FAIT Committee Report
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A. Liberalizing Trade and Investment
A logical cornerstone of Canada’s policy of expanding trade and investment with Asia-Pacific should be to remove all possible barriers that stand in the way of that expansion. The Subcommittee has long been an advocate of achieving closer economic ties through the liberalization of trade and investment. Indeed, our previous studies on Canada’s economic relationships with Europe and the Americas underscored our support of the federal government’s three-pronged strategy of removing all possible trade and investment barriers at the bilateral, regional and multilateral levels. Our views on Asia-Pacific are no different. We look to the ultimate long-term goal of free and open trade and investment with the entire Asia-Pacific region.
1. Major Barriers to Trade and Investment in Asia-Pacific
Barriers to trade and investment can take many forms, the most obvious of which are tariff barriers where countries apply duties on imported goods according to a predetermined tariff schedule. Other related trade barriers include import quotas, production and export subsidies, and inappropriate use of sanitary and phytosanitary measures, to name a few.
In its travels, the Subcommittee also learned of several other, less direct, obstacles that prevent Canada-Asia-Pacific economic ties from reaching their full potential. For example, the legal and regulatory environments in many Asia-Pacific countries are complex and unstable. Witnesses spoke of regulatory uncertainty, relatively undeveloped legal systems and a consequent lack of legal recourse in the event that regulations governing their activities change without notice. As well, a number of Asia-Pacific countries have foreign ownership or participation restrictions. In some cases, these restrictions were limited to specific industries, while in others they were more comprehensive.
The Subcommittee also heard that protection of intellectual property is a major concern for foreign companies looking to establish operations in Asia. With the exception of the most developed Asian countries, weak or uncertain intellectual property protection and patent laws can deter companies from investing in Asia, or establishing primary research and development operations in those countries. More generally, language and cultural barriers, travel distance, technological compatibility and shipping costs also constitute indirect barriers to trade.
2. Bilateral Agreements to Promote Trade and Investment
In most cases, the barriers to trade and investment described above can be effectively addressed through formal economic treaties such as free trade and investment protection agreements. These agreements provide the parameters for rules-based trade and investment, eliminate or reduce the effects of tariff and tariff-related trade barriers and offer the stability and predictability Canadian businesses need to invest in the region.
(a) Double Taxation and Foreign Investment Protection Agreements
As the Subcommittee noted in its report Strengthening Canada’s Ties with the Americas, the most basic step towards improving economic linkages is to create an enabling environment for foreign investment. Foreign direct investment is widely believed to be a precursor to increased trade flows. At a preliminary level, creating the necessary conditions for foreign investment to flourish is accomplished through treaties such as double taxation agreements that harmonize tax policies in signatory countries to prevent businesses and individuals located in one country but operating in the other from being taxed (on the same income) in both. The Subcommittee is pleased to note that Canada has a solid network of double taxation agreements in Asia-Pacific, covering 15 countries and including the major markets in the region.
However, on a related issue, the Subcommittee heard testimony by Robert Keyes on behalf of the Canadian Chamber of Commerce in Japan specifically requesting that Canada negotiate a social security agreement with Japan. The Subcommittee also heard the same request directly from Canadian businesses operating in that country. Currently, expatriates from one country living in the other must contribute to social security plans in both, even though they can only receive benefits from one. This type of double taxation can represent a considerable business expense and adds to the cost for Canadian companies of doing business in Japan and for Japanese companies operating in Canada. The Subcommittee believes that this problem can easily be remedied. We recommend:
Recommendation 5:
That the Government of Canada negotiate with Japan, and any other country where one is needed, a Social Security Agreement that eliminates the need for companies to contribute to social security programs in both countries when benefits can only be collected in one.
A second step towards promoting foreign investment, and overcoming barriers to investment, would be to increase the number of countries with which Canada has signed Foreign Investment Protection Agreements (FIPAs). FIPAs are bilateral agreements that provide a predictable investment framework to foreign investors. They are valuable in providing assurance against the regulatory and legal uncertainty that foreign investors face in many countries.
In general, the need for FIPAs exists only in developing countries where unstable or underdeveloped domestic regulatory and legal environments discourage foreign investors. As such, there is no need for Canada to pursue such agreements with countries like Japan and Australia. However, the Subcommittee notes that Canada has to date signed FIPAs with only two countries in Asia-Pacific — Thailand and the Philippines.
Somewhat surprisingly, the view of FIPAs from the business community was mixed. A handful of businesses operating in Asia-Pacific stated that the presence or absence of FIPAs was often inconsequential to the decision to invest in the region. However, Robert Keyes argued the opposite point, stating that FIPAs were critical from a business perspective. He emphasized that these agreements have certainty, guarantee application of the law and ensure due process if investments are threatened.
FIPAs and double taxation agreements help set the necessary foundation for expanding economic ties, as well as help overcome legal and regulatory impediments to investment. However, the Subcommittee believes that the most effective way to eliminate barriers to trade and investment is through the pursuit of free trade agreements (FTAs) with countries — or groups of countries — in the region. FTAs not only lower direct barriers to trade such as tariffs and import quotas, but can also address concerns over indirect barriers such as intellectual property protection, sanitary and phytosanitary measures and national treatment.
Canada currently does not have any free trade agreements in place with Asia-Pacific countries, although it is in the final stages of negotiating such an agreement with Singapore. It is hoped that a Canada-Singapore FTA will be completed by the end of 2003.
The process of negotiating an FTA with Singapore has taken somewhat longer than initially expected; the two countries first signalled their intentions to negotiate an FTA in June 2000. Since that time, the United States also initiated negotiations with Singapore and has already concluded an agreement. While in Singapore, the Subcommittee heard that the reason for the current delay is that, because the Canadian and U.S. markets are so closely integrated, it is imperative that the Canada-Singapore FTA resemble as closely as possible the Singapore-U.S. FTA. Singapore had initially been reluctant to give Canada the same concessions it gave the U.S., but we were informed that considerable progress had been made in recent months.
As a small city-state of only 4 million inhabitants, it is easy to question why Singapore would be Canada’s first choice for a free trade agreement in the Asia-Pacific region. However, there are several key reasons why a deal with Singapore would be of strategic importance. First, it is comparatively easy to negotiate with Singapore because, as a city-state, there is no appreciable agriculture industry in that country. Agriculture is a contentious issue in nearly all Asian countries, the absence of which makes negotiations with Singapore relatively uncomplicated.
More importantly, however, Singapore has built an impressive network of bilateral and regional free trade agreements — most notably as part of the ASEAN community. Compared to most other Asian countries, Singapore also has very liberal laws regarding foreign ownership. Any Canadian company operating in Singapore is automatically entitled to national treatment.11 In other words, Canadian businesses in Singapore can take advantage of that country’s growing network of free trade agreements to gain freer market access to all of Singapore’s current and future FTA partners.12 This network makes Singapore a valuable strategic entry point for Canadian businesses looking to gain access to Asia-Pacific markets.
(ii) The Potential for Free Trade Agreements Elsewhere in Asia-Pacific
Given its long-standing support of Canada’s trade liberalization efforts, the Subcommittee is encouraged by the opportunities presented by a Canada-Singapore FTA and looks for that agreement to be the first of many in the region. At the same time however, during our two fact-finding missions to Asia, we observed that the responses to our queries about the prospects of free trade with Canada were decidedly mixed.
The Subcommittee found that some countries were not immediately receptive to the idea of free trade with Canada. This reticence was not due to a reluctance to negotiate with Canada, but rather a matter of sufficient resources and priority. As discussed in Chapter II of this report, the rapid pace of economic integration in the region has led to a flurry of intra-regional free trade initiatives. The Subcommittee was told in Malaysia and in China that intra-regional agreements were the top priority and that trade liberalization opportunities outside the region — such as with Canada — were of secondary importance.
Many other countries, however, including Thailand, Japan, India and South Korea, were receptive in principle to the idea of trade liberalization with Canada. Even in those cases, however, it was clear that the issue of agriculture protection was a significant obstacle preventing any meaningful progress towards free trade. The issue of agriculture protection and trade liberalization are discussed in more detail below.
The Subcommittee notes that Canada is a leader in pushing for rules-based trade worldwide. This position suggests that Canada’s ultimate objective would be to operate in an environment where investment flows freely and all barriers to trade are removed. In that context, we believe it follows still further that in the interests of lowering barriers to trade, Canada should be willing to pursue bilateral or regional free trade agreements with any willing partner or party that shares its free trade vision and respect for human rights. With that in mind, the Subcommittee recommends:
Recommendation 6:
That the federal government seek out and negotiate free trade agreements on an ongoing basis with any countries with which Canada shares a free trade vision and respect for human rights. Steps should be taken to ensure that the government has a sufficient number of well-trained negotiators to carry out this mandate.
This is not to say, however, that we believe trade negotiations should take place without the knowledge or consent of Canada’s elected representatives. Indeed, as trade plays such a significant role in the lives of Canadians, we believe the involvement of parliamentarians to be of critical importance. Members of Parliament may not have expertise in negotiating trade agreements, but, given consultation with their constituents and advocacy groups, they are in an excellent position to provide guidelines for negotiation that ensure that the views and concerns of Canadians are represented at the bargaining table. Parliamentarians are also in a good position to evaluate the outcome of trade negotiations, to determine if Canada should ratify tentative agreements, and, once agreements have been implemented, to assess the impact they have had on Canadians and the Canadian economy.
In many other jurisdictions, elected officials already play a similar role. For example, when the EU negotiates free trade agreements with third parties, the process is undertaken by the European Commission which acts upon instructions from the Council of the EU — the legislative body of EU Member Countries in matters of foreign affairs. The Council is the decision-maker, issuing directives for negotiation to guide the Commission. The Council also makes the final decision on whether or not to adopt any accord reached by the Commission.
The Subcommittee believes that Canada could also encourage greater participation by its parliamentarians in the trade negotiation process. Specifically, parliamentarians should be actively involved in setting the broad parameters of Canada’s negotiating position — such as limitations, exceptions and minimum requirements — but leave the details to the professional negotiators. As talks progress, negotiators would report to Parliament, or to the Subcommittee, on a regular basis for consultation and feedback. Finally, any tentative agreement reached by negotiators would require consultation with Parliament before being signed. In our opinion, the expected imminent completion of the Canada-Singapore free trade agreement offers an opportunity to set such a process into motion. We recommend:
Recommendation 7:
That Canada adopt a trade negotiating strategy in which parliamentarians play a more active role. Parliamentarians should be consulted when the basic framework of the Canadian position in future trade negotiations is determined. Officials in charge of negotiations would be bound to stay within this broad framework and through the process of negotiations would provide regular updates on progress and challenges to interested and/or concerned parliamentarians or Parliamentary Committees. Finally, and beginning with the Canada-Singapore free trade negotiations, parliamentarians should be consulted before any tentative agreement is signed.
(iii) Least-Developed Countries in Asia-Pacific
Although this report recommends that the Canadian government take a more strategic approach to increasing trade and investment with Asia-Pacific by focusing on key markets in the region, the Subcommittee believes that the 12 LDCs in the region require special consideration.
We are pleased to note that as of January 1st 2003, the Canadian government unilaterally eliminated all tariff and quota limitations on products entering Canada from 48 LDCs worldwide. The only exceptions to this concession were in supply-managed agricultural products: dairy, poultry and eggs. Least Developed Countries also gained preferential treatment in the key industries of apparel, textiles and agriculture.
However, given the recent failure of the latest WTO ministerial conference in Cancun, the Subcommittee is of the opinion that additional steps need to be taken to promote economic development in LDCs, both in Asia-Pacific and worldwide. Specifically, we have heard considerable testimony describing how political instability and legal and regulatory uncertainty repel foreign investment and thus trade and economic development. One of the ongoing challenges facing developing countries, and LDCs in particular, is that the costs of domestic policy and legal reforms are considerable and many such countries do not have the resources needed to undertake these reforms. With that in mind, the Subcommittee recommends:
Recommendation 8:
That, given the importance of trade and investment in stimulating economic growth, and the need for a stable legal and regulatory environment to attract investment, the Government of Canada provide increased support to least developed countries for trade-related technical, policy and legal reforms.
3. The Issue of Agriculture Protection
As mentioned above, the issue of agriculture protection is a major obstacle in the way of Canada pursuing free trade agreements with Asia-Pacific countries. The liberalization of agriculture markets is a politically sensitive topic across most of the region, from developing countries to advanced economies such as Japan. Tariff protection on agricultural products in the region is often high, particularly on value-added goods. In addition, many countries offer domestic production support to their farmers and have safeguards such as quotas in place to protect against a surge in foreign imports.
Agriculture is considered an industry of primary importance in Asia-Pacific, not only from the standpoint of food security, but cultural preservation as well. In Japan, for example, the Subcommittee heard that a worldwide crop shortage in the early-mid 1970s led the U.S. to withhold exports of soybeans to Japan. Some witnesses erroneously believed that Canada had also withheld food exports at that time. This incident was viewed in Japan as a reminder of the importance of maintaining some control over domestic food supply. In addition, the Subcommittee learned that the cultivation of rice is heavily supported in Japan because it is valued as a traditional Japanese industry. Furthermore, we heard that Japan’s production system is characterized by high costs and not internationally competitive. The Subcommittee was told by Japanese business leaders that the prevailing fear in that country is that if any concessions on agriculture open the door even a crack to the Japanese market, it could be forced wide open and Japanese farmers would be unable to compete with the producers of cheaper imports.
The Subcommittee is frustrated by the continued subsidization of agricultural production, not only in Asia-Pacific, but around the world as well. In a previous report, Building an Effective New Round of WTO Negotiations: Key Issues for Canada, the Subcommittee examined the issue of global agricultural subsidies, noting that such protection — specifically in the form of production incentives, explicit price supports (where governments directly pay farmers above-market prices for their products) and export subsidies — creates market distortions that in turn lead other countries to adopt similar measures to protect their farmers. The end result is global overproduction and artificially low world prices. Few countries are willing to lower these agricultural support mechanisms unilaterally, because their farmers would then be competing unprotected (in a low-price environment) against subsidised production elsewhere in the world. The Subcommittee continues to examine different agricultural systems that do not provide subsidies or distort trade, such as supply management.
4. Overcoming Agriculture Protection: Alternative Trade Liberalization Agreements
The result of continued agricultural protectionism, from the standpoint of improving Canada’s economic ties with its key Asia-Pacific markets, is that free trade agreements are very difficult to negotiate. In order for a bilateral free trade agreement to be permissible under WTO regulations, meaningful tariff reduction must occur on 90% of all tariff lines. This cannot be done without broaching the issue of agriculture. Indeed, as mentioned above, one of the major reasons Canada is negotiating a free trade agreement with Singapore is that this issue is of minimal significance.
The issue of agriculture protection was especially contentious in Japan. Although Canada has made recent attempts to explore a bilateral trade agreement with Japan, the Subcommittee observed that Japanese political and business leaders did not appear willing to revisit an FTA with Canada because of the agriculture issue. The Subcommittee heard testimony from Japanese business leaders that Japan is vulnerable in areas where Canada is a powerful exporter, such as value-added agricultural products and resource-based manufactured goods, and that Japan’s tariffs are already low in areas where Japan is strong, such as high-tech goods. Therefore, the only potential gains from free trade for Canada would be in areas that Japan appears unwilling to negotiate. Doubtless, this unwillingness has only been exacerbated by the single case of bovine spongiform encephalopathy (BSE) found in a cow in Alberta and the subsequent closure of the Japanese market to Canadian beef, as well as by the ongoing closure of the Canadian market to Japanese beef resulting from the appearance of BSE in Japan several years ago.
As such, it would appear that there is little hope for Canada to negotiate a free trade agreement with Japan. However, the Subcommittee believes that if Canada is to pursue a long-run strategy to develop its key markets in Asia-Pacific, it must send a strong signal that, even in the face of this challenge, Canada is committed to improving its trade relations with the region.
Since most countries cannot negotiate a formal FTA without raising the issue of agriculture, it was suggested to the Subcommittee in Japan that Canada demonstrate its commitment to trade liberalization by proposing to negotiate a bilateral FTA in services only, and leave goods trade to multilateral negotiations at the WTO. We heard a similar message in a number of other countries as well, and agree wholeheartedly with this suggestion.
The Subcommittee maintains that a comprehensive free trade agreement is the preferred option in liberalizing trade and investment with Canada’s key Asia-Pacific markets. However, if countries are unwilling to negotiate formal FTAs because of concerns that they would have to reduce domestic agriculture supports as a result, then we believe Canada should actively consider alternative “closer economic partnership” agreements.
The nature of economic partnership agreements is intentionally vague. They are not officially considered FTAs because they do not liberalize trade across at least 90% of tariff lines. Instead, countries agree to negotiate tariff concessions in a more limited group of products. As such, these agreements can vary considerably in size and scope from one to the next. Closer economic partnership agreements are becoming increasingly popular within Asia-Pacific because they achieve trade liberalization objectives, but do not necessarily bring contentious issues such as agriculture to the table.
Recommendation 9:
That in cases where issues such as agriculture protection prevents a comprehensive free trade agreement from being negotiated, Canada should instead pursue alternative economic co-operation agreements that promote trade or pursue sectoral agreements within the WTO. Free trade in services is an example of such an agreement.
B. Creating an Enabling Environment
The Subcommittee believes that as part of an Asia-Pacific Policy for increasing trade and investment, the federal government can take several steps to help create an enabling environment to improving economic linkages with the region. Specifically, the Subcommittee heard numerous suggestions on how Canada can improve the level of personal interaction and exchanges with Asia-Pacific countries. These personal ties have the potential to lead to greater economic ties as well.
1. Increasing the Frequency of Official Visits
While abroad, the Subcommittee frequently heard that there has been a dramatic decrease in the number of visits by Canadian government officials and Ministers to many Asia-Pacific countries in recent years. It was disquieting to learn that this drop in official visits has not escaped the notice of Canadian businesses, trade commissioners or, most importantly, local national governments.
The Subcommittee heard testimony about the merits of closer political ties all across the region. In South Korea, Canadian business leaders were convinced that political relations and official visits were key in opening the doors to the Korean market. This view was echoed across the region.
We are convinced that increasing the number of official visits is of critical importance to improving economic linkages with Asia-Pacific. Governments and businesses in the region value direct contact and the cultivation of personal relationships. Not only would these relationships be enhanced by more frequent official exchanges, but increased interaction would send a clear signal that Canada is serious about establishing a long-term, mutually beneficial economic relationship. Furthermore, official visits typically result in media attention, helping to raise Canada’s profile in the region.
The Subcommittee is pleased to acknowledge that the number of ministerial visits to the region has increased this year. Our last fact-finding trip in September directly preceded or coincided with visits from several federal ministers. In the lead-up to the October APEC summit in Bangkok, several high-profile Ministers, including the Prime Minister, paid official visits to countries in the region. We hope that this increase in official visits is not exclusively due to the APEC conference, but instead represents a renewed commitment to revitalizing official ties with the region.
Although the flurry of official visits to Asia-Pacific is welcome, the Subcommittee believes that Canada needs to improve the consistency of these visits. While the absence of official visitors from Canada suggests a certain apathy to maintaining close relations, too many delegations in rapid succession reduces the significance of each. For example, this fall, four Canadian ministers and the Prime Minister visited India in the span of three weeks. To maximize their effectiveness, high-level visits need to be sustained, strategic and carefully coordinated to ensure that Canada is consistently visible in the region.
Recommendation 10:
That to demonstrate its commitment to improving economic ties, as well as to cultivate a closer working relationship with Asia-Pacific, the federal government significantly increase the number of visits to key markets in the region by ministers, parliamentarians and senior government officials. Furthermore, these official visits should be more consistent, strategic and focused on achieving specific policy objectives.
2. The Image of Canadians and Canadian Society in Asia-Pacific
In general, the Subcommittee observed that most Asians have a two-faceted view of Canada. From an economic standpoint, Canada faces an ongoing challenge in differentiating itself from the United States. Most businesses that the Subcommittee met during its travels tended either to view North America as a homogenous market or to focus exclusively on the United States. In terms of Canadian products, many business leaders were not aware of Canadian knowledge and expertise in a number of high-tech sectors. Clearly, more work needs to be done to promote Canada as a destination for investment as well as to market in Asia-Pacific Canadian production capabilities. This topic is discussed in greater detail in “Strategies for Helping Business.”
Although Canada’s image as an economic agent is wanting in Asia-Pacific, its image from a social standpoint is strong. Canada is widely perceived in the region as a safe, clean society with vast natural beauty and a high quality of life. Furthermore, Canadian society is perceived as tolerant of other cultures and religions. The Subcommittee heard from several witnesses in Asia that since September 11th, 2001, the popular perception of the United States is that of a decreasingly tolerant society. By contrast, the perception of Canada as an accepting and accommodating culture has remained unchanged.
With a large immigrant population from Asia, personal connections between Canadians of Asian descent and their friends and relatives overseas are strong. While in the region, the Subcommittee encountered countless individuals who had friends or family living in Canada, or who had studied at Canadian universities. These connections to the region are an invaluable asset, not only from a cultural standpoint, but from an economic one as well. Canada can draw on the strength of its multicultural labour force to help bridge the language and cultural barriers between North American society and that of Asia-Pacific.
It also became clear to the Subcommittee that specific Canadians and events in Canada’s history have had a considerable influence on how Canada is perceived in specific Asia-Pacific countries. Nowhere is this more true than in China. The humanitarian work of Dr. Norman Bethune, combined with the fact that Canada was the first western country to agree to sell much-needed wheat to Communist China in the 1960s, have together engendered considerable goodwill in China towards Canada.
In general, Canada enjoys an excellent reputation in Asia-Pacific. Our tolerant, multicultural society, the increasingly “Asian” composition of immigration to Canada and Canadians’ past assistance to countries like China are all helpful in building upon our current economic relationship with the Asia-Pacific region. Canada should make effective use of these assets to further advance economic and social co-operation with the region.
Over the course of the Subcommittee’s travels, by far the most frequent topic of discussion was the opportunities available to Canada in the education services sector. In every country we visited, witnesses spoke unprompted about the potential for Canadian post-secondary institutions to benefit from the large numbers of Asian students seeking western educations.
We repeatedly heard that allowing greater numbers of foreign students from Asia-Pacific to study in Canada would be a good way to promote future trade and investment. Witnesses generally agreed that when those foreign students return to their home country, they take with them knowledge of Canadian institutions, industries, products and expertise, as well as of our culture and the values of Canadian society. Indeed, the Subcommittee met or heard of many high-level government and business leaders — particularly in Singapore and Hong Kong — who were educated in Canada and spoke very highly of their experience.
In some countries, we heard frustration expressed at the small number of students admitted to universities in Canada, while in others, Canada is a major destination for foreign students. Currently, Canada hosts large numbers of foreign students from China and South Korea, but relatively few from India and Southeast Asia. However, most witnesses thought that Canada could do significantly more to attract foreign students from all across the region.
The United States and the United Kingdom (UK) are the long-established destinations for Asian students wishing to pursue a western-style education, while Australia has been very aggressive in promoting itself as a destination for foreign students. The number of such students in Australia has more than tripled since 1990. Australia now has the second-highest proportion of foreign students of any country in the world, behind Switzerland only. By contrast, Canada has not seen any significant growth in the number of foreign students in recent years.
Witnesses were divided as to whether or not Canada should vigorously pursue attracting more foreign students or, alternatively, set up overseas branches of Canadian institutions. Most saw the provision of education services as an industry with tremendous growth potential for Canada. A minority disagreed, however, stating that Australia had already cornered the market for a western-style education in Asia. Many also believed that Australia has a significant advantage in terms of relative proximity to Asia, despite the fact that for countries like Japan and South Korea, Western Canada is no further away. Still other witnesses reminded the Subcommittee of the fact that, as a matter of provincial jurisdiction, it is difficult for the federal government to make policies in matters of post-secondary education.
The Subcommittee is of the opinion that the opportunities for the Canadian education services sector in Asia are significant and should not be overlooked. Not only do post-secondary institutions benefit from the increase in revenues and international profile that foreign students offer, but providing foreign students with a Canadian education forges an indelible link between those students and Canada. These links can help pave the way for future economic and political co-operation.
Recommendation 11:
That the federal government invite willing provinces to jointly develop a national strategy on international education to more aggressively promote Canada as a study destination for international students.
At the same time, however, Canada should be more active in monitoring which Canadian education institutions are active in the region. The Subcommittee was troubled to hear that a number of Chinese and Pakistani students wishing to study in Canada were victims of elaborate scams, by which they were accepted to study at fictitious or poor Canadian post-secondary institutions. Such incidents not only damage the international reputation of Canada’s high-quality education services industry, but tarnish the image of the country as a whole. The Subcommittee recommends:
Recommendation 12:
That the federal government work with the provinces to develop a certification program for education institutions to protect Canada’s integrity and reputation and to prevent immigration scams and abuses.
It was suggested that Canada should not only work towards attracting new foreign students, but should also cultivate the existing links it has already made with former Canadian foreign students through international alumni associations. Indeed, such associations exist in Asia-Pacific, although some, such as in Hong Kong and Singapore, are more active than others. Successful international alumni speak highly of their experiences at Canadian universities. Their collective testimony would be an excellent promotional tool for Canadian institutions abroad.
The Canadian Education Centre (CEC) is the body currently responsible for promoting and marketing Canadian education institutions for international students. The CEC’s overseas operations are already concentrated in Asia-Pacific — 11 out of the 17 foreign offices are located in the region.13 It was suggested to the Subcommittee by a witness in Singapore that the CEC could play a potentially valuable role, not just as a source of information, but also by working more closely with Canadian international alumni associations. In countries where Canadian alumni associations are strong, the CEC could work with those organizations to better promote Canadian schools. In areas where Canadian alumni are less active or numerous, the CEC could play an organizational or support role while at the same time taking advantage of cross-promotional opportunities.
However, in order for the CEC to be able to add co-operation with alumni associations to its mandate requires additional financial resources. In fact, the ability of the CEC to fulfil its current mandate has been made more difficult in recent years by a decline in financial support from the federal government. The Canadian International Development Agency (CIDA) and the Department of Foreign Affairs and International Trade (DFAIT) together provided $1.9 million in funding to the CEC in 2001-2002, down nearly 40% from four years earlier.
Recommendation 13:
That, in an effort to more effectively promote Canadian education institutions in Asia-Pacific, as well as to improve linkages between Canadian alumni in the region, the Canadian government, in collaboration with the provinces and the institutions themselves, encourage the Canadian Education Centre Network to work closely with, and strengthen, Canadian alumni associations abroad. The necessary financial support to perform this function should be provided.
4. Promoting Travel and Exchanges
In addition to promoting formal government visits with Asia-Pacific countries, the Subcommittee believes that encouraging travel and personal exchanges between Canada and its target markets in Asia-Pacific at all levels, ranging from business to education to tourist travel, is an effective strategy to promote trade and investment. Travel helps build business and personal ties with individuals in the region; it creates awareness of trade and investment opportunities in both countries; it showcases Canadian culture and values; and, perhaps most importantly, it breeds familiarity. Visitors from Asia-Pacific to Canada learn about the advantages and benefits of this country, while Canadians travelling in the region return with a greater understanding of cultures and lifestyles that may otherwise have seemed exotic or inaccessible.
The topic of improving travel and exchanges with Canada was a common one during the Subcommittee’s fact-finding missions. While witnesses were adamant that business, personal and education exchanges were all valuable and should be encouraged, the Subcommittee also heard of several obstacles preventing these exchanges from reaching their potential.
Among these limitations is the fact that Canada is not an approved destination for Chinese tourists. Chinese citizens are only permitted to travel as tourists to countries with “approved designation status,” and even then only through pre-arranged tour groups. China has approved 28 countries and regions as eligible destinations. However, despite Canada’s efforts, the only permitted destination in the Americas to date is Cuba.
In addition, the Subcommittee heard numerous troubling anecdotes about the difficulty in acquiring a visa to travel to Canada — whether for business or for pleasure. The challenge was particularly acute in India where, as the Subcommittee learned, the High Commission in Delhi was the only location in the country at the time with the capacity to issue visas.14 Since then, Canada has opened a new consulate in Chandigarh in Northern India. While the Subcommittee is pleased that Canada has expanded its diplomatic presence in India, all residents of southern India, must still travel to Delhi in the north to apply in person for a visa. Furthermore, the approval process appears to have significant flaws. High-profile business leaders in India, looking to establish trade linkages with Canada, told the Subcommittee of having their visa applications rejected. In one case, those individuals instead travelled to the United States. In another case, high-level intervention was needed to allow the visa application to go through.
The Subcommittee also heard in Bangkok that Canada processes a daily limit of 60 visas from that country on any given day. We were told that Air Canada was effectively prevented from establishing direct air service to Bangkok because of the limitations the visa limit placed on travel to Canada.
The Subcommittee acknowledges that one of the challenges in issuing visas in India is that it is difficult to perform background checks on citizens. There is no national identifier such as a social insurance number, nor do credit-checking agencies exist that could help verify information. Nevertheless, given the importance of legitimate business travel to promoting trade and investment, it is critical that Canada be able to provide visas in a timely fashion.
Recommendation 14:
That, without compromising the safety and security of Canadians, the federal government ensure that legitimate travel to Canada is not unnecessarily restricted.
The Subcommittee heard that another major impediment to improved travel between Canada and Asia-Pacific is the availability of direct flights to some destinations. In particular, Singapore and Manila, Philippines are Canada’s only direct destinations in the ASEAN community. As well, until recently, Canada did not have direct service to India or elsewhere in South Asia. On October 18th, however, Air Canada launched a non-stop daily flight between Toronto and Delhi. Witnesses in India had felt that the lack of direct travel connections were hampering the development of business relations between the two countries. The Subcommittee is pleased that this impediment has been removed.
The Subcommittee believes that further improving transportation linkages between Canada and its key markets in Asia-Pacific would be beneficial to enhancing our linkages with the region. We do recognize that the capacity of the federal government to act in this area is limited by the fact that Canadian airlines are privately owned and by security concerns in particular countries. Within these limitations, however, we believe that the federal government should search for ways to encourage the addition of direct travel routes to Asia-Pacific. We recommend:
Recommendation 15:
That the federal government examine ways to further remove impediments to establishing commercial air travel connections between Canada and key markets in Asia-Pacific.
In Thailand, the Subcommittee was alerted to another travel-related issue affecting Canadian businesses operating in certain Asia-Pacific countries: the nature of Canada’s international travel advisories.
For the safety of Canadians abroad, DFAIT publishes regularly-updated travel advisories informing Canadians about possible international danger areas. It was suggested to the Subcommittee that, when publishing such information, a distinction be made between essential and non-essential (tourist) travel. Travel advisories make it difficult for travelling business people to get insurance coverage and can be damaging to overseas business operations. This is particularly relevant in countries such as Indonesia or China, which are geographically large. Civil unrest or the outbreak of disease in one locality does not necessarily make the entire country unsafe.
The Subcommittee agrees that Canada’s travel advisories should contain a distinction between essential and non-essential travel and that, where relevant, travel advisories should be as specific as possible. However, we also believe that the issue of travel advisories is an important service and that caution be taken to ensure that the safety of Canadians is not compromised as a result.
Recommendation 16:
That when issuing travel advisories in Asia-Pacific, the Government of Canada distinguish between essential and non-essential travel. At the same time, given the large size of many countries in the region, advisories should be as specific to particular locations as possible without jeopardizing the safety of Canadians in the process.
Aside from overcoming the various obstacles to travel between Canada and Asia-Pacific, the Subcommittee also heard numerous ideas concerning initiatives Canada could undertake, or existing initiatives it could expand, that might improve interaction with countries in the region. Some witnesses pointed out that an understanding of the local language is invaluable in conducting overseas business and, that as a result, government-sponsored language bursary programs could be a useful way of promoting economic and business relations. Others spoke of the value of Canada’s Young Professionals International (YPI) program (formerly the Youth International Internship Program), which sends young Canadians abroad to gain valuable international work experience. In India, the Subcommittee heard of a related program which offered internships within Canadian overseas missions. We were told that this initiative gave participants the opportunity to gain valuable international exposure and experience. We were disappointed, however, to hear that this program had been discontinued. We see merit to foreign internships for Canadians and believe that they should be reinstated.
We also heard positive reviews for Canada’s Working Holiday Program (WHP), which allows young Canadians to visit and work in selected countries for up to twelve months. The WHP is a reciprocal agreement, allowing young foreigners to come to Canada in a similar capacity. Currently, Canada has WHPs in place with four Asia-Pacific countries — Australia, New Zealand, Japan and South Korea. Several of Canada’s young entrepreneurs in Japan believed the WHP to be an excellent program to encourage exchange between countries and to create trade and economic opportunities. Many of those entrepreneurs themselves were first exposed to Japan through such programs.
The Subcommittee believes that, as part of a broader strategy to promote long-term trade and investment with Asia-Pacific, policies should be implemented that encourage language acquisition and personal exchanges. As such, we recommend:
Recommendation 17:
That, as part of a broader strategy to promote long-term trade and investment with Asia-Pacific, new programs that encourage personal exchanges with the region be explored and existing ones expanded. In particular, the Canadian government should consider expanding its Working Holiday Program to include more Asia-Pacific countries and to allow more Canadian youth to participate.
C. Strategies for Helping Business
Ultimately, the decision to trade with or invest in Asia-Pacific rests with Canadian businesses. However, the Subcommittee firmly believes that there is a vital role for the Canadian government to play in helping the Canadian business community succeed in Asia-Pacific. This position was influenced by the testimony of numerous witnesses offering suggestions on specific ways they felt the federal government could assist businesses.
In nearly all cases, there was a common thread running through these suggestions. Witnesses asserted that the most useful role that the Canadian government could play in fostering increased trade and investment with Asia-Pacific was to create the necessary conditions for businesses to prosper; in other words, to open doors and allow Canadian companies to avail themselves of the opportunities in the region.
To a great extent, this is addressed by a strategy of trade liberalization as outlined previously. However, providing Canadian businesses with the tools they need to succeed in Asia-Pacific requires more than simply lowering barriers to trade. Given the rapid growth and development in Asia-Pacific, the need for up-to-date information is critical, as is, we believe, the need for the federal government to assist in re-establishing business relationships and linkages between Canada and Asia-Pacific, which have been allowed to atrophy since the Asian Crisis in 1997-98.
In our opinion, there are five distinct areas in which the federal government can play a valuable role in maximizing the potential for Canadian businesses to be successful in developing trade and investment linkages with countries in Asia-Pacific. The first is in ensuring that firms have access to accurate and timely information about overseas markets and about the opportunities in the region that are relevant to their businesses. The second is export-readiness: helping prepare Canadian companies for doing business in Asia-Pacific prior to leaving Canada. The third area is easing the transition from Canada to Asia-Pacific, especially for new exporters or investors. Fourth is raising the profile of Canada, Canadian companies and Canadian expertise in Asia-Pacific. Finally, the federal government can ensure that Canadian companies operating or exporting in the region are provided with ongoing, high-quality government service overseas. Each of these five areas is discussed below.
1. Access to Accurate and Timely Market Information
Perhaps the most important role the Government of Canada can play in promoting trade and investment in Asia-Pacific is to equip Canadian businesses with the best possible information about the region. The Subcommittee heard that there is a low level of awareness among Canadians of the overall economic potential, and the specific market opportunities, in Asia-Pacific. As Ken McKeen (Consultant, Coast Forest and Lumber Association) testified, market intelligence is very useful to businesses, especially to smaller organizations lacking the wherewithal to conduct market analysis on their own or that do not have a full-time presence in the region. Access to relevant market information would allow companies to keep an eye open for opportunities and developments that might be favourable to their products and help gain access to these unfamiliar markets. This view was echoed by several other witnesses.
The Subcommittee agrees that providing timely, accurate and comprehensive market information about Asia-Pacific would be an invaluable tool for businesses and could help promote awareness of the economic opportunities in the region. We also note that this type of market information is already widely available through a variety of government sources. Through its Trade Commissioner Service (TCS) offices in Canada and abroad, as well as via its Web site, DFAIT provides market information and identifies key growth and investment opportunities worldwide. It also provides historical, cultural and political information. Export Development Canada (EDC) also provides market information and current economic analysis for members on its Web site. Industry Canada and Agriculture and Agri-Food Canada offer similar services.
Another, more comprehensive source of information is APF Canada. APF Canada is an independent, non-profit organization devoted exclusively to research and analysis on Asia-Pacific for businesses and policy-makers. It was established in 1984 by an Act of Parliament for the purpose of enhancing awareness and understanding amongst Canadians of the Asia-Pacific region. APF Canada is financially supported by DFAIT and CIDA.
In the opinion of the Subcommittee, APF Canada is an excellent example of how an organization can provide timely and comprehensive information and analysis on economic and political issues in Asia-Pacific and Canada’s relationship with the region. In principle, we believe that APF Canada has, among other benefits, the capacity to be an invaluable tool in providing market information and promoting awareness of trade and investment opportunities in Asia-Pacific. In theory one step removed from government policy and policy-makers, APF Canada has the advantage of greater freedom and objectivity in its research and analysis on Canada’s relationship in the region compared to government departments performing similar functions.
We were disappointed to learn, however, that the ability of APF Canada to fulfil its mandate has been undermined by erratic and declining financial support. The organization’s budget was about $2 million in 2002, one quarter of its level ten years earlier. John Wiebe informed the Subcommittee that this decline in funding has forced APF Canada to forego a number of valuable programs that cultivated Canada’s relationship with Asia-Pacific. Among these was the Young Leaders Program which brought young Asian leaders to tour Canada. These people then returned to their positions in industry and government with an improved understanding of Canadian products and opportunities for investment in Canada. As well, the media fellowship program is no longer operational. This initiative sent Canadian journalists to Asia in order to improve their understanding of the region when they wrote about it in Canadian media. The loss of funding also forced APF Canada to close its offices in Montreal, Toronto, Winnipeg and Regina.
One of the explanations for the decline in DFAIT funding for APF Canada is that a departmental audit dated April 2003 claimed that the organization had been accumulating significant cash reserves and concluded that this was the result of excessive funding by DFAIT. However, the cash reserves in question included those of two separate non-profit organizations created by APF Canada — the Canadian Education Centre Network and the GLOBE Foundation. Since these two bodies operate independently of APF Canada, it has no legal claim over, or access to, their reserves. APF Canada’s own cash reserves were not in excess of the limits set by the Foundation’s Board.
The lack of stable funding for APF Canada is a matter of concern to the Subcommittee. We see this as an example of the criticism that the federal government’s foreign trade and economic policy is haphazard and lacking commitment. In order to allow APF Canada to play the role it envisions — as the primary Canadian source of market information and analysis on Asia-Pacific — it requires more financial support and greater funding stability. With that in mind, the Subcommittee recommends:
Recommendation 18:
That, the Government of Canada review the mandate of the Asia Pacific Foundation of Canada and ensure that through stable funding it is an effective tool in delivering the information and services that it provides. While conducting this review, the government should also review the effectiveness of other networks for business such as the Canadian Chamber of Commerce.
Related to the idea of providing accurate and timely information is the issue of the quality of international trade and investment statistics. In its most recent study, Strengthening Canada’s Economic Links with the Americas, the Subcommittee encountered several instances where Canadian data on international merchandise trade with countries in the Americas was markedly different from the data used in those countries. The differences were due at least in part to the transhipment of goods through the United States or some other third-party country en route to their final destination.
Unfortunately, the Subcommittee encountered the same problem in the Asia-Pacific region. For example, Canadian data on merchandise trade with Japan indicates that Canada has a considerable trade deficit with that country. However, we heard that, according to Japanese trade figures, the opposite is true.
The Subcommittee firmly believes that a lack of reliable data undermines the credibility of trade-related research and analysis. We urge the federal government to address this issue as soon as possible. As John Wiebe stated:
Distorted trade statistics can leave business, the public and policy-makers with a commensurately distorted sense of Canada’s global relationships and can impact the allocation of scarce policy resources, distract business and media interests from the ultimate consumer, and complicate the process of monitoring and adjusting to external shocks.
As such, the Subcommittee recommends:
Recommendation 19:
That the federal government work in conjunction with other countries to harmonize statistical methodologies in the collection of international trade data.
Another important aspect of market information is ensuring that Canadian businesses are export-ready. The Subcommittee heard from Ian Cheng (President, Comox CanadAsia Business Society) that despite the fact that approximately 41% of Canada’s GDP comes from international exports, many Canadian companies are not sufficiently knowledgeable about trade and investment overseas. Mr. Cheng stated that for many companies, international trade is tantamount to driving a truckload of cargo across the Canada-U.S. border and taking a bank draft back.
The Subcommittee heard similar testimony from Canadian companies and foreign service workers during its fact-finding missions to the region. Witnesses stated that too frequently, Canadian firms arriving in Asia-Pacific — most often small- and medium-sized enterprises (SMEs) — are poorly prepared for the challenges and obstacles associated with trade and investment in a foreign market. We were told that these companies frequently arrive in the region with no clear business plan, but with the expectations of sales and the assistance of Canada’s Trade Commissioner Services (TCS). In such cases, the foray into the Asia-Pacific region becomes a costly, frustrating and ultimately fruitless experience for the company and an ineffective use of Canadian Trade Commission overseas resources.
It is clear to the Subcommittee that Canada needs to focus on providing more education to prospective exporters at home — before they enter the export market. However, the fact that some Canadian companies are not adequately prepared is not due to a lack of available government resources. Team Canada Inc — a network of over 20 federal government departments and agencies, as well as the provinces, territories and other partners — operates a comprehensive Web site designed specifically to be a one-stop resource to help businesses become export-ready*. Export Development Canada also offers a set of services for would-be exporters, assessing their readiness and preparing them for the export market.15
The Subcommittee is pleased that these programs are available to would-be exporters, but remains concerned that, given the anecdotal evidence about poorly prepared Canadian companies arriving in Asia-Pacific expecting to sell their products, either businesses are unaware of these services, or that these services are not effective in preparing prospective exporters. Without presupposing one or the other, the Subcommittee recommends:
Recommendation 20:
That, given the evidence that many Canadian companies are not sufficiently knowledgeable about the challenges of exporting and investing in Asia-Pacific markets, the Canadian government improve the effectiveness of its Team Canada Inc export-preparedness service. Specifically, it should determine if prospective exporters are aware of, and are using, this service, and whether or not it adequately prepares Canadian businesses for the challenges of exporting to overseas markets.
On a related note, the Subcommittee heard generally positive reviews for CIDA’s Industrial Co-operation Program (CIDA INC). This initiative provides financial support to Canadian companies planning business projects in developing countries in a range of sectors. While most witnesses in Asia-Pacific spoke positively about CIDA INC, some expressed concern that the program was too bureaucratic. Others thought that the eligibility criteria limit the participation of smaller companies. The Subcommittee believes that CIDA INC could be improved even further by addressing these concerns.
3. Easing the Transition Overseas
For export-ready businesses looking to trade or invest in Asia-Pacific, it is crucial to visit the target countries in the region to establish business contacts, meet prospective local partners and set up a base of operations. The Subcommittee heard a consistent message that, given the importance of face-to-face contact and interpersonal relationships to business leaders in the region, frequent visits to, and a physical presence in, the region are critical for success.
In our opinion, there is an important role for the federal government to play in paving the way for a smooth transition overseas for Canadian companies. This is particularly the case for SMEs. Large Canadian companies have sufficient internal resources to do the necessary advance research and to absorb the up-front costs of travel and establishing a presence in the region. However, the costs of travelling to the region, coping with an unfamiliar language and culture, establishing a local presence and navigating around on-the-ground legal and regulatory obstacles are all significant financial and psychological barriers to entry into Asia-Pacific for smaller firms, even for those that may have good products, have identified potential market opportunities and are export-ready.
The Subcommittee believes it is important that SMEs be given every opportunity to be present to take advantage of the market opportunities in Asia-Pacific. Some witnesses in the region suggested that the federal government offer a travel subsidy to SMEs to offset the costs to those companies of establishing initial business contacts overseas. Others, however, warned that in the past when Canada offered this type of financial support for travel, the results were disappointing because companies that did not bear the full burden of their travel expenses often did not work as hard to succeed. We agree that a program of indiscriminate travel subsidies is not a practical solution to this problem. However we see an opportunity to tie together the need to improve the export-readiness of Canadian SMEs with helping them establish initial direct contact overseas.
The Subcommittee notes that in its 2003-2004 Report on Plans and Priorities, DFAIT has highlighted the need to improve small firms’ export-readiness and to assist them in taking advantage of the opportunities overseas. Specifically, DFAIT is planning to revamp its Program for Export Market Development (PEMD) which provides repayable loans to small companies to help them identify and exploit sales and capital project opportunities abroad.
While the Subcommittee agrees with the need to better assist small businesses, we propose a somewhat different approach. Specifically, that the federal government work with businesses that have already been successful in Asia-Pacific to establish strict criteria by which to evaluate the business plans and export-preparedness of would-be exporters to that region. Upon completion of a sound business plan, and once export-readiness has been demonstrated, companies would then qualify for some financial support to help offset travel costs to begin to put that plan into action.
Although the specific details of how such a plan would be designed warrant careful study and consideration prior to implementation, we believe that a program patterned along these lines would yield significant benefits. It would encourage SMEs to look overseas for trade and investment opportunities rather than solely to the U.S. market; it would improve export-readiness; and it would help remove some of the financial obstacles faced by small companies to doing business in the Asia-Pacific region.
Recommendation 21:
That, in the interests of improving export-readiness and removing the obstacles to trade and investment in Asia-Pacific, the Government of Canada work with businesses that have demonstrated success in the region to establish criteria by which to evaluate the business plans and export-preparedness of Canadian SMEs looking to the Asia-Pacific market. Contingent upon meeting these criteria, SMEs would be provided with financial assistance to help offset the cost of travel to begin to put that plan into action.
While travelling through the region, one of the most frequent messages the Subcommittee heard was that, in order for Canadian businesses — particularly SMEs — to be successful in their ventures in Asia-Pacific, a good local partner is an invaluable asset and in many cases a requirement. Local partners have in-depth knowledge of the domestic market, local laws, regulations, customs, language and a host of other factors critical to business success. Local partners are especially critical in developing countries where the risks of doing business are higher. For example, the Subcommittee was told by the head of a Canadian company operating in Thailand, that government regulations and procedures are extraordinarily complex across most of Asia and are particularly difficult to comprehend for foreigners.
To a certain extent, Canada’s embassies and high commissions work to facilitate these linkages by providing prospective exporters with information on Canadian companies and trustworthy domestic firms operating in the area. They also assist direct interaction through various planned events. Although this service is useful, the Subcommittee heard that a more formal system could be even more beneficial to helping Canadian companies overcome the initial uncertainty of stepping into a new country.
One way to help companies interested in establishing operations in Asia would be to create a mentorship program linking the prospective business with one already established in that country. This would allow the established company to share its knowledge and experience with the new entrant. Several Canadian companies already operating in India, Thailand, Hong Kong and Malaysia agreed that such a program would be valuable and expressed a willingness to play a mentorship role in the future.
The Subcommittee believes that Canadian chambers of commerce operating in the region could also assist in establishing and coordinating such a mentorship program. As Robert Keyes testified, these organizations are often informal and work closely with the Canadian embassies. They provide a good window into their respective countries. Indeed, while the Subcommittee was travelling in Bangkok, the Thai-Canadian Chamber of Commerce (TCCC) offered its services in facilitating this type of mentorship program.
Recommendation 22:
That the Canadian government, through the Trade Commissioner Services overseas, work with Canadian business associations operating in key Asia-Pacific markets to set up a mentorship program that would allow Canadian firms already established in those markets to share their knowledge and experience with new entrants in the region.
When in Japan, the Subcommittee heard of a model used by the United Kingdom in assisting its small businesses to establish themselves in a new market. The UK operates a “trade park” in Yokahama, near Tokyo, which provides modest office space and basic business services, such as Internet connections, to British SMEs when they first come to Japan. This provides the new entrant with an initial base of operations, easy access to market information and interpreter services from the embassy and a chance to ease its way into the Japanese market.
The Subcommittee sees considerable merit in such a proposal and notes that for a time a similar facility, called Canada House, operated in Singapore. We suggest that Canada open three such incubation facilities in the region — in Japan, Hong Kong and again in Singapore. As the most advanced economies in the region, these three locations offer economic and political stability, stable legal and regulatory environments and open economies. Hong Kong and Singapore also have the potential to act as valuable springboards into the rest of Asia-Pacific: Hong Kong through its ties to China and Singapore through its growing network of free trade agreements with other Asia-Pacific countries. Furthermore, Commonwealth ties make the system of governance in those two jurisdictions relatively familiar and travel connections to elsewhere in the region are excellent.
Recommendation 23:
That the federal government open three small business incubation facilities in Asia-Pacific — in Japan, Hong Kong and Singapore. These facilities would provide incoming Canadian small businesses with temporary use of office space and access to basic business services in order to ease their entry into the region.
4. Raising Canada’s Economic Profile
It is widely believed that national image, or “brand,” is a critical factor in the success of a country’s exports abroad. Indeed, as stated in APF Canada’s 2001 Canada Asia Review, several empirical studies have shown that a product’s country of origin has an impact on purchasing decisions. In order for Canadian companies to be successful in selling their goods and services in Asia-Pacific, it is important therefore, that they benefit from a positive image of Canada, Canadian products and Canadian expertise.
Unfortunately, Canada’s image abroad is clearly inaccurate. Indeed, while in Singapore, the Subcommittee was reminded by the Singapore Chinese Chamber of Commerce and Industry of a 2001 survey by the Asia Pacific Foundation on Canada’s image in Asia.16 The survey confirmed that while Canada was seen as an attractive country with friendly, tolerant people, from a business perspective, it was not widely regarded as a dynamic economy with advanced technology and expertise.
At the Subcommittee’s Ottawa hearings, several witnesses acknowledged that there was a need for Canada to recast its image in the Asia-Pacific region. The Secretary of State, the Hon. David Kilgour stated that Canada “enjoy[s] a generally positive image, but our brand is suffering.” He further stated his belief that the root of the problem is Canada’s widespread perception as a travel destination and a source of raw materials and not as a high-tech, knowledge-based trading partner. Other witnesses were quick to point out that some of the existing perceptions about Canada are beneficial — Asia-Pacific companies perceive Canada as a desirable place for employees to live in terms of standard of living and presence of many Asian-heritage communities.
As John Wiebe observed, however, the perception of Canada in Asia-Pacific is not an inaccurate reflection of Canada’s trading relationship with many countries in the region. Most of Canada’s high-tech trade takes place with the United States. Furthermore, over half of Canada’s merchandise exports to Asia-Pacific are agricultural or resource-based goods (see Appendix III).
In this context, changing Canada’s image is not an easy process. David Mulroney (Assistant Deputy Minister, Asia-Pacific, Department of Foreign Affairs and International Trade) highlighted some of the efforts that the Canadian government has used, or is considering to use, to overcome the branding issue. These include employing high-profile Canadian “champions” like astronaut Julie Payette as public figures to represent the country; large scale public diplomacy strategies in countries like China, Japan and India; and more subtle means such as the conspicuous use of high-tech goods in Canadian trade offices.
The Subcommittee believes that improving Canada’s “brand” in Asia-Pacific is synonymous with increasing its visibility in the region. If Canada is indeed a world-class producer of high-tech goods and services, then the most effective way to promote itself as such is to be actively present in the region selling those products. We observed that Canada’s trade offices in Asia-Pacific have an excellent reputation and work hard to raise Canada’s profile in the region. However, their job is made considerably more difficult by the fact that relatively few Canadian companies are visibly present in the region.
Any attempt to change Canada’s image, in our opinion, must focus on Canadian businesses, their capabilities and their successes. We heard in Hong Kong that people want to know about the business opportunities that Canada offers; they are not interested in a publicity exercise. As such, we maintain that a vigorous effort aimed at making Canadian firms aware of the trade and investment opportunities in Asia-Pacific, combined with removing as many of the barriers to overseas trade as possible, will help attract greater numbers of businesses to the region. As the Canadian presence in Asia-Pacific increases, awareness of Canadian products and expertise will do likewise.
In this context, major events like industry trade shows are an invaluable trading and networking opportunity for foreign companies looking to sell into the Asia-Pacific market. These not only allow Canadian companies to showcase their products, thereby encouraging trade and investment in the region, but also help update Canada’s image as a producer of high-tech goods and services. However, we heard evidence that, at least in some cases, Canada’s representation at these events was minimal or nonexistent. The conspicuous absence of Canadian companies from trade exhibitions that attract firms from all over the world is troubling to the Subcommittee. It suggests either that Canadian firms are unaware of these opportunities and the potential benefit they offer — which speaks to the importance of providing timely and accurate market information — or that the cost of participation is prohibitive.
It is highly unlikely that large Canadian companies would be unaware of, or unable to afford to attend, international trade exhibitions if they so desired. However, the same is not true of smaller firms. Because there is often a lag between initial promotion and the resulting payoff, many smaller companies do not have the financial capacity to make the necessary commitment to attend such shows and make a concerted push into the region. Ken Ing (Member, Comox CanadAsia Business Society) thought that addressing the needs of SMEs in this regard should be a key consideration in forming any new strategy or a plan to help businesses trade and invest in Asia-Pacific. The Subcommittee agrees, noting that in a previous report, Crossing the Atlantic: Expanding the Economic Relationship Between Canada and Europe, it recommended that the federal government increase DFAIT’s trade and promotion budget in order to expand Canada’s involvement in European trade fairs.17 We hold the same view for the Asia-Pacific region as well and therefore recommend:
Recommendation 24:
That, as part of a long-term strategy to build Canada’s economic relationship with Asia-Pacific, as well as to exhibit Canadian technology and expertise, the federal government more effectively encourage Canadian small businesses to participate in trade shows and exhibitions in Asia-Pacific and provide increased financial assistance for SMEs to attend those events.
The Subcommittee also received considerable feedback on one of Canada’s most significant initiatives designed to raise the country’s profile in the region — Team Canada trade missions. During our fact-finding trips in the region, we heard that Team Canada style trade missions were considered to be particularly effective at boosting the profile of Canada and Canadian businesses in many parts of Asia-Pacific. Witnesses widely agreed that these missions were useful in establishing business contacts and increasing awareness about Canada in the destination country. Furthermore, the presence of Canadian federal, provincial and territorial government leaders alongside their business leaders was seen as positive.
However, aspects of Team Canada visits drew criticism as well. Because of the time it takes to establish business relationships in the region, many witnesses felt that these missions were too infrequent and too inconsistent to yield lasting results. We were told that while Team Canada missions generate short-term interest, the lack of follow-up contact results in that interest dissipating. As Ken McKeen testified, even well-run promotional programs will fail if there isn’t good commercial follow-up.
Indeed, China is the only country in Asia-Pacific that has hosted two Team Canada missions, and those were seven years apart — in 1994 and then again in 2001.18 Companies typically require several trips overseas to establish relationships. While the Subcommittee acknowledges that it is ultimately the responsibility of businesses to follow up on their Team Canada experience, we do believe that in order to promote trade and investment, trade missions should be conducted in a more targeted and consistent manner. Furthermore, the Subcommittee is of the view that a more formal process should be put in place through which Trade Commissioner Service officials aid Canadian businesses in performing a proper follow-up.
The Subcommittee heard criticism that Team Canada had become a huge political machine, more focused on large-scale public relations exercises than on actual trade and investment promotion. We also heard that since the final decisions on itineraries and destinations are made at the political level, the agenda did not always reflect the trade and investment priorities of the businesses in attendance.
At the same time, we were told that smaller missions targeted to specific sectors of the Canadian economy such as environment, information technology or biotechnology and accompanied by the relevant government minister were significantly more effective at promoting trade and investment. These smaller missions retained the positive aspects of Team Canada but were more focused on businesses’ priorities.
For example, the Subcommittee heard from Ian Cheng about an upcoming trade and investment show in Sharmon, China. Thanks to the assistance of Environment Canada, which was actively promoting Canadian environmental products, it was hoped that 10-20 Canadian environmental product companies would be able to attend and showcase Canadian technology and expertise at this convention. Mr. Cheng admitted that in the absence of financial support from Environment Canada, he would not have been able to participate in the event.
All told, the Subcommittee believes that trade missions that involve a collaborative effort between the federal government, provincial and territorial governments, and the business community are an effective way to raise Canada’s profile in Asia-Pacific and encourage trade and investment at the same time. In light of witness testimony, it appears that large Team Canada missions are more successful at garnering public attention, while smaller, more focused delegations yield better results from a trade and investment standpoint. In general, however, we find that trade missions occur too infrequently in any given country in Asia-Pacific to have a meaningful effect on changing Canada’s image in that area. With those thoughts in mind, the Subcommittee recommends:
Recommendation 25:
That, to improve trade, investment and Canada’s image in Asia-Pacific, the Government of Canada encourage a significantly greater number of joint trade missions to the region involving the participation of businesses along with federal, provincial and/or territorial government leaders. Instead of broad-based delegations such as Team Canada missions, smaller missions focused on specific sectors should be favoured.
5. Providing Good Overseas Service
Undoubtedly, Canada’s most valuable tool in helping Canadian businesses succeed internationally is its Trade Commissioner Service. The TCS operates 135 offices around the world and provides six key services to Canadian firms: assessment of market prospects; visit information and coordination; lists of key contacts; face-to-face briefings; local company information; and troubleshooting.
Witnesses were unanimous in their praise of Canada’s TCS offices in Asia-Pacific, stating that the officers are doing an exceptional job of promoting Canadian interests across the region and generating significant benefits for the Canadian economy. At the same time, however, the Subcommittee heard repeatedly that there are simply not enough trade officers in the region. While the quality of work remains high, witnesses testified that Canada has cut back on its presence in the region to the point that TCS offices are no longer able to provide the same services as they had in the past.
For example, several Canadian businesses in Thailand and Japan alerted the Subcommittee to the fact that in the past, TCS offices used to employ a number of industry specialists with expertise on specific sectors of the economy. Although popular with businesses in the region, the Subcommittee was told that many of these positions no longer exist due to budget cuts and department reorganization. Many companies suggested that Canada revisit this model of employing industry specialists.
The Subcommittee also heard that, because of staffing shortages, Canada was heavily under-represented in certain countries. In India, for example, the southern half of the country is the main driver of national economic development, yet Canada maintains only one Trade Commissioner office (in Mumbai) for the entire region. Canada’s trade office in Bangalore — arguably India’s most dynamic and high-tech city — consists of only one permanent staff member. Many other booming cities in the south of India are without on-the-ground Canadian trade representation at all. This has hampered Canada’s ability to promote trade and investment opportunities in that country.
However, the feeling that Canada’s trade offices in Asia-Pacific were understaffed was not universal. In a number of cases, trade commissioners felt that their resources were about sufficient given the current workload. Nevertheless, the Subcommittee believes that the number of trade officers operating in Asia-Pacific should be increased. This would not only allow officers to perform their jobs more effectively, but would also allow for more industry specialists to be employed and for Canada to have wider, more effective representation in Asia-Pacific. Furthermore, since the objective of the Subcommittee is to see Canada strengthen its economic ties with Asia-Pacific, more staff would be needed to meet the increased demand.
Some witnesses suggested that one way to increase the number of officers in the region without incurring significant new costs would be to shift the focus of Canada’s foreign service resources away from the U.S. and Europe because cultural, language and regulatory similarities make it comparatively easy to trade in those areas. Others, however, felt that diverting resources was not the answer, but that Canada needed to increase its foreign service presence worldwide. While this would require an injection of funding from the federal government, Peter Barnes suggested that the benefits to the Canadian economy from increased trade and investment would greatly exceed these costs.
Given the importance of trade to the Canadian economy, and the importance of TCS offices in facilitating trade, the Subcommittee believes that it is critical to increase Canada’s trade presence in Asia-Pacific. The presence of trade offices and staff not only provides a valuable service to Canadians, but also helps cultivate an image of Canada as a trading nation committed to expanding in the Asia-Pacific market. The Subcommittee heard that the Asia-Pacific region accounts for about 34% of DFAIT’s TCS services abroad. We believe that, given the current and future potential in the region, that figure should be raised to 50%.
Recommendation 26:
That, in recognition of the critical role played by Canada’s Trade Commissioner Service in promoting international trade and investment, and the importance of trade and investment to Canada’s standard of living, the Canadian government substantially increase its funding of the Trade Commissioner Service in order to raise the number of trade officers operating abroad, particularly the number of sectoral specialists. The increase in resources should be concentrated in the Asia-Pacific region with the goal of Asia-Pacific accounting for 50% of all TCS expenditures abroad.
A frequent complaint the Subcommittee heard from the business community in Asia-Pacific is that while Canada’s trade officers abroad provide a valuable service, their placement terms are not long enough. We were told that often a business will have just established a good relationship with a trade officer when that officer is reassigned. That officer takes away his/her intimate knowledge of the local market, business networks and nuances of the posting. While new officers are also generally of high quality, it takes time before the same level of expertise and connections can be established. European foreign embassies received similar requests from their business communities and have already extended the length of their international postings from three years to five.
Recommendation 27:
That the Government of Canada extend the length of term of international postings for its trade officers to a period of five years.
| 11 | Canadian businesses are also assured national treatment in Hong Kong. |
| 12 | In Asia-Pacific, Singapore has concluded or is actively negotiating with the nine other members of the ASEAN community, Australia, New Zealand, India, Japan, Sri Lanka and China. |
| 13 | Specifically, the CEC has operations in Australia, China, Vietnam, South Korea, Thailand, Malaysia, Singapore, India, Indonesia, Taiwan and Hong Kong. |
| 14 | This office also serves Bhutan and Nepal. |
| * | www.exportsource.ca. |
| 15 | While in the region, the Subcommittee heard that, although EDC provides a valuable export-financing service, concerns were raised that it was crowding out private-sector lending activity. |
| 16 | The results of this survey can be found in APF Canada’s 2001 Canada Asia Review. |
| 17 | Crossing the Atlantic: Expanding the Economic Relationship Between Canada and Europe, page 22, Recommendation 6. |
| 18 | India has also been the destination of one Team Canada mission and a Canada Trade mission. |