SPEECHES

June 8, 2006
OTTAWA, Ontario
2006/8

CHECK AGAINST DELIVERY

NOTES FOR AN ADDRESS BY

INTERNATIONAL TRADE MINISTER DAVID L. EMERSON,

ON INTERNATIONAL TRADE DAY:

“SHAPING A GLOBAL COMMERCE AGENDA FOR CANADA”

First, I want to acknowledge and say thank you for the work that you are doing. All of you are senior business, academic and governmental analysts and decision makers and deal-doers, and I know that all of you are completely seized, as I am, with the issues of Canada’s competitiveness. I want to tell you that the work you do is truly valued by those of us in government—and the more you do, the more research you do, the more you communicate our issues in the public domain, the more valuable it is to us. We absolutely depend on having, and must have, a strong and educated public discourse in this country on matters of trade and competitiveness.

So before I go on to talk a little bit about some of the issues that are on my mind, I would like to recognize the host, co-host and sponsors, particularly the Canadian Chamber of Commerce. The Canadian Council of Chief Executives is here, Canadian Manufacturers & Exporters, the Canadian Federation of Independent Business (small business is increasingly important to our economic future) and the Canadian Association of Importers and Exporters.

So thank you for what you are doing, and thank you also to the academics who are here today. The research that is done by academics—and we also have academics in government departments, such as Statistics Canada—is incredibly important. You provide critical insights into the evolution of the global economy. To a great degree, we’re into uncharted waters that are turbulent and changing rapidly. So I encourage you to keep pushing the frontiers of knowledge and analyzing where the trends are, where the risks are, and what the options are for countries like Canada.

We’ve been through some very prosperous times here in Canada. I think everybody in this room understands that we’ve had eight years or more of a strong economy, and we’ve also had a very good trade performance. While we have had a very high Canadian dollar—and this has created a lot of concern, particularly among manufacturers—our exports have nevertheless grown to reach in excess of $516 billion this year, which is a record high.

So the strong dollar has put competitive pressure on the manufacturing sector, but it has also had a silver lining associated with it: it has allowed increased purchases of productivity-enhancing machinery, equipment and technology. After a long lag in this country, we are starting to significantly modernize our industrial base, and I think we will reap handsome dividends from that going forward.

Our current account surplus has also been at a record high, $30.5 billion in 2005. So our performance is good, and our companies are still seeing very strong and growing demand from various countries in the world marketplace. In many respects—and politicians are never very shy about this—our economic performance really is a source of pride and periodically a little bit of chest-thumping.

But my late mother always warned me that pride goeth before a fall, and in today’s global economy if pride leads to complacency, it can be a very dangerous situation. If I do nothing else today, I want to break any sense of complacency people may have. I’m sure it’s not prevalent in this room, but elsewhere in the country there is a lot of complacency. We need to acknowledge that our stellar performance, both in trade and in the economy generally, has been significantly underwritten by very strong commodity markets—particularly in the energy sector, but in other commodity and natural resource-related sectors as well.

I’m a western Canadian. Anybody who was in Alberta during the 1980s will know that booms do fade and they often turn to busts. While I’m not predicting a bust, I am certainly cautioning people not to assume that we are going to have this natural resource-related boom for a long period of time. It will come and it will go.

We also have benefited over the last 10 years from the initiation of the Canada-U.S. free trade agreement in 1989 and NAFTA in 1994. Free trade has been a catalyst for substantial growth in exports and prosperity in Canada. We have seen a dramatic increase in our exports to the United States, and the wages in export sectors are something like 35 percent higher than in import-competing sectors. So it has been a very positive period for Canada.

But there are some warning signs out there. If you look at the report we released today [Seventh Annual Report on Canada’s State of Trade], you’ll see that China is now overtaking us as the largest foreign participant in the U.S. market. They haven’t done so yet, but the trend is pretty unambiguous. Similarly, when you look at the last decade or so, Canada’s share of foreign direct investment in North America has been declining. The small business community is well represented in the room today, and I think they will be quick to tell you that Canadian small and medium-sized enterprises are not participating adequately in global supply chains. Something like 50 percent, and perhaps fewer, are actively participating in the global marketplace.

We are also underperforming in markets in Europe and in Asia. And while exports have been up strongly in a number of sectors, they actually declined in the forestry, automotive, agriculture and fishery sectors. In virtually all sectors we are seeing increased competitive pressures from countries like China and other fast-moving industrial economies.

My message is this: now is the time for us to sharpen our focus on what we need to do to thrive and prosper next year, the year after that, and 10 years down the road. Now is the time that we need to invest—invest from the prosperity we’re enjoying today in the foundations for a competitive, dynamic economy for tomorrow. The fact is, today’s global networks of finance, design, production and distribution are fundamentally reshaping traditional business models of appropriate commercial strategies. And the very basis for comparative and competitive advantage has been shifting over the last decade.

Success is no longer today simply a question of maximizing exports and current account surpluses. Companies and countries are engaged in fierce competition today to win their place in global supply chains. And in many cases, whether it’s sectors or countries, countries that we might have seen as competitors to Canada in the past are now increasingly being seen as high-potential partners. Countries and industries that are in the same business are now working together in complementary partnerships to build successful global supply chains.

We are also seeing that other countries’ businesses, their cities and their communities are vying for supply contracts and partnership arrangements. Everybody wants the job opportunities and the investment that comes from being part of a global supply chain, and competition is incredibly stiff.

As I’ve said many times, and you know well, Canada is one of the most trade-dependent countries in the industrial world. The truth of the matter is that a mediocre trade and competitive performance by Canada will lead to serious economic problems down the road. That is simply not an option we can contemplate or accept. Boosting Canada’s capacity to thrive in this new world, our capacity to win those daily battles for investment, is absolutely essential for our economic future and for our competitive participation in the global economy.

We absolutely must position Canada as a magnet for investment, and we also have to support investments by Canadian companies in key global markets. It’s not enough any more to simply bring investment to Canada. We’ve got to have Canadian companies investing in foreign markets and building global supply chains, because we are in a world where the fundamental reality is that investment drives trade. Trade drives our economy, but increasingly it is international direct investment that is driving trade.

It’s also a world in which integrated supply chains, new technologies and a strong North American economic platform are going to be fundamental to our global competitiveness. As I said, everyone out there is ramping up efforts to succeed in this new global economy.

So as a country, as a small trading economy, we need a global commerce agenda that will aggressively position Canada in the global marketplace and build that reinforcing linkage between trade and Canadian competitiveness. I can tell you that we as a government know the importance of having a predictable, stable, transparent, rules-based environment and trading framework.

We believe that the World Trade Organization remains critically important for Canada, and I will be in Geneva at the end of the month attending the WTO Ministerial Conference. We are nearing a critical point in our continuing effort to bring down trade barriers and promote the benefits of free trade for developed and developing countries alike. Canada is committed to overcoming the obstacles we have encountered in the current round of talks, and I believe that an ambitious Doha outcome is achievable if key members bring the political will to do so.

None of us should forget the fact that the WTO trading framework is really the only supranational, if you like, legislative or legal framework that governs international trade. We all talk about NAFTA, but NAFTA fundamentally is built on the pillar of respecting domestic sovereignty and domestic law-making, which is why we get into issues like softwood lumber. We are basically in a world where we've dropped tariffs, and we have some provisions for dispute resolution, but those disputes are resolved on the basis of domestic law. The WTO is truly an international legal framework, which makes it very different—more stable, more predictable and more reliable, and a better friend of smaller countries.

However, we all know that we are deeply integrated into the U.S. economy, and that has been greatly beneficial to Canada. We have to address the fact that Canada is and will long remain closely linked with the North American economy, and recognize that there are tremendous opportunities there yet to be exploited. And we need to remind ourselves that while we have periodic disputes and irritants, 97 percent of Canada-U.S. trade has been dispute-free. Because of some of the disputes, like softwood lumber, there is a public perception that somehow NAFTA is a threat to Canada. In fact, it has been a tremendous opportunity for Canada. It has created some problems and some irritants that we have to focus on and work our way through, but the North American continent is essentially where we are going to be building a lot of our capacity for competitiveness as we go forward.

It was in recognition of this that a few months ago, when I was appointed to Cabinet, the Prime Minister made it a first priority for me to find a resolution to the long-standing softwood lumber dispute. It was made clear to me that the deal had to be the right deal for Canada. It had to be a better deal than was previously put on the negotiating table. It had to be a deal that delivered concrete benefits to our lumber producers, and it had to be a deal with terms and conditions better than the alternative of continuing litigation. We had to find a solution that served Canada’s interests and allowed us to move forward in a relationship that is fundamentally important to our prosperity.

And on April 27, 2006, thanks to a new tone established by the Prime Minister working with the President of the United States, we achieved those objectives. We did establish an agreement that brings an end to punishing U.S. duties and returns more than $4 billion in U.S.-dollar duties collected since 2001 back to Canadian companies. And we saw a certainty and predictability for the softwood lumber sector—indeed, for the Canadian forest sector—and for the companies, the workers and the communities whose livelihoods depend on that business.

We are now actively engaged with the United States, with the provinces and with our industries in finalizing the details of that agreement. I know there are critics out there. They’ve made their views known and the media has played them quite prolifically. But I want people to remember that NAFTA is built on domestic laws. You can win a legal victory today, but economic circumstances can change, and more cases, more litigation can be brought right away. You can win a legal victory today and think you have established a legal precedent, only to have Congress change the laws affecting the industry and the way disputes are litigated in the future.

I was in the lumber business when there was a threat of this thing called the Byrd Amendment coming through. Everybody, every trade lawyer, every association head and lobbyist said, “Oh, don’t worry about the Byrd Amendment. It is so egregious, it will never be passed by Congress.” Well, guess what? We had the Byrd Amendment for a long time, and it took us years to get rid of it through WTO processes. And in fact it isn’t gone yet—it isn’t gone until November 1, 2007.

So for those who think there is salvation and ultimate victory in continuation of litigation, think again. That is not the way the softwood lumber industry has worked in this country for many, many decades, and I don’t believe anything has changed now.

Once we finalize the softwood lumber agreement, we can turn the page and start building on the renewed spirit of Canada-U.S. cooperation. We can build a solid foundation on mutual respect and goodwill. Any time you have a trade agreement built on domestic sovereignty, as NAFTA is, you’d better have goodwill. Cross-border sniping at the Americans does not build goodwill. It does not improve NAFTA. It creates ill will and it creates an appetite to toughen the laws to put us in even greater jeopardy than we’ve been to date. So we’ve got to change our approach to Canada-U.S. relations, and I’m frankly delighted to be part of a government that is making it such a bold part of our agenda to re-establish a respectful, courteous relationship with the United States. Canadians are going to be better for it.

We also believe, as I mentioned earlier, that the North American economies can work together collaboratively to great advantage. If you think we’re going to have trouble taking on China by ourselves, you’re right, we are. But we can build North American supply chains that are extremely efficient. We have cross-border clusters and we have cross-border supply chains, which creates tremendous efficiency for our industries and allows us to take on some of the most competitive economies in the world from a North American platform.

When I met with my NAFTA counterparts recently in Mexico, we focused on how the NAFTA partners, for the first time since the agreement was put in place, could begin to work together on strengthening North American competitiveness. It was also a topic at the leaders’ trilateral summit. It is clear that integrated North American supply chains are already well advanced in a number of areas. But it is equally clear that unnecessary barriers remain. There are many barriers that Canadian governments and that national governments among the NAFTA partners can do something to address.

For example, we can develop more compatible standards and regulations and investment regimes that will allow for seamless commercial interactions and stronger partnerships. We can do more to ensure that North American border crossings, ports and airways support efficient commerce while improving protection from terrorism and crime. We can also cooperate with our NAFTA partners to better align other bilateral trade initiatives with the NAFTA platform, and we’ve agreed to explore that with our NAFTA partners.

This is an area where Canada has fallen far behind. I have no reservations about saying that we have not been aggressive enough and focused enough on ensuring that Canada keeps up with the rapid, almost competitive, expansion of bilateral free trade agreements. Canada is the only major trading nation that has not negotiated a single free trade agreement in the past five years. A pact with Costa Rica signed three administrations and two Prime Ministers ago does not suggest that we are globally engaged as a trading nation. Consequently, we are falling behind. We are falling behind Australia, Mexico and particularly the United States in terms of bilateral trade agreements. This will eventually hurt our export industries, who will find themselves discriminated against in third-country markets.

So we do have to build a more competitive Canada and a more competitive North America. We have to be more aggressive about our trade arrangements. But we also have to consider other fundamental pillars of competitiveness, such as our transportation systems, so that we can enable our industries to compete more effectively in the world. And indeed, improving our market access in North America is a key goal outlined in Canada’s International Market Access Priorities, which is a companion document to the State of Trade report being released today. Canada’s International Market Access Priorities outlines a strategy to improve market access for our exporters and our investors, and introduces a new online database of trade barriers to help Canadian businesses succeed.

Our government is also making the necessary commitments to investment in Canada’s Asia-Pacific gateway because that is a critical element of North American trade and competitiveness.

Let’s talk about Asia for a minute. This is another key element of our global commerce agenda going forward. We all know there has been extraordinary growth and transformation of Asian economies like China, India and South Korea. This region, along with the nations of ASEAN [Association of Southeast Asian Nations], India and our good friend Australia, presents exciting commercial opportunities for Canada. But if we want to capitalize on those opportunities, we need to make sure we’re being strategic in our efforts. We need to build the right links in the right markets.

If we look at China, we’re not only talking about an enormous market with all the opportunities that arise after 25 years of colossal economic growth and change, we’re also talking about a market that brings 1.3 billion potential consumers into play. And we’re talking about a country that has a central role in Asian supply chains and is focused on building up its infrastructure in energy, transportation, communications and financial services. These are all areas of specific Canadian expertise. There is no reason why Canada cannot be a partner of choice in China’s infrastructure boom, but to do that we have to boost Canada’s share of foreign direct investment in China above current levels—a paltry 1 percent. As a government, we will help. We’ll help by negotiating a foreign investment protection agreement with China, and by continuing to ensure that Canadian companies are well served by our in-market specialists.

Let’s look at India. It also offers the right ingredients for a productive relationship with Canada. It’s the world’s 10th-largest economy. Its population is set to exceed China’s by the year 2050. It has a growing middle class, a new openness to investment, and a focused drive to become a global player in high tech. Recognizing that India and Canada have many complementary strengths in science and technology, we are now pursuing, on a priority basis, an agreement to bring research and development sectors closer together, as well as a foreign investment protection agreement.

Turning to South Korea, it’s the third-largest economy in the region, a leading foreign investor in China and an active link in North Asian supply chains. Securing a free trade agreement with South Korea—which we are now actively pursuing, as are the Americans—will help a range of Canadian sectors, from agriculture to high tech, to tap into a vast and competitive South Korean production and supply chain.

And then there’s Japan. We don’t talk much about Japan, but Japan remains by far Asia’s largest economy, the region’s top investor, a financial hub, an industrial power and a world leader in research and development. It will be difficult to make inroads in Asia without Japan, which is why we are now seeking to develop and to deepen our economic engagement there under a Canada-Japan economic framework.

And of course you can’t talk about the emerging markets of Asia without talking about them in terms of market opportunity. No region of the world has embraced globalization as Asia has. China, India, South Korea and Japan are all solidifying themselves as major competitors in key sectors where Canadian and North American firms have traditionally dominated. Australia and the ASEAN nations are clearly engaged as well, and they are rapidly emerging as significant players in the Asia-Pacific region.

We simply cannot sit back and do nothing. We have to build our competitive capacity, get more involved and get more aggressively into the game. We also have to look after our domestic fundamentals, and I think our government is off to a good start in that regard. We have to recognize that our domestic policies are fundamentally intertwined with our performance in global markets. We need to make the right choices on taxation issues, on business regulation and in terms of investment rules. We have to make the right investments in education and training, in infrastructure, in science and in technology, and we have to address key issues in labour and financial markets. We need to recognize that safe, livable cities will be a critical Canadian asset as we compete for skilled, educated people, who are the ones that will ultimately define our economic future.

In our May 2006 budget we introduced a number of significant initial measures designed to move us in the right direction: tax cuts for small and large businesses, and labour market incentives to support training and education. We also introduced justice reforms that will mean everyone, particularly our most vulnerable, can feel safer and more secure in their communities.

To conclude, our job as political and business leaders is really not the job of savouring our current successes. Our job is to identify and get ahead of the risks and challenges that lie around the corners ahead. The threats to our prosperity, to our competitiveness and to our place in the world are very real. There is a clear and undeniable link between our competitiveness in global markets and the jobs, quality of life and social programs that are so vital to Canadians.

If the past few years have taught us anything, it is that as a nation we need to adopt a more aggressive, more focused and more disciplined approach to trade and competitiveness. We need to be more resolute in our commitment to developing trading relationships and to participating in the fundamental platforms and value chains that will enable us to thrive in the global economy. It’s not enough to see the end game; we need the vision, the will and the practical plan to ensure that we’re in that game—indeed, ahead of the game, going forward.

It is my commitment and it is the commitment of our government to ensure that we start planning two steps ahead. I look forward to working closely with many of you here today, and with Canada’s business community generally, to ensure that Canada remains one of the most prosperous nations on the international stage and that it remains so for generations to come.

Thank you.