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<html> <head> <meta name="generator" content="Corel WordPerfect 10"> <meta http-equiv="content-Type" content="text/html; charset=utf-8"> <style> p { margin-top: 0px; margin-bottom: 1px } body { font-family: "Arial", sans-serif; font-size: 12pt; font-weight: normal; font-style: normal } </style> </head> <body> 2004/32                                                          CHECK AGAINST DELIVERY NOTES FOR AN ADDRESS BY THE HONOURABLE JIM PETERSON, MINISTER OF INTERNATIONAL TRADE, TO THE 2004 ASIA-PACIFIC SUMMIT “EMERGING MARKETS: WILL CANADA MEET THE CHALLENGE?” VANCOUVER, British Columbia October 13, 2004 I want to thank the Asia Pacific Foundation of Canada and the Province of British Columbia for the invitation to speak. Congratulations to the Foundation on its 20th anniversary. It’s always a pleasure to be back in this province. Besides being among the most scenic in Canada, British Columbia, and Vancouver in particular, play a critical role in Canada as our gateway to the Asia-Pacific region. The Government of Canada has enjoyed a close working relationship with the Government of British Columbia on a number of issues—most recently in working to resolve our softwood lumber issues with the United States. The decisions you make in this province—and that we act on together—in areas such as infrastructure, resources, and research and development, are important to our economic future. Setting the context Last week’s Speech from the Throne identified trade and investment as one of five pillars that underpin our prosperity and that will be a key driver in keeping our economy globally competitive. The United States, which accounts for 82 percent of our exports, will remain the top market for Canada. In spite of high-profile cases such as BSE and softwood lumber, about 96 percent of this trade is dispute free. Canadians are good at doing business with the U.S., and together we have created the largest trading relationship the world has ever known. We are strengthening the American connection through such means as opening seven new consulates as part of our Enhanced Representation Initiative. Our 30 NAFTA working groups will continue to work to reduce red tape, overlap and duplication, and to facilitate trade. The Deputy Prime Minister will continue to collaborate with her U.S. counterpart to do even more to facilitate trade across our border, while at the same time meeting security needs. And while my comments today will focus on the 18 percent of our exports that are not with the United States, I want to be very clear: I do not believe that we should pursue opportunities in emerging markets at the cost of limiting our close relationship with our southern neighbour. I would argue quite the opposite: at the same time as we are strengthening our ties to the U.S., we should be equally aggressive in pursuing new markets. In fact, Canada is uniquely positioned to leverage our position in North America as an integral part of our strategy for emerging markets. Our presence in the powerful North American market provides built-in access to the supply chains of East Asia and Latin America. And that is a strategic advantage that our competitors do not have. How is Canada positioned today in emerging markets? China’s economy has grown by almost 40 percent over the last four years, and it also has a savings rate of 40 percent. But although China has become our second-largest trading partner, that relationship represents just over 1 percent of our export trade today. It’s the same story with India, which accounts for only 0.2 percent of our exports. As the Asia Pacific Foundation’s Canada Asia Review points out, our investment in Asia is minuscule, although increasing. Last year, China replaced the United States as the top destination for global foreign direct investment, attracting US$53.5 billion. By 2003, Canada had a mere $542 million invested in China—only about 0.1 percent of our total outward investment. On the receiving side, China is a growing but still a very modest source of investment into Canada, at $422 million by 2003. We see the same story in India, with small but growing numbers: in 2003, Canadian direct investment in India amounted to $184 million, and Indian investment here totalled just $62 million. These examples are indicative of the opportunities available in new markets around the world. Our commercial relations in China and India are going well. But we are not keeping pace with the rapid growth in these markets, and Canadians are missing out on opportunities. I would argue that we can’t afford to waste another moment. Canada is one of the most open trading nations in the world, with exports accounting for almost 40 percent of our GDP. In fact, more than any other G7 country, Canada’s economic prosperity today is dependent on trade and investment. This, of course, is not without risk or exposure—and it is certainly behind our strong support for international rules, multilateralism and organizations like the World Trade Organization. Canada is a leading champion of a modern, effective multilateral trading system. It provides a measure of security and predictability of access that our companies need to plan and operate in a global economy. But the world we trade and invest in today is changing faster than ever. Countries have banded together as major economic trading blocs. We are seeing these blocs moving to new alliances: for example, the EU-25 with the South American bloc Mercosur, and Australia with ASEAN [Association of Southeast Asian Nations]. This new world of global commerce is far more intricate than the simple buying and selling of goods and services. It is marked by the critical nature of inbound and outbound foreign direct investment, the role of knowledge added and embedded in those investments, and the ability to direct different components of your business to different corners of the world. Effectively, international commerce has largely replaced the old domestic marketplace, where a manufacturing company in, say, Kelowna was likely to have all its strategic and operational components under one roof. Today, it can find capital in one region and build the company plant in another. It can hire labour from one country while developing R&D and distribution capacity on the other side of the world. All this is the product of liberalized global trade and investment rules, lower transportation costs, and quicker communication and information sharing. It has created global value chains in which different regions with different advantages scramble to attract the latest investment from global companies that scour the world looking for ways to maximize efficiencies. Some describe it as “corporate GPS,” where companies look for the most competitive goods and services and locate accordingly. Trade is energized, and indeed driven, by investment in supply chains. Almost one third of all trade and investment is now believed to be “intra-firm” in character. This is fundamentally reshaping the character of international economic relations and the quest for domestic competitiveness. The regional dimension of this in East Asia is striking: internal trade in East Asia has doubled to US$600 billion in just the last 10 years, and almost 75 percent of that growth was due to intra-firm trade. Only one third of what China imports is consumed at home; the rest is re-exported as part of more fully assembled goods. I don’t want to leave you with the impression that we should be targeting only individual countries. We need a plan for emerging markets that takes into account the realities of market integration and, in that context, responds to the advantages of regional platforms in building strategic business partnerships. Such alliances offer multi-market possibilities for expanding investment and trade, and accessing new technologies and know-how. In short, the world is becoming highly integrated at a pace that very few could have imagined. There are vast new opportunities in this integrated marketplace that we have not sufficiently recognized, let alone acted on. Defining the opportunity Such opportunities can be viewed narrowly, in terms of exports alone. For example, China and India each have a middle-class population of some 200 million consumers who need and want goods and services of every kind. Simply put, you’ve got a lot of people with a lot of money and that spells opportunity. And it certainly will continue to spell opportunity for Canada’s primary industries, which have long exported lumber, minerals and other resource-based products to these markets. And there’s room for more Canadian value-added. But I would argue we need to take a much more sophisticated—and broader—approach to the opportunities presented by emerging markets. Selling our goods and services in these markets is only one piece of the puzzle. Far more important, these markets represent opportunity because they are becoming very prominent in the global value chain I described earlier. They have several competitive advantages, not all of which are obvious. For example, some will say that China’s main strength is low wages—and they are low, but rising. Increasingly, however, the opportunity in China flows from a number of other factors, including accession to the WTO, which has opened its markets, well-established economic reforms, and an increasingly powerful industrial infrastructure that is driving greater integration with the economies of East and Southeast Asia. All these have positioned China as an important player in the North American economy. When we look to India, there is clearly opportunity in the 7 to 8 percent growth in GDP it achieved last year. But even more significantly, India has a sophisticated, highly competent, English-speaking labour force and a world-class presence in the knowledge economy that businesses should be factoring into their strategic planning. And let me also touch on Brazil for a moment, which has achieved remarkable industrial progress through sustained economic reforms. Brazil has managed to stabilize its finances through all the political changes it has experienced in recent years. In addition, Brazil’s strong anchor role in Mercosur and its leadership role in not only Latin America but also the WTO are important assets. We need a plan to make sure that Canadian companies are in on the action. We have to start with identifying our assets—what we’re doing right—and what else we need to do to win. We have many strengths. Canada could assist these countries in their economic transformation through our financial institutions, which are world leaders, with knowledge in banking, insurance and wealth management, but also in financial sector reform. Lawyers and judges can help with legal reform. We could help with corporate governance in the private sector. The spillover impact of goodwill cannot be overlooked. One of Canada’s key assets is our diversity and our unique cultural links to Asia Pacific. As the Foundation’s Canada-Asia Review points out, there are close to three million Canadians of Asian origin, with powerful entrepreneurial ties to Asian trade, finance and industry. Another key asset is our ability to compete with the best in the world, and succeed, in key sectors that respond to the needs in emerging markets. So while our opportunities in China are diverse, they are particularly strong in agricultural technology, agri-food, building products, energy and education. In India, the most promising sectors of opportunity for Canada are in financial services (particularly insurance), energy and transportation infrastructure, information and communications technology, environmental industries, agri-food, education and, most recently, cultural industries. And our reputation for excellence in these and other areas will open up avenues for Canadian companies to work with new partners and new talent to commercialize Canadian research and development. If we fail I have outlined the trade and investment opportunities presented by emerging markets. What could happen if we fail? Your competitor in Rochester, Denver or Tacoma, for example, could already be sourcing product in China or India at a fraction of what it costs to have you make it in Canada. The quality will be just as good. Sometime soon, he or she may even be involved in joint ventures with emerging market partners. And chances are, you will not recover that opportunity. If we’re seeing this potential, so are others. Our competitors have done similar analyses and have already started making aggressive moves. The export figures alone tell a story that should concern us all. Over the past four years, China’s economy grew by 40 percent. Canadian exports to China grew by only 17 percent. By comparison, the United States’ exports to China grew by 52 percent. Australia’s grew by 58 percent and Japan’s by 73 percent. Canada simply cannot afford to remain on the sidelines. Canadian companies in the global value chain We know that Canadian companies have what it takes to be winners and to insert themselves in the global value chain. A computer graphics components firm in Markham, Ontario, has established an office in Japan to build relationships with Japanese manufacturers, who dominate the global electronics market. But instead of exporting directly to Japan, the company ships its components to production bases in other Asian countries that are owned by Japanese manufacturers, who sell the finished products in Japan and in other global markets. A company in Burnaby, B.C., signed an agreement with a Japanese conglomerate last year to market a hydrogen purification system in 11 Asian countries. In addition, the Canadian company will derive significant benefit from its Japanese partner’s joint ventures in China, Indonesia and other Asian countries, which lend it credibility in the region. All of us need to understand more about this new business model and how it operates. One simple example: the way we collect trade statistics does not capture the new reality of global value chains. That company selling computer graphics components is making a deal in Japan, but the trade statistics show it as an export to China, Malaysia or even the U.S., if the Canadian product is shipped through a seaport or hub airport in that country. So recognizing that we understand both the opportunities and the consequences of inertia, the question remains as to how we go about seizing these opportunities. As Minister, I need to know how my department can contribute most effectively to helping Canadian firms—before your competitors beat you to it. And as business people interested in Asia Pacific, whether you’re big or small, you need to know more about what I can offer from where I sit so that your business plans can be better aligned with the new global economy. The toolkit Right now—today— International Trade Canada is supporting Canadian businesses in four critical areas. First, we ensure that Canada’s profile and relationships—the foundation of business—are solid. This involves government-to-government contact at both the highest political and bureaucratic levels. In the past 10 years, we have had successes in a number of new markets. And we believe that the high-level political dialogue and personal contact facilitated by trade and investment missions have played an important part in those successes. Sustaining that dialogue is critically important in these countries. In China alone, visits by the Prime Minister four times in the past 10 years—complemented by visits from the trade minister, other ministers and provincial leaders—have enabled us to build relationships and leave no doubt as to the long-term nature of Canada’s commitment. Second, International Trade Canada is a source of strategic market intelligence on emerging opportunities and risks. We provide day-to-day support to Canadian business through our trade commissioners at International Trade Centres in Canada and at our missions around the world. They are a practical source of information, advice and intelligence in a number of areas. For example, they can recommend local expertise for legal services, and consultants to advise on distribution channels and business locations. Third, we are on the ground and able to negotiate agreements with other states to help offset or remove the risks that would otherwise inhibit your ability to conduct business. We negotiate bilateral and regional agreements on trade, business services, air services, regulations and taxation that open doors for Canadian business. We are also pursuing investment agreements with China and India. What we need to know more about from you is the exact nature of the obstacles you are facing, so that we can do our part to get them resolved. Finally, we manage a suite of business services here in Canada and abroad that support everything from trade promotion to troubleshooting. Our number one client is Canadian business, and our number one product for them is international business development. Through 140 missions abroad, and in a dozen Canadian cities, we help Canadian companies get a foothold in emerging markets. We partner with Export Development Canada and the Canadian Commercial Corporation, two Crown corporations for which I am responsible that effectively share the risk of doing business and offer innovative tools such as delivery insurance. Last year, EDC and CCC provided approximately $53 billion to assist Canadian companies, including $11 billion to small and medium-sized companies. EDC’s total exposure to Brazil last year was almost $1.2 billion, while exposure to China and India was almost $1.1 billion and $266 million respectively. We also work with departments and agencies across the federal government and with the provinces. In the key emerging markets of China, India and Brazil, we have over 120 trade specialists, with 78 in China, 26 in Brazil and 22 in India. Our trade commissioners help companies determine market prospects, search for key contacts, find out where the local opportunities are, and undertake a range of promotional activities such as participating in local trade fairs. So we’re working hard to give you the best possible service. But at the end off the day, our success depends on business telling us what it needs. Consulting with Canadians So today, I am announcing a series of consultative roundtables on emerging markets with business, academia, civil society, provinces and other interested stakeholders. Mark Eyking, Parliamentary Secretary for Emerging Markets, will play a key role in these discussions. Resources are finite, and we have to make choices. We need to know whether the services we currently provide to support business are the ones you most need in building your own business strategies in today’s complex environment. In these roundtables, we will ask you to comment on investment in and out of Canada. We will consider how cooperation in the area of research might be useful as part of business strategies in these highly competitive and integrated markets. We need insights on the sort of hurdles and risks you face, and the sort of agreements we should seek with our partners in emerging markets to manage those risks. Are they in investment protection or in taxation? Or perhaps your greatest challenges are in product standards, in customs or in other types of business facilitation? Are there governance issues or technical areas, such as patent and copyright protection, where we can assist? We need to know what other policies—whether in visas, credential recognition or regulatory reform—may be required. And we need to know what has to be put in place and what federal, provincial and local measures are required to make it happen. We need to know why Canada is not getting its fair share of investment. Have we not made the opportunities and challenges sufficiently clear for Canadian business? Is there more we should do the help businesses tap into the bountiful human resources that have come to Canada from every corner of the world, bringing unique language, social, professional and business skills that are invaluable to the global community? Is Canadian business taking full advantage of organizations already in place, such as the Canada-India Business Council, the Indo-Canada Chamber of Commerce, the Canada-Brazil Chamber of Commerce, the Canada-China Business Council and the Hong Kong Canada Business Association? We need a discussion on priorities. We need to identify the right approaches on a sectoral and company basis. We have to better identify and then create the tools you need to seize opportunities and to address the challenges you face. Brazil trade mission These discussions will help flesh out our plan for emerging markets. They will also underpin other government activities this fall, including a trade mission to Brazil planned for November 21 to 25, following the APEC [Asia-Pacific Economic Cooperation] leaders’ meeting in Santiago, Chile. We are currently planning visits to China and India which could be held early next year. New tools I seek your feedback on the services we already offer. But I can tell you already that I think we need to do more. I am leading my department to pursue several initiatives that I believe will augment our services to Canadian companies. We are examining how to strengthen our trade representation on the ground. We will concentrate on areas and sectors with the highest promise and will adapt our services to the needs of successful operations in these complex regional supply chains. And we will offer support and counsel, not only to exporters but also to investors and potential research and development partners. Since the ability to compete depends on flexible, innovative financial services, we will work with private financial institutions to review the services provided by EDC and CCC, to ensure they respond adequately to competitive conditions. And given the enormous importance of the knowledge economy, we are strengthening our science and technology representation in our missions to help Canadian companies find the right connections to the right opportunities at the right time. We cannot overlook the long-term importance of scientific diplomacy. It’s often a single research and development contract that forges an economic link. A single discovery or invention from this research and development can lead to huge licensing opportunities and a solid foothold in the sector or region. At the same time that we will work on improving these business services, we will continue to focus on trade negotiations and political engagement activities in these markets. Closing comments In closing, I want to reinforce that the business you do every day underpins our economy. It is the source of our prosperity. Failing now, falling behind, not being aggressive in emerging markets, has repercussions for Canadian prosperity that will be felt in our hospitals, our schools, our workplaces and our communities. We must recover lost ground in key markets such as China and India. There is an urgent need to access opportunities around the globe for Canadians. The seemingly effortless global superiority created by our wealth of natural resources and the current high performance in some sectors will not by themselves produce the jobs and growth we seek. Nor will reliance on traditional markets or connections. Our businesses are among the best in the world, and they need access to the best the world has to offer. If we don’t stay at the cutting edge of global competitiveness, all Canadians stand to lose. I look forward to working with you and the rest of Canada’s business community in the weeks and months ahead to forge a strategy for emerging markets. My department of International Trade will work with you. We have incredible opportunities awaiting us, as new markets and new ways of conducting global markets are springing up. Let there be no doubt. We will meet the challenge. Just look at the incredible base we have on which to build. In closing, I should say that our efforts with regard to emerging markets will be consistent with our objectives to help build democracy and create a higher standard of living for people around the world. Thank you. </body> </html>

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Last Updated: 2006-10-30	Top of Page	Important Notices