we have a great deal in common. We think of them as a legitimate market. We do business there, of course, and they do business here. But we don't think of them as a developing market.

    Mr. John Duncan: Do we use Australia as a port of entry to Southeast Asia, or does EDC use it for that purpose?

    Mr. Stephen Poloz: No, not in that matter.

    The Chair: Mr. Bergeron.

[Translation]

    Mr. Stéphane Bergeron: Thank you, Mr. Chairman.

    First, let me thank you for your presentation. I would like to take this opportunity to congratulate EDC for receiving the Award for Excellence for annual reporting by crown corporations for the year 2002. I think that the award is testimony to the quality of services that are offered, on the one hand, and to the quality of your agency's management, on the other.

    I would like to ask a general question to follow up on the question that was put by Mr. Duncan and the answers that were given.

    Mr. Poloz, you said in your statement that because of the 1997-1998 crisis, Canada had turned towards the United States and you implied afterwards that we were now turning towards Asia again, which offers interesting prospects. The numbers seem to show however, as Mr. Duncan pointed out, that Canada's share in Asia's import markets has currently been going down. Apparently, since last year, Canada's share has gone from 1.32 per cent to 1.24 per cent in the import market of Asia's 10 main clients.

    It looks like there's still a lot of work to do to prick Canadian exporters and investors' interest in Asia. We know that there are some obstacles, be they cultural or regulatory, that are making Canadian businesses hesitate about going to Asia or simply give up the idea all together. This is raised by the Department of Foreign Affairs and International Trade in its pamphlet entitled Dragon at Your Door: China and Hong Kong Trade Action Plan 2002, which pointed out that doing business with China could be disconcerting, even for the most experienced businesses.

    If China is the most important potential market for Canadian businesses, what can we do about this type of psychological obstacle which is making several Canadian exporters and investors hesitate to do business in China? We need to carve out our place. What should we do?

    First, what do you think are the main obstacles to Canadians going there? Second, what do you think we should do to overcome them?

º  (1635)  

    Mr. Stephen Poloz: Thank you. I would like to talk about two economic factors and then I will give the floor to my colleague.

    First, during that adjustment process that I mentioned, during the Asian crisis, the American dollar was very strong and the Canadian dollar went down with respect to the American dollar, but at the same time the Canadian dollar was stronger than the Euro. We lost part of our market because of that. For example, Scandinavian wood and pulp and paper producers were more competitive than we were in Japan and China during that time.

    But things are changing now. The American dollar is going down and the Euro is stronger. I see our international trade increasing with Asia in 2003. That would be a more normal situation. Over the next five years, the situation will be more normal and we may see a 10 or 12 per cent increase in our exports to China. We will definitely see an increase of 4, 5 or even 6 per cent in our exports to the United States.

    This is a natural adjustment process, but you are right in saying that the starting point is a bit high and that we need to take other measures to benefit from this situation.

    Perhaps my colleague has something to add.

    Mr. Henri Souquiéres: The main difficulty in Asia is that there is an industrial fabric made up of small businesses. We need to provide more help here than elsewhere. It's easier in the United States; you can drive there in your car.

    In terms of the Chinese market, Mr. Simard asked earlier why we were only focusing on one point of entry in Hong Kong. It's because of its size. We're thinking maybe of Peking because in China, relations basically happen through the government. We're focusing on establishing ourselves in Shanghai and in Hong Kong to benefit from the emergence of the private sector and the two other points of entry.

    These are not easy markets. There are even several markets within China. We've only spoken about the coastal markets with our exporters. Sooner or later we're going to have to go inland where there are also markets. The challenges are enormous but we are there to help businesses deal with the risks. One of the biggest difficulties in China is that the transition period is extremely risky. The emergence of the private sector will most certainly involve bankruptcies, which was not the case in the government sector.

    Mr. Stéphane Bergeron: Would Mr. Kowalski like to add something?

[English]

    Mr. Mitch Kowalski: In my view, the difficulties in China are overcome very simply--well, perhaps not too simply--by partnering with Hong Kong. That is what my association has been saying for several years now, and I think DFAIT in a sense has missed the boat in that regard.

    They are quite comfortable sending Canadian companies, SMEs particularly, directly into China instead of rethinking the process and following a more business model, asking who would be the best people to know about the Chinese market. Would it be Chinese people in Beijing, who maybe are not familiar with Canadian practices? You'd end up matching up two parties who really don't understand each other. Or would it be a better model to say, hey, we have a ton of companies in Hong Kong who are already doing the same kind of business in various centres of China and maybe we should be working with the consulate in Hong Kong and linking these groups up?

    Just briefly, I brought the Hong Kong year book here, which is available anywhere. Just to give you an example of the links between Hong Kong and China--and I think this is often overlooked--Hong Kong has been doing business with China for the past 20 years, ever since the doors opened in the late seventies, and Hong Kong's largest trading partner is China.

    In 2000 there were 50 million trips made by Hong Kong residents into China. There are only 6 million people who live in Hong Kong. They made 50 million trips to China in one year. They invested in that same year $171 billion U.S. in direct investment from Hong Kong into China.

    These are the players who know the country. So in my view, it really doesn't make a lot of sense to send some SME from Halifax into Beijing and say “Good luck; we're here if you need us, but you're on your own.” It makes a lot more sense to say “Here is your industry. Here are some partners in Hong Kong. We've already done something there. Let's put you together and let's bring you into Hong Kong as a partnership, as a group.” That requires, I think, the Canadian government to be more focused on partnering and getting matching industries together, rather than just saying “We'll set up a trade office in Beijing. We're here to help you, but we can't do much more than that.”

    I think that overcomes the difficulties with culture, with language, with style of doing business, with everything. I think it's a lot safer approach.

    If you're Nortel or Bombardier, you don't need that kind of approach. But for SMEs, I think it's vital that you follow some kind of route that protects you.

º  (1640)  

[Translation]

    Mr. Stéphane Bergeron: I would like to ask another question, unless Mr. Poloz and Mr. Souquières would like to add to what they have already said.

    My other question deals with the free trade negotiations currently under way with Singapore. I don't know why you want an agreement with Singapore rather than with any other country in that region.

    I would like to ask you another question. In your view, what impact would such a free trade agreement with that country have, not only in terms of market penetration in Singapore, but also in terms of the penetration into neighbouring markets, when it is a fact that the economy of Singapore and those of neighbouring countries are closely intertwined?

    Mr. Stephen Poloz: First, I have to say that I would prefer an international free trade agreement. That would be the ideal solution, but it is a very slow process which may never succeed. However, I think it is good to sign smaller agreements, which have the same benefits as a free trade agreement.

    The agreement with Singapore is only one such example. Since that economy is quite open to this idea, it's an easy win. It's also an easy win for Canada. Another example is our agreement with Costa Rica. Nobody has mentioned this yet. It's surprising, but I think it's because Costa Rica does not produce any cars, for instance; they don't threaten our Canadian jobs. This is ironic because from an economist's point of view, economies which are the most different from ours provide the most free trade benefits. It would be a good thing for us to sign an agreement with a country which only produced pineapples, for instance.

    Singapore is another such example, but it is a strategic market.

    Mr. Stéphane Bergeron: Singapore does not only produce pineapples.

    Mr. Stephen Poloz: No, but it may open the door to Asia. In fact, it would be a good idea to sign many free trade agreements, which would almost amount to an international agreement. It would not be perfect, but it is possible. I think it's worth pursuing this option. It would show Canadians and others that these agreements are not dangerous, that, on the contrary, they are beneficial. And if they speed up other international negotiations, that would also be a good thing.

º  (1645)  

[English]

    The Chair: Okay. Mr. Calder, Mr. Simard, and Mr. Duncan.

    Mr. Murray Calder: Thank you very much, Mr. Chair.

    One of the statements that you made, Stéphane, just twigged something.

    Here in North America we have NAFTA, the Americas have the FTAA, Europe has the European Economic Union, and in the Asian countries you have the Association of Southeast Asian Nations. Should that be a concern for us, or will the WTO handle that? Or should we perhaps be actively looking at becoming involved in that association?

    Mr. Stephen Poloz: We already trade a great deal with ASEAN and it's a high growth area for our trade. We should indeed pursue freer trade on every front we can, and it's efficient to do it with a group as opposed to with individuals. So if we're able to make those kinds of inroads, that's exactly the stress. It's how we should use Mercosur or it's how we should use the European Community. It's just a more efficient body to negotiate with.

    I'm 100% there. I happen to think that freer trade is a good thing in every possible situation, so I'm not even going to qualify that kind of analysis.

    Mr. Murray Calder: What types of vehicles would be open to us to achieve that through ASEAN? Do you have any idea?

    Mr. Stephen Poloz: We do, of course, participate in the APEC group, so we have a lot of associations there that we think would not make it that difficult to at least indicate we wanted to go down that road.

    There may indeed be those kinds of conversations that I don't actually know about. Those would be conversations you'd need to have with DFAIT officials. We hear about these things almost in the same way as you do.

    Mr. Murray Calder: Okay. That's fine.

    The Chair: Mr. Simard.

    Mr. Raymond Simard: Thank you, Mr. Chair.

    This may be more of a philosophical question. We speak of Asia and China, in this case in particular, but we speak about the opportunities, the huge market, the great potential. Have we perhaps looked at the other side of the thing? Do we have any concerns that we are opening up markets with a huge giant?

    This is one example. One of my friends has a safety equipment company. He used to buy all his steel from Canadian companies and now he's buying the steel from China at one-third the price. That obviously costs us Canadian jobs. So when we talk about free trade, about opening up our small market to these guys, could this backfire on Canada?

    Mr. Stephen Poloz: I think I can definitively say no, and it is very important that we talk to people about this as much as we can. When you are adjusting a trade relationship there is almost always someone who will pay a price.

    Mr. Raymond Simard: We don't want it to be us.

    Mr. Stephen Poloz: Us collectively. Among us, there will always be someone who pays a price. In fact, economists will tell you that if there's nobody who gets hurt, if there are no costs, there are, by definition, no gains either, because relative prices must change for us to get the benefit. Economists also tell you that the next phase in that adjustment is when your friend saves two-thirds of the cost of steel. That has added to his bottom line, he grows his business, he creates some other jobs in his business. Those jobs, of course, earn incomes here and they get spent in Canada and so on.

    That's the leap of faith that economists are always talking about. I could ask you, ”Does anybody here have a pair of cotton pants?” And everybody has lots of them. How many pairs of cotton pants does a family buy in a given year? Well, they make really great cotton pants in Brazil, but we have a 19.5% tariff because we don't have a free trade agreement with them. What that means is the price of the cotton pants that you buy every year is, on average, about 20% more than it would be if we had free trade with everybody in the world.

    You just think about all the money that is spent on cotton pants in a year and add it all up, and think about what would happen. How many people make cotton pants in Canada? Obviously, if we were to propose that, we would read in the newspaper tomorrow the name and address of everybody in Canada whose job was at risk, but no one would talk about the $80, $100, or $120 per year that each household would save just on cotton pants. And what would they do with that money? Of course they would spend it.

    The fact that we get DVD players for $100 today from China instead of $500 is a big gift to us. That's $400 extra for us to spend on something else. And we spend a lot on Canadian stuff, and we create jobs here. That is always the leap of faith part, but the cost is immediately evident. Those are the people we'll hear from, and while we have to do our homework--

º  (1650)  

    Mr. Raymond Simard: The long-term benefits are worth it, basically.

    Mr. Stephen Poloz: That's correct. And every time they've been there, that's been shown over and over.

    Mr. Raymond Simard: I have two questions to ask Mr. Kowalski. First, how have things changed in terms of trade since Hong Kong has gone to China? Has it had any effect at all in terms of how Canada should deal with this? Secondly, when you speak about Canadians getting partners in Hong Kong, which I think is a great idea, are you talking about Canadian partners, for instance? Should the Government of Canada encourage putting Canadian companies from here together with Canadian companies that are already set up in Hong Kong?

    Mr. Mitch Kowalski: Let me answer the last question first.

    Yes, I think we should be partnering with our own companies that know the business already. I think linking with the Trade Development Council...for instance, for Hong Kong, they have a huge database that is open and available via the web to connect up companies. If the Canadian government and the Hong Kong government were able to work together through their trade development agencies to have a master database or to have access rights, or whatever agreement is going to come to it to help the Canadian companies be more aware of this, and partner with either Hong Kong companies or Canadian companies....

    On the trade in China question, virtually all manufacturing that used to be in Hong Kong is in China now. They now refer to the whole region as the PRD, the Pearl River Delta. It's not really Hong Kong or Guang Zhou. It's the Pearl River Delta. They've regionalized it very much now.

    Up and down the river bank there are factories sprouting up; they have been there for years already. They are creating more and more transportation hubs to link the area and to make it a region as opposed to separate centres.

    We haven't seen any reason that this has hurt Canadian businesses. If anything, it gives Canadian business more opportunity now in that region.

    The Chair: Final question to Mr. Duncan.

    Mr. John Duncan: To Mr. Kowalski--I went to school with a Mr. Kowalski, by the way--first of all, just so I understand your organization, could you explain who funds your organization and who funds the federation?

    Second, you described Hong Kong very well as being an entry into mainland China. As a matter of fact, you described the PRD very well. The Taiwanese, for example, would describe themselves in a similar way, as being an entry into mainland China, but more oriented particularly to Shanghai.

    There may be as many as half a million to a million Taiwanese currently living in Shanghai. The foreign direct investment from Taiwan into mainland China is variously estimated, but I think $80 billion is a fairly well-accepted number. So would you say the same arguments you've used to promote Hong Kong could be used to promote Canadian use of Taiwan as an entry?

    You made a comment in your opening remarks about a general lack of Canadian government support--at least I took it as being a general comment. I wonder if the background to that, in your estimation, is because that support is going somewhere else or doesn't exist. In other words, is there misdirected support or no support?

º  (1655)  

    Mr. Mitch Kowalski: I'll start with the last question. I think it just doesn't exist. It may be because Canadian officials in Canada see it as something that is dealt with in their overseas office. When we go to Hong Kong we meet with the trade council and all the consulate people. We're very well received and we have good discussions with them. But we don't see the same sort of thing when we come back to Canada. Perhaps there's a perception within DFAIT that that's not Ottawa's job; it's Hong Kong's job, Beijing's job, or what have you.

    On Taiwan, I absolutely think that's the model we should be using. We should be using the people who know China well, whether they're in Hong Kong, Taiwan, or wherever. The model is valid.

    Mr. Stéphane Bergeron: What about Macao?

    Mr. Mitch Kowalski: I see Macao as a smaller player. It's so close to Hong Kong and part of the PRD area. Hong Kong overshadows it a lot, but if there are people in Macao there's no question it's a good model to follow.

    On funding, the Hong Kong-Canada Business Association is a non-profit organization. We fund ourselves with membership fees and events. If we don't make any money we'll tank. We are self-supporting.

    The Federation of Hong Kong Business Associations Worldwide is funded through the Hong Kong Trade Development Council. That means there is a chairman, a vice-chairman, and a treasurer. The costs of any meetings those three individuals have are paid for by the Hong Kong Trade Development Council. The trade development council sets up all the events around the annual meeting in Hong Kong. They will pay for the president of every association around the world to fly to Hong Kong and for two nights of hotel accommodation, and that's it.

    That's a really good model for Canada because they are free ambassadors to promote trade around the world for your country. You're not paying these people, but they're doing it because of their association and their way of doing business. It's a brilliant idea and it works well for Hong Kong.

    One of the committee members was asking about a separate trade building, whether there should be a separate entity infrastructure there. That might not be a bad idea. Again, I'm just going from the Hong Kong model. There's a trade development council, which is separate and distinct from every other Hong Kong organization. It's called TDC, and that's what people focus on. There's a group called Invest Hong Kong. Their focus is to get investment into Hong Kong. They have separate logos, separate focuses and directions on what they want to do. They go out there and do it.

    In terms of branding, it may be a model that Canada can think about for setting up a Canada development corporation separate from DFAIT or the consulate. It might be next door or a floor up, but it would be a separate and distinct entity so people wouldn't get confused that they could only get passports or visas there, or what have you.

    Mr. John Duncan: It's interesting that when you go to Taipei, the British Columbia government has a separate office, but the Quebec government is in with the Canadian trade office. I found that quite unusual, because B.C. has actually branded itself more than Quebec as a consequence.

    You talked about the Ottawa attitude and the attitude in Asia toward some issues. A specific example that comes to mind is the advice I got in Ottawa to use the person assigned to that case in Ottawa. I was never referred to the person in the actual country where I had difficulty with some product that was exported. When I finally got to that person it was straightened out right away. They told me to never go to the people in Ottawa because it would just get bogged down. So I think there's quite a bit to what you were saying. In other words, I'm reinforcing what you're saying.

    Thank you very much, Mr. Chair.

»  (1700)  

    The Chair: Mr. Kowalski, I presume you have a membership and from time to time you do surveys with your members. Is that correct?

    Mr. Mitch Kowalski: Our members don't like to fill out surveys. We haven't done one for a couple of years.

    The Chair: Maybe it's time to do one, since we are doing this study. We haven't done this for quite some time. I think it would be most useful for this committee and the Government of Canada to find out from your membership some of the specific things you believe the Government of Canada should do in order to increase the amount of trade between Canada and Asia Pacific.

    We would like you to make specific recommendations. If you could send them to us within the next six weeks, that would be absolutely great.

    Mr. Mitch Kowalski: I'd be happy to do that.

    The Chair: I suggest the same thing for EDC. If there are things you think we should be recommending, please don't hesitate to let us know.

    Mr. Stéphane Bergeron: We won't say who it came from.

    The Chair: I want to thank you very much for your excellent presentation and for answering our questions in a very open and direct way. If you have any extra things you want to tell us, please do so through the clerk.

    [Proceedings continue in camera]