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REFORM PARTY DISSENTING OPINION

EXECUTIVE SUMMARY

The purpose of the Committee's report is to examine the problems facing small and medium-sized enterprises (SMEs) in becoming exporters, and to recommend the most appropriate role for the federal government to play, in relation to other levels of government, in assisting SMEs develop markets for their goods and services abroad.

While the report gives a fairly good representation of the concerns shared by the companies and business organizations that appeared before the Committee, we disagree with some of the recommendations and would like to add a few of our own.

We believe the principal role the federal government should play is to provide a business climate that is conducive to allowing SMEs to grow and to contemplate investing time and money in venturing abroad. Providing the proper business climate entails, first and foremost, reducing government expenditures so that, eventually, federal income taxes and business taxes can be reduced as well. The federal government also has the primary role of eliminating interprovincial trade barriers that hamper initial expansion within Canada, and reducing tariff and non-tariff barriers with our trading partners. A further crucial role for the federal government is to proceed with the harmonization of regulations and standards that impede fair trade with our NAFTA partners.

Even though the report states that the federal government should not subsidize SMEs, some of the recommendations with regards to financial assistance for accessing information on market development and intelligence lean in that direction. It is our firm belief that taxing all businesses to provide subsidies to some is unwarranted. The Reform Party would like to see business subsidies eliminated entirely.

The June 1996 report entitled Canadian SMEs in the World Economy by the Standing Committee on Foreign Affairs and International Trade attempts to identify the needs and problems associated with small and medium-sized enterprises (SMEs) becoming more export oriented. The free-trade environment in North America and worldwide presents many opportunities for Canadian companies. It is therefore essential for the Government of Canada to create the proper climate for our small and medium-sized enterprises to develop at home and build to a level where they can feel confident enough to launch into international competition.

The report confirms that small and medium-sized enterprises form the backbone of the Canadian economy and are responsible for most of the job creation in Canada. It also confirms that most SMEs do not export. While there are roughly 1 million SMEs in Canada, over two-thirds of Canada's exports are conducted by only 150 companies.

The Standing Committee heard from many companies and business organizations and this report is, for the most part, a good representation of their concerns. However, the Reform Party MPs on the Committee cannot agree with some of the recommendations of the report. Our differences with regard to specific recommendations are listed below. In addition, three new recommendations are submitted.

We do not welcome the fact that the Export Development Corporation (EDC) has received more funding. As a Crown corporation, EDC is not subject to the Access to Information Act and its expenditures of public monies in the form of concessional financing to certain Canadian companies are hidden behind a veil of commercial confidentiality. As the report points out, there have been charges that EDC competes unfairly with the private sector because it does not bear the same costs as its counterparts. In 1994, the Canada Account paid EDC $12 million for expenses incurred in administering loans deemed to be in the public interest. Appendix I shows that, in total, EDC and its loans under the Canada Account will cost the taxpayer $444 million in 1996-97.

The term `strengthening' is usually a code word for `let's get more money and bureaucrats involved'. We would prefer that the new Emerging Exporter Team and Master Accounts Receivable Guarantee programs be assessed for their effectiveness by the Committee at a later time. The Committee should have full access to information regarding the programs to judge whether or not the expenditure of public funds is serving the public interest.

The Reform MPs on the Committee do not recall witnesses requesting this type of funding from the federal government. If a company cannot pay for foreign market intelligence, it should not be contemplating moving past the Canadian gatepost.

We would like to see this recommendation strengthened considerably. As more Canadian companies become export ready, the need to harmonize standards with our major trading partners increases. Since the U.S. marketplace is particularly important to Canadian businesses, small and medium-sized enterprises find the lack of harmonized standards to be a hindrance to their ability to access these markets.

Reform MPs think that the proposed review will be costly and time consuming and, in the end, will serve little purpose unless the objective is more results-oriented. We recommend that the federal government get its own house in order first. For instance, the report states that 18 separate federal departments and agencies have been identified as having some kind of responsibility for international business development programming.

A more productive endeavour for a task force would be to examine the various federal programs and to recommend a complete streamlining with the objective of eliminating some programs and refocussing others. If the Committee is not familiar with the 18 separate programs, it cannot expect that the average SME will be either, even though SMEs are paying for them. The task force should also assess whether the various programs can be folded into one overall program to be accessed via the Department of Foreign Affairs and International Trade.

Reform MPs recommend that the Trade Commissioner Service (TCS) begin charging for some of the trade and investment services it provides. This would allow for partial cost-recovery, workload reduction, and increased quality of service. General information should be provided free of charge, but a fee should be charged for the gathering and provision of detailed commercial information.

Reform MPs endorse the Reform Party's flat-tax proposal which would eliminate all special tax incentives which distort normal business activities.

This recommendation flies in the face of the first recommendation which states that the federal government should not subsidize SMEs. Furthermore, Reform MPs believe that federal programs should not target one industry over another, so that developing a definition of a "high tech" company serves no purpose.

The Committee has already heard that the lack of harmonization hurts Canadian exports. We recommend that the federal government proceed with a NAFTA working group to address this problem as cited earlier.

Besides disagreeing with some of the report's recommendations, Reform MPs are concerned that the report ignores the detrimental effects that high levels of taxation, interprovincial trade barriers and government regulations have on SMEs. We would, therefore, like to submit three additional recommendations.

The main restriction to business expansion for small and medium-sized enterprises in Canada is the high cost of doing business in this country. Corporate taxes combined with high payroll taxes are detrimental to the ability of small and medium-sized enterprises to grow and prosper. In an international business environment, this makes it difficult to be competitive and discourages many companies from entering into export markets.

Domestic trade policy does not allow small and medium-sized enterprises to properly grow and achieve the economics of scale that are required to compete successfully in the international marketplace. Barriers to trade within Canada have been estimated to cost Canadians $8 billion annually.

Excessive government regulation is a problem that faces all businesses in Canada. Dealing with regulation requires a disproportionate amount of time for small companies. Often, when a business is starting out, it is entrepreneurial and the owner's energy is required in production, marketing, and financing the operation. To the extent that much of the regulation seems to be frivolous, and because compliance is costly, many businesses find government regulation to be detrimental to their success.

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