Van Loan: Don't underestimate the value of people-to-people ties

THEORIES always underestimate the value of people and personal relationships, while in business people-to-people relationships are often underplayed because they are hard to analyse and quantify, says Peter Van Loan, Canada's Minister of International Trade.

 Van Loan, Minister of International Trade of Canada Van Loan, Minister of International Trade of Canada (Source: Courtesy of DFAIT)

THEORIES always underestimate the value of people and personal relationships, while in business people-to-people relationships are often underplayed because they are hard to analyse and quantify, says Peter Van Loan, Canada's Minister of International Trade.

“Numbers are much easier to analyse, but it will be the people-to-people relationships that will lead to those numbers,” Van Loan said in an interview with The Slovak Spectator during his recent visit in Slovakia.

The Slovak Spectator spoke to Van Loan about the objectives of his visit, a major trade agreement between Canada and the EU, youth mobility and the importance of interpersonal relationships in businesses.



The Slovak Spectator (TSS): You are visiting Slovakia to promote the Comprehensive Economic and Trade Agreement with EU. An official press release says that the agreement would create new opportunities for businesses as well as jobs and prosperity. Could you be more specific in terms of opportunities? How are these talks progressing?


Peter Van Loan (PVL): The negotiations are finishing up their fourth round now. We have a meeting scheduled for October and we hope to have reached an agreement by the end of 2011.


A joint Canada-European Union economic study projected a deal would result in a 20-percent increase in two-way trade and a $38 billion increase in the two economies, thus a significant portion to Slovakia.

I think more of that growth would end up in the countries of the former communist bloc, because those are areas of higher growth and more dynamic economies.

Canada is a trading country; two-thirds of our economy depends on trade, though most of that is with the United States. But our second biggest trading partner is the European Union (EU) and we believe that significant growth can appear in trade with the EU.

The objective on both sides is an agreement that will be very broad and very deep; more ambitious than the North American Free Trade Agreement that we have signed with the United States and Mexico.

We will cover the full range of the economy, not only merchandise goods but services, financial services, government procurement – a whole range of different activities. In fact of that $38 billion increase in the economy, only half is set to be attributed to actual merchandise trade.

The other half of that is the standardisation of rules, easier mobility, more certainty of rules for investors: these will all result in additional economic benefits.

TSS: Even smaller countries such as Slovakia will be able to benefit from CETA?


PVL: I expect so. I particularly think the former communist countries will benefit more because these are more dynamic with a stronger potential to change trade and grow trade than for older economies that have more established trading partners. In the case of Canada, we have significant population from all those countries who were refugees but they are now growing into the next generation of business leaders and they are natural bridges back to do business and trade.



TSS: You have already visited some of the post-communist countries. How do you assess the readiness of these countries to actually participate in this agreement?


PVL: I went to Estonia, Bulgaria, Romania, Slovenia and now Slovakia. All of them have expressed strong support while I have been meeting with both government and opposition members in both countries. All have been expressing support for the agreement and there is much enthusiasm. The financial crisis is currently also a factor. These are naturally trading countries and by now free-market oriented economies. When you look at financial and fiscal challenges governments face there are three ways to solve their financial problems: firstly to hike taxes, secondly to cut government services. Politicians do not like doing those first two, so the easier answer is the third choice: higher economic growth and more trade. This has been Canada’s experience through our trade agreements. The critics had said that the North American Free Trade Agreement would be terrible and hurt the economy in many ways. In reality, our trade with the US more than doubled and trade with Mexico went up more than five times. Not only our economy has improved, but we adjusted and structured it in a way that it is more competitive now. We still have a way to go because we are still not as competitive as we would like to be, but we have made significant progress.



TSS: Eastern and central European countries have been competing to attract large foreign investments, however, is the flow of investments a two-way street?


PVL: I think the situation is already changing. I think there are investments from some of these countries in Canada. Yet, in Canada it is more complicated to assess flows. If you take a manufacturing process, for example you can have Magna owned by Canadians operating out of Austria; manufacturing parts in Slovenia that are being put into a car in Germany and being serviced in Canada while you can have parts shipped to Canada for assembly. The car then goes to the United States for further assembly and then it goes back to Canada and finally down to the United States again to be sold. You have this very complicated process. In Slovenia, I was talking to someone who has been doing a lot of business in Canada with Osram Slovenia: they manufacture a little piece that goes into high-power medical lighting or overhead power lighting, which is then being sold to a company doing the assembly in Canada. Pieces come from all around the world and the expertise is capitalised upon. What is really important is that the knowledge transfer occurs. A lot of our emphasis is on mobility of investors.



TSS: A certain form of mobility of investors might worry countries that focus on foreign investments because in the end cheaper labour and lower taxes in other countries might lure away the investors.


PVL: It all depends on what your model is. Canada cannot use the model of cheaper labour for manufacturing. It might be an advantage for a little while but in eastern Europe I think it is not a long-term model. In fact, you see those changes have already occurred. There was a period when cheap labour was an attraction, but people talk more and more about technical skills of the workers from the communist countries or entrepreneurial ability, while language abilities are important as well. I do not think that eastern Europe is competing with China for the lowest cost labour. I think we are in a more mature situation.



TSS: Investments are however, not only a one-way street, and your role also is to promote investments to Canada. What are, in your opinion, Canada’s most significant strengths as an investment destination?


PVL: We encourage Canadians to invest abroad and we encourage foreigners to invest in Canada because we do believe that through those flows Canada can become stronger. But Canada is an excellent place to invest right now. We have the lowest taxes on businesses as of next year of any of the major developed economies; we have the lowest debt and lowest deficit of any of the G7 major developed economies that will allow us to keep those taxes low in the long term. We have been experiencing the highest economic growth of any of the G7 economies.

In a world where financial stability is important, we have the soundest banking system, according to the World Economic Forum. This not surprising, because during the economic downturn we have had no bank failures and no bank bailouts due to our sound regulatory approach to banking. We offer to investors a skilled workforce with the highest proportion of post-secondary graduates of any country of the OECD.

When I talk to investors, the reason Canada has attracted them is also because Canadians are easy to deal with and they say that the Canadian worker wants to grow with the company. They do not want to go across the street for 10 cents per hour more; they are happy to be loyal and continue to grow and succeed when companies are investing significant amounts in the training and skills of their workers. We also have a sound rule of law system so investors can rely on the system. When you do have a dispute it is easy to get resolved in court. In Canada you do not have to have 15 lawyers on your staff like you do in some other countries.

We have also done quite a lot to make our businesses more competitive. We have made Canada a tariff-free zone for manufacturing inputs. Any manufacturer anywhere in Canada who is importing equipment, who is importing parts or any components to use in manufacturing can bring them in tariff-free no matter where (the material) comes from. Under this new policy, the last months’ trade figures have shown a significant increase in exports but our imports increased even more but largely because of the import of machinery used in manufacturing. This tells you that businesses are responding to this policy.



TSS: What are Slovakia's competitive advantages compared to countries farther east or in the Balkans, which now offer even cheaper labour and also tax incentives? What sectors of Slovakia’s economy might be, in your opinion, interesting for Canadian investors?


PVL: I am always reluctant as a politician to make decisions for the private sector or the ways it does business. The market will make its own decision. But there are some natural compatibilities in the automotive sector where there can be more benefits both ways. Over the years, automobiles will change as they respond to energy shortages, and Europe has been ahead of North America in more efficient automobiles but some say North America might now be leading in technology for more efficient automobiles. There are again ways the two can meet and benefit. I do not want to engineer this but let the people decide how they want to do it.

The other benefit is the people. If you ask where the great investments are going to come from it is hard to see from above right now but the person from a company who has Slovak origins might say "I can make a difference in this company by taking this product to Slovakia and being the person who introduces us to the market". They will take advantage of the fact that they have relatives there or that they have spent a year there within the youth mobility programme and have a bunch of friends there.



TSS: You have also signed an agreement on youth mobility in both countries under the International Experience Canada (IEC) initiative, which will make it easier for young peopele to travel and work in each other’s countries. What inspired this agreement?


PVL: Overwhelmingly, throughout its history, Canada has benefited from the talents of people and we believe that people do better if they are exposed to the world. Youth mobility is very special: it offers a one- year work permit. Someone can come to Canada without a job and without a place to work if they are in the programme and they can look for a job anywhere in the country; they can work there for 12 months and then go somewhere else for a vacation for three months. In the process, they get to know Canada and people in Canada. At the end of the year they return to Slovakia.

There will be a quota agreed upon between the countries. For Slovakia it has not been decided yet. But as an example, we have started one in Estonia as of August 1 and in the last five months of the year 200 people can come from Estonia to Canada – pretty good for a country of only a million people – while 200 can go the other direction.

We believe that the more people get to know each other and become more familiar with their cultures, the more likely they will be in ten years to take advantage of those relationships and that familiarity to actually do business. So it is good for Canada’s influence in the world and also for trade and mobility.

We want to see Canadians going to Slovakia where their advantage is that they can work in Slovakia for six months and then take a month to travel around Europe and then work for another four months and then do another trip, travelling visa-free to most countries in Europe.

This is not an academic programme. You do not have to study; you only have to be first in the line and pay $150 for processing, check that you are not a criminal or a terrorist and then you get to go. You do not even have to work if you do not want to, you even do not have to have a job before you go; you can go to any part of the country and any sector of the economy.


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