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, March 16, 1999

• 0835

[English]

The Chairman (Mr. Bill Graham (Toronto Centre—Rosedale, Lib.)): I'd like to get going on this next round table in respect of our WTO hearings.

We're pleased to have with us a group of witnesses who are going to talk about competition policy and information technology.

We're going to start with Shirley-Ann George, a government programs executive from IBM Canada.

Ms. George, you're going to talk to us about competition policy, no doubt. Leave the technology to those other people.

Since there are quite a few witnesses, I wonder if you could keep your first remarks to about ten minutes each. That'll give lots of time for questions at the end. We're a bit pressed this morning because we have to break earlier than we had originally planned in order to have the Secretary General of the OSCE. He is going to come and talk to us about Kosovo.

Ms. George.

Ms. Shirley-Ann George (Government Programs Executive, IBM Canada Ltd.): Thank you, and good morning.

Chairman, on behalf of IBM Canada, I'd like to thank you for the opportunity to present on a matter that is of importance to all Canadians.

As you are well aware, IBM is a very large multinational corporation, doing business in over 100 countries. We have a significant presence in Canada, with $4.8 billion in Canadian revenues in 1998. We're managed by Canadians, and have over 17,000 employees, including the more than 3,000 Canadians hired in 1998. We have doubled in size since 1993.

This phenomenal growth would not have been possible if Canada had bad government, and we'd like to take this opportunity this morning to thank all members of Parliament for the enormous effort you personally put into improving government and making it a better place to do business every single day.

We all know the numbers that show Canada's dependence on trade, with over 40% of our GDP dependent on exports. When you look at the combination of imports and exports, the number rises to 75%.

Indeed, a very large percentage of Canadian jobs depend on the continued access to other markets. Unfortunately, far too few companies are responsible for these exports. Just 100 of the almost 1 million Canadian corporations are responsible for 57% of all exports.

We also rank fifteenth in company operations, versus the number one position held by the U.S., and our overall tax burden is 20% higher than in the United States, our chief competitor for goods, services and people.

The FTAA/WTO negotiations have taken on greater importance because of the opportunities and potential threats created by an increase in electronic-commerce-driven international trade. We have moved to a world where laws governing commerce must be brought about through international collaboration. Only after building these international frameworks can national and subnational governments successfully implement local laws and regulations in concert with other governments.

Fortunately, Canada has latched onto a winning formula in which we play a lead role in regional trade consultations. In these forums we are large enough and have enough experience to have a strong voice. We can then take the results from the regional negotiations and leverage them into the WTO. Although the WTO is by far the most important of the trade negotiations underway, we encourage you to continue this two-phase approach.

The next round at WTO negotiations is made more complex because many of the items on the table, including much of the competition policy, are under provincial jurisdiction, and today there are no interprovincial agreements. We encourage you to work closely with the provinces to establish these agreements. They must be in accord with the international standards.

For the upcoming trade negotiations, we encourage the Government of Canada to follow the fundamental objective of maximum trade liberalization in the shortest time possible. Specifically, we believe the timeframe for the millennium round should be no more than three years.

Fundamental standards for all trade negotiations, including WTO, GATS, GATT, FTAA and APEC, must include: full competitive market access; national treatment; the ability for goods and services to be performed and delivered without physical establishment; reduction and transparency in regulation and licensing; free movement of professional and specialist employees; and the establishment of independent dispute settlement mechanisms.

We support DFAIT's efforts to remove technical trade barriers and encourage the government to consider the entire package of goods being traded.

We also support the government's efforts in mutual recognition agreements and the movement towards one standard, one test, accepted worldwide, but caution that the value of these agreements can be largely mitigated if governments replace existing requirements with incremental national requirements, as Industry Canada is considering doing today.

• 0840

Furthermore, we encourage Canada to continue its role of closely monitoring existing agreements and ensuring that all governments are meeting their obligations.

For electronic commerce, the rate at which countries will benefit will be dependent on how quickly each liberalizes its markets and adopts predictable trade regimes. Canada has many of the right elements but we are far too slow in implementing, and U.S. corporations are establishing market dominance. We need to see the free movement of goods, services and people, with affordable access to computing technology and telecommunications bandwidth. Competition is driving the cost of computing ever lower, and we encourage you to ensure that the same level of competition is available in telecommunications both here and abroad.

Your personal understanding of the opportunities of a global, borderless world, where transactions for both business and consumers are done through the Internet, is fundamental.

Today I can buy an airline ticket on-line easier than I can buy it from my local travel agent, and the airline will pay less than $1 for the transaction as opposed to $8 or $10.

I can find far more and better information on a car on-line and then buy one, with the company having no physical presence in Ottawa, and having no local employees. As a consumer or business customer, I don't need to know whether I'm buying from a company down the street or one that's two thousand miles away or in another country. We must all work to ensure that the small businesses of Canada, the small businesses of your ridings, are winners in this enormous opportunity and not casualties of the new competitive environment.

One specific that we encourage DFAIT to work towards is the continuation, or the permanence, of the standstill or moratorium on customs duties for electronic goods and services. We believe this should be announced at the WTO ministerial in November.

IBM recommends that the Government of Canada increase its work in bringing international investment into Canada. Our drop from 11% to 4% of foreign direct investment is very alarming. We believe some increase can be achieved not only through more aggressive promotion of Canada's benefits but also, most importantly, through ensuring that Canada's investment climate is at least as competitive as the United States'. This is a goal we have not yet achieved. We are a mouse competing with an elephant, and the elephant knows how to tap dance.

The Chairman: Tap dance?

Voices: Oh, oh.

Ms. Shirley-Ann George: Our job in this area is not easy, but it must become a priority if we are to reap the benefits of the global economy instead of continuing to watch the U.S. pull ahead of Canada.

Protecting both consumers and businesses from fraudulent and poor practices is an important role for government. The landscape of your efforts in this area has changed dramatically. For both consumers and businesses, rights can now be protected only through the establishment of international frameworks from which Canada will build its laws and regulations. Made-in-Canada fixes will slow our entry into international markets, reduce our exports, and limit job growth. We should also be looking for new avenues for settling such things as disputes.

For example, the WIPO agreement on intellectual property is looking at on-line dispute resolution mechanisms that are both accessible and affordable for businesses and individuals. There are new ways of looking at old problems.

On culture, we suggest that the government continue its work in looking for vehicles that promote these important Canadian industries. Today even the smallest creators can promote their works through the Internet.

We also encourage Canada to work with other nations, both rich and poor, to establish international norms in important areas such as human and worker rights and environmental protection.

I would like to thank you for your focus and your efforts in ensuring that Canada can continue to grow in a dramatically changing international environment. We believe Canada can prosper from opportunities that come from easier access to international markets.

I would be happy to answer any questions you may have.

The Chairman: Thank you very much.

I'm sure we're going to have some questions about an on-line dispute resolution mechanism; with a tap-dancing elephant, it's going to be great.

The next witness is Michael Janigan, from the Public Interest Advocacy Centre.

Mr. Janigan.

• 0845

Mr. Michael Janigan (Executive Director, Public Interest Advocacy Centre): Thank you, Mr. Chair.

I'm here today with Andrew Reddick, our director of research. He will be making the bulk of the presentation.

We'd first like to thank the committee for having us here today to give our comments with respect to the objectives of the World Trade Organization negotiations.

I'd like to start first by giving some information concerning the Public Interest Advocacy Centre, or PIAC, as we refer to it. It's a national non-profit organization that was established in 1976. It provides legal and research services primarily to other organizations dealing with issues that involve the delivery of important public programs and services. These programs and services are primarily utilities. Our work has been in the telecommunications, broadcasting, energy, banking, and transportation fields over the last 23 years. Our primary focus in our advocacy concerns the interests of vulnerable consumers, in particular low-income, senior, and rural Canadians.

In making our comments here today, we are not going to lay out a laundry list or tell you what the components of an ideal trade agreement should be. As consumer advocates, to some extent we walk a tightrope. We understand the importance of the WTO agreements as a competition enabler and a mechanism to enforce for competitive misconduct. However, we also understand and appreciate the ability, and the necessity to preserve that ability, of Canada to respond to situations of market failure. Frequently market failure is a problem that affects the interests of the consumers we represent.

Many of our comments today will be related to issues involving telecommunications. However, the issues and principles we will be addressing have the same relevancy, in our opinion, for other sectors of the Canadian economy and social activities.

Our comments are presented in two sections. The first section deals with comments and principles that we believe are important for Canada's approach to international trade. The second part will offer some specific recommendations.

I'll ask Mr. Reddick to present those comments.

Mr. Andrew Reddick (Director of Research, Public Interest Advocacy Centre): Thank you.

I think we have circulated or provided copies of our presentation.

International trade is extremely important for Canada, and we've seen a rapid expansion in this in both the traditional goods sector and, more recently, services. While the benefits of trade have been given much attention, the implications and cost of liberalization as it is extended to more types of services and socio-economic activities do need to be more closely evaluated.

Over the past few years, and even the past few weeks, there have been numerous examples that our national and international affairs are not unfolding according to some of the assumptions made by international trade and economic theory.

For example, we have seen threats to the stability of our system emerge from the Asian flu, and calls for improved controls of the international financial system, a cause being championed by Canada's finance minister. Contrary to assumptions about the implications of our trade commitments, we have seen the challenge to Canada's authority with, on environmental issues, the MMT gasoline additive ban, and the need for the creation of Bill C-55 in an attempt to preserve the presumed sovereignty of an aspect of our cultural industries.

In the past few weeks, contrary to assumptions about what Canada was actually agreeing to, we find that elements of an important industrial initiative, Canada's Technology Partnerships program, contravenes WTO rules. Of course, last year there also was the MAI, with which I am sure you are familiar.

The point is, there are important lessons we can learn from recent and more historical experiences.

One of these lessons was described in the invitation to appear that this committee sent to us and others—that is, that the global trade regime has implications far beyond intercorporate dealings. These extend to Canadians' everyday activities, whether those be economic, social, environmental, cultural, educational, health, and safety, among others. As well, the increasing complexity of trade and its intended and unintended consequences are likely to exceed the estimates of government, industry, and public groups. These could have tremendous positive, but also negative, impacts on our domestic economic, social, and cultural relations and activities.

As part of this, a second lesson is the need for much more detailed consideration, research, and analysis on the rules and conditions of trade upon which Canada is contemplating agreement. This should involve several activities. One is greater consultation with industry, consumer and public interest groups, different levels of government, academics and others about these issues.

The work of this committee is a very useful step in this direction, and we would like to compliment you on these efforts.

• 0850

A better understanding by our trade negotiators of the real, everyday activities and needs of our citizens and businesses and how these are likely to evolve in future will greatly inform understanding about the implications of how rules should be written, what may be agreed to, or what Canada may choose not to agree to at the WTO.

We feel there should also be much more consultation between those in Foreign Affairs and International Trade and those in other government departments at both the federal and provincial levels that have direct responsibility and expertise in matters relating to socio-economic issues and services, programs and initiatives. An improved understanding of current programs and initiatives and how these relate to Canadians' needs will help to avoid problems such as those mentioned earlier.

The Chairman: Mr. Reddick, excuse me for interrupting you, but we have translators.

Mr. Andrew Reddick: And I'm going too fast.

The Chairman: Yes. If you go too quickly, your train is likely to careen off the bridge.

Mr. Andrew Reddick: Sure. I always do that. I'm sorry.

Another important lesson is that Canada is a mid-sized trading country. Our successful development as a country has featured a mixed public/private role in the development and ongoing operation of our economic activities and a substantive government role in our social and cultural initiatives. At the same time, we have balanced this with a fairly open international trading relationship with other countries.

As we move forward, we need to position the WTO as a fair trade mechanism that serves the needs of countries but at the same time does not undermine or negate the authority of our national government or other governments or agencies to fulfil their mandates, obligations and responsibilities to Canadians.

This means the Canadian government must continue to have access to the policy and regulatory mechanisms necessary to maintain our economic and social relations and practices and to have the flexibility to adapt or change these in future in response to the changing needs of our society.

There are some principles that we believe should inform Canada's approach to the WTO negotiations in relation to these matters.

The first is the recognition that instruments such as subsidies, exemptions, reservations, and performance requirements will continue to be important tools to achieve governance objectives in Canada.

Second, the possible abandonment of any of these should only be done sparingly, on a case-by-case basis, or for a specific activity as opposed to blanket application, and only after substantial research and consultation on the possible implications of such a commitment.

Third, given the essential nature and quality-of-life importance of a number of services to Canadians, Canada should exempt or maintain considerable flexibility in some sectors or activities in any WTO agreement. These would include health and safety, environment, culture, and the universality of public services, including basic telecommunications. As a matter of policy, Canada should also be able to evolve the definitions, meanings, and scope of application of these as our needs and practices change.

Four, Canada should not agree to standstill or rollback provisions on legislation or programs except under exceptional circumstances. We cannot predict the future, and we will likely need the flexibility in governance to meet our changing economic, social, and cultural needs.

Five, performance requirements have been an essential policy tool in realizing economic and social objectives. These should not be downgraded or removed through any WTO agreement.

For example, performance requirements have been used in broadcasting to meet economic, cultural, and social objectives through such things as production funds and content and programming requirements. In telecommunications, requirements in the form of contributions are used to ensure the universality and affordability of service.

As the Internet continues to evolve, some aspects of this new service may come to be considered essential. The ability to require contributions by companies to facilitate universality or other goals may be required. Performance requirements also include consumer protection laws, privacy laws and standards, among other rules frameworks.

Similarly, the use of subsidies to facilitate economic and socio-cultural development and activities in Canada needs to be maintained. The reality of trade is that some subsidies will have to disappear. However, again this should be done on an exceptional basis and after proper research and assessment on each issue has been undertaken.

• 0855

The recent WTO decision on the Technology Partnerships program suggests the importance of this issue for Canada. Unlike the Americans, we don't hide everything under national security. Both performance requirements and subsidies have been essential policy tools in Canada and will have continued relevance for our national development.

For example, the federal government's connected agenda features a number of programs that contribute to economic, social and cultural policy objectives—Community Access, SchoolNet, and Smart Communities, among others. At the moment, these are funded through programs or subsidies. It may very well be in the future that some or all of the funding for these may include industry contributions through regulation.

If we don't take care how we approach the question of subsidies, performance requirements, and related provisions in a WTO agreement, we may hamper or end our ability to undertake such initiatives in many sectors, not just communications. We need to ensure that options remain open to us in the future.

In terms of specific actions, there are a number of issues we'd like to raise.

First, we do not feel it is appropriate at this time to change the levels of foreign ownership permitted in the communications sector. There are several reasons for this.

One, it would be premature to undertake this while we're still introducing competition and restructuring the sector.

Two, we have yet to resolve existing and pending social and cultural obligations as required by the communications acts.

Three, current investment levels have demonstrated that Canadians already benefit from new and innovative technologies developed elsewhere.

Finally, the sector has realized significant foreign investment and participation.

There's no compelling evidence to suggest that an increase in foreign ownership levels would accrue further benefits to any party other than shareholders of such foreign concerns. Moreover, there is a real question about whether majority foreign ownership in this sector would realize the same benefits, such as R and D, employment, and social contributions, that exist under the current regime.

There are several matters that relate to consumer protection and consumer interests that we believe should be closely co-ordinated with any WTO initiatives. The WTO has been focused mainly on creating rules and privileges that benefit industry. To create a fair and effective market, it is important that some balance is brought through the maintenance and extension of rules that benefit and protect consumers in dealing with companies in Canada and those operating from other jurisdictions.

Canada, like many of our major trading partners, is in the midst of developing rules and regulations as these apply to privacy and security of information. As well, consumer protection legislation is being revisited in the context of international trade and on-line transactions. These rules or performance requirements need to be well established and included as part of any trade agreement.

Canada's working in conjunction with our major trading partners in the development of some of these rules. Similar initiatives are being undertaken by other governments. For example, the European Commission is pushing for an international charter for global communications policy to address technical, legal, and commercial aspects of e-commerce.

In respect of such activities, there should be greater co-ordination between the WTO and other institutions and initiatives. As a general observation, to realize some symmetry in policy we believe the WTO should be working in closer collaboration with other international organizations that are involved in rules-making, such as the OECD and International Telecommunications Union.

An important part of such processes is the need to increase the participation of consumer organizations. Organizations in each country have developed significant levels of expertise in such different sectors as communications, the environment, health and so forth.

We believe the Canadian government should not only undertake a greater degree of consultation with such groups on trade issues but it should also provide support to allow Canadian groups to consult and work more closely with their counterparts in other countries. Such collaboration will benefit consumers as well as governments and industry through the creation of a fairer marketplace.

Another important issue for consumers is that of standards. Standards and regulation provide important protections for consumers. Canadian standards must be maintained and not downgraded as part of our international agreements. Until there is a harmonization of standards of acceptable level, a system of assessing the equivalency of standards should be included in any trade agreements. A similar equivalency test should also be applied to privacy, data protection, and consumer protection measures.

As a final point, as any part of the WTO negotiation process, we believe the Canadian government should publish and seek public comment on specific proposals being made by Canada and other countries. Trade negotiation is a dynamic process, and as such an initiative would provide interests in Canada with occasion to comment on opportunities and oversights as they may emerge in negotiations.

We thank you for this opportunity to participate, and would be pleased to answer questions.

The Chairman: Thank you very much, sir. That was very helpful.

From the Information Technology Association of Canada, Mr. Munson.

• 0900

Mr. William Munson (Director of Policy, Information Technology Association of Canada): Thank you, and good morning.

ITAC, the Information Technology Association of Canada, is the voice of the Canadian information and communications technology industry. The association represents companies in the sectors of computing and telecommunications hardware, software, services, and electronic content.

ITAC's members account for more than 80% of the 418,000 jobs, $70 billion in revenue, and $20-odd billion in exports that the information and communications technology industry contributes annually to the Canadian economy.

In the past, ITAC was a strong supporter of negotiations towards the original information technology agreement, the ITA, under the aegis of the World Trade Organization. We were equally supportive of negotiations towards phase two of the ITA, which were not completed.

ITAC also took a strong interest in the GATS telecommunications talks, and worked on a brief presented to the minister by the Canadian Council for International Business a couple of years ago. ITAC's interest in trade negotiations reflects our awareness of the importance of information and communications technology as one of the prime enablers of economic growth in all economic sectors around the world.

Because our industry is especially fast-paced, we would hope that trade negotiations in the future will yield a so-called early harvest that will incorporate items of considerable interest to our sector. These would include completion of the second phase of the ITA, or ITA2, which would involve additional countries that weren't covered in the first phase of the ITA, additional products that were left off the ITA, and work towards curing some of the problems our industry has faced with respect to technical barriers to trade—in other words, national standards that can slow down the flow of goods across borders.

We would like to see an extension of the moratorium on customs duties on electronic goods, as Ms. George referred to earlier. We would also like to see a global approach to standards development and implementation.

To turn to electronic commerce, we are pleased to say the global IT industry is increasingly adopting ITAC's very broad definition of electronic commerce as incorporating all value transactions involving the transfer of information products, services, or payments by electronic networks. This includes the use of electronic communication as the medium through which goods and services of economic value are designed, produced, advertised, catalogued, inventoried and purchased, and where accounts are settled.

ITAC sees electronic commerce as offering countries in all stages of development the opportunity to benefit by, one, increasing internal organizational and management efficiency; two, increasing transaction efficiency, and reducing transaction costs for both suppliers and buyers; three, extending market reach of suppliers, increasing choice for both suppliers and consumers; and four, providing accurate information to improve service delivery in areas such as health provision or the provision of information to consumers.

ITAC recognizes that most electronic commerce issues will be addressed through negotiations on IT goods, on telecommunications, on financial services, and negotiations in other sectors. However, work does need to be done to ensure that international approaches are taken in several areas with specific electronic commerce focus.

These would include information security and encryption. The availability of effective technical tools for enhancing information systems security, such as encryption and cryptographic key management technologies, is a pivotal prerequisite for acceptance and growth of electronic commerce.

ITAC believes countries should not attempt to limit the use, export or import of cryptographic products. The free exchange of these products is important to support viable electronic commerce infrastructure, and allows vendors of such products to compete successfully and globally.

• 0905

Trade agreements should reflect the OECD guidelines and cryptography policies so that crypto policies do not become obstacles to international trade.

Secondly, digital signatures are at the core of trusted electronic commerce. Parties wishing to conduct transactions electronically require assurance that their own electronic signatures are valid for legal purposes; that the electronic signatures, identities and related attributes of other parties have been clearly established and accepted; and that the third parties, such as certification agencies, are trusted and reliable.

Governments must address these requirements by eliminating legal barriers to the use of digital signatures. If new national legislation is required to recognize digital signatures, then it should be introduced in all participating jurisdictions and in accordance with an agreed timetable.

Governments should also facilitate the development of reliable private sector certification agencies and work towards a multinational framework for the recognition of such agencies.

Third, on taxation principles, issues of tax jurisdiction need to be resolved on an international basis and in consultation with industry. National or subnational taxation measures should not encourage the use of tax havens for providers of electronic commerce services. At the same time, tax rules should not view the simple presence of electronic equipment in a jurisdiction as constituting permanent and taxable establishment in that jurisdiction.

Canada should focus attention on the development, at an international level, of global taxation principles and a framework for identifying equitable and enforceable approaches to taxation of electronic commerce. ITAC would hope that the WTO meeting in November of this year will extend the current moratorium on customs duties on products shipped electronically across borders.

With that, I will thank you for your time and your attention.

The Chairman: Thank you very much.

Next we have two individuals.

Mr. Carroll, please.

Mr. Jim Carroll (Individual Presentation): Just by way of background, I'm a chartered accountant, which is either a good thing or a bad thing, depending on who you're dealing with.

I've authored some 25 books about the Internet that have sold about 650,000 copies in Canada. A few of you have probably bought a few of them. I'm a regular speaker on the speakers' circuit. I do keynote speeches for a large number of organizations and have spoken to tens of thousands of Canadians about the impact of e-commerce and the Internet on our lives and on the way we do business.

I'm not prepared with a detailed presentation from which to read verbatim this morning. I've just managed to grab a couple of slides from a presentation I was fortunate enough to do last week in the Bahamas for the CEOs of ten of Canada's leading insurance agencies.

I'm not an expert on GATT. I don't know a heck of a lot about WTO. I do know the impact that e-commerce and the Internet are having on the global economy. What I did for them, and what I'll try to do for you today in the allotted time, is simply put in perspective how this is going to change the world economy, and maybe give you a bit of an appreciation that the Internet is something far greater than you might believe.

My opening comment, to try to put this thing into perspective, is that I often observe that the Internet is going to be the foundation for the majority of the world's global economic transactions from a business-to-business perspective and from a consumer-to-business perspective within the next 20 years. I think we need to appreciate just how significant this thing is in terms of how it is going to drive the global economy. That's going to have a whole bunch of implications.

One, I think we need to recognize that what is really going on here is that business models, which have existed for 10 years, 20 years, 50 years, 100 years, are being completely ripped asunder by the Internet.

One thing I was doing with these insurance executives last week was putting into perspective how the Internet and electronic commerce will fundamentally change the entire nature of their industry in the way they operate, in the way consumers interact with them, and in the way a transaction is undertaken.

Certain industries are already long down the path of fundamental change. A very good example of that is the travel industry. I flew up here this morning on a ticket that I bought through the Internet, directly through Canadian Airlines. The travel agent is losing their role in the transaction. What we need to recognize, when that type of transaction change occurs, is that the transaction can as easily occur with an organization outside Canada as it can within.

• 0910

When we flew to the Bahamas—

The Chairman: Could the Internet get you on the airplane without all those frustrations at the airport?

Voices: Oh, oh

Mr. Jim Carroll: It's not going to help with that, but that day will come.

The Chairman: There are always all those bloody lineups and inefficiencies that seem to happen.

Mr. Jim Carroll: No, we still have the people issues.

Hon. Sheila Finestone (Mount Royal, Lib.): What about with lost luggage?

Mr. Jim Carroll: Actually, I lost luggage for two days, so, no, it doesn't help with that.

The Chairman: If you had the Internet...and it was virtual reality, you could still be in the Bahamas having a good time, and talking to us.

Mr. Jim Carroll: No, I'd rather be back in Canada.

The thing to recognize is that the economic transaction can move outside the country. For certain portions of my Bahamas ticket, I bought it through a site called “Travelosity”, a subsidiary of the American Airlines SABRE system. So the economic transaction took place, as a Canadian, with an American organization. It's true that business can change worldwide.

The second thing is that what we are seeing in the business world is that business-to-business transactions are going to migrate to the Internet in a very rapid fashion.

Today we're very much a paper-based economy. We still exchange a lot of paper. The volume of paper continues to grow, and it always will, but increasingly the transactions that occur between businesses are going to migrate through the Internet. Part and parcel with this is that from a consumer-to-business perspective, what is going on is that the behaviour of consumers is changing.

We who use the Internet are undergoing a very significant shift—in the way we look for information, in the way we seek to do a transaction with an organization, in the way we choose to deal with the business world. The most significant thing that is occurring is that the younger generation, those who are under 25 and who really get this technology, accept that. They will be the generation who will use this for much of what they do.

The third impact of the Internet is that there will be massive new forms of competition within industries and against organizations. It's going to be very challenging for any organization to hold their own. We are in for a period of ugliness when it comes to competition. A very good example is what is going on in the real estate industry.

In the real estate industry, it's estimated that within five years, some 30% of real estate transactions, somebody buying a home, will begin on the Internet. They will use the Internet to find that home. There's a belief that some 30% of mortgage transactions will occur on the Internet within five years.

In that industry, where the new forms of competition are coming in is very interesting. There are a lot of new competitors, but one fellow who has decided he wants to play in that industry is Bill Gates. Suddenly, we have again a large U.S. entity who is stepping into a market, becoming a new competitor with a bunch of established organizations, and choosing to rattle the way they do business.

Another competitive impact of the Internet is that we're going to see very severe competition on price. This will occur in travel and this will occur in financial markets like insurance. It will occur with products and it will occur with services. Simply, it flattens the competitive playing field, letting a lot of different organizations compete for the same consumer. The impact is that many goods and services will be commodity based...and will occur on price.

The third competitive thing happening is that there's a whole new form of customer paradigm in terms of where the transaction begins. For an insurance agent, it used to be that someone would buy their car insurance by calling an insurance broker.

I give it six months to a year, and you will see Ford Motor Company of Canada, or Ford Motor of the U.S., put a button on their web site through which they will sell you a car. They will put another button on their web site that will permit you to insure that car at the same time. That's going to shift away the commencement of that economic transaction from an insurance broker or agent into Ford Motor Company of Canada, or possibly Ford in the U.S.

The fourth thing that is occurring is that business is going to see a massive re-engineering of what we in the IT world call the “back end”, the way we process paper, within an organization.

A very good example of what is going on there is General Electric and its lighting division. They used to be in the business of sending out purchase orders, requests for proposal, on a paper basis. They have shifted that to the Internet. They have estimated they have been able to significantly downsize and relocate their staff to more significant functions, and have saved some 70% in pure dollar costs on the costs of undergoing those transactions. They've had such a impact from this that they are now moving that throughout the entire company.

• 0915

What is going on is that the business world has come to recognize that there are huge cost savings to be had by re-engineering the back-end transactions.

Now, this is from the insurance presentation I did last week. Moving around insurance certificates in the U.S. costs about $1 billion; simply to move that paper around, $1 billion. That money can be saved by transitioning those transactions to the Internet. A whole bunch of companies are trying to accomplish that because they can earn significant sums of money by doing so.

Four, there's going to be a lot of new competition from cyber-savvy companies who are going to force everybody else to take part in this. The Internet is not going to be an option for business. It's going to be a competitive necessity. If your competitors do something that makes eminent sense for the customer, and makes it very easy for them to do business, they're going to lower their cost of doing business. They're going to be able to pass those cost savings onto their consumers, thereby forcing their competition into it.

The most interesting thing about the Internet right now is that the most advanced business models, the greatest degree of activity with the Internet, happens to be in the U.S. So U.S. companies are going to be dragging their Canadian counterparts into this, kicking and screaming, whether they like it or not. It's going to fuel a very significant compression in the amount of time it takes for business transactions to occur.

Within the insurance industry, again, a transaction that used to take days, or three or four weeks, will now be time-compressed down to some 48 hours. This is one of the global impacts of the Internet. It simply causes business to occur that much quicker.

There will be a very significant change in the role of the middleman. I don't use a travel agent any more. I haven't used a travel agent in two years. There is somebody out there to whom I'm not paying a commission. There are entire industries with a significant number of middlemen, and those industries are going to be changed in a very significant fashion.

As part of that, the Internet is changing the relationship between the company and its middleman. Both Canadian Airlines and Air Canada have advised travel agents that they are capping the commission on travel. One of the reasons for this is that they know there's an increasing number of customers who will buy their tickets on-line, and who prefer that type of on-line transaction. That costs Canadian and Air Canada significantly fewer dollars than it does to pay a travel agent. It's putting more money in their pockets by virtue of not having to pay the travel agent. So we have a very significant change in the relationship between these organizations.

What all of it really leads to, and I think all of us have talked about this and read about it for some time, is that it's going to provide for a true global economy, in which it will be very difficult to determine the starting point of the transaction—indeed, the location of the transaction.

I sell books through my web site. I utilize the technology of IBM to do that. If Canada were to put in place an onerous tax regime that would penalize me for selling books through the Internet, I could, in a matter of minutes, move my store down to Antigua or Hong Kong or Singapore, or somewhere that will provide me a tax-sheltered Internet location.

The bottom line is that much of what is going to affect us with the Internet is going to occur from outside of Canada, in particular with the U.S. I think we need to keep our eye on such countries as Singapore, which is also very aggressively involved with this technology.

As a closing remark, from reading the opening materials I've seen that there's been much talk of the need to deal with the cultural issue when it comes to this round of negotiations. I'm convinced—and I've been widely quoted in the papers on this fact—that the effort to control Canadian culture in this new era of the Internet is ultimately doomed to failure. It will not work.

I can today, on a computer located in my basement, set up a 24-hour-a-day, full-time radio broadcasting system on the Internet and broadcast to the world, and there's not a heck of a lot anybody can do about that. We also need to recognize—and I think we'll see some comment from Mike Flavell on this—that entire intellectual property beliefs and laws and rules are being assaulted in a very significant fashion by those who have control of the technology.

You will be starting to read of something in the paper called “MP3”, a technology for the distribution of music that is going to completely rip apart the music industry.

• 0920

I think the key, when it comes to culture, is efforts by Ottawa to listen to the high-tech community on how to deal with all these weird technical issues. I certainly applaud Industry Canada for their efforts in dealing with the encryption issue, and listening to the high-tech community, coming down on the side of what the high-tech community was suggesting—“Thou will not be able to control it”. I think we need to recognize that the same type of thinking needs to apply to all of these other cultural issues.

Thank you very much.

The Chairman: Thank you.

Our last speaker is Mr. Flavell. Then we'll get a chance for the members to ask questions.

You have ten minutes, Mr. Flavell.

Mr. C.J. Michael Flavell (Individual Presentation): I will be ten minutes.

I'm very grateful to follow my friend, Mr. Carroll, who told you he was an accountant. That takes a little bit of the heat off my first announcement, that I'm a lawyer.

Voices: Oh, oh.

Mr. Michael Flavell: We find that we get about the same number of boos at most gatherings, except, of course, at gatherings of lawyers. We're very popular at bar conventions.

I have practised trade and competition law for about 30 years. I consider myself to be an unabashed free trader. I also consider myself to be a proponent of competition as the best way to protect both business and the consumer.

I am interested by the give and take already this morning. It highlights the essential problem or issue that you gentlemen and fellow parliamentarians face.

Mr. Reddick put it well in saying that there were some things we have to hold on to. We have to hold on to the right to regulate, to effect bona fide regulation.

You heard other people saying we have to be able to trade fully and without constraints. And there, after all, is the conundrum, isn't it? We want to get more and more ability to trade, because we do it so well and so efficiently, but we don't want to give up our ability to regulate and to maintain a reasonable degree of sovereignty.

So the whole purpose of the exercise is to get as much as you can, on the one hand, and on the other, to give up as little as possible. I don't envy you gentlemen, and neither do I envy our negotiators as they go down the road trying to balance these conflicting needs.

I'm speaking to you this morning, in my remaining minutes, about competition law and its interrelationship, if you will, with trade law.

I gave you some notes, which I hope have been distributed. It's a four-page document with my firm name, Flavell Kubrick and Lalonde, plastered all over it, for obvious reasons. We aren't allowed to advertise in most media.

The Chairman: Can you get around that on the Internet?

Mr. Michael Flavell: We try to get around it, Mr. Chairman, yes.

In any event, if you follow that document, I will be fairly close to it in my next eight minutes.

There is a common misconception that competition law and trade law are somehow inconsistent. This is not so. In my view the whole body of trade law liberalization, the main features of which are lower tariffs, better access, transparency, and non-discrimination, and the main features of competition law, such as limitations of horizontal combinations and limitations of excessive market power, have the same objectives and the same effect—that is, to increase competition. By increasing competition, hopefully we will promote both efficiency and consumer welfare.

Trade law will enable there to be more players in the given market, because the foreigners will be allowed in without unusual constraint. In the competition law field, there will be more competitors because cartels that might drive out competitors or nasty distribution practices, the likes of which we hear in the press every day, will not be permitted. So the market will be freer, and there will be more people in it. They will be doing the kinds of things that we hope will benefit the Canadian consumer as well as business.

• 0925

Now, trade remedies, which I would distinguish from trade law, because it's only one small part of it—anti-dumping is the trade remedy we often talk about—are more capable of producing anti-competitive effects because they are designed to protect the domestic producer and can cause higher prices.

You have to bear in mind, though, that unfair trade is not what trade liberalization is about, and anti-dumping may be an equitable carve-out from the general aim of increased openness and competition.

This is another way of saying that just because you have a liberalized regime of trading, and just because you try to promote interchange as much as possible, you don't have to give away your right to combat what is felt to be unfair trade. Of course, dumping, as one type of unfair trade, is the situation where foreign exporters sell at prices that are lower than at home or are beneath cost, and that thereby hurt Canadian producers.

Non-predatory price discrimination by a foreign exporter without market power in the market of import—namely, Canada—cannot be reached by traditional competition law. You will often hear people say, look, scrap anti-dumping, bring in competition law, and let it take care of any problems of pricing.

Well, the problem is, competition law traditionally has required that, for price discrimination or predatory pricing to be found and to be prohibited, there be predation. It requires that the person doing it means to hurt the competitor and has to have market power in order to do so, because what he's trying to do is cut prices, drive the competitor out, and then reap the benefits of monopoly pricing afterwards. You can't do that unless you have market power.

If I were to drop the anti-dumping recourse and adopt the normal rules of price predation in competition law, I would, in effect, have given up my right to counteract dumping. In all the cases I've been in, I can hardly remember one where the foreign person was predatory—i.e., had any particular aim of driving out Canadian competitors—or had any significant market power. They often have 5% to 10% of the market, which is enough to hurt the Canadian producer but is not enough to meet the test of market power required in competition law.

So unless we change competition law rather extremely—and I think the chances of doing that are relatively limited over the short term—the trade-off of anti-dumping for competition law is not indeed a trade-off at all; it's a mere giveaway.

Now, some people, some very distinguished people, have advocated an international harmonized body of competition law. The idea here is that if everybody had the same competition law, then a Canadian exporter going into country X and who encountered anti-competitive things going on, such as perhaps price fixing by his competitors, boycotts, discriminatory pricing, or whatever, in the situation of a harmonized body of competition law around the world you would know that you have rights comparable to those that you have at home, and you could seek to try to do something about it.

Harmonization is not proceeding as quickly as some would wish. It's notable that the WTO working group, which issued a report just a few months ago, has noted that for some people, “the time does not appear to be ripe for detailed discussions in the WTO on the harmonization of competition laws and practices”, and that there may be a “lack of international consensus on optimal competition rules”.

The U.S. is perceived as being an opponent of harmonization. I think I've put it a little more gently than that in my notes. I've described their attitude as “cautious”, and “gently negative”. “Gently” is an adjective we seldom apply to our American friends, but their position is a somewhat reasoned one, that if we seek to harmonize competition law around the world, we are necessarily going to end up with the lowest common denominator.

• 0930

As they feel about most areas of their laws, they feel theirs is by far the best and finest, and they perceive—and I think are realistic enough to know—that if you get in a room with 100 people, or even 20, and you talk about harmonization, you're going to lose some of the edges of it. You're going to lose some of the details. They don't want that.

They point out that although we are in a global economy, we are not yet in a global state, meaning that we do not have a situation where the law is the same all the way around the world. Indeed, it's quite significantly different even just between Canada and the U.S.

So I recommend that Canada go easy on this issue. I think we should work steadily towards harmonization built around three or four principles. Those are relatively easy ones.

The first is that offences or practices, which in most countries that we do a lot of business with...in most of these countries, you have similar rules.

Second is prohibition of anti-competitive horizontal combinations or conspiracies. In the U.S., that's the Sherman act, and in Canada, it's the Competition Act, section 45.

We have the review of abuse of dominance situations, we have the restriction of anti-competitive mergers, and possibly we have the review of certain anti-competitive vertical restraints, which are in the nature of exclusive dealerships and other such agreements that are anti-competitive.

Without getting into any kind of shouting match with our American friends, I think we can work towards harmonization in a gradual kind of way and I think we can make major progress. We have already made major progress on cooperation and international enforcement, which is to say that the agreements enable the anti-trust authorities in the various countries, including Canada, the U.S. and the EU, to get together to collaborate in prosecutions and to thereby nip in the bud certain practices that would be difficult to get at otherwise because of their international aspects.

I'm ending up by saying, I think, go easy on the competition law issue, work towards harmonization, and work a lot harder on procedures for cooperation and international enforcement.

I had a second sheet. I'd be happy to answer questions on it. It deals with anti-dumping and countervail as it relates to the competition law issue.

In deference to the chairman and my time schedule, I'll stop here, but I'm obviously happy to answer questions on either of the two topics.

The Chairman: Thank you very much. You were very helpful.

Now we go to questions from members, starting with Mr. Penson.

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

I have found this panel very interesting.

Mr. Flavell, I think you really put your finger on the problem here. I guess I would suggest to you that this business of regulations and regulators versus technology advances is nothing new. A very famous relative of mine back in the early 1800s in England was inventing the steam locomotive, the first rocket, the first railway. The debate in English Parliament at the time was whether it should be allowed. He was limited to 12 miles an hour for his first train because it would scare all the farm animals and cause them to have heart attacks or something to that effect.

I guess it shows that the debate hasn't really changed that much over a couple of hundred years. I think that is the problem. It's hard to put in regulations to keep abreast of the technical advances occurring.

When we talk about competition law as one way, I understand you as saying that's not your favourite way, but isn't that one way of slowing down a company like Bill Gates'? He's going through that very thing right now in the United States, where there's market dominance.

Isn't that what we should be concerned about more than putting on regulations to worry about our sovereignty? Shouldn't we be worried more about market dominance?

I just throw that out to you for comment.

Mr. Michael Flavell: I certainly wouldn't want to be perceived as being against competition law in any way in terms of dealing with domestic badness by business, if Mr. Gates has indeed been bad, as the prosecutors would tell us.

• 0935

What I was saying was that I'm not sure we can rush very quickly to achieving around-the-world harmonized competition law where everybody will have the same set of rules. I think I was saying go easy on that, because I'm not sure there's the consensus there for that.

Indeed, the American deputy attorney general recently made a speech in which he pointed out that 60 or 80 of the WTO countries don't have a competition law. He was pointing that out as one small reason why harmonization at this point is probably unachievable.

I agree with you totally that if you have good, strong competition law rules that hit at the traditional kinds of behaviour that are hit at by anti-trust law, that is a good thing. That will stop people from abusing a dominant position, or even, in some cases, achieving a dominant position. It'll certainly stop people from boycotting people as punishment for competition. It will stop people fixing prices, which not only gouges consumers, usually, but also has the effect of keeping the non-club-member out.

So, no, I'm all in favour of vigorous anti-trust law enforcement, both in Canada and in collaboration with our American friends, with whom we already have an agreement on that, and transborder prosecutions as well, such as what happened in the pretty famous Midland ADM case, where there were huge fines assessed.

Mr. Charlie Penson: But the—

The Chairman: Mr. Penson, can I interject here?

Mr. Charlie Penson: Yes.

The Chairman: I understand why you're saying it would be difficult to get a global consensus. That's one of the great problems from the WTO, because you have such disparate systems coming there and working together. But take it to the NAFTA level. What we hear is that at least in terms of where anti-dumping, you say, is an appropriate anti-competitive tool in import situations, because there isn't a coherent cross-border competition law that will deal with the predatory pricing problem, we know the Europeans have had to give it up in an integrated market, within their market. But what about within the NAFTA context? It seems that the retention of anti-dumping law in terms of what is becoming more and more of an internal market is a serious impediment to trade and should be replaced by competition laws.

That's what we hear, at least. Do you disagree with that?

Mr. Michael Flavell: That is certainly a very respectable view. The negative on that, from my point of view, if you were to do that, would be that you have to grapple with the fact that Canadian and American law is not the same. We tend to think it pretty much is the same.

Once I asked a Canadian businessman who was advocating this if he liked the idea of spending five years in a Texas court before a jury, being judged on his behaviour there and being subject to treble damages. He looked at me in astonishment. I said, well, that's what you get if we harmonize our competition laws in North America with the American model.

The Chairman: You don't think harmonize our direction; you think—

Voices: Oh, oh.

Mr. Michael Flavell: Have you seen much of that?

The Chairman: Okay. I get your point.

Thanks.

Mr. Charlie Penson: I'd like to pick up on another theme. Mr. Reddick, I think, was talking about the need for better co-ordination between government departments.

I assume you were talking about when we go to the trade negotiations themselves. I'm wondering what your perspective is here. My understanding is there's pretty good co-ordination between the government departments at these trade negotiations. Members of all departments are there, advising on what their particular area wants the Canadian negotiators to do.

You picked out a few, saying, you know, we've just got hit on the cultural issue with Bill C-55, and WTO has been after us on the Technology Partnerships program...which I think is probably a good thing, because it's striking down things that we have signed, that we have fought very hard for.

I suggest, Mr. Reddick, that in fact Canada probably led the way in asking for a number of these things. I'm just wondering if you believe we did it sort of not knowing what we were doing there.

How did you come to your conclusions?

Mr. Andrew Reddick: Let me answer this without offending people all over town.

Last year, for example, under MAI, we had a number of discussions with people in Industry Canada as well as with other departments. I'll use Industry Canada as the example.

• 0940

You're absolutely right, there were extensive consultations between the foreign trade negotiators of DFAIT, Foreign Affairs, and people within the external or international branch of Industry Canada and the policy branch. But Industry Canada is a very large department. There is very little or no consultation with people in other parts of the department who are actually involved in developing and delivering new programs and services and working towards the next several years with e-commerce and information highway programs and what have you. If you looked at the framework of what was being discussed under MAI, for example, last year, the implications of some of those rules or some of the things that may have been agreed to would have essentially gutted some of those programs.

So that's just one example of how, on the one side, there may not be good communication within department, and there may not be the right people being negotiated or consulted with as part of the initiative.

Mr. Charlie Penson: You don't believe it's because we want things both ways. We want market access in other countries and less protectionism, but we like to practise it a little bit here at home and haven't been able to give that up.

Mr. Andrew Reddick: Yes, there's probably that dimension to it, but let me give you another example. We had a meeting two weeks ago where we and the Canadian Library Association invited several government departments to come to an all-day session, where we discussed and presented...everybody took their turns at presenting what they were doing in terms of access to the Internet, what their programs were, what kind of initiatives they had underway to put computers in local community centres, develop local content, help economic development, what have you. So we spent the whole morning, and everybody had 15 minutes to do their presentation. At the end of the morning we asked, “How many people in this room learned something today they didn't know before?” Every department put their hand up.

The interesting thing was that all of these departments were involved in delivering the same kind of service: they're all trying to get people on-line, they're all putting computers into different centres in the community, and they're all developing content. The message was that there's not enough communication between people doing the same thing at the same level in the same communities with the same community groups.

The point we're trying to make, to raise this up a level, is the extreme importance of not just looking at the traditional notions of trade from a policy point of view or from an international affairs point of view. The message we're trying to convey is that it's much more important to go the next step, to look at what are some of the programs and needs in different sectors, what's actually going on in the real world with people delivering programs who may deal with organizations like ours, and what kind of impacts will those trade decisions have on those other aspects? So they're not generally part of the loop.

Mr. Charlie Penson: So it ties into what Mr. Carroll was saying, in a way, in that with things changing so rapidly, Canadians and Canadian companies need to understand the new environment that's out there in order to be competitive. I suggest there are still a lot of Canadian companies that don't realize there are no tariffs between Canada and the United States, no duties, any more as a result of the free trade agreement, and they're still operating in a world where they think the Canadian market is theirs, instead of looking a bit more outward. This ties into the comment somebody made—I think it was Ms. George—about the hundred companies that are responsible for the bulk of our trade, and that we need more people aware of what's happening in terms of international possibilities, but also the fact that we don't have this protected Canadian markets to ourselves any more.

Mr. Andrew Reddick: It's very key. I'd like to point out that this is the second time in five years we've actually been consulted by government on the WTO. I would think some of you thought we had some useful comments to make today, but I find it rather striking that over the last five years, given all that's happened, this is only the second occasion. Again, this suggests that maybe we have to rethink how we approach these issues, and how we research and define them and look ahead and try to be more strategic about what the implications are.

Mr. Charlie Penson: I don't know if I have any time left, but another panellist might want to respond.

The Chairman: Is there anybody else who wanted to respond to Mr. Penson's observation?

Okay, I'm sure we'll get back to you again, Mr. Penson.

Mr. Turp.

[Translation]

Mr. Daniel Turp (Beauharnois—Salaberry, BQ): I thank the witnesses for coming before the committee. This makes the consultations that are underway meaningful, because we want Canadians and Quebeckers to have a say in the negotiating positions developed by Canada.

I have three questions. The first is for Mr. Carroll. You seem to want to rule out any government action in the cultural sector. I'd like you to explain your personal position. Should governments retain some responsibility and apply controls with respect to culture? If they cannot, as you claim, what should they do? Give up? Let cultural producers regulate their own conduct on the Internet and elsewhere? That's my first question.

• 0945

Here's my second question, which is directed to Mr. Flavell. Our chairman made a reference to European competition law. I'd like your views on the lessons to be learned from the development of European competition law, to determine whether, as Mr. Graham claimed, it would be possible to adopt such a policy at the regional, North-American level, and whether we have to rule out regulation at the international level.

My last question is for Mr. Janigan or Mr. Reddick. I found something quite interesting in your brief. It's your reference to the question of national security in the United States and the way that national security is constantly cited to justify not complying with international standards designed to liberalize trade. I'd like to know whether this is an issue that should be negotiated in the upcoming GATT round and how you would envisage Canada's stand. What kind of proposals should Canada put forward regarding national security and international trade issues?

[English]

The Chairman: Mr. Carroll.

Mr. Jim Carroll: I don't have any position one way or another as to whether attempts to regulate culture are a good thing or not. My position is that trying to regulate culture in this new era of technology is a virtual impossibility. We cannot make it work.

I've been quoted in the paper quite often as saying we can pass any number of laws we like that will attempt to regulate the volume of Canadian content on the Internet, but we might as well pass a law at the next moment that will regulate the amount of snow we will have in this country in the month of January. We have about as much likelihood of making the first bill work as we do the second.

We have to appreciate that the past methods of attempting to control Canadian content, or of ensuring adequate levels of Canadian content, have been based on limited spectrums, limited radio spectrums, limited television spectrums, limited printing spectrums, what have you. We are entering what's known in the popular phrase as the “500-channel universe”. That's not what we're entering; we are entering the 500-million-channel universe. Within two years, I could put up my own television station on the Internet and broadcast to a worldwide audience. I could do that from a computer in Canada. I could do that from a computer in Singapore. There's not a heck of a lot to prevent anybody from being able to do that.

So if we determine that ensuring adequate Canadian/Quebec content in this world is a admirable goal, then we have to start thinking in new ways beyond that of regulation. We have to start realizing that regulation is going to be an impossibility. We have to have new ways to deal with it.

Mr. Daniel Turp: What are those new ways?

Mr. Jim Carroll: I don't think anybody clearly knows. There's some belief that maybe we plow money into new media industries, that we provide some efforts towards building it up that way.

I'm a believer that we don't have a shortage of Canadian content on the Internet. One of the books I write is called The Canadian Internet Directory. We bring it out every year and it details thousands and thousands of web sites. There are tens of thousands, hundreds of thousands, of Canadians who are placing their own content on-line. There is no shortage of this stuff on-line.

Having said that, I was up at 5 a.m. this morning on my exercise bike, reading the morning news off the Wall Street Journal, off Business Week, off various technology papers, as well as a few far eastern and Canadian papers. The reality is that I can get this stuff from anywhere. All we can try to do is encourage the fostering of an environment in Canada to produce more of this stuff if we determine it's something we need to do. We aren't going to regulate it.

The Chairman: Mr. Turp, can I interrupt?

To follow up on Mr. Turp's observation, though, if you're equally true about culture, you're equally true about child phonography.

Mr. Daniel Turp: Oui.

The Chairman: If it's true we can't regulate it, surely what you're saying is that we can't regulate it domestically ourselves. Surely you would agree that if we had an international consensus where in fact the main players in the international field would take some form of regulatory action, there'd be a better chance of enforcing it. When we discussed the IFIs in this committee and we looked at the question of the Tobin tax and things like that, we all agreed it was impossible for one jurisdiction to apply, but with multilateral cooperation we could apply these rules. Isn't that where we should be going, down that road? Isn't that what you're telling us?

• 0950

Mr. Jim Carroll: Exactly. Commenting on the child pornography issue, I've often said that we are not going to be able to control it, reduce the volume of it out there, pass some law that makes it illegal to do it on the Internet. The only thing that will work is through insertion of moneys into the police force, into our law agencies worldwide, number one, to give them the skills to track down and identify these folks. And I think that's working to a degree.

But, number two, give the RCMP and local police the capability to interact and work on projects worldwide with their counterparts on international investigations. That's the only way you can deal with it. The same thing applies to trade; it must be through international cooperation.

The Chairman: Okay, excusez-moi.

The next question was for Mr. Flavell.

[Translation]

Mr. Michael Flavell: If I may, Mr. Turp, I'll answer in the language of Shakespeare.

[English]

The Chairman: No lawyer speaks Shakespeare, Mr. Flavell. That's an oxymoron.

Mr. Mike Flavell: Before I was a lawyer, sir, I spoke—

The Chairman: Remember, Shakespeare said “hang all the lawyers”.

Mr. Mike Flavell: He did? He didn't say trade lawyers.

Mr. Daniel Turp: Or international lawyers.

The Chairman: It was before they had trade or international lawyers.

Mr. Mike Flavell: Mr. Turp is correct that the European Union, the EU, has proceeded a long way towards getting rid of such things as anti-dumping measures and having a harmonized competition law. And one wonders why, in that instance, if they can do it, it couldn't be done between Canada and the U.S., let's say.

I think the answer to that—and I am not usually a U.S. basher, but I'll be a gentle U.S. basher here—the essential reason is that I perceive the European Union to involve a number of countries that are by no means equal but that at least in general do not have any particular actors who are particularly of a view on various subjects.

We have a relationship of one very small country, the mouse, and one very big country, the elephant. The elephant loves his anti-dumping law. It's almost a motherhood issue in the United States. American business, particularly big business, is vociferously anti any movement to remove their anti-dumping recourse against anyone, including Canada. Although Canadians don't often think of themselves as being the enemy, or the bad guy, in terms of business, trade and dumping, Canada is a very big player in the U.S. in many businesses.

When I say “very big”, I don't necessarily mean in terms of market share. But the Stelcos and Dofascos of the world, and there are many others, export a lot of product to the U.S., and as always happens between competitors, sometimes our American friends think our Canadian companies are pretty close to, if not over, the line in terms of pricing.

The Americans want to persist in their anti-dumping recourse. They are also, as I pointed out earlier, exceedingly attached to their own particular brand of anti-trust law, and you can read impassioned philosophical treatises on the treble damage recourse and all it has done for America.

You really have a mindset on several of the very important issues that I think will be very difficult to overcome in the North American context.

[Translation]

The Chairman: That's very interesting.

Mr. Daniel Turp: [Editor's Note: Inaudible]

[English]

Mr. Andrew Reddick: One of the things, in our view, that would be very difficult is to try to convince the Americans they shouldn't have, or they can't use, their national security umbrella, if you will. I don't think they'd agree to that. However, there may be a opportunity for us to counter and say, “As national security is to you, culture is to us”.

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

Mr. Andrew Reddick: It's that important.

I think the whole cultural exemption is an important comparison. The Americans see national security purely in military terms. National security in Canada I see more in terms of infrastructure and quality of life, for example, health, environment and communications. There's a fundamental duality to all those. On the one hand, there are commercial products and services in an open competitive market. At the same time, by the nature of our country, there are aspects of those that are essential for us to participate in society. Maybe we can see those as our national security dimension to those, but the rest was fine, to have open competitive markets, foreign trade, and what have you.

• 0955

So I think it's a question of the perception of society and how you view your society. I don't think the Americans would probably go too far with that line of argument.

Michael.

Mr. Michael Janigan: I think it's also important to point out that the WTO allows countries to take exception to specific obligations they may have, including the most-favoured-nations provision. The United States, for example, took exception to the most-favoured-nations provision in relation to the direct broadcasting of satellite services and digital audio services, where they essentially formulated different rules for countries that wish to provide those kinds of services.

So there is always going to be implicit in WTO arrangements some opportunity for exceptions by individual countries. The issue is how frequently these exceptions are going to be exercised and to what extent the exceptions have any basis in fact or law.

[Translation]

Mr. Daniel Turp: May I make a comment? If, in response to the notion of national security you invoke the notion of cultural security—because that's the way I understand it—the problem that arises is that, under the umbrella of cultural security, Canada and other nations that use cultural security as a defence will be said to be adopting protectionist measures. The same argument is used for national security. In the United States, national security is cited to justify adopting very protectionist measures for the American military industry and other industries.

Is this really the solution or should we not instead tackle the issue of national security? Even if the United States is not pleased or is unwilling, should we not very seriously consider forcing them to put the issue of national security on the table in the upcoming negotiations?

[English]

The Chairman: Could you take a quick cut at that, because we're kind of running out of time and we want to move on.

Mr. Michael Janigan: I think it certainly would be helpful to establish, possibly within the framework of the agreement or maybe outside the framework of the agreement, some parameters upon which the claim of national security may be based. But I think, as I indicated before, it's always difficult in trade arrangements to force a country to agree to drop their claim for involving issues they find to be of substantial importance, and the WTO to some extent has recognized that by incorporating the means for countries to make exceptions to their obligations under that arrangement. I don't see it changing a great deal in the future.

The Chairman: So you don't think the Americans would accept an international constraint that would say here is what is national security and we will determine it for you. That was the whole problem with the Helms-Burton Act—who was going to define what was national security. It threatened to blow up the whole WTO as a result, because, as Mr. Turp said, if they can determine unilaterally what is national security, so can everybody else. So everybody has a total escape clause for anything they don't like.

Mr. Michael Janigan: I think it's a problem. From the Canadian standpoint, obviously we would like to see parameters defined. But from a practical standpoint, is the United States a country that takes that kind of advice concerning national security matters? I don't think it is.

Mr. Andrew Reddick: The bottom line is that they want free trade with everybody else except themselves.

The Chairman: As with Mr. Penson's point earlier, I think they're not different from most of the other people on the planet that way. Remember that George Will said that free trade ranks somewhere between Christianity and jogging, as something much talked about and little practised.

Mr. Daniel Turp: Except in the spring.

Mrs. Sheila Finestone: Shirley George wants to answer.

The Chairman: Sorry, Ms. George.

Ms. Shirley-Ann George: Just a quick comment on national security. I'd caution you that Canada too believes in the need to have national security exemptions, and that before we go after the United States and ask them to change theirs, we need to make sure our governments are in agreement.

The Chairman: Thank you.

Mr. Reed.

Mr. Julian Reed (Halton, Lib.): Thank you, Mr. Chairman.

• 1000

Ms. George, you made a very revealing statement that a hundred businesses out of close to one million businesses in Canada do 50% of the international trade. “Big blue” was once “little pink”, and there are hundreds of thousands of “little pinks” that would like to become “big blue” in Canada.

The Chairman: Is this the agriculture committee or something?

Mrs. Sheila Finestone: Are we talking about beer?

Mr. Julian Reed: I suppose I phrased it rather badly, Mr. Chairman. But the question I would like anyone to comment on is, is the door open in this changing world so that small business can operate in an unimpeded way? We hear from some political philosophies the term “transnational” as sort of representing the great big giant with the huge claws that's going to come down and pick up the little guy and tear him in two, and all this sort of stuff. I think—and this is more of a personal point of view than anything—there always has to be the open door for small business, for creativity, ingenuity, and so on, to be able to participate in the market as easily as large business can.

That's my first of two questions. So I'll let that one go and see if anyone has some words of wisdom.

Ms. Shirley-Ann George: With regard to whether small companies can compete with a large company such as IBM, we in fact compete fiercely with small companies every day, and we don't always win. In electronic commerce you can set up a business in your basement without the huge costs an organization such as IBM has and compete very easily.

Just to give you one example of a Canadian company I was told about just this week, a young woman set up a business in which she has toys that are designed for children who have muscular problems and can't grasp things such as rattles, and you think of a very small market niche there. She's a young entrepreneur, and a bank helped her get started with a small loan and suggested she put her business on a web site. Within three months she had back orders of 18 to 24 months, and she was selling to companies literally around the world.

So it is possible for a small business to use electronic commerce as a great enabler and leveller against international competition. Today small businesses that aren't already exploring the web, that don't already have their information up and aren't moving towards the next steps, are going to be left behind. So the biggest thing you can do is ask your small businesses what they are doing today to make sure they can compete.

Mr. Andrew Reddick: I would offer a somewhat different perspective. If we look at history, we'll see that we're not going through such a fantastic revolution that the future is not going to be a whole lot different from where we are now or in the past. By that I mean that certainly any small business has the potential of becoming another “big blue”, but there are not going to be millions of “big blues” in the world. I think as we move forward there will be success stories, but overall most are going to be niche players.

If we look at deregulation and open competition in other sectors, whether it's airlines or what have you, over the last recent period or even the last 100 years, we've generally seen an open flurry of competition, a lot of new entrants, and then we've seen sort of a market shake-out and reconcentration to some degree, whether it's a few large companies within a domestic economy or internationally. I don't see anything that suggests that won't happen again.

So I think we do need competitive rules. We do need opportunities for businesses to compete, and they will. They will compete on the Internet and elsewhere. But I don't think we should kid ourselves that we're going to be taking over the world marketplace out of everybody's basements.

I think we already see signs, for example, on the Internet of that same industrial model starting to develop. We see channels and programming being developed by the large companies, and we see users of the Internet getting tired of the noise and having all these thousands of different bits of information out there. We like things packaged, organized, and put together in a way that's useful and that has some value. I think with that kind of model being developed—and it's not a new model; it's a traditional model of marketing and making things useful to people—we're going to see some of the same issues come back that we've dealt with historically. Right now we're in a period of transition and change.

• 1005

Mr. Julian Reed: Thank you.

The other question I had has to do with national security and what appears to be Canada having its national security put at risk. I think specifically of environmental issues such as the MMT issue, where from Canada's perspective it was perceived to be an environmental issue, and yet, thus far at least, with the research that I hope is still going on intensely, because it was not perceived to be an immediate health issue, Canada therefore didn't have the right to control its own destiny in this regard.

I believe that's a national security issue. There are other issues that may well be national security issues, such as who controls the supply of electricity in Canada. Here you talk about tap-dancing elephants. You have Ontario Hydro doing the dance and dissolving itself, except keeping control, by trading utilities in the United States. I wonder if down the road we're not going to look back on this and say, holy geez, we no longer control our own supply of energy here.

Mr. Andrew Reddick: In my heart, my own personal view on that matter, I agree. I think there are certain components or aspects of any national economy or society, whether it's education, financial system, environment, or communications, that are part of the infrastructure. They underpin everything—all social, economic, and political activities.

While the rules and circumstances may change over time and how we deal with them may change, I think it's very important that we keep within our governance tool box the option of dealing with those through regulatory processes or other rule-making processes, or some domestic decision-making. That obviously has to be done in some balance with the international now, but I think we have to be sensitive to the long-term strategies and ask, how important will this be in the future, and how do we establish rules and a framework of rules that give us the option to intervene when necessary or to have some influence to make those decisions, and what should we not surrender? That requires, again, consultation and research.

Mr. Julian Reed: You're suggesting maybe we need some new rules, then, in order to provide those protections as we identify them as national security issues.

Mr. Andrew Reddick: We need to revisit how our existing rules may need to be rewritten in the context of international trade, as well, so that we have those options available. Whether we use them or not, we need the options down the road.

Mr. Michael Janigan: In the event that rule-making authority is ceded in that agreement, we make sure that we get the levers in that agreement that are necessary to effect the kind of control over conduct that we would desire if we were making the rules nationally, and that's a very important trade-off.

Mr. Julian Reed: My colleague just suggested to me also this question of water, which is another one. We've always believed that our ability to determine what happens to our water is secure, but there are some people who question that. You're suggesting we should put further rules in place in order to—

Mr. Andrew Reddick: To go back to your earlier point, I'm suggesting that we shouldn't be in that position where we don't know, if we're negotiating these trade deals. We should know now what that's going to do in five or ten years' time. If we don't know now, we have no business negotiating something away.

Mr. Julian Reed: Thank you.

Mr. Michael Flavell: I'd like to make a point I feel comfortable bringing up, being a lawyer. It is a legalistic issue. The provision that has given us the most trouble so far is section 11 of NAFTA, which is the so-called investor state provision. That's one that was the basis for the Ethyl case and the MMT case.

I don't think most trade lawyers would disagree that there is a problem with section 11, which is that the concept of expropriation is too widely defined. Canada has already started the wheels turning in an attempt to persuade its NAFTA partners to agree, without getting into NAFTA and reopening, which scares everybody to death, that perhaps an agreement on the interpretation of the word “expropriation” could help.

I think it could, because if you have a narrow, old-fashioned definition of expropriation—which means you can only take one of these actions if something is literally taken away from you without compensation—which we don't have the way the agreement is now, you won't have, and I hate to say it of a fellow lawyer, the Barry Appletons and the Ethyls of the world taking these cases and winning them, because the reason that our sovereignty and our regulatory capability is being limited by section 11 is because section 11, in my humble view, is too damn broad. That was something that I think wasn't envisaged when it was put together.

• 1010

I could bore you to death with the history of how section 11 developed. It came from the wrong place and was done the wrong way, but that was nobody's particular fault and it's just now a problem. I commend Canada in its attempts to persuade the U.S., which seems to me to have a similar interest. If there was ever a country that's litigation happy, it's our friend south of the border, so if we have a problem with section 11, they may have been lucky so far and not had it, but they're sure as hell going to have it.

The Chairman: They have it now in the case of involving the funeral homes.

Mr. Michael Flavell: Yes, which is saying that a court decision is expropriation.

The Chairman: Yes, it's going to be fun.

But you agree with me, though, that there'd be some problem with it. My recollection, if you go back in history, is that the Americans said that the back-in clauses of the offshore oil in Newfoundland and some of the NEP provisions, which allowed us, particularly under the Foreign Investment Review Act, to acquire control of things at the price of an original investment and not including the profit, in their view was expropriation, and that was one of the points they argued during the treaty. They really got what they wanted, don't you think? So I'm kind of surprised that you would think they'd be willing to give it up.

Mr. Michael Flavell: Yes, they got what they wanted, but bear in mind that was the old state-to-state kind of mechanism. The problem with section 11 is that any guy can take it. I can take it on a contingency if I'm in one of those jurisdictions that lets me do a contingency. Think of the Americans, what they'll be doing there.

My pitch to the Americans would be, look, this is the kind of problem we've had so far. We see the breadth of this provision getting in the way of our regulatory rights and our sovereignty. Don't you think that's going to happen to you?

My understanding at the moment is that the party that has dragged its heels a little bit, at least in print, is Mexico. Anyway, that's something to put on the action list.

The Chairman: As a lawyer, you'd like to add contingency fees and treble damages to that, and then you can have a good time. Then you can make serious money.

[Translation]

Mr. Sauvageau.

Mr. Benoît Sauvageau (Repentigny, BQ): A few minutes ago, Mr. Carroll answered the question regarding regulation and WTO negotiations on Internet transactions by saying that it was as impossible as attempting to legislate on how much snow should fall in January. If I understood correctly your example was something to that effect.

I'd like to hear what the other witnesses have to say on this subject. As the chairman remarked, could we not join with a number of other countries to try to make laws for this type of commerce, which is going to become increasingly important in our commercial exchanges with all the countries of the world? That's my first question. If I have not understood Mr. Carroll's position correctly, he could perhaps clarify his views, but my question is directed to the other witnesses.

Ms. George, at the end of your remarks, you said that you would like us to discuss human rights and environmental rights during the upcoming WTO negotiations or, at least, that they are taken into consideration in our negotiations. I will remind you that, when the Singapore statement was issued after the first ministerial meeting, Canada fought quite vigorously to have human rights mentioned in the ministerial statement, but the majority of the countries refused and referred this to the International Labour Organization. Should we only talk trade at the WTO and refer all other questions to the various international authorities? I don't presume to know the answer.

• 1015

I'd also like you to give me your opinion on culture, if you have the time and if you have some interest in this matter. Should we maintain the position of a cultural carve-out or, as some of the cultural stakeholders have told us, to my great surprise, should we attempt to legislate and regulate in cultural matters? Thank you.

[English]

The Chairman: Madam George.

Ms. Shirley-Ann George: On regulating the Internet and some of the concerns that were raised today, for example on pornography, regulations already exist that can be used and are used to track down and punish those who break existing laws.

Canadian organizations, such as the Internet service providers, actively work with all law enforcers to help identify those offenders in Canada, and do such voluntary action as taking down notices. There are existing laws and we have to make sure laws that protect Canadians are used through new media such as the Internet. We have to make sure they don't in some way have a loophole that excludes that. But we don't need to go out and bring in a whole new set of legislation just for the Internet or electronic commerce, because existing rules can be and should be adapted to work in this environment.

Human rights and environment rights are important to Canada, and we should continue to raise them at international forums. We won't always be successful because other countries have other priorities. Just because we bring them to some place like the WTO doesn't mean we need to win, but we can continue to put them forward. Having Canadian laws in an international world might make us feel better, but it doesn't generally achieve a lot. It's only through pushing and continuing to push on the international agenda that we will really see progress in these areas.

On culture exemptions versus legislation, culture is a very important issue to Canada. It's very important to Quebec, Newfoundland, and every other part of Canada. We believe that by promoting our culture and encouraging our companies and creators to promote their abilities, both in Canada and internationally, they will be successful and we will be able to protect our culture.

Legislating things like Canadian content in an international environment will be very difficult to enforce. We have some phenomenal examples of Canadian culture that are successful internationally; we just need to ensure as much as possible that our efforts are going into promoting other businesses, other creators, instead of trying to put up fences we can't defend.

Mr. Andrew Reddick: I have a couple of comments. We generally agree right now you can't regulate the Internet; however, in terms of culture and content, the pragmatic options are through content funding and support and development of content. We know companies in Canada are positioning Canadian content on the web so it's easy to find and are packaging it that way. Rather than straight regulations, there are other options or opportunities to foster that.

Over the long term, I'm still skeptical about the Internet forever being a wild west. Radio started that way in the first part of the century until about the late 1920s. Anybody in the U.S., for example, could buy a transmitter and broadcast AM signals back and forth, and a lot of people did. But by 1934 a whole new regimen came in. It was licensed, and you had to go through a licensing process, so the whole model changed and shifted.

I spoke earlier about trends in the industry. Over time, as the Internet itself becomes merged into other services, with other companies delivering other services, we'd like to see more of an industrial model applied. At the moment it's still a free-for-all, but you can't make money on something you can't control. If e-commerce and other communication information services develop we will see a more structured Internet down the road. Maybe 20 years from now there will be more regulation or control, depending on how it develops. It's just a guess now; we don't know what it's going to look like.

• 1020

It's also important to remember that most people in the world cannot make a phone call, let alone use the Internet, so we're talking very much about OECD countries with this. They account for well over 90% of the type of trade we're thinking about here.

In terms of e-commerce, I would agree there are many existing laws that already apply to on-line transactions. Some of them need to be adapted or somewhat updated to deal with electronic commerce. In a lot of our research we found the public is very interested in electronic transactions for certain types of products and services. We also found there's a matrix of issues or concerns, before they actually want to go on-line, about price, consumer protection redress, and security of the transaction, how Canadian or local the company is, and how well they know the company or business. It's not just one of these, it's a combination of these things.

So I think there's definitely a role in looking at consumer redress and protection issues. I know a lot of work is underway right now, where our group and others are involved with Industry Canada in looking at developing e-commerce and privacy protection through the OECD framework. So some of these different initiatives are underway, and hopefully over the next year or so we'll see something more substantive.

Mr. Michael Flavell: On a policy note, if I could very briefly, I kind of like the idea, vis-à-vis culture, of gathering some like-minded countries and trying to create a culture agreement, a culture subagreement, or some kind of body of agreement relating to culture.

I'm not sure the exclusion type of approach is the way to go. We've already seen that if the culture exclusion in NAFTA goes wrong, it can be very expensive. The idea of culture as an exemption exclusion seems to put it on the defensive. It seems to indicate “You can't do that to us on culture”, as opposed to saying “Here's what we can do”. I would put forward the idea—and I think others have espoused this already; a gentleman was quoted in print the other day as saying this on behalf of some group—we should be looking more proactively at culture.

The Chairman: We had a very good panel on culture the other day, and those two ideas were canvassed. I think everybody's trying to grope their way around this, just trying to decide how to be proactive and what new instruments to use. Thank you for those comments.

We have 20 minutes left and four people on the list, so we'll try to keep it to five minutes each. Mrs. Finestone.

Mrs. Sheila Finestone: Thank you very much, Mr. Chairman. I have to make a first observation. I've been sitting here like on a swing or a yo-yo—never mind the elephant and the mouse.

It strikes me the Canadian public and the need for transparency and better understanding of the implications of the World Trade Organization, the International Monetary Fund and all those complicated names and words that sank the MAI, etc., are being underserved, and our responsibility.... We should be on CPAC with a panel like this.

The Canadian public not only deserves but should have the option to learn and to be exposed to the thinking of people who put a great deal of time and effort and mental energy into the subject matter that's going to occupy our lives, starting at the beginning of September when the World Trade Organization starts to meet again. I sincerely regret that the cultural panel last week and this panel aren't on there.

I just want to register that, with the hope that when we have other panels or maybe recover these panels in some way, it would be in the interest of transparency and consultation and better understanding of the general public. Frankly, I don't know which elephant and which mouse I want to attack first.

The Chairman: Mrs. Finestone, I think that's a very good point. I want you to know it's always been my practice to automatically ask for the TV room when possible. Obviously other people request it, so we don't always get it, but your point is well taken.

Mrs. Sheila Finestone: Thank you very much.

In light of the conversations we've been having and the exclusions, inclusions, cultural diversity and potential for coalition with like-minded countries, etc., does the new Bill C-54 that's wending it's way through the House on e-commerce—essentially the privacy bill—have the potential to protect the consumer and ensure a degree of privacy, as we enlarge our horizon for trade, commerce and industry, and build up our profits and businesses? Am I, Mrs. Little Consumer, protected anyway? How much do you know about me? Is there really a Big Brother chip out there?

• 1025

Mr. Andrew Reddick: Unfortunately, the lawyer who is working on that file isn't here today, so we will have to use second-hand information. It's a good start in protection. I think quite a few consumer groups that we work with and deal with find that it could be a big stronger in some areas, but it's a good starting framework.

I think we have to look at how that is going to coordinate with the European regulations on privacy as well. There has to be some symmetry. It's a good start; I think it's probably a good starting framework, and most people agree that it's okay as a beginning. I guess we'll have to see how it actually works on implementation, because as it applies to different sectors, it gets more difficult in terms of redress, oversight, and monitoring. We've had nothing before, so I think it's important from that point of view.

Mr. Jim Carroll: I think in many ways the consumers need to be protected from themselves. I think what is happening out there is that the corporate world has viewed the Internet as a wonderful opportunity to grab all kinds of private information.

An example I use quite frequently that really bugs me is Canada Newswire. You can go to that site, and you can register for a service to receive press releases about any particular company. When you sign up for that service, they want to know your name, your address, the value of your investment portfolio, the level of income you have, whether you've gone to college, etc. They ask for a bunch of private information. They note that they will not misuse that, they will not share that with anyone, etc. Every time I go to the site and I have to fill out that form, I just tell them my name is Bill Gates and I make $2 billion an hour. I don't think they have a right to that type of information.

The thing is, there are a lot of corporations that are doing that type of stuff, and there is misuse out there. When we were writing one of our books about investment on the Internet, we visited a number of sites in which you had to register to enter certain areas of the site. My wife was filling out the forms and she was using her maiden name. Within a couple of weeks we were receiving credit card solicitations from another organization. Clearly the information that we were told on the site would not be shared was shared and made available to other business organizations.

I think consumers need to be made aware. Don't give it if you don't have to. If there's not a real economic transaction, tell them you're Bill Gates or whoever you like. I think the corporate world does need a little bit of slamming around to make them aware that this type of privacy grab will not be tolerated.

Having said that, in this new business environment in which there is a re-engineering of the business transaction, there is a need for sharing of information. If you take the insurance industry, they need to share a lot of information in the back when a policy is underwritten by 10 different insurance companies. You have to have that information shared. So there has to be a level playing field between the needs of the consumer and the needs of the corporate world.

The Chairman: Is that on the WTO agenda? Does anybody know? Because we should know—

Mrs. Sheila Finestone: Mr. Chairman, I'm glad you asked the question because, quite frankly, that's my next question.

The Chairman: Great, because I think that's our problem. I'm not sure they think they have an ability at the WTO to deal with this. They'll liberalize the rules to let everybody do what they want, but they're not in the business of constraining them, it seems to me, in this respect.

Mrs. Sheila Finestone: They liberalize the rules, they affect and impact our quality of life. They don't allow us the opportunity to express ourselves in a limited share of the market space. They challenge even that under the cultural exemption issue. I listen and I know that the Canadian population still wants the CPP and still wants medicare, still sees those social attributes as part of the quality of life, doesn't know if business interests such as Intel Pentium III, such as the other types that have come out, free choice, etc.... There are some very disquieting things going on.

My question, Mr. Chairman, which I hope someone can answer some day, is who has the oversight of what the WTO ends up doing? Who knows what decisions our ministers are essentially taking? It's all in camera, shall I say, and certainly who knows how those trade panels work, when we don't even have access to the minutes and the undertakings that render the judgments in the end?

Mr. Carroll, I understand what you're saying, and you can sell your book and things are not protected, but I am interested in my children's school textbooks and that they be protected. I am interested that my children don't have a little cookie that's offered to them as they are playing a game on Internet, and in cyberspace they are asked what colour car their daddy drives and where their mummy shops and do they go to the supermarket or the corner store. They're just gathering all kinds of information and God knows who knows what about me. I hope they're enjoying it; if they find something interesting, let me know.

• 1030

The question fundamentally is, do we need a parliamentary association that's going to oversee this incredible WTO and all the other things that are attached to it, such as the IMF and the World Bank?

Ms. Jean Augustine (Etobicoke—Lakeshore, Lib.): The IPU.

Mrs. Sheila Finestone: Yes, I'm sorry, that's another thing. You have NATO and you have OSCE and you have the European Parliament. They all have parliamentary oversight of what's going on, but who's overseeing a fundamental thing that's touching our everyday life? The business world in which we live, as consumers and as viable human beings with a way of life.... I don't want my children's textbooks determined by some company on Internet in cyberspace; I want it done in my community, based on the values I have as a person, reflecting what's gone on in the aboriginal world, what's gone on with the minorities, how we live together in peace and harmony, and that isn't necessarily the American experience or the European experience. I don't want my schoolbooks out there and I don't want my health and social services run by some other company around the world. I want my hospital and health and social services run in Canada by Canadians. Is that so terrible?

The Chairman: Does anybody want to answer?

Mrs. Sheila Finestone: I just gave my speech. That's finished.

The Chairman: Mr. Reddick, you can take this as a soft lob to you.

Mr. Andrew Reddick: First, I agree that it is the tail wagging the dog syndrome, and I think you're right that the WTO does need to be responsible to the countries in a democratic world. Presumably we're in a democratic world, so I think that's an important point in how that's positioned.

The second thing is that when we talk about rule-making at the WTO for industry—and I think you touched on the issue of consumers and other issues and whether it's the environment or health and safety of products—that brings in the whole question of consumer sovereignty. Ostensibly part of trade is that people buy products and services, and I think you're absolutely right, that whole area of consumer protection and environmental and all the issues you identified in your invitation to us need to brought into the World Trade Organization as part of the decision-making process.

We don't take consumer sovereignty to mean a choice between products. We take it to mean that, but also the ability to input into decision-making how products are made or developed, what is made or developed, and under what terms. What are the terms under which products and services are made and made available in different economies? That goes back to the consultation and participation under consumer protection laws and redress mechanisms. So I think that's a very important point you raised. It has to be more than just intercorporate concerns.

Mrs. Sheila Finestone: The concern too looks at negative options and the partially sighted, the partially deaf. How do you protect them too from this Internet invasion in their personal lives?

The Chairman: Thank you. We're going to have to move on because we have three more and we have 15 minutes.

Mr. Munson, did you have a quick comment?

Mr. William Munson: I wanted to make a couple of points. First of all, I guess 30 years ago we wouldn't have imagined that the EU would have moved from strictly a trade arrangement to a community with its own parliament, so who knows what the future will hold?

On the privacy points Mrs. Finestone was mentioning earlier, the work program on electronic commerce of the WTO does include work on privacy, as adopted by the General Council of the WTO in September of last year. I'd also like to point out that the Information Technology Association of Canada spoke before the industry committee last week in support of Bill C-54, about the privacy provisions and the general electronic commerce provisions of that bill. So industry is supportive of the need to protect personal privacy.

Mrs. Sheila Finestone: The Consumers Association, which reflects the consumer, like the population of Canada, had some very interesting things to say that didn't totally support the point of view you've presented.

Mr. William Munson: That is true, but they did basically support, when they were questioned, the bill. All of us would have suggestions to make, and we made some, but fundamentally I believe the consumers and some of the industry groups, certainly our own, are basically supportive of that bill, in large part because it is based on the CSA model code that we all sat around the table over a number of years and drafted together.

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The Chairman: I have one quick question. What international organizations, other than the WTO, are charged with this privacy file? Is it being discussed in the OECD?

Mr. William Munson: It has been discussed in the OECD.

The Chairman: So it's in the WTO, the OECD—

Mr. William Munson: FTAA.

The Chairman: FTAA, obviously. Is it in WIPO and those sorts of international organizations that deal with intellectual property law and stuff?

Mr. William Munson: To my knowledge, it hasn't been discussed in WIPO, but it will have to be because of the well-recognized need for information or for tracking of usage of materials on-line.

The Chairman: Is there a recognition that all of this is going to have to be coordinated, that we're not going to have a set of WTO rules and a set of FTAA rules that will be different?

Mr. William Munson: Just about everybody makes the point that we should be coordinating with everybody else, but that doesn't mean it will happen.

The Chairman: Okay, that's fair.

Mrs. Sheila Finestone: What's WIPO?

Mr. Daniel Turp: World Intellectual Property Organization.

Mrs. Sheila Finestone: Thank you.

The Chairman: Mr. Penson.

Mr. Charlie Penson: It strikes me that the World Trade Organization is one that works on the basis of consent. It's a consensus-based organization, and it seems to me that we're getting more and more into the area where they're going to have to have their own police force pretty soon—cultural police, environmental police. At this moment I think this has to be an organization that works on the basis of consent.

So I throw that out first, but the question I have would follow up the discussion we had earlier with Mr. Carroll and Mr. Flavell. In regard to Mr. Carroll, I agree with you that the Internet is a fast-moving technology, and that we are going to see more of our economy based on that. If that's true, doesn't it really make our dumping regulations redundant?

The example I give you is the very one we talked about earlier, the cultural industries. I saw somebody on TV last night from the publishers saying that, really, this was dumping in the cultural area—although I noticed that they didn't take a dumping case, so they obviously didn't feel it applied. As we go down this road farther and that becomes more of our economy in this fast-moving technology, doesn't it make the dumping and countervail in those sectors sort of redundant-type legislation?

If so, Mr. Flavell, you had suggested not going too far down this road of international competition policy, so I wonder if there is any role at all for competition law or trade law in these areas.

Mr. Jim Carroll: I open my comments by noting that I don't know a heck of a lot about international trade law and so on, so I don't know if I can really speak to dumping and stuff. I do know that when I sat on my exercise bike this morning, I put four computers there and I spent an hour on it working away and reading a lot of web pages to be kept up to date.

I probably read seven major U.S. technology and news sites, one Canadian site, and a couple from Asia. I'm going to choose to read and view what I choose to read and view, and there's not a heck of a lot that any piece of legislation is going to do to affect that, unless Canadian cultural producers can raise the quality of that which they provide. I, as much as anyone, recognize that is very difficult to do when they have far more resources than we do.

But I think one of the most fascinating things I observed that is going on in the Internet, from a Canadian cultural perspective, is the community newspapers that are out there. There are literally hundreds that have established very effective, very sophisticated web sites, that really do give you a true magical picture of what's going on across the country. People are doing that on their own initiative, on their own dollars, for their own reasons, in the absence of any legislation that forces them to put a certain amount of Canadian content—

Mr. Charlie Penson: You're suggesting there's a market already establishing—

Mr. Jim Carroll: I think there's a heck of a lot of Canadian content that is emerging at a grassroots level.

Mr. Daniel Turp: Did you read those newspapers this morning?

Mr. Jim Carroll: The community newspapers?

Mr. Daniel Turp: Yes.

Mr. Jim Carroll: Not this morning, but I do access a number of them regularly. I'm a native of Nova Scotia, so I have a look at a few of them to see what's going on back there.

Mrs. Sheila Finestone: Mr. Chairman, on a point of information, I'm so fascinated; I want to know what speed-reading course he took, and did he go to the John F. Kennedy school?

The Chairman: We want to get his machine installed up here in the Confederation Building. But anyway, we'll go back to—

Mrs. Sheila Finestone: How does he vet it? How does he know what he wants to read with this mass of material in front of him?

Mr. Jim Carroll: Over a period of time, you choose the items that appeal to you. It's the same with newspapers, magazines, and TV.

The Chairman: Mr. Penson.

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Mr. Charlie Penson: I have a question for Mr. Flavell. Considering that you talked about maybe going easy on the international competition law, which I understand will be part of the negotiations in the next round, what about this issue of dumping in these high-technology areas? Is it redundant legislation? Where should we go with it?

Mr. Mike Flavell: If answered very legalistically, it's an easy answer, and that is because the anti-dumping regime set up in the GATT and now in the WTO only covers goods; it does not cover services at all. That's why in the split-run magazine situation we did not take a dumping case. We couldn't fit ourselves within the rules that it related to goods because the government took the position that it related to services. That's the easy legalistic issue.

I might say as an aside, Mr. Chairman, that I'm regarded as a bit of a Luddite in our office. I was just sort of on my way to becoming computer literate, and had I known that I had to get up at 5 in the morning and read all these newspapers, I think I might have stuck with the typewriter.

The Chairman: But you can't take your typewriter to bed with you.

Some hon. members: Oh, oh!

Mr. Michael Flavell: A quick answer to Mr. Penson is that there won't ever be, I don't think, an anti-dumping regime applied to services. The debate will be whether there should be such a regime in relation to goods, and I have put forward the reasons I think there will be such a regime. Without wishing to defend it, I think there will be one for the foreseeable future, because (a) the Americans want it, and (b) oddly enough, although everybody's talking about getting rid of anti-dumping, I think I'm right that somewhere between—Mr. Graham will know—20 and 30 new anti-dumping regimes have been created around the world pursuant to the latest WTO agreements. So we're certainly not winning the battle just in terms of numbers.

The Chairman: I think the phenomenon is that the Americans invent these things to protect themselves and then they're horrified when the rest of the world picks them up and says, we'll follow that example, thank you very much, and they find their goods are getting whacked by their own crazy inventions.

Mr. Charlie Penson: The irony, Mr. Chairman, is that it was Canada who invented the first dumping legislation.

The Chairman: I know. We had the first competition law too, so there you are. We're ahead on lots of fronts.

I have Madam Augustine and Mr. Assadourian left. Madam Augustine.

Ms. Jean Augustine: Thank you, Mr. Chairman.

The Chairman: We're going to try to break around 10.55 a.m.

Ms. Jean Augustine: I'll be brief.

The Chairman: This is the right clock.

Ms. Jean Augustine: I want to express my appreciation to the panel, as I think they brought to the table some really interesting discourse and arguments.

I want to direct my remarks to Mr. Reddick. I was intrigued by point 13 on that paper that was given to us where you said quite clearly, “First, we do not feel that it is appropriate at this time to change the levels of foreign ownership permitted in the communications sector”. I wonder if you could elaborate on that for us, because I think it's important that we have some clarity in this area.

Mr. Andrew Reddick: I think I briefly itemized some of the points behind that reasoning. Over the last 10 years or so we've been restructuring the whole communications sector, both telecommunications and broadcasting, and we're still in the midst of that. We're still about to introduce local competition. We're supposed to have cable competition. There's a lot of churn within the industry in Canada, and until we get the dust settled on that and sort of stabilize the marketplace, I think the last thing we need to do is to open the doors and have AT&T, British Telecom, and all sorts of others charging in to sort of restructure the industry again.

Right now we're still finding our way. We're trying to look at how we change our subsidy approach to keep the telephone system affordable. We're looking at some of these cultural issues we've been discussing. How do you deal with content as the industry changes and converges into computing? A lot of these are very domestic issues, whether it's competition issues, the structure of the Canadian economy, looking at the winners and losers of the companies in the Canadian economy, and the whole social side of service delivery and access.

In our view a lot of that has to be resolved in Canada before we deal with the issue of what happens when you allow foreign ownership. Let's be quite frank about it. When you open the doors to foreign ownership, it may not change the circumstances within a country, but it might. What you do is create an opportunity where decisions about R and D, about investments, about service, whether service is just provided in Toronto or Montreal or across Canada, are made in other countries, other cities, and in benefit of shareholders in those countries and other cities, and that's fine. That's the way the market works.

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But we're dealing, again, with core infrastructure, a core utility that affects the participation of Canadians in society. It's not just for economic transaction; it is for participation, for education, for cultural benefits and goals, and as a country with domestic interests, I think we need to be very careful about how we structure that in order that those decisions are made in the best interests of Canadians and Canada. So by changing the ownership levels, we open the doors to all those different issues and questions, and quite frankly, I don't think we're ready to deal with that yet.

As a quick wrap-up on that, given the health of the industry and the fact that there's a lot of foreign investment in the industry already, I think that proves the point that there's not a problem in terms of the companies within the sector getting financing for what they want to do and the resources they need.

The Chairman: Thank you.

Ms. George.

Ms. Shirley-Ann George: I have a slightly different perspective. We all believe Canada should proceed with care—that is, don't just one day have a huge amount of regulation and control and turn the switch off and let the market go where it may. At the same time, Canada has benefited greatly from increased telecommunications competition. Before my daughter went off to university, I routinely got four-page telephone bills, and if I had done that as a child, it would have cost several hundreds of dollars instead of under $100, and now there's unlimited long-distance for under $20 a month.

In Canada we also pay more for bandwidth, which is essential for increased electronic commerce, than our American counterparts do. So that's another area where increased competition may be able to bring about benefits for consumers.

So whereas we need to proceed with care, Canada benefits greatly from increased competition in other parts of the world, especially where other countries have been deregulating their telecommunications services. If we want to gain all these benefits, we also have to understand that we're going to have to give up some of our controls in Canada as well.

The Chairman: Thank you.

Mr. Assadourian.

Mr. Sarkis Assadourian (Brampton Centre, Lib.): Thank you very much. I'm sorry, Mr. Chairman. I came in a bit late, but I got the end of Mr. Carroll's statement. I was scared. That's really scary. I'm sure 10 or 15 years down the road we may regret being here and basically doing not much to overcome the fear that we have now.

It seems to me there's a Big Brother concept out there. Big Brother used to be the government. Now Big Brother is the computer and those who control the computers. They tell you what to eat; they tell you how to dress; they tell you what to think. They even tell you about the future.

We've had witnesses coming here during the last few weeks from different companies. To give you an example, it could be IBM or Boeing, big American multinational companies. They come here to express their point of view to the committee about the WTO or other issues. Basically it's not what they tell us from their point of view, rather it's the point of view of their parent company, which most of the time is in the United States.

We're losing our sovereignty in some ways, because when we listen to IBM Canada, or Volvo or GM, or whatever the case may be, to foreign companies through local companies telling us what's good for them, that is not necessarily good for Canada as a sovereign state. It is good for IBM in the United States. So when we go to the world conferences we represent their point of view, because the little guy, the pink or purple company that my colleague mentioned, has no chance to come down here and hire a lawyer and present their case, their point of view.

It's Big Brother again controlling us. How far are we going to go with this concept? Where are we going to draw the line? In the last century we had colonial powers sending in the army. Now you don't have to send in the army; you send computers.

Mr. Jim Carroll: I'll answer that in several ways.

Number one, I think to some extent we've already lost our sovereignty in dealing with certain issues. The Intel Pentium III chip is an excellent example of that. That's a situation in which a company has designed to do something with the technology, to add a certain feature into it that could make anything I do on the Internet in the future known to a company that wanted to track what I was doing. I will never buy an Intel Pentium chip again, as long as I live, because of the feature they've put in that. What Intel has done there is they have basically determined for Canada a certain aspect of the privacy issue. They've taken away our capability of uniquely determining what we might want to do.

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That's the first issue. I do worry about the privacy issue. That's probably the thing I worry about the most on the Internet.

The second thing is that dealing with fear and Big Brother, and are we headed for that, and so on, I think we have to recognize that we have a certain demographic at this table, and we've all grown up with the mainframe and the punch-card computer and big ugly technology, and so on, and that our generation and older generations have an inbound fear and concern with technology that younger generations do not. Younger generations have grown up with a computer since birth. They've seen another side of it. They have a different attitude towards it, and they don't have many of the same degrees of concern that we have. And what they also recognize is that the Internet, this global communications tool, gives them a means to deal with issues far more quickly than legislators can.

A very good example happened I think a couple of weeks ago. @Home is one of the largest Internet providers of cable modem services to access the Internet. They modified their user agreement so in essence it would give them the right to monitor my electronic mail and let them publish that to the world. An immediate consumer backlash arose that caused them to back down in a matter of days. I think we underestimate the capabilities of this younger generation to use the tool to right the wrongs that they see occurring, particularly when it comes to privacy issues.

The Chairman: They way they used the Internet for the MAI debate.

Mr. Jim Carroll: You learned the power of the Internet through that whole process.

The Chairman: It was all totally Internet driven, it really was. We've had groups here before us telling us they're talking to their fellow groups in Europe and in Asia and everything about these WTO negotiations. They were all doing it on the Internet.

Mr. Jim Carroll: That's right.

Mr. Sarkis Assadourian: A few years ago, we used to get mail that high. Now we don't get much mail, just 10 or 15 envelopes a day if you're lucky, but everything else.... My staff come in, open the computer, and give me a whole bunch of sheets.

Mr. Jim Carroll: We are becoming a technologically bound society. The computer is going to play an increasing role in our lives. And if you look at the younger generation.... I have children three and five years old. They treat the computer very differently from the way I do; they have a different type of relationship with it. And I think we need to keep in mind as we're dealing with issues today what the kids of today are going to be thinking about this issue 10 or 20 years out when they're sitting around this table. Will they want to see the same type of approach as what we have suggested in dealing with it? I think this committee should get a bunch of 15-year-olds and 20-year-olds at their table to hear their perspectives.

[Translation]

Mr. Daniel Turp: Having young people appear before us is an excellent idea.

[English]

The Chairman: That's not a bad idea. But our researcher was reminding us that when we were doing the child labour thing, as you may remember, we had 11-year-olds coming here and talking about how they were talking to children in India on the Internet and by e-mail about carpet weaving and all the problems that dealt with the child labour. Remember, they had not yet got to high school and they were sitting right here as witnesses.

Ms. Shirley-Ann George: Remember that they have the opportunity to work together to effect change far faster than a legislative or a regulation system can achieve. No matter how well-intentioned you are, organizations like the CRTC have a process that they need to go through, a necessary process, that puts their outcomes several years behind where it needs to be, because change is happening so quickly.

The Chairman: This doesn't necessarily work in our favour. I remember a famous remark by Conrad Black when he was into a fight with Mr. Rae, and he said, “I can get my bank account out of this country faster by Internet than Mr. Rae can get to the legislature.” And that's our problem. We're sitting on the legislative side of the thing, guys, just don't forget that.

We really have to break in about one minute.

Mr. Andrew Reddick: If I could make a quick comment, I think we need to bear in mind when we're talking about the Internet that probably at least 30% of the Canadian population will never use the Internet, seniors and others who have no interest, no need. So I think we have to bear in mind that there's a dual society here.

The Chairman: You're looking at one of them. Talking about seniors, I'm about to leap into that category.

[Translation]

Mr. Daniel Turp: There's one thing that concerns and disturbs me, in light of your remarks this morning. You are telling us that we should take the market share that is rightfully ours, and in particular our share of the cultural market. Instead of preventing things from happening, you say, we should make things happen. However, you have to have the means to make them happen.

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How can we take our place in the international community when others have so much power and abuse their power?

I really would like to see more European, Canadian and Quebec feature films in movie theatres in Montreal, Ottawa or Toronto, but the problem is that there aren't any.

Mrs. Sheila Finestone: That's right.

Mr. Daniel Turp: There's no room in movie theatres for these films because they are owned, controlled and distributed by people who are more powerful than we will ever be.

It's not as simple as saying we should invest money, award grants and insure that our culture prospers. It's also a matter of power or means. Others have more power and abuse it. So perhaps we need measures to prevent certain parties from abusing their power and buying up all the planet's movie theatres and distribution systems, thereby using the power of their means and their money to hold back the development of other cultures. In my view, it's not simply a matter of utilizing our means to take our place.

[English]

Mrs. Sheila Finestone: The cultural diversity—

[Translation]

The Chairman: It's a statement and not a question. If it were a question, we'd be on it all afternoon.

[English]

I have to break now because we have the secretary general of the OSCE coming in to see us. And, members, as you will recall it was announced this morning that the Kosovar Liberation Army will be signing the agreement. It's a question therefore that if the Serb authorities sign it as well, it will be the OSCE who will have the obligation to enforce and bring that agreement forward. So I think hearing what the secretary general has to say, given the fact that we have some 80 of our own Canadian observers in Kosovo at this time, will be well worth our time. He's going to come at 11 a.m. and we can only keep him until 12.15 p.m.

I'd like to thank the members of the panel very much. It's been a very stimulating, very interesting morning. Thank you very much. Mr. Carroll, I'm going to ask you if you'd be good enough, when you're riding your bicycle in the mornings, to watch CPAC to see what the legislature is doing—amongst your other things.

Thank you very much for coming.