FAIT Committee Meeting

STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, February 9, 1999

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[English]

The Chairman (Mr. Bill Graham (Toronto Centre—Rosedale, Lib.)): I'd like to call this meeting to order.

This is the first of our meetings to deal with the run-up to the WTO ministerial in November of this year in Seattle. Minister, is that correct? This was originally scheduled, you'll recall, as a briefing from departmental officials, but the minister has kindly agreed to join us for the first part of the session.

Thank you very much, Minister Marchi, for coming. I understand you can stay only for about 40 minutes.

The Honourable Sergio Marchi (Minister for International Trade, Lib.): I think we were scheduled until 10 o'clock. I'm a little late, so I'll stay to recoup.

The Chairman: Great. I know there will probably be some questions. Perhaps you can begin, and then we'll have as much time as we can for questions. Thank you very much for coming.

Mr. Sergio Marchi: Thank you very much, Mr. Chairman and members of the committee, for the invitation to come before you this morning as you begin your cross-country hearings on the future negotiations at the World Trade Organization.

I'll be tabling a complete statement—I hope it's in your hands as we speak—that covers the key issues our government believes will frame the debate toward a new set of negotiations at the WTO. This morning, for the purposes of a dialogue, I'd like to simply highlight very briefly some of the main points in that statement.

I think everyone will agree we're living in extraordinarily exciting days. Trade barriers are falling around the world. Technology is collapsing the distances between countries. New opportunities are opening up around the globe and Canadians are taking advantage of them. We should clearly welcome these forces at play.

At the same time, all too many people are still are uneasy about the pace as well as the path of change. For them it is a road that perhaps is not as well understood. That is why I think it is very positive that your committee has taken up my invitation to engage Canadians to try to understand both their aspirations for these new negotiations as well as their concerns that may lie behind some of these issues at the WTO, and in general international trade and investment.

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I think it is important to not only consult, but to try to fashion a national consensus for what are the interests of Canada at stake in the upcoming negotiations and what we should be looking out for. It is also within a critical path that makes a lot of sense because, as you said Mr. Chairman, the WTO ministers will be meeting late this year in Seattle, at which time, I believe, a new set of negotiations will be launched.

It also complements the work of our colleagues at the agricultural committee because, as you know, both agriculture and services are on the agenda for this year. So by the time we go to those meeting, through your committee and other devices, we will have had the benefit of the input of Canadians from all walks of life, from all corners of our country.

In framing that debate, there are a number of issues that I believe are crucial. The first is to try to understand where we're coming from. If we're to embark on a new journey at the WTO, we need to understand where the international community has travelled. It's been some five years since the completion of the seven-year Uruguay Round. When you look at that, you have to conclude that trade was significantly liberalized as a result of those efforts; second, the body of rules has been expanded; and third, there are new mechanisms to settle disputes.

I think all three come together to help Canada, not hinder Canada, because as a trading nation that relies directly on exports for over 40% of its GDP, we need this liberalization, we need the rules, and we need the mechanisms to break the disputes. So I think we certainly gain from that Uruguay Round, from both an expansive perspective, as well as from rules that suggest it is not might that determines who is right. At the same time, the Uruguay Round has left many stones still unturned, therefore there is much work to do, both on expanding liberalized trade as well as adding to the body of rules.

Secondly, we need to recognize that, unlike the seven-year journey of the Uruguay Round, there is a new dynamic at play today and, like politics, all trade is local. We should stop internationalizing trade and perhaps begin localizing trade more, because international trade is not about arcane deals; it is relevant to the lives of Canadians across the country, for their kids, for their jobs and for the vitality of their communities. We all need to do, both internationally and domestically, a better job of bringing trade down to the local neighbourhood and explaining its significance and its role in the lifeblood of the local economy.

I also believe the new dynamic is such that foreign trade is now very much part of the domestic agenda. People have coined the phrase that foreign policy is in fact domestic policy and it intertwines, whether we like it or not, with issues domestically on environment, investment, and social and cultural policies. Nor is it simply the purview of the federal government. Increasingly, provincial and municipal governments are involved in the matters of trade and investment. We will be meeting with all my provincial counterparts on February 17 to continue that collaborative work. So throughout this entire process, Canadians need to be heard. In fact, citizens of the world around the globe have to be heard, and that will be a function of how successful I think the next stage on liberalized trade will be.

The third area is the promotion of Canadian values abroad. As we embark on these new sets of negotiations, it is more important than ever that Canadian values be reflected in the positions we propose and the positions we will inevitably take. Our government believes that trade allows us to export not only our goods and services, but also our values.

• 0915

We have never believed, and we shouldn't start now, that we need to sell our souls in order to sell our goods. As a result, the global economy must be a humane place where democracy and the rule of law ensures not only the benefits of trade liberalization around the globe, but that it is shared by all peoples equally around the globe, both developing and developed. If we simply pursue markets without a concern for the citizens who live in those markets, then I think the path for greater liberalized trade will clearly be a bumpy one.

Fourth, I think fundamentally we have to answer the question, do we need more negotiations? It could be easy or tempting to pause or consolidate after a significant time spent on negotiations. While it would be tempting, I think it also would be a mistake to do so, not only because many stones have been left unturned by the Uruguay Round, but also because business practices and technologies are changing rapidly. We need to proceed into that new millennium with rules that reflect the new reality and not the old. So rules too must keep pace.

We also need to find ways of bridging the developed and the developing world, because there is a feeling in the developing world in some corners that liberalized trade is more an agenda that suits the developed world and that the benefits aren't shared, but when there is a collapse in the market or a fluctuation in the market then sometimes again it's the developing world that bears the burden of that downturn. So we need to level the playing field from their perspective. I think that's an important issue in why we should continue to negotiate. As well, I believe it would be incumbent sooner rather than later for the WTO to enlarge its family to include the economies of Russia, China, Chinese Taipei, Ukraine, and Saudi Arabia.

Yes, membership has its privileges, and therefore membership needs to have standard criteria for entry. But I think if we are going to seriously undertake building the bridge between developed and developing, these countries are very important.

Fifth is the decision on how do we proceed and what should be in the negotiations themselves. In terms of the form these future talks should take, Canada believes in flexibility. There were two competing views about a year ago. There was one that suggested a totally comprehensive long round. The other suggested a more sectoral approach. Canada's position then, as it is now, is that both options carry with them their own difficulties. In terms of a totally comprehensive and long round, I think there will be too many divergent issues and interests. I think it can get unwieldy and exhausting. I think it could be intimidating and fatiguing for some countries. All or nothing means no progress for a number of years.

On the sectoral approach, I think that would not work because it would allow some countries to cherry-pick. So you would be creating many more losers than winners. At the same time, a sectoral approach would not send a confident signal to the WTO about our international marketplace. So for over a year now I have been advocating a more middle ground. Broad-based discussions, yes, but they would be organized in clusters of issues and sectors in a way that the process would be manageable, digestible, and timely for all nations, and whereby this broad base has enough or something for everyone. This would allow for an early harvest of agreements, and at the same time provide momentum at a crucial time.

I'm pleased to note what a difference a year makes, because quite frankly those who were clutching the goalposts of both a sectoral and a totally comprehensive round have left those goalposts, and I think there is a movement toward the centre of the field. I think that's positive, because it's a mature way for the world to proceed and also a sensitive way, keeping in mind that there are people all over the globe who are still questioning the concept of liberalizing trade or globalization.

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In terms of content, without prejudging your discussions and what you will hear, certainly some of the issues in those clusters could include further reductions to tariffs on industrial goods; addressing non-tariff barriers that impose unnecessary bureaucratic costs on our exporters; curbing the abuse by foreign competitors of anti-dumping, countervailing duties, and safeguard actions; extending the coverage of rules on trade in services; bringing agricultural trade more fully under the rules, including the elimination of all export subsidies—and we were heartened to hear Vice-President Gore take the same position, and we hope they apply the same 100% rule to trade remedies; expanding trade rules to respond to modern ways of doing business internationally, such as intellectual property, e-commerce, and investment in competition policy; and exploring ways to ensure that trade fully respects sound cultural, environmental, and labour policies.

Finally, Mr. Chairman, in terms of the substance of the negotiations, I think they need to be matched in this new dynamic by the process. I've often said that the process of a trade deal is as important as the substance of the trade deal in itself. We believe that the windows of the WTO need to be thrown open, as we advocated in your presence at the 50th anniversary of the GATT-WTO last May in Geneva.

I believe that policy-makers need to do three things, both internationally and at home. First, we need to make the whole process more transparent. Canadians want their international institutions, as well as their own governments, to be more open, more accountable, and not less. Secondly, we need to be more responsive. When Canadians express their concerns we need to address their concerns head on, present the facts, and not be indifferent to them. And thirdly, we need to be more inclusive. We need to build a stronger consensus on issues that affect our people so directly. And quite frankly, we need more people in the trade tent internationally than outside of it.

In conclusion, Mr. Chairman, that is a quick highlight of the issues you will find in our statement. Suffice to say that Canada today is a trading powerhouse at a time when the world is embracing freer trade as never before. But nothing is preordained about our success. We need to be at the table so that we can help shape the course and shape the matter of the discussions, as we've done so successfully in our past. We need to continue to work hard in an increasingly competitive market. We need to protect our interests while projecting our values. And we need to ensure that Canadians have a say in the future that we are building for them and our country. In this way we will position ourselves to compete and win in that new economy.

Thank you. And I look forward to working with this committee to build that very future.

The Chairman: Thank you very much, Minister. We look forward to these hearings too. I'm sure this morning will be a very good start to them.

Mr. Penson.

Mr. Charlie Penson (Peace River, Ref.): Yes. Thank you, Mr. Chairman.

The Chairman: Keep it to five-minute rounds so that we can get a couple in.

Mr. Charlie Penson: We'll try.

The Chairman: Because if everybody has ten we'll—

Mr. Charlie Penson: I have trouble just introducing myself in five minutes.

The Chairman: We'll give you seven.

Mr. Charlie Penson: First, I'd like to welcome the minister and Mr. Fried and Mr. Klassen here this morning, Mr. Chairman. I think it's going to be helpful to work together to develop Canada's position in this next round, whatever it might look like.

I was interested in some of the remarks you had made, Minister Marchi. I'm glad to hear that the department is committed to moving the yardsticks forward in terms of trade liberalization. I think it's needed. But you also mention that we need to make it relevant to Canadians. I think that's a big challenge. Unless we can show why we want to do this, what the benefits are, that real jobs are at stake here, it makes it more difficult. We certainly ran into that to some extent in the MAI discussions. That's just an observation.

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There are a couple of other things, Mr. Minister. You talked about the cluster approach being Canada's favoured position. Given the fact that agriculture is the main area that still hasn't been brought under some set of rules—just a modest start was made—and given the fact that Canada is back in this subsidy game again.... And what a difference a year makes. That's exactly right in agriculture, with $1.5 billion going back into agriculture subsidies, and with the prospect of that continuing for some time until we can get some relief on the trade side. What do you see that could be put on the table in this cluster approach to help the European Union to move away from agriculture subsidies? What can we offer them as a trade-off that would make it attractive for them to phase down these subsidies?

Mr. Sergio Marchi: Firstly, I agree with your observation in terms of the need to make this new negotiation relevant. That's certainly at the heart of the new dynamic at play today. And I think it's even more difficult to make it relevant at the WTO for our citizens, as compared to our regional trade agreements. People understand much better the FTA, the NAFTA, what we're doing in APEC, or why we're trying to do the free trade area of the Americas. That's close to home, whereas the WTO is further removed for many people. So I agree with you that we need to bring that process closer to home, which also means that the WTO has to reform the way it operates.

Secondly, I'm not sure I would see it like you do. We're not going to Geneva to trade off sectors. I don't think that's a constructive way to say that if others get these subsidies down, we will put this sector on the altar. No sector would want to volunteer for that kind of approach.

I think the fact of the matter is that we support a more manageable ground, because, firstly, if you go sectorally, you will never get to square the circle on agriculture. If it's only agriculture and services this year, I think that will be problematic. On the other hand, if we have a long, drawn-out comprehensive round for another seven years, I don't think it's going to bring rules or disciplines as quickly as we would want them to be brought in.

So I think the larger, broadly based clustered approach is a manageable way to get a solution. Ultimately the Europeans, more than the Americans, will have to understand that their policies of subsidies and of creating a subsidy war are simply unsustainable for their European community and for the international community. If they're going to be accepting Poland in the year 2002—and the Poles have seven million farmers—that is going to break the cap in Europe. Europe therefore has to understand now, for the benefit of Europe, as well as for the benefit of its international neighbours, that this policy is simply unsustainable.

Mr. Charlie Penson: I have a short supplemental.

European Union expansion is all fine and good, but it's a long way away in terms of benefits for Canadian farmers who are in very deep difficulty largely because of $60 billion in European Union subsidies this year. When I was suggesting putting some things on the table, I was not suggesting putting them on for a trade-off, but to enhance the negotiation.

What about international competition policy? What about the service sector rolled in? Those are things Canada can benefit from, too. I guess I'm asking you what you envisage could be put in that cluster round that would be good for all of us, but that would attract the European Union into giving up something on the agriculture side that is hurting us to badly.

Mr. Sergio Marchi: Charlie, in one of the sections of my highlights I included a bit of a laundry list of issues that I believe ought to be in that sector, without trying to prejudge or predict what the European community will come up with. You talked about competition policy. That's clearly on our list. I have also mentioned the whole issue of services. I listed a number of them, certainly including further reductions on tariffs on industrial goods, and in the non-tariff barriers. We talk about the trade remedies and about services, as I mentioned. We suggested bringing agricultural trade more fully under the rules, including the elimination of those export subsidies. We talked about modern ways of doing business internationally in the areas of intellectual property, e-commerce, investment and competition policy.

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So I agree with the two issues you've talked about, and I look forward to perhaps seeing what your committee finds out in its testimony, as well as in its cross-country travels, about any issues we think ought to be on that list, or any issues that ought to be a priority on that list.

[Translation]

The Chairman: Ms. Debien.

Ms. Maud Debien (Laval East, BQ): Good morning.

In your intervention, Sir, you pointed out that the EU, among others, wished to have a global negotiation of the millennium, while the USA preferred to approach the issue by sector, and Canada proposes a middle-of-the-road or cluster approach. That's what I understood. I would like you to give us a specific example of what a cluster would be.

You also said that we should expand WTO participation to the developing countries. I would also like to know what specific methods Canada plans to use—a certain number of means were set out during the meeting at la Réunion—to bring the developing countries into the WTO and enable them to truly negotiate.

My third question has to do with social standards. Does Canada intend to mention them or, at the very least, to participate in these debates quite actively in order to maintain the ground it has gained?

[English]

Mr. Sergio Marchi: Which debates? I didn't get that.

[Translation]

Ms. Maud Debien: Excuse me. Perhaps I'm speaking too quickly, I would like you to talk about the whole question of social standards.

Here is my fourth question. We know that the USA is applying tremendous pressure to avoid discussion of the cultural question. I would like to get your opinion on that also.

[English]

Mr. Sergio Marchi: Thank you for those questions.

I think the first observation is that both the European Union and the Americans have moved off their goalposts. When we were in Davos at the World Economic Forum, we participated in a trade panel with Sir Leon, Charlene Barshefsky, and the Japanese, as well as the foreign minister of Chile. It was clear that there was a consensus that was mobilizing toward a more middle-ground approach. Clearly, the Americans have left the sectoral goalpost; the president and the vice-president have talked about a round. At the same time, there were a lot of code words that talked about certain issues, certain timing, certain early harvests. Clearly, I think the Americans are talking our language a little more. And now Sir Leon is prepared to talk about a three-year round rather than the comprehensive seven-year round that he was talking about a year ago.

So whether it's called the middle ground or whether it's called a cluster, I'm just happy the world is coming at it in what I think is a sensitive way, without suggesting that, as the adage would say, too much of a good thing can kill you.

On a cluster, I tried to give you a sense of some of those issues, but I look forward to not having that be the definitive word or the exhaustive definition. I've listed a number of issues at the front end of your journey. I'm very keen on seeing the end of it, seeing how this list stacks up with the interests in the sectors that you will no doubt be meeting with.

Secondly, in terms of the WTO, I think we need to reform how the WTO works: what the possibility is for people to be in the room when a panel gets done; why it is so arcane in terms of having a decision take such a long time to get translated; how a decision gets leaked, and gets leaked erroneously.

There is a sense that things occur behind closed doors, and I think we need to open that process up. We spoke quite at length about that need for reform at the 50th anniversary, and it wasn't only Canada that was speaking about a reform agenda.

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How we work with our developing countries is key. We can't just give lip service to that issue. That's why I think the fact that a number of those countries are on the launching pad—some more than others—in terms of entry into the WTO is an important signal. Also, how we conduct negotiations, what's in the negotiations, and how big those negotiations are will also be a signal to the developing world. Quite frankly, many developing nations don't have the capacity to do the kinds of negotiations, both multilaterally and regionally, that other, developed countries have. That's why I think the cluster approach is a more respectful, sensitive approach to making sure we're not leaving too many countries behind as we move this WTO forward.

In terms of social standards, again there are those who say we shouldn't be talking about the environment, we shouldn't be talking about labour, we shouldn't be talking about human rights, we can't can't be talking culture. I'm not suggesting that trade policy is the answer to any one of those issues, individually speaking, because it isn't. But because of the new dynamic at play, in which trade is local, I don't think we can divorce people's concerns about those issues from the trade agenda. That's why I believe that when we approach the NAFTA with both a labour and an environmental side agreement, it is forward-looking and not negative. So I don't think trade policy can be put up as a straw person to be the solution to all these individual concerns, but hopefully trade can be part of the solution for those individual issues that you've alluded to as social standards.

Lastly, on culture, obviously some countries would not want to have culture in the new round. I believe it ought to be because increasingly there are more countries that are concerned about their national identity, seeing culture as a national interest. If the Americans can claim national interest seventeen times for every week, clearly other countries have the right to talk about culture as an important attribute. I believe that sooner, rather than later—and that's why we're suggesting that we might as well do it now, as there's no better time—we need to square the circle on culture at the WTO.

I don't think this is much of a problem at NAFTA. I don't think it would have been a problem with the MAI had it continued. But I do think the absence of and silence on rules on this at the WTO is a problem. I think we need to have rules that say certain things are legitimate forms of cultural promotion and are no-go zones, and certain things are illegitimate forms that should be opened up to trade. We would then have a consensus internationally of what are legitimately no-go zones and what are legitimately parts of the trade agenda. I think Canada would then feel assured, and the Americans and others would have the predictability of the marketplace.

Will this be difficult? Yes. In Davos, the Japanese minister said it's too difficult. I asked if it's more difficult than trade and labour, if it's more difficult than the agricultural round, in which, as Charlie suggested, people are going to be pulling their hair out. No, not at all. All things are relative, but I think culture will increasingly be an issue that the world must come to grips with. It's like the commercial: you can either pay me now, or you can pay me much more later.

The Chairman: Thank you.

[Translation]

Ms. Maud Debien: Is that all, Mr. Chairman?

The Chairman: Yes. We are trying to keep it to seven minutes, and all the time has been used.

Ms. Finestone.

[English]

Mrs. Sheila Finestone (Mount Royal, Lib.): Thank you very much, Mr. Chairman.

I must say, Mr. Minister, that I found your presentation very well informed and very well organized. You certainly know your stuff, and I really enjoyed listening to you. I was particularly touched by the remarks you made with respect to culture. That wasn't the issue I was going to discuss, but I'm glad to see it's something you understand to be not just an important aspect of Canadian identity alone. Worldwide, countries are very concerned about how they can maintain their identity within the hegemony of American interests, so I'm glad you're going to look at that.

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I was wondering, in the course of the mandate that you'd like us to take, which I think can be extremely interesting, where you see the important aspect of the World Trade Organization's mandate with the International Monetary Fund and the World Bank. And I say this to you first of all because you made a very sensitive observation about values and Canadian values. As I see them, Canadian values show a sensitivity to many of the countries whose populations are also here now. They see the suffering that's going on in emerging and third world countries and recognize that some of the medicine given by the IMF or the World Bank in terms of enabling these countries to move into trade-competitive situations is killing their social policies and having a dramatic effect on the increased poverty.

I know that you were in Southeast Asia just before or after I was there for the ASEAN round. What the Philippines, Malaysia, and Thailand said about the impact of the medicine the IMF and World Bank were delivering to move them into this new economic world was very dramatic and very negative. I can tell you I thought the complaints were well founded, when you talk about unemployment that went to 20 million people in one fell swoop, which is an economic disaster.

How do you see Canada as a trading powerhouse but also a nation of social norms and concern for the value of the populations they trade with? How do you expect to bring this in and relate it to the standards and procedures put in place by the IMF and the World Bank? Do you not see this as part of the negotiations and part of the study we should be undertaking?

Mr. Sergio Marchi: Thank you, Sheila. I think you've raised an interesting point.

I'm not sure they're going to be part, technically, of the negotiations, but I definitely think it should be part of the general architecture we're trying to build. I think there haven't been enough bridges between the WTO, for instance, and the IMF.

A number of people, certainly better attuned to the IMF and the World Bank than I, are of the belief that we need to fundamentally restructure those two institutions to meet the new reality. Many would argue that they're still dealing with an old reality. Some are suggesting the IMF should be in much more of a preventive rather than reactionary mode. For that there also needs to be the political will to give the IMF some teeth on the preventive medicine, to be able to step in before the crisis hits. Because sometimes—you're right—after the crisis hits, and hits a country, particularly a developing country, hard, it is difficult for that country to get back on its economic feet. It takes quite a number of years after having built up their economy.

So I think the IMF has to consider some serious reform. Also, Canada has been one of those countries that have advocated trying to build a kind of social safety net to the IMF and the World Bank. In fact, at the launch of the free trade area of the Americas in Chile last year, the president of the World Bank made some very interesting comments along these lines that I thought were quite progressive.

Lastly, I think we need a better bridge between these organizations because sometimes there is quite a burden placed on the shoulders of trade policy. For instance, you hear a lot of people saying that in order for us to get out of this financial crisis we really need to trade or export our way out. I'm one of those who says that is a wrong prescription. I don't think trade by itself is an answer to the financial crisis at all. I think a financial crisis needs two things. One is financial stability. What are the things that are going to bring stability to the marketplace? Is it openness? Is it accountability? Is there more sunlight in terms of alleviating the crony capitalism that happened in some countries? So stability is number one. Number two is financial stimulus in that marketplace to drive consumer spending, which will drive the rebuilding of the economy.

• 0945

So we need financial stability and financial stimulus. Then if we get those two prescriptions, trade is a complementing force to them. Then you can rebuild those economies. But to simply say the answer to the financial crisis is trade is setting up trade, I think, for a big fall.

Mrs. Sheila Finestone: Mr. Chairman, have I time for a short supplementary question?

The Chairman: Not now, but we're going to go around again.

Mrs. Sheila Finestone: Thank you.

The Chairman: Madam Finestone, you might want to know that our learned researchers, as always, have thought of everything: in your blue book you'll find a section on the relationship between the WTO and the global international financial institutions.

Mrs. Sheila Finestone: Where's my red book?

The Chairman: Is that the old stock?

Mr. Sergio Marchi: The red book is for the election.

The Chairman: It's blue in colour and red in sentiment.

Mrs. Sheila Finestone: Oh, dear.

The Chairman: I'd like to ask a couple of quick questions of the minister, and then I think we'll have time for another round of five minutes, and we could try to fit in a couple of other questions.

Minister, you touched on a couple of things. Culture obviously is going to be very important to Canadians. What's the appetite for the cultural debate in other countries, for a recognition that there have to be trade rules that govern cultural diversity? Our concern is are we and one or two other countries, notably France, going to be alone on this, or is there going to be a coalition like the Cairns Group or something like that in agriculture we could look to? That would be the first question.

The second question is in connection with your mention of labour and environmental standards, and I entirely agree with your point. It seems to me, from discussing these issues at the last ministerial we were at in Geneva, that it's very clear that the developing countries are very concerned that these will become new forms of trade barriers, not means. Particularly with regard to labour standards, they say the only advantage they have in the world is cheaper labour, and if we put in labour standards that's in fact going to do exactly what Mrs. Finestone is concerned about, which is to shut out their goods and make them poorer.

It seems to me the only way we can get around this is if the international community, particularly the nation-states, particularly the United States and Europe, are willing to give up their nationally applied trade barrier rules, like anti-dump and others, and agree to an international system that would replace them. I mean, if we're going to have labour and environmental standards, is there an appetite for the nation members of the WTO to let it be applied by a WTO-governed system rather than a national rule-making system, which would get around that? That would be my second question. I guess that ties into the old issue of civil society.

It's curious to me that in the FTAA there's a civil society dimension, which Madam Debien was referring to, but in the WTO we're a long way from any talk of civil society. Is that because the FTAA is so much more integrating than the WTO? It seems to me they're close enough that there should be a civil society debate going on in the WTO, and it isn't even there.

Those would be my three questions. If you want to talk about Helms-Burton and a bunch of other stuff, go ahead.

Mr. Sergio Marchi: I think your word “appetite” is an appropriate word, because if you look at the menu of issues before the WTO, some are old traditional dishes, and some are rather new exotic dishes on the menu. I'd have to be candid with you and describe both of those issues as falling under the category, for many, of new and exotic. We don't fear the addition of those new dishes to the menu, but I think when you talk to ministers on trade and culture, it is rather new in terms of what was on the Uruguay Round and what is projected.

But I have to say that when you talk to them about the need for us to square the circle, the fact that you can now download culture.... More countries I think are coming to the conclusion that what they thought was going to protect their culture—i.e., a different history, a different language, compatible market forces—that is no longer the case.

• 0950

I think it's an intriguing new dish. I think increasingly people are coming to it with a more open mind. I think Canada will not be alone. The question is whether we can build that coalition and whether, quite frankly, countries are forward-looking to invite and embrace the cultural issue rather than shoving it to the side as if that's going to be a solution. So the proof will be in the pudding.

We continue to talk about that issue. In fact it was one of the first issues I talked about our interest in to the WTO director general over a year and half ago, Mr. Ruggiero, and he took an open mind. I think he understood where we were coming from on the issue. There is a healthy respect by other countries toward why Canada wishes to promote this issue and how Canada and Canadians have maintained their identity despite living next door to the United States of America, which I think if we had our choice we would pick ten times out of ten. There is a great upside in being their friend, ally, and partner, but on the issue of culture I'm afraid there is a cultural divide, and that's because we have two bottom lines. The Americans have one. The Americans see this through the lens of the bottom dollar-and-cents line. Pop culture is a big export for them worldwide. We have two bottom lines, dollars and cents and national identity, and we continue to push our bottom line. We believe the WTO in terms of the independence of rule-making will respect something I think the Americans either can't understand or quite frankly don't want to understand.

On the issue of environment and labour, I think you put your finger right on the dilemma. It is a tough issue because you're balancing very strong emotional appeals in many countries on both labour and environmental standards—i.e., people saying “As you race toward liberalizing trade, please don't race to the basement on standards. Race to the rooftops.” When you're dealing with developing countries of course they're saying “Hold on a second. You're wanting to run to the rooftops because you want to keep us in our basements.” That's the dilemma in terms of the issues and the passion on the one side and not creating non-tariff trade barriers on the other.

That's why I believe that between the basement and the rooftop there is at least a family room where the international community should be able to lodge together. I think if there is the political will, we can subscribe, as you've suggested, Mr. Chairman, to an international code, if we're truly sensitive about bringing in the developing worlds and if we truly mean what we say when we talk labour and environment. That is the challenge. I can't predict where the community, internationally speaking, will be as we head into that round.

The Chairman: Thank you very much.

Mr. Charlie Penson: Following up on the labour and environmental standards, I'm sure the minister will know that in the United States one of President Clinton's biggest problems in getting fast-tracked for Chile was his own party—the Democratic Party's resistance by insisting on heavy labour and environmental standards. Many people believe this was just acting in self-interest to try to act as a protectionary measure for labour in the United States. I think we have to recognize it for what it is in some cases—just another form of protectionism, which we have to resist.

I just want to go into one other area. It doesn't have to do with the WTO exactly, but it has to do with interprovincial trade barriers that certainly have an effect on Canada's ability to compete.

We did see some movement the other day by all levels of government in terms of mobility on the social side—health care standards, educational standards, labour standards. This is a great thing, in my view, but we simply have to get to the same kind of mobility in terms of commerce across provincial borders, Mr. Minister, in order to make Canada competitive.

• 0955

I live in the province of Alberta, where doing business in British Columbia is almost like doing business in another country. I want to know what can be expected in the area of commerce in terms of trying to make this country a place where we can operate freely, in the same way you've been able to achieve some gains on the social side.

Mr. Sergio Marchi: Your first comment about NAFTA I think is partly true.

The other part, as to why the Americans did not want to accept or propose Chile in NAFTA, is, unfortunately, from my perspective, due to what Congress conjured up in terms of the NAFTA with Mexico. I think they unfairly saw NAFTA as a weak link for them as to how they perceived the Mexican role and economy. That got caught up in narcotics trafficking and migration issues, and it was held hostage. Unfairly, they looked at Chile through some of those perceptions. That was unfortunate, because Canada said “While you people in the Congress navel-gaze, we think Chile is not only ready for but meritorious to do a trade agreement. We did one based on the NAFTA model. Perhaps now the FTA is superseding that desire, but we still hope that Chile one day will be part of NAFTA.”

Secondly, you're absolutely right about the internal trade barriers. I for one, perhaps way back when, was pushing that if we're going to deal with a social union, let us also make it directly linked to economic union. For the things the federal government may put on the table for the social union, what are the provinces putting on the table for an economic union? When I say provinces, we're only looking at one or two provinces that have traditionally held out and held everyone else back. Hopefully we can finally push that boulder over the hurdle in those one or two provinces.

It is ironic, I agree with you, that as we liberalize trade internationally, we have some archaic walls still in place in Canada that keep that mobility you spoke of moving very slowly. I concur with you. I was hoping it would have been linked to the social union, but I guess that was complex on its own as it was. We continue to work with the provinces onside to see if we can't isolate those remaining provincial holdouts but try to have them also see the benefits. If they believe in a liberalized world, you would think they would believe in a liberalized Canada from a trade perspective.

The Chairman: Thank you.

So Mr. Penson can get across that B.C. border without.... He has trouble getting his wheat in there. They don't trust him.

[Translation]

Ms. Alarie.

Ms. Hélène Alarie (Louis-Hébert, BQ): Minister Marchi, I sense that there are two major concerns in what you say, the first being the need for extensive consultation among all Canadians to determine what their concerns are, and the second, the negotiation process. On that point, we are of the same mind.

I would like to express another concern. We must first set up a scoreboard indicating which of the 133 countries are respecting the commitments of the latest WTO negotiations, and which ones are not. On the Agriculture Committee, for a number of months we heard various representatives from all agricultural circles and realized that one of their complaints concerned the fact that while Canada was abiding by the rules, perhaps even too closely, other countries were far less conscientious. With this in mind, there are two major concerns, namely the attitude of the USA and of the EC towards internal support and export subsidization.

In the process of negotiation, should one not first make a assessment of what has been done and how, and use it for a basis in dealing with important stakeholders like the EC and the USA? They are far from being reassuring when they talk about export subsidization. One only has to look at what Scotland and France have been doing recently within the EC. They do not agree with the EC approach. So we have a good deal of work to do before entering into negotiations with them, it appears.

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And that is not all. There are also non-tariff barriers. We talked about them a little from the viewpoint of environment, but the environment is not solely a policy matter. We wish to compete with the other countries, but we have costs. The costs to the environment, which is something we are very respectful of, at least in Quebec and in other provinces, make us far less competitive internationally. We pay them because it is a part of our philosophy and even of our culture, but there are costs.

We also have to harmonize what I call the "ides", namely pesticides and all the other things that end in "ide". Is the Canadian government prepared to adopt policies to harmonize with the USA and Europe? The costs involved here are very high, as you know. I'm not talking about biotechnology, but that is part of the issue too.

So my overall question is this: before starting to negotiate and before consulting Canadians, should we not be presenting to them an assessment of what has been done before? Secondly, is the government prepared to adopt measures to bring our political action into line with the recommendations?

I would like to ask many other questions.

The Chairman: That's a lot, Ms. Alarie.

Ms. Hélène Alarie: Yes indeed.

Mr. Sergio Marchi: I agree that the priority is to consult all Canadians, the whole Canadian family. We are often on the leading edge internationally when it comes to civil society. We may not have the positive support of the media in Canada, but in the Free Trade Area of the Americas, civil society is a Canadian project.

In APEC, Canada has proposed the establishment of a working group on civil society. We need to do the same thing. We must include very responsible Canadians in a consultation and arrive at a national consensus before the WTO negotiations.

[English]

On your balance sheet, I think that's important. What I wanted to say is that one of the six main areas of framing the debate is that before we get to a new part of the road, we ask how the last journey has gone, from the perspective of what did we do during the Uruguay Round and, quite rightly, as you say, how have countries come up to the so-called bar in the first part of the journey.

You're right, we play by the rules, because we know that as a medium-power country we need to be able to play by the rules with an independent way of arbitrating when two countries don't agree. We know instinctively that by adhering to the rules, we'd win more times than we'd lose.

Quite frankly, it's academic talking about opening up new disciplines if countries are still hiding behind all sorts of barriers in the old disciplines we've opened up. I think people have to be candid, and they have to put their cards on the table and not be sanctimonious about the new agenda when the old agenda is perhaps still creating areas where we can't sell our products and goods or vice-versa.

So I think that reflecting, looking in the rear-view mirror as we're heading forward, your point about what does the balance sheet look like is a good approach. Perhaps as you cross the country you should ask Canadians not only what they think about their future but also what they think the balance sheet has looked like so far. Where are the strengths and the minuses? As I said in the speech, what are the lessons to be learned from the first voyage called the Uruguay Round?

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Concerning the non-tariff trade barriers, I certainly listed that as an area of serious concern. You've mentioned a number of areas in terms of biotech and fertilizers. I'm sure there are others. I'll certainly await what you find and what you have to say on that issue in your concluding report.

The Chairman: I have two questions. Mr. Assadourian and Mr. Calder, if you were to both ask your questions briefly perhaps we can get both of you in.

Mr. Sergio Marchi: My officials will be staying. I should have introduced them. Jonathan Fried is ADM, trade policy. Jonathan Klassen is director general of trade policy. After I leave, these two gentlemen will not only stay but probably do a much better job at informing you about the policy side of the department.

The Chairman: They're going to have to describe that living room we're all going to end up in, between the basement and the ceiling, that you were referring to.

Mr. Sergio Marchi: He always takes the best couch, anyway.

The Chairman: Perhaps before the minister leaves, Mr. Assadourian and Mr. Calder, if you both ask your questions then the minister can answer them both.

Mr. Sarkis Assadourian (Brampton Centre, Lib.): Thank you very much.

Mr. Minister, I was going to go to a question on membership in the WTO. China and Russia are not members of that organization. What would the impact be on Canadian trade if they joined the WTO?

My second question is how do you balance the interests of countries like the U.S.A. and Canada compared to Cuba and Haiti when it's done in a conference?

Mr. Sergio Marchi: Could you repeat the question, please?

Mr. Sarkis Assadourian: How do you balance the interests of the U.S. and Canada alongside the interests of countries like Cuba and Haiti, because of our regulations and rule policies compared to production, banking, etc., and the other two countries on the continent?

The Chairman: Mr. Calder.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): I'm going to follow up on what Madam Alarie was saying, because this was something we discussed a lot in the Standing Committee on Agriculture. My question is basically how we are going to establish Canada's negotiating position so we are at the same point as the other players within the WTO, because I see us right now as being ahead of them. We have played by the rules and we've done more than they've done.

I'll give you an example. Europe has the carry-forward clause that was signed in 1994. Because they didn't use subsidies in 1994 and 1995, there's a potential of them putting 37.8 million tonnes of oversubsidized wheat out on the market just because they haven't used up those subsidies and they have to be all used up by the year 2000.

The United States still hasn't done away with their EEP program; they're still using it. They've also come out with the FAIR Act within agriculture. The farm bill was brought out. Just to total last year, they pumped almost $15.5 billion into their own agriculture sector. How does Canada come up with a negotiating position that puts us on even ground with the rest of the countries when we're looking at all these examples?

Mr. Sergio Marchi: Thank you.

On Sarkis' questions on the accession eventually of China and Russia, clearly those two countries should eventually be part of the WTO family. I mean, if you think of the international economy and you look at China and you look at what they've been doing, and if you conjure in your mind what they will be doing, it's certainly not feasible to have them on the outside of the WTO family. Similarly, Russia is currently going through some financial pain, but there is a sense they will recover and rediscover their economic resilience. The kinds of economic riches that can be theirs are huge. I listed a number of countries—for instance, Saudi Arabia. John Weekes, our ambassador to the WTO, is the chair of the committee looking at the Saudi Arabian application.

I don't think it's feasible, as the international economy becomes smaller, to be excluding these countries.

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The balance is that there are criteria for entry. That is to say, you can't begin to water down the criteria for one country as compared to the other. Otherwise, you simply don't have any semblance of standards for the WTO. I think that is the difficulty. Some countries may want to perhaps have a pass on one or more when in fact there also needs to be a resilience to try to maintain a standard that can be applicable to all.

I think those two economies specifically, and the others as a package, are also very important to the functioning of the WTO. Can you imagine a WTO minus China, one in which you have trade rules everywhere except in a huge part of the global economy? I think people realize that. It's now a matter of getting the different sides together, with a healthy respect for one another. That is to say, China can benefit tremendously by being part of the WTO. At the same time, the WTO is enhanced by China's entry, and we need to respect each other's speeches.

On the Canada-U.S. versus Cuba-Haiti question, obviously the varying sizes of the economies address themselves to rules even more eloquently than anything else. In fact, in the free trade area of the Americas, Canada has strongly advocated a committee for small economies, because you have a giant United States and a giant Brazil next to a Trinidad and Tobago that has a little over a million people and tourism as the mainstay of their economy. If you don't have the rules, you are going to have some of these countries completely swamped by the large countries.

Mr. Sarkis Assadourian: Isn't that the case now?

Mr. Sergio Marchi: I think the difference in size speaks for the need for rules. Why do we have a trade surplus with the United States? We have a country that is ten times smaller than the United States, but we also have the ability to have rules governing trade. An independent arbitration of disputes rather than economic might allows a country like ours to do very well. Most Americans don't think they have a trade deficit with Canada. They still see Japan as the trade enemy. We don't go broadcasting that, but I guess I just let it out of the genie bottle.

So I think the varying sizes speaks to the need for rules.

On Murray's point, obviously negotiations are one form whereby we have the ability to make sure we look at the balance sheet. While we support the WTO, no one is suggesting that we commit hara-kiri either. We shouldn't, and we won't. We believe, though, that we've done pretty damn good at trade. In politics you're as good as your last speech, and you have to keep making them. In trade, you're as good as your last deal. Because the world is more competitive, you have to keep making new ones. Up until now, touch wood, Canada has generally done extremely well in the last few years.

Trade negotiations are one aspect. When we talk to Charlene Barshefsky or Sir Leon, we always try to preach self-restraint. We don't have to wait for negotiations in order for us to do that. When we meet with the Cairns Group, one of the leading issues is always this subsidy war. Negotiations is one forum in which we can hopefully leverage that good will, but we do that bilaterally and multilaterally in many other fora as well. Perhaps the solution still eludes us.

As I mentioned earlier, I just don't think this subsidy war, in which we get caught in the middle, is sustainable. I hope the Americans mean business when they send the vice-president to Davos to say they favour a hundred percent doing away with subsidy. I hope that is the start of a serious debate rather than rhetoric in preparation for a presidential campaign.

Mr. Murray Calder: I'll believe that when they cancel EEP.

Mr. Sergio Marchi: They've restrained themselves compared to the Europeans, though. We must give them that.

Mr. Murray Calder: Yes.

Mr. Sergio Marchi: I think the Europeans have been far more reckless in throwing heavy-duty subsidies around.

• 1015

The Chairman: Thank you very much, Minister, for coming to start this process. We'll keep you advised, and we look forward to doing this. It's going to be a very interesting study on behalf of the committee. We're certainly looking forward to travelling across Canada and understanding what Canadians are going to be telling us about these issues and reporting back to you and feeding into the system so that when we go to WTO negotiations in November we'll be the best prepared we've ever been. Thank you very much for coming.

Mr. Sergio Marchi: Thank you very much, Mr. Chairman.

The Chairman: I understand you're leaving but the officials are staying.

Mr. Klassen, you're staying. Who else is going to join you?

Mr. Jonathan Fried (Assistant Deputy Minister for Trade and Economic Policy, Department of Foreign Affairs and International Trade): We're just organizing the witnesses at the end of the table.

The Chairman: Welcome back before the committee, Mr. Williams. It's good to see you again.

Mr. Klassen, perhaps you could make a few introductory comments and then we could move back to questions again if the members have some questions.

[Translation]

Mr. John Klassen (Director General, Trade Policy Branch, Department of Foreign Affairs and International Trade): Thank you, Mr. Chairman. I know that you have a meeting Thursday morning, I believe, with a few of my colleagues from my department and from the departments of agriculture and finance to discuss agriculture and services. I believe you have asked me today to give a better overview of the development of GATT and especially of the establishment of the WTO, its structure and its operation.

I would also like to talk about the role of the developing countries in the WTO, the way in which the WTO secretariat works, and the importance and aspirations of the new memberships. We already talked about them in discussing the outlook for China and Russia.

I would also like to say a few words, if possible, on the role of regionalism in the multilateral system. What is the impact of our regional and bilateral agreements, and even the agreements of many other WTO members, on the multilateral system?

Finally, I will review the main issues to be discussed in the WTO negotiations, and will say a few words on the preparatory and consultative process in Geneva and Ottawa.

[English]

To go back just very briefly, Mr. Chairman and members, into some of the history, the GATT of course existed from 1948 to 1994. It began in 1948 with 23 members, of which Canada was one of the founding members, one of the most active in the negotiations that led to the establishment of the GATT. And through the subsequent years we had about six rounds of different negotiations under the aegis of the GATT. These dealt principally, almost exclusively, with tariffs and the barriers those impose on products entering at the border.

It was in the Tokyo Round, 1973 to 1979, that we began for the first time to look more broadly at some of the measures that have an impact on trade. In that negotiation we were up to 102 members involved. It was under the Tokyo Round that we developed for the first time a number of codes that dealt with broader ranges of areas that have an effect on trade, such as subsidies countervail, a code on standards, import licensing, and interpretation of the anti-dumping provisions of the GATT and various others. So it was at this time that you began to see, in a sense, the sort of movement the minister has talked about of looking at trade policy more broadly than simply the reduction or the elimination of tariffs at the border.

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However, in the early 1980s I would say it became clear, after the conclusion of the Tokyo Round and as we began to implement a number of those conclusions, that there were some weaknesses in the multilateral system and in the GATT system. World trade had become much more complex than it had been before or during the Tokyo Round, especially with the globalization of trade.

Trade in services had grown very strongly and had become increasingly important in the trade figures and the trade picture of many countries, yet it was not covered by any of the GATT provisions.

International investment was expanding rapidly. Agriculture was one of the failures, or one of the weak points, of the Tokyo Round, frankly. We were not as successful as we had hoped to be in bringing discipline to the agricultural area, so that was a major loophole we wanted to address.

Textiles and clothing remained exceptions to the GATT rules. And although the dispute settlement system was functioning and was fairly active in some areas under the GATT, there were clearly a number of difficulties with it in terms of the process, in terms of the adoption and the implementation of panel decisions.

So we launched the Uruguay Round in September 1986 after about a four-year work program that really began in 1982 to prepare for those negotiations, which lasted until early 1994 with the signing of the Marrakesh Declaration, and then the establishment, the creation, of the WTO, which came into effect on January 1, 1995.

The WTO does not replace the GATT, in a sense. The GATT has been updated. The GATT, which largely deals with trade in goods, has been updated and is part of the WTO structure, so there is a council within the WTO that deals with trade in goods. But there were a number of important additions through the Uruguay Round negotiations that became part of the structure that we now call the WTO. Principal among those was the establishment of the agreement on trade in services, the GATS, for which there is also a separate council to run that side of issues in Geneva within the WTO.

There were the trade-related intellectual property measures, an important addition, an important evolution of trade under the Uruguay Round. And there was a much improved, much more focused, with much better timelines dispute settlement process that has now become increasingly used by WTO members, which in itself is posing and creating some difficulties, as I'm sure you have seen in the press. Nevertheless, this was clearly one of the successes of the Uruguay Round, which we continue to believe is very important.

In terms of the structure of the WTO, very simply, you have those major councils, which underneath each of them have a series of committees that deal with specific issues. I've seen some of the background material that has been prepared for you by your researchers, and I think it gives you a very good summary of the main agreements and of the main points of those agreements, so I'm certainly not going to go into those now.

Under the dispute settlement provisions, as I say, we think the principal benefits were really much clearer timelines for the whole process. Before, under the GATT, it was fairly easy to block and continually delay even the formation of a panel. That cannot be done as it was before. It was also fairly easy to block the adoption of a panel report. That cannot be done.

Through the Uruguay Round negotiations we introduced the idea of an appeal procedure so that countries, members of the WTO, can appeal decisions taken by a panel.

Let me touch on a couple of other points I think are important in terms of the overall WTO work so that you have an understanding of the sort of structure within which we work. One is the trade policy review body. This was another innovation through the Uruguay Round, which Canada played a considerable role in putting forward and building support for. This provides for an extremely, I would say, detailed review of the trade policies and practices of individual members of the WTO on a certain schedule. The four largest, which include the European Union, the United States, Japan and us, are reviewed every two years. The next sixteen largest—this is based on percentage of world trade—are reviewed every four years, and the balance about every six years.

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The basic intention of developing this trade policy review mechanism was to increase the transparency and understanding of trade policies and practices of all members, but principally of the major ones who have the bulk of world trade. It is conducted on the basis of a detailed policy statement from the individual country being examined and the secretariat's own analysis of that country's policies and practices. I think you have in your book, perhaps, the latest analyses that were done on Canada, because we were examined in early December as part of this process.

Another important feature, which has already been touched upon by the minister and in some of your questions, and I think it bears repeating, is the role of the developing countries. There are now about 134 members in the WTO. Of those, about a hundred will be classified as developing or least-developing countries. There are certain special provisions, longer phase-ins and that sort of thing, for commitments within various agreements in the WTO. There is a committee on trade and development that oversees the work related to issues of interest to developing countries, and there is a very active technical assistance program.

In the Singapore ministerial meeting of the WTO in 1996, ministers also agreed to launch what was called a plan of action for the least-developing countries. This entailed special efforts focusing on the technical assistance these countries require and what other members of the WTO might be able to do in terms of removing tariffs or opening up their markets more for those least-developed countries.

There was also, in October 1997, a high-level meeting on the least-developed countries. So there is, again, through the committee that exists, a considerable emphasis, I would say, on the work and the interests of the developing countries.

As a word on the secretariat, because secretariats in international organizations vary considerably, the WTO secretariat has about 500 employees. As you know, it is led by a director general, Mr. Ruggiero. We are now in the midst of a process to find a successor for him, and we are hopeful, and I would say confident, that Mr. MacLaren may succeed to that post.

There are four deputy directors general who help to manage the process, but I think it's important to recognize in terms of the WTO that the secretariat is very much there to serve the members. This is very much a member-driven organization. So we often talk about the WTO, but there is not, in a sense, a totally independent secretariat or body that is directing the members on how to behave or how to proceed. We all have taken on obligations under the WTO agreements and treaties, and the secretariat is very much there to assist with the day-to-day work, the day-to-day operation. It assists very much in the dispute settlement processes and that sort of thing, but this is very much a member-driven organization.

Contributions to the WTO are, again, based on percentages of world trade. I think our contribution is currently around $4 million to $5 million a year, which I think is money extremely well spent.

Accessions is one other point to touch upon, and you have already mentioned this in discussions and the questions here. There are now about 30 countries in line in various stages of the process.

The process itself really has sort of two parts to it. On the one part, countries who wish to join negotiate in a working party with all interested members of the WTO in terms of the overall structure of obligations within the organization and how they are going to take those on.

• 1030

At the same time, the individual countries negotiate with their principal suppliers and principal trading partners in order to arrive at bilateral arrangements and satisfactions in terms of what those countries are going to do and what kinds of commitments they're going to undertake in order to open their markets upon accession.

China and Russia are certainly the two largest that come to mind. Saudi Arabia is also an important one, and Taiwan is also quite important. Quite frankly, I think there is a consensus that we are unlikely to see China or Russia joining the WTO before the launch of a new round of trade negotiations, if we assume that this is what's going to take place at the ministerial meeting at the end of this year. We have been negotiating with China now for close to ten years, I think, and it has proven difficult in a number of respects. It's the same with Russia. As I say, it is increasingly clear that they are not going to join before a new round. There is a hope that some other countries will in fact come in as members before the end of this year, including some of the Baltic countries, and possibly Saudi Arabia. We will have to see, but I do not think the major players will.

That raises the question of how they then play into the new round, and I think there is a sense that it will be as it was during the Uruguay round: countries that are in the process of adhering to the WTO can participate in negotiations in the sense of being there for the discussions, but they have no decision-making powers and cannot block a consensus. They can, however, be part of the process so that they are aware of the development of the new obligations under the WTO, since those obligations are going to become part of the package that they are going to have to undertake.

Let me say a few words about regionalism and the impact of regional trade agreements.

Between 1947 and 1995 there were about a hundred different regional economic arrangements—these were not all full-fledged free trade agreements—notified to the GATT. Not all of them are still in force, and not all of them are terribly substantial. Under what we call the committee on regional trade agreements in the WTO, however, there are about thirty-plus regional trade agreements up for examination, in light of the obligations that we all have under the WTO for the establishment of such bodies. The very basic rules here are that such agreements must eliminate barriers to trade between the parties while at the same time not raising barriers to third parties, those who are not members of the free trade area.

I would say this tendency, if you will, really began in the late fifties or early sixties with the formation of the European Economic Community, and it has grown considerably since then. As I say, there is now a vast network of preferential trade arrangements, more formal regional or bilateral trade agreements that can clearly have an effect on the multilateral trading system. Canada, of course, has such agreements with the United States, Mexico, Chile and Israel. We are in the process of negotiating such agreements through the FTAA—the free trade agreement of the Americas—and our negotiations with the European Free Trade Association.

As a parenthetical here, I would note that APEC is not such a body. I see this confusion sometimes in the media. APEC is not an attempt to negotiate a free trade agreement, a free trade area or a customs union with the countries of the Asia-Pacific. It is much looser in formation and objective. It is much more geared towards facilitating, if you will, further trade liberalization without entering into formal negotiations.

There is a considerable debate in the literature about the impact of regional trade agreements. Are these good? Are these bad? Are they beneficial? Do they pose disadvantages and negative impacts on the multilateral system? Our view is that the multilateral system remains our priority interest, and that regional agreements that are properly structured and properly entered into can in fact contribute to the multilateral system, to the idea of broader trade and investment liberalization. They do not have to be a negative impact. In fact, in a number of areas—and NAFTA did this in some areas—they can show ways ahead in a smaller group negotiating with two or three. Perhaps you can find new ways in new areas such as services, for instance, at the time that can then become models or examples for the broader multilateral system of how one can move ahead.

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Should we put more of our emphasis on the regional rather than on the multilateral system? I would say no. As I say, I think this is something we can do in a complementary fashion.

I would remind people that except for the countries I listed—that is, the United States, Mexico, Chile and Israel—the WTO is our trade agreement with the rest of the world. The WTO is our trade agreement with the European Union. It is our trade agreement with Japan, with all of Asia, and with all of Africa. So the WTO and the system, rules, and obligations it embodies are very important to us, because it is under that structure we regulate our trade with these other major areas of the world, which are of considerable importance to us.

Let me now, Mr. Chairman, just quickly go over the issues. I'm not going to go into detail here, because as I said in my opening comments, I know you're going to have sessions on Thursday on agriculture and services and I think others on specific issues as you require or as you desire.

In terms of building toward the launch of the new round, we are really looking at two or three main groups. One is what we call the mandated negotiations. These are principally agriculture and services. One of the clever things that was done—

Mrs. Sheila Finestone: On a point of information, I'm sorry, I'm having difficulty following Mr. Klassen's very important presentation. I have a block because I'm not very well informed. I would like to know what falls under the service sector, so I can listen to what he's telling me with a little bit of knowledge. Secondly, are we going to be able to ask some questions afterwards?

The Chairman: Yes. We have until 12 noon.

Mrs. Sheila Finestone: I hope we're not going to have a monologue.

The Chairman: No. The purpose of these sessions is to raise a whole host of interesting things. If you'd like, we could take a break for an hour and you read could all of this brief and come back, and we'll cross-examine you as to whether or not you've read the material. We can do it any way you like. But it seems to me that the purpose of this is to get a series of briefings and then to ask questions. Mr. Klassen has about another five minutes or so of going over the issues.

Mr. Williams, were you going to speak on agriculture?

Mr. Terry Collins-Williams (Director, International Trade Policy Division, Department of Finance): No.

The Chairman: Then we'll open it up for questions.

Mrs. Sheila Finestone: Thank you.

The Chairman: With regard to the issue of what's a service and what's a good, if that's the question, I warn you that you're in for an hour-long lecture. In some areas, particularly in the cultural area as to whether a film is a good or a service, this is a matter that could keep us here for a long time. I'm sure we'll hear a great deal about it before we're out of here, so we're going to get into that.

Mr. John Klassen: I would certainly suggest, Mr. Chairman, that you could do that with my colleague Mr. Gero, who will be here Thursday morning.

I apologize if I have slipped into a bit of the jargon and it's a little confusing.

Very basically, under the services agreement you are dealing with the movement of persons, air transportation, financial services, shipping, and telecommunications, none of which were covered under the old GATT, which really dealt only with the movement of physical goods, not the delivery of services as such. Those were the principal areas. In fact, over the last year we have negotiated separate agreements, additional agreements, on financial services, telecommunications, and what we call information technologies. But as I say, Mr. Gero can go into this with you in great detail.

Yes, I will wrap up in a few minutes. I understood that we had until noon, so there should be time for discussion.

We have the mandated negotiations, which are principally agriculture and services. As I say, we left these as kind of poison pills, if you will, in the conclusion of the Uruguay Round. When we concluded the Tokyo Round, that was it, it was finished, and then you had to gear up for the new round, what became the Uruguay Round.

• 1040

As part of the conclusion in Uruguay, we said we are hereby committing ourselves to enter into negotiations in certain years, in a certain period, on agriculture, on services, and on a number of other more minor issues. In this way, we built in a forward-looking commitment to re-engage on a number of important areas.

There is also the question of what we call the built-in agenda, which in a sense comes back to some of the questions that have been asked about the balance, who is implementing, and who is not. Frankly, this is a concern or a difficulty with the developing countries, many of which have considerable difficulties in meeting or implementing the obligations—some rather onerous or extensive—that they have taken on under the Uruguay Round.

And then there are what we call the new issues. These are trade and investment; trade and competition policy; intellectual property; electronic commerce, which has also come much more to the fore these days; trade facilitation, which is a very important area now in the WTO and in a lot of other multilateral fora; and transparency in government procurement.

There are also a number of social issues, if you will—and you touched upon this with the minister—that the WTO is starting to come to grips with in one way or another, or to one degree or another. I'm thinking here of trade and development, and of trade environment in particular. There will be high-level meetings on both of these issues in March in Geneva. And there is also the question of trade and labour, which does come up and is addressed in certain ways. As I say, there are then certain institutional issues, such as further refinement of the dispute settlement process, dispute settlement understanding, the whole transparency and openness question, and the whole question of accessibility that is of increasing importance in the WTO.

In terms of the preparations and consultations, when the WTO ministers met in May of last year they instructed the council—which means they basically instructed themselves, instructed the members, if you will—to develop detailed recommendations and proposals to be put to them at the next ministerial meeting, which is now fixed for Seattle at the end of November or in early December this year, on the full range of issues that could or should be negotiated under the aegis of the WTO.

We are now just concluding a process of what we call “issue identification”, which is really members putting on the table their thoughts as to the key issues that should be part of a negotiation. The next phase, which should really run us through until the summer, is to develop more concrete proposals. This is where the activities that this committee is undertaking become so important. It is those proposals that will effectively reflect our priorities and our objectives in negotiations, which therefore become based very much on the consultation process that we are launching domestically. Through the fall, there will then be a finalizing of detailed recommendations that will be put to the ministers for their meeting in Seattle.

Domestically, in terms of consultation and outreach initiatives, I think you're all aware that just a few days ago we published in the Canada Gazette an invitation to Canadians to give us their views on the whole range of issues that might, should or could be dealt with under the WTO negotiations—and I think you have the notice of that in your background material. At the same time, in an interdepartmental effort, we will be developing discussion papers on specific issues, and we will put those discussion papers put forward to assist with that sort of process. We have what I would say is a fairly extensive and, I think, well working or well functioning process of consultation with the provinces through quarterly meetings at the level of officials and at the ministerial level. The minister mentioned his next meeting is coming up in a couple of weeks.

We have restructured what we call our sectoral advisory groups on international trade, or SAGITs. These groups report directly to the minister, and have been restructured in the sense that they focus much more precisely and much more exclusively on trade policy issues rather than on trade promotion issues. They will become an important source of feedback, of continual consultation as we move through this process.

• 1045

There is also the concept or idea of how we can engage civil society more broadly, as you've touched upon. Clearly, the Canada Gazette notice is a step in that direction. The public hearings that this committee is going to hold are key in that direction, and we are looking at other ways and means by which such an engagement can take place. We also have a web site that will provide constant updates, information and discussion papers.

I would be quite pleased to open it up to questions, Mr. Chairman, but there is one last thing I would like to mention in order to situate for members some of the other major groups that we belong to that are important in this process. One is the quadrilateral trade ministers meeting, which includes Canada and the United States, the European Union and Japan. We are looking to meet some time in April or May; it's the Japanese turn to host. Because it is those four members together, it will carry a significant weight in terms of global trade and in terms of showing leadership in the Geneva process. It is through the QUAD—in fact we've become much more active through the QUAD at the level of officials—that we can work with like-minded countries, in a sense, on some issues to try to develop our thinking on various issues.

There is also the Cairns Group, which was mentioned earlier—those of you on the agricultural committee are familiar with this—and which is a major body of countries interested in pursuing agricultural objectives.

There are various informal trade ministers' meetings. There will likely be one some time this spring. There is also the APEC trade ministers' meeting, which at least provides an opportunity for key trade ministers from some very key countries to get together to discuss not only APEC, but members' contributions to the broader multilateral system.

I will stop there, Mr. Chairman. As I said, I'd be quite happy to answer questions, and Mr. Collins-Williams is here from the finance department to help you when I can't.

The Chairman: Thank you very much, Mr. Klassen. That's very helpful.

You're the chief person in the Department of Foreign Affairs responsible for the trade negotiations, is that correct?

Mr. John Klassen: No, I wouldn't put it quite that way, Mr. Chairman. Mr. Fried is my assistant deputy minister. Under Mr. Fried there are two directors general broadly responsible for trade policy—myself and Mr. Gareau, who you will see Thursday morning.

The Chairman: So it's really Mr. Fried. Of course, from the finance department it will be Mr. Collins-Williams.

Mr. John Klassen: Yes, and other departments are included, such as agriculture, as are our ambassadors in Geneva, of course. This is very much an interdepartmental effort, I would say.

The Chairman: Mr. Mills, sir.

Mr. Bob Mills (Red Deer, Ref.): Well, I just have a couple of general questions to kind of get our feet wet.

I suppose a big concern that all of us have—and I'm sure you must it have as well—is that we don't have another MAI type of scenario in which the Canadian public, because of the Maude Barlows or whoever, get out there and build a resistance to the WTO that is based on lack of information, incorrect information, partial information or whatever.

I think you mentioned putting something in the Canada Gazette, but that's really not going to hit most Canadians. I don't know for sure that our committee going around.... I think we should do everything we can to try to hit average Canadians. I'd like to see a real game plan to be sure we don't get side-swiped, if you want, down the road. You touched on the Internet and all those things, but are there other things we could be doing? Is somebody actually addressing that question?

The other question I have is based on my impressions about China. They were all gung-ho to get into the WTO, but now it appears they are not very interested at all, certainly based on what I've heard from the people I've talked to there. The reason is that they feel they would have to remove their tariffs upon getting in, which would mean more unemployment. The last thing they are looking for now is any more social problems associated with that. In the course of this year, from our first visit in March until the last time we were there in November, they seem almost to have gone to totally saying the WTO is not for them, don't bother talking to them about it. Is that right? Is that the impression you're getting?

Maybe I'll stop there.

• 1050

Mr. John Klassen: Thank you.

You raise a very good point about the MAI type of scenario and the concerns it gave rise to. In fact I would say we have tried to learn our lessons from that experience, and that is why we have launched this very detailed consultation and outreach process, as we call it. I quite agree that not many Canadians read the Canada Gazette. I don't think it's high on many people's—

Mrs. Sheila Finestone: [Inaudible—Editor].

Mr. John Klassen: I think our piece is a little more understandable, but I take your point. However, for those who are interested—and there are a lot of key groups that follow trade policy and trade policy developments—it will be important, and it does provide them with a framework.

We are also going to be working continually not only through the SAGITs, but through a wide range of business association contacts we have, such as the Business Council on National Issues, the Canadian Chamber of Commerce, and the Alliance of Manufacturers and Exporters of Canada. Through their newsletters as well, you can reach literally tens of thousands of business people—I recognize that it's business people—in order to tell them what we're doing and encourage them to give us their views.

As I said earlier, on the business side and on the provincial side, I think we have in place very good structures and very good systems. It's on the civil society side, on the side of the ordinary Canadian, that we have to make more of an effort. We are developing, interdepartmentally and at the highest levels, a communications plan that we are going to launch. We are looking at this in a structured, coherent manner across the government—it does involve a number of departments, not just Foreign Affairs and International Trade—in order to get the word out, if you will, to ordinary Canadians about what is happening, what processes are under way, and how they can bring their views to the attention of the government, to their elected representatives, and so on.

So we share very much the concerns you have enunciated.

Mr. Bob Mills: If I could just interject here, don't forget the group of members of Parliament from all parties. There are 301 of us.

I can recall going to a city council meeting in my constituency at which a group from the Council of Canadians was telling city council that it wouldn't be able to buy a fire truck any more because of the MAI, how the end of the world was coming because this was being done behind closed doors, in secret. I mean, lights would go out; it was almost worse than the millennium bug. Of course, because I had a friend on the council who thought I should go that night, I just happened to be there. I was able to get up and say to the council that they had just heard a totally incorrect bunch of information, and I was able to counter it. City council was then left not really knowing what was happening.

So it seems very important to me that you don't forget the members of Parliament—and that means every party. Be sure to get that summary of information to them.

Mr. John Klassen: Yes, I agree entirely with what you've said, and that is very much a part of our communications plan thinking.

On China, I think you have—

The Chairman: You're not saying members of Parliament are a part of society, are you, Mr. Mills?

Mr. Bob Mills: If you believe in populism, you are.

The Chairman: Well, let's just keep it civil. Let's emphasize the civil part and move on to China.

Mr. John Klassen: On China, I think you have summarized well where the Chinese are on this. I think it probably became clear in the summertime or early fall of last year that, at the highest levels in China, in looking at the various challenges that they face—and you've touched upon them—they are opening up their market for the sake of their own interest, but that doing so is causing dislocation and difficulties. They do have challenges in managing or in working with the rapid growth occurring in a number of cities and regional areas—challenges from the centre, if you will. There is, for them, the whole question of fairly broad economic dislocation and how one handles that in this rapidly changing world.

I think you're quite right that, in looking at that overall balance, the decision or feeling was that membership in the WTO did not rank as one of the highest priorities for the Chinese leadership. Many have said this publicly, so I'm certainly not giving anything away. I think we have seen it in a certain slowing down in the negotiations. There are a number of areas where negotiations on a bilateral basis really cannot proceed until the Chinese give us certain documents, certain studies, certain information we require in order to do our own analyses. There will be another meeting of the China working party in March, which I think will be the first one we've had since last July. But again, we're not really expecting rapid movement.

• 1055

Frankly, from the Chinese point of view, I think there might well be a sense that if you're kind of pressed through to try to complete the negotiations now and face all these demands, and then there's a new round coming that is just going to add more demands, where do you put your efforts? So I think you have captured well where the Chinese leadership is at, at the moment.

Mr. Bob Mills: Can I ask one more tiny question?

Regarding environment, in every large city you go to, no matter where in the world, you find huge pollution environmental problems. It doesn't matter where you go, what country. How will that fit into the overall WTO negotiations?

Mr. John Klassen: As you well know, there are other international fora where we are trying to work on a broad scope, a broad scale, on environmental problems and achieving international standards or consensus, attitudes, whatever, to deal with those environmental problems.

Frankly, I don't think those kinds of direct problems will play into the WTO negotiations. Where the trade and environment work is going on and really doing some effort is on what the relationships are between the WTO and what we call “multilateral environmental agreements”, some of which do have measures or obligations, undertakings that can have a trade impact on how those two work together.

One of the things we have done in the WTO, for instance, is to encourage much greater contact between the WTO secretariat and the secretariat of those organizations so that there is a better mutual understanding of how each is coming at those issues.

As I said, there will be a high-level meeting on trade and environment in March of this year, which will engage not just the WTO members but will engage broadly environmental NGOs, environmental groups at the national level, the international level, the multilateral level, the private sector business people, and the trade policy types. The idea is largely to try to come to a better understanding of how we can all work together to address these problems on the environmental side, recognizing that there are certain limitations in terms of what the WTO obligations deal with on trade and environment at this stage.

Mr. Bob Mills: Thank you, Chairman.

[Translation]

The Chairman: Ms. Debien.

Ms. Maud Debien: The WTO negotiations have an impact on the Canadian provinces. I would like to know about the discussion process you are having with the provinces concerning the WTO negotiations, and what stage the negotiations or discussions are at presently.

My second question is a follow-up on that of Mr. Mills, who talked about China's reactions concerning its possible WTO membership. And what about Russia? As you said a moment ago, the country is in no condition to participate in the next round. However, what are its views? Would Russia be interested in participating eventually, unlike China, which has expressed no interest? Is that the case with Russia too?

And now my third question. You said that in 1986, there was an action plan for the developing countries. Is there a document on this? Is that the document? If possible, I would like to obtain a copy. I would also like to have a copy of the document on the undertakings made at the Réunion meeting of 1997. Other commitments were made at la Réunion also. Is there a document on this? If possible, I would like to get both documents.

Mr. John Klassen: Thank you very much. As I said, I believe we have a very good system of consultation with the provinces. Every four months we meet at the official level to talk about trade policy in general. We keep them abreast of all the issues being dealt within the WTO, of dispute settlement and of any problems we might be having. It is very open, and we always have good discussions with our friends.

• 1100

We also have an Internet site protected by a password, where we put a lot of material for the provinces. We share with them a number of working documents on the WTO and the other negotiations, such as the FTAA or the EFTA, but they are primarily WTO documents.

In addition, as I said, we are preparing discussion papers on investment, services, etc.. We discuss all these issues and all these documents with the provinces before making them public, in order to give them every opportunity to express their ideas and opinions.

There is also the annual meeting at the ministerial level, which Mr. Marchi touched on. The next meeting will take place here, in Ottawa, on February 17, I believe. We have almost weekly contacts with the provinces by means of telephone conferences on very specific issues or problems. Each division in our department that is responsible for a file has extensive liaison with the provinces and consults with them on every development, especially dispute settlements. The provinces work very closely with us in preparing our cases, our defence or our offense for these problems.

You mentioned Russia. I believe that here there are far more problems as in China because of the country's domestic difficulties. I am sure that Russians do not expect to be WTO members before the next negotiating round begins. Russians, and perhaps also the Chinese and others, as I said, will participate to some extent in the next round of negotiations even if they are not members. China has made its decision concerning how much priority to place on WTO membership, but I feel that the Russians have so many other problems that WTO membership is not even in the picture.

We have a working group, and we continue to have discussions from time to time with the Russians and the Chinese. They are not in a position to give us certain information or the analyses that we need to prepare our own analyses and our approach in their case.

[English]

Mr. Terry Collins-Williams: If I can just add, Russia is in the midst of an economic and financial crisis, and there are issues related to the structure of their economy and their indebtedness that have to be solved. The G-7 and the OECD are actively working with them to bring them to a point where they can accept and deliver on the obligations of the WTO. Until we solve these larger economic problems with them, I think their willingness to adhere to the WTO is at this point almost moot.

[Translation]

Ms. Sheila Finestone: [Editor's Note: Inaudible]

Ms. Maud Debien: [Editor's Note: Inaudible]

Ms. Sheila Finestone: Yes.

Mr. John Klassen: There was a final question on developing countries.

Ms. Maud Debien: About the two documents.

Mr. John Klassen: Yes, we can prepare a series of documents related to that for you.

Ms. Maud Debien: Okay. Thanks.

The Chairman: Ms. Alarie.

• 1105

Ms. Hélène Alarie: The part about regionalism is very interesting. My first question is quite simple. When you sign an agreement with a region, does the agreement necessarily involve the same rules as the WTO?

Mr. John Klassen: In a word, no.

Ms. Hélène Alarie: I wanted to hear you say that.

Mr. John Klassen: No, not exactly. It's quite a... [Editor's Note: Inaudible] In the WTO, when we have such a regional or bilateral agreement, we have to eliminate the barriers for most trade. How do we define "most trade"? This is an important discussion point in the WTO.

For example, even when the EU was founded in the 1950s or 1960s, they excluded agriculture, but said: "Listen, we have eliminated the tariffs on all industrial products, which constitutes most of what trade is." That gives you an idea of the discussion.

But there are some obligations in the WTO, for example, where services are concerned. In the WTO, we now have obligations in so far as services are concerned. If you wish to make a bilateral and regional free trade agreement involving a chapter on services, you must conform to certain WTO obligations. You cannot just pick what suits you. You must free all aspects of services. There are some WTO obligations, but the agreements do not have to mirror the WTO's. You can go farther than the WTO, as we did with NAFTA, with the U.S.A.. You can stop short of it, in a sense. You always have your WTO obligations if negotiating with other members of that body. So you have this umbrella of WTO obligations. You do not have to go farther, but you can.

Ms. Hélène Alarie: Freer trade leads to a greater variation in product prices and revenue. I'm really obsessed with the issue of the security of the food supply, not in terms of food safety but rather ensuring that we have a steady food supply, and I'm wondering whether free trade has an impact on domestic markets.

Mr. John Klassen: I'm not sure I understand.

Ms. Hélène Alarie: When there's freer trade, there is a greater variation in prices and therefore in producers income. We saw this during the pork crisis. It has a direct impact on domestic markets. Doesn't that make some countries vulnerable? Isn't there a risk of having a food supply problem in some countries?

[English]

Mr. John Klassen: Yes.

If I may respond in English, because it's a little more complicated—

Ms. Hélène Alarie: No problem.

Mr. John Klassen: —you touch upon a very important issue that is a key point in the agricultural debate, and that is food security. There are those who argue—the Japanese being among the leaders in this camp—that food security should take priority over liberalization of your trade regime in the area of agriculture. There are others who would argue that the way you guarantee food security is to have a more open trade regime so you have access to resources and imports from around the world.

This debate is becoming a little more sophisticated, frankly, in the OECD and in the WTO, and it is certainly not resolved. Certainly when you open yourself up, in a sense, or diminish your trade barriers in any area—and perhaps agriculture is the most sensitive, because it is one of the remaining areas that has the most barriers—there are perturbations, there are effects on the domestic market. This is all part of the establishment of our own priorities and objectives in negotiations, which are to have a sense of where the pressures are going to come from in terms of opening up our markets—and there will be pressures in agriculture as in other areas—and what we are prepared to live with in terms of what we want to try to get in the export markets.

• 1110

Mr. Terry Collins-Williams: The issue of agricultural liberalization has also been alleged to have an effect on developing countries that are food importers. A concern was expressed by African countries and some international organizations that the elimination of subsidies for agricultural products in fact could make those products—grains they have to import—more expensive, and therefore raise their costs or lessen the availability of subsidized agricultural products to them.

It is our expectation that the opening up of the agricultural sector to liberalized trade would increase the amount of products on the market and eventually make food products more accessible. But there has been a concern, certainly in the short term, that some developing food importing countries might experience problems as a result of trade liberalization, which would be an ironic result.

The Chairman: Madam Finestone.

Mrs. Sheila Finestone: I think you may have answered my question, but I'll ask it anyway. I wonder what takes precedence in terms of countries that have regional agreements, bilateral agreements, or multilateral agreements, vis-à-vis the World Trade Organization. I think part of that was answered to Madame Debien and Madame Alarie, but I'm not sure.

I want to know how you establish, where there's an exclusive contract, whether it must be forcibly included, and whether it has an impact on this global membership that rules by consensus, and therefore everybody plays on the same playing field. Or does the playing field become totally imbalanced because I was smart enough to do it at an earlier trade negotiation and now I'm sort of exempt from having other controls or rules imposed upon me?

It made me think of the textile industry and the fibres agreement and the difficulty it imposed upon Canadian manufacturers of clothing, as an example.

Mr. John Klassen: Yes, the textiles agreement is not really in the same camp, if we're talking about bilateral or regional—

Mrs. Sheila Finestone: I'm just learning that, sir. I'm listening.

Mr. John Klassen: I'm sorry. Certainly when you enter into a free trade negotiation, for example the one we have now under way with EFTA or the free trade agreement in the Americas, given that all of us who are negotiating are members of the WTO, that's kind of your starting point, in a sense. You cannot diminish your obligations under the WTO through a bilateral or regional negotiation. You cannot negotiate something that is going to exempt you from certain WTO obligations.

Mrs. Sheila Finestone: Stop there. First of all, WTO only started in 1991, 1994 or 1995, something like that. Does it go back to GATT?

Mr. John Klassen: Yes. The GATT is part of the WTO. The GATT, which began in 1948 and really dealt with trade in goods and issues that affect trade in goods, was updated as part of the Uruguay Round negotiation, but it was added onto. It became, to use the minister's analogies, a room within the larger house that is the WTO. The other rooms are the agreement on trade and services, the agreement on trade related to intellectual property measures, and the dispute settlement understanding. So they're all under the chapeau of the WTO, but they deal with specific areas of trade.

So all those obligations we had under the GATT, going back to 1948 and amended through certain negotiations, still apply to the WTO members.

Mrs. Sheila Finestone: Okay, so when I go into my bilateral or multilateral agreement, I already have the baseline from which I can operate.

Mr. John Klassen: Exactly.

Mrs. Sheila Finestone: I can't go below it to undermine it, but I can go above it and perfect it.

Mr. John Klassen: Yes. You can go beyond it in a bilateral or a regional free trade agreement, if that's what your desire is, and we did that in the NAFTA. At the time when we negotiated the NAFTA, we went much further in the services area than the multilateral system was at that point. In our EFTA negotiations we are looking at trying to go further in terms of trade facilitation than we have reached at the moment in terms of the multilateral system. So your WTO obligations are your starting points. You cannot derogate from those through a bilateral or regional trade agreement. You can only go beyond.

• 1115

Mrs. Sheila Finestone: How did we arrive at the maquiladora situation along the border between the United States and Mexico, which from all the things I've heard and seen goes far? It certainly doesn't reflect what we would like as a world trade form of expression or behaviour.

Mr. John Klassen: Those again do not really reflect a free trade agreement. Those are very specific provisions that have been made, and they—-

Mrs. Sheila Finestone: They don't fit under the roof of my house.

Mr. John Klassen: Pardon me?

Mrs. Sheila Finestone: If we have a house, they're in the basement and hidden under a rock.

Mr. John Klassen: That's not a bad way to put it.

Mrs. Sheila Finestone: It doesn't work in a civil society either.

The Chairman: No.

Mrs. Sheila Finestone: I want to know how we arrived at an allowance of that.

The Chairman: We'll have to get some Americans and Mexicans up here to tell us how they cooked them up.

Mr. John Klassen: Well, even under the WTO rules, for instance under the old GATT rules, there were certain provisions whereby you could forgive duties if goods came in, were processed, and could be re-exported. There were these kinds of arrangements you could make and still be in conformity with your WTO obligations. The maquiladoras are really an elaboration on that sort of an approach.

Mrs. Sheila Finestone: So the work conditions don't matter, nor the situation and contempt of treatment of the workforce.

Mr. John Klassen: Not in terms of your trade obligations at this stage.

Mrs. Sheila Finestone: Okay.

The Chairman: I think we're probably going to hear a lot about it. That's probably what the committee's going to have to work on, to find out what recommendations we can put to the government to deal with those issues.

[Translation]

Ms. Sheila Finestone: That's exactly what we have to do. If this comes under this fine house that oversees what we're doing, how come maquiladoras exist? It's inhuman.

[English]

The Chairman: We'll certainly be dealing with that, and hopefully we can come up with some, but don't forget Canada itself. They arise out of duty remissions and things like that. Canada itself uses duty remissions a great deal to the aid of Canadian producers. So like everything in life, if you want to stick your finger in somebody else's eye, you sometimes stick it in your own at the same time. That's quite often what we do in trade arrangements. Everybody in this country benefits a great deal from remission schemes, so we can hardly tell the Americans or the Mexicans they can't have one, because we use them all the time.

Mr. Terry Collins-Williams: I'd like to recap on that point a little.

The Chairman: That's always the problem.

Mr. Terry Collins-Williams: We do use duty remission schemes exclusively, but we do not limit them to specific geographic areas in the country. That is any producers, any workers, anywhere in the country are entitled to benefit from our duty remission program, unlike the United States, which uses free trade zones that are geographically limited, or Mexico, which uses maquiladoras.

The Chairman: Various members of Parliament have approached me with the view that this committee should consider the question of whether or not we should establish free trade zones in this country because they wish to benefit certain regions. This is a debate that constantly comes up, and lots of countries use them. I mean, the whole of the economy of China was predicated on that basis at the beginning, with those special zones and things like that, as you well know.

I wonder if I could just ask a couple of questions myself, and then other members might want to come back to some other questions.

Regarding one specific issue, the Japanese ambassador told me the other day that Japan has a case against Canada in the WTO panel dealing with the Auto Pact. Is that correct? Are they challenging the Auto Pact as being inconsistent? I thought we got a waiver under the GATT for the Auto Pact. Are they challenging the whole of the Auto Pact? That's my first question. What's the nature of that Canada-Japan challenge vis-à-vis the Auto Pact? That comes up a lot.

The second regards services, the provinces, and Madam Debien's question. It seems to me when we come to services, obviously you are entering into a domain where the provinces have a great deal of legislative authority. When I looked at the services agreement and Canada's adhesion to it.... There are really two aspects to my question. One is the international one. When we adhered to the services agreement, when we filed our adherence, it was full of all sorts of things like Alberta accepts this and Quebec accepts that, and when you're talking about this type of banking arrangement it doesn't apply to Quebec, but it applies to New Brunswick and Ontario. It's an extremely complicated patchwork quilt.

• 1120

How do other countries accept this? Do our other trading partners look at Canada and say “How the hell can we do business with you? When we go to Canada we think we're going to Canada. We don't know that when we get there we can't go to the Northwest Territories or Alberta, but if we go through to British Columbia we can sneak back in through Ontario, etc.” That's my first question. How do other countries accept it?

Do many other countries do it? Does the United States do it, as a federal jurisdiction? I imagine in insurance they would, because they're very state-minded. They have all their insurance commissioners and such. Are they a patchwork quilt? Is Germany a patchwork quilt? All the federal states, do they adopt these? That's my first question.

Mrs. Sheila Finestone: That's your third question.

The Chairman: No, no, it's not. It's really all the same thing.

The second question relates to it. Again, going back to Madame Debien's and Mr. Mills' questions, how are we bringing in the provinces? I've heard you talk about dealing with the problems of provincial administrations. How are we bringing in the provincial politicians?

This committee is going to travel across the country, as part of civil society. Should we be trying to hear members of provincial parliaments, or at least meeting with our colleagues and members of provincial parliaments, as we go across the country to discuss with them trade issues that directly relate to provincial legislative competence, such as services, which they're involved in?

Those are my three questions, in spite of Mrs. Finestone's skepticism.

Mrs. Sheila Finestone: Never mind naming me, Mr. Chairman.

Mr. John Klassen: On your first question, Mr. Chairman, yes, Japan is challenging the Auto Pact. Japan and the European Union are challenging the Auto Pact in the WTO. We have had consultations under the dispute settlement procedures. We have now just agreed to the formation of the establishment of a panel, and we are in the process of selecting the panellists who will hear the debate, the discussion.

We did not obtain a waiver for the Auto Pact. When we negotiated the Auto Pact in the 1960s, the United States did obtain a waiver from the GATT. We did not, because we believed then and still believe it to be in conformity with our obligations. You seek a waiver when you've done something that is not in conformity with your obligations. We didn't believe that. We believe that in fact it does meet our obligation, particularly under the MFN clause. The principal Japanese challenge is that it does not. We believe that it does. We believed it then and we believe it now.

Mr. Terry Collins-Williams: We had better explain, slightly technically, that the United States and Canada implemented the Auto Pact in very different ways. Essentially what the Auto Pact does is it grants duty relief. It eliminates the duty for the import of vehicles in Canada by North American vehicle manufacturers, and those are primarily the big three manufacturers. They can import cars from anywhere in the world. We provided the duty relief multilaterally on an MFN basis. The cars could come from anywhere, and they do come from anywhere. Ford can import cars from Japan, Britain, or elsewhere in Europe. Chrysler now can import cars from Mercedes.

The United States implemented the Auto Pact by saying only cars produced in Canada are entitled to the elimination of duty as they enter the United States. Clearly, and they acknowledged it, they were not living up to their MFN obligations in the GATT at the time, and they had to have a waiver.

We were living up to our MFN obligations. We still are living up to our obligations, and that's the basis on which we'll defend the case.

Mr. John Klassen: This is a case that is in the early stages. We haven't yet formed the panel. Then we will have hearings and the whole process.

Mrs. Sheila Finestone: It sounded so logical.

Mr. John Klassen: We think so.

The Chairman: Let's hope that Canada agrees with it.

Mr. John Klassen: Indeed.

On your second question, about services and the provinces, you touch upon a very interesting point that has a broader implication. That is, if one thinks about the new features of trade policy, one of them is much more transparency, openness, and engagement in consultation with Canadians. In general, it's the sort of thing we've been talking about here.

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Also, trade policy has moved more and more into areas that are beyond the border. As the minister said, trade is local in a sense, so there is more of an impact on domestic policies, but there is also more of an impact on areas of exclusively provincial or shared jurisdictions.

When we do talk about services, about investment, or about government procurement and other things, we have to have the provinces on board. Otherwise, we can't commit in negotiations. Quite frankly, this is a point of some contention from some of our trading partners who want to have much better access to provincial programs, or who want the provinces to commit much more firmly in some areas. Taking into account the views of the provinces is therefore part of our challenge in terms of developing Canadian positions and negotiating for Canada.

As I explained earlier, we do have what I think is a fairly extensive and intensive program of consultations with the provinces so that we do discuss these issues with them. We recognize that it's just impossible for us to go off on our own hook and sign onto commitments that implicate the provinces if the provinces aren't prepared to be implicated. That's why those references are in the services annexes: because the provinces had to be prepared to take on those obligations.

How do others accept this? It depends very much on the country. Or how do others deal with this? We have a very similar problem in government procurement in the United States, for instance. With “Buy American”, a lot of the set-asides for small and minority businesses, and those sorts of things, there are a lot of state programs that are involved. The federal government in Washington does not have the authority to overrule the states. In Germany I think it's much less of a problem because the federal authority over international commerce I think is much stronger in that country. I'm not aware that it's a major difficulty there. Overall, though, this is an area in which the Europeans in particular press us often in terms of provincial commitment and engagement in a number—

The Chairman: To pick one, the liquor monopoly boards bother them a lot, don't they?

Mr. John Klassen: Yes, they do.

The Chairman: And it bothers some consumers as well.

Mr. John Klassen: That is an issue that comes up from time to time with our European friends, yes.

The Chairman: We should wish our European friends well on that one, shouldn't we?

Mrs. Sheila Finestone: As a point of information, if Canada's going to sign an agreement, do you have to get the ten provinces to sign it first so that you can then move forward?

The Chairman: No. The whole point of this is that we use what has traditionally been called the federal state clause to allow us to sign on. If it's an area of provincial jurisdiction, the other countries understand that they are only getting access to those areas that have been agreed to. I can show you the services annex, for example, in various banking or other areas. If you look at the financial services agreement, you get the whole country in some areas, but in others you just get access to certain provinces. Other countries realize that when they deal with Canada, that's the nature of our Constitution.

Historically, this has been our problem in all international agreements, not just in trade deals. We've always had to deal with this. We've signed the convention on the kidnapping of children by parents, although I forget what it's called exactly. But all of that is subject to provincial ratification, and some of the ratifications are different in different areas. Everybody who signs that agreement knows the provinces adhere to it differently.

It's the same with international arbitration agreements. There are thousands of agreements Canada is a member of, and they apply differently depending on how the provinces have come in in their areas of jurisdiction. Trade didn't used to be one of them because it was just trading goods and wasn't very complicated. As we get more into services and get more deeply into this business of everyday life, we're getting more into the provincial areas and have to be more conscious of it, which is why I asked the second question.

I understand Mr. Klassen's point is that they're very good at consulting with provincial government authorities, but let's try turning to parliaments now. I do know, for example, that in the German Bundestag they have regular meetings on trade issues, and particularly European Community issues, with their partners from the various Länder for precisely this reason. At some point, should this committee, or we as politicians, be looking at relationships with our colleagues in provincial legislatures in order to discuss these issues with them? That was my question relating back to Mr. Mills' point. Would it be helpful if everybody's trying to get an understanding of what's happening in the world?

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Mr. John Klassen: On that point, Mr. Chairman, yes, I agree; I think it would be useful. And really at the political level the contact is the annual ministerial meetings we've talked about, which in fact Minister Marchi revived. We went about five or six years without one. Now this is the second or third one that Minister Marchi will chair. He is also on specific issues in contact with his colleagues in the provinces. But certainly the sort of consultative network that I described is very much at the level of officials, so I would think that political contacts of the type you describe would be useful. I think you would find in certain provinces some very specific interests you would hear about.

The Chairman: Our researcher reminds me, Mr. Speller, that B.C. actually appeared at the MAI hearings. Is that right? So we may be seeing more of this.

Are there any other questions?

I'm sure, as you say, we'll have an opportunity to hear again from your colleagues on Thursday morning, when we'll be getting into the more specific details of certain sectors and we'll be talking strategy of negotiations in those sectors.

Thank you both, Mr. Klassen and Mr. Collins-Williams, for coming again. We appreciate your evidence.

We're adjourned until Thursday morning at nine o'clock. Don't forget that this afternoon, members, there's a joint meeting on the Security Council in Kosovo with the defence committee.

Mrs. Sheila Finestone: Where's it being held?

The Clerk of the Committee: Room 209.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): There's also a trade subcommittee there.

The Chairman: Yes, remember we discussed that the other day. We had to do it because it was the only time the minister was available.

We're adjourned until three o'clock this afternoon.