:
Let me just give you a little bit of an overview. I've been in the portfolio now for about three and a half months, and I think it's probably timely to give you a perspective as to what I'm thinking about in terms of priorities and Canada's trade position, where we've been, where we are, and some of the issues that I, as minister, and you, as a committee, need to turn our minds to over the next few months.
I would say, first off--and this will come out as part of an international trade report we'll be releasing on Thursday--that Canada's trade performance and our economic performance has been really quite good, if not stellar, the last few years. You'll see on Thursday that our exports are going to exceed $516 billion for the year 2005, which is a record. Our current account surplus is going to again be of record scale. When you look across the economy, we've seen a very strong macro-economic performance in Canada, whether you're looking at job creation, the unemployment rate, or the growth in investment in retail sales.
Generally, throughout the economy there has been in Canada a very strong economic performance, but I would caution members of the committee, and I would caution you in the following sense: that a lot of the economic strength that we have seen, both in terms of trade and in terms of the macro economy, has really been strength that comes from a couple of sources that we cannot be sure will be there and provide the same kind of momentum going forward.
First off, committee members will know that we've had very strong commodity markets over the last few years, particularly in energy, but extending to a variety of commodity products. That has created an enormous economic stimulus in Canada. It's a stimulus that is welcome, and it has provided all kinds of opportunities for Canadian companies that have the opportunity to participate in the natural resources play, but it also has some other implications. People will realize that the Canadian dollar has risen dramatically in the last three or four years. Indeed, I think we've seen something like a 40% appreciation of the Canadian dollar, and most analysts will attribute the performance of the Canadian dollar largely to what's happened in the natural resources economy. The rise in the dollar, then, has repercussions for the rest of the economy, the manufacturing sector in particular, so we've seen some of the ripple effects of the strong economy showing up in pressures on manufacturing. It starts to translate into regional pressures, because manufacturing tends to be regionally concentrated in this country. So we have had, on top of a stellar performance, some emerging frictions that we should talk about as part of today's deliberations.
We've also had a very strong boost in economic activity, employment, investment, and just general economic activity over the last eleven years pursuant to NAFTA. We entered into the North American Free Trade Agreement on January 1, 1995, I think, and over the last eleven years most would say that NAFTA has been very good for Canada. Unfortunately, in spite of 97% to 98% of our trade under NAFTA being very positive and trouble-free, we've also had some NAFTA-related frictions, of which softwood lumber is the most prominent.
Unfortunately, in the United States, in Canada, and indeed in Mexico, NAFTA has been seen by much of the public not so much in terms of the very positive aspects, but in terms of some of the trade frictions. Here in Canada we hear all the negatives about NAFTA in terms of the trade frictions, and on the American side of the border it is not any better. There are a lot of misgivings about NAFTA on the U.S. side, and the same applies in Mexico.
Looking forward, we're going to have to give a lot more attention to how we secure and improve and fine-tune the North American Free Trade Agreement to ensure that the opportunities NAFTA has created for Canada continue to grow in the future.
When you look around the globe and look at the context in which Canada will have to be a successful trader, we also observe that the process of globalization has fundamentally altered the international economic landscape. We're now in a world where you don't think so much about what to export to whom; you think in terms of global supply chains.
Global supply chains mean that we are often exporting and importing massive amounts between countries in the same industry. We're in a world where the global economy is served through supply chains, which entails investment, often in multiple countries around the world.
That creates a new world in terms of international trade and how Canada can continue to participate, going forward. Because it really means that for Canada, it's not good enough to focus only on exports or imports or the trade balance. We have to turn our attention to the flow of international investment. And it's not just the flow into Canada, which we clearly value and would like to see grow. It's also the flow of Canadian investment into other countries, because without that two-way flow, we are simply not going to see the trade performance or the development of efficient global supply chains in which Canadian companies and workers can participate.
Those are the kinds of challenges we're facing, going forward, and it really means for Canada that we have some serious work to do. When I say serious work, I'm thinking in terms of the architecture of our trade agreements.
We all know, almost by rote, that Canada depends on a stable, secure, rules-based trading system. That's really what allows a small trading economy like Canada to prosper in a global economy with giants like the United States and emerging giants such as China and Europe and others, and to participate in a reasonably fair and somewhat more equal way.
So we have to focus on the WTO, which is the framework within which rules-based trade is established multilaterally. It really is the only framework in the world where there is a genuinely international legislative framework that defines the rules of trade and investment.
NAFTA has been extremely important, as I said earlier. But we have to remember that NAFTA is not an agreement based on a transnational legislative framework. NAFTA is an agreement among the three partners, but disputes under NAFTA, as we know all too well, are adjudicated on the basis of domestic laws.
When people talk about chapter 19 and dispute resolution in NAFTA, what they're really talking about is whether the Americans are applying their own laws correctly. Those who would say, for example, with respect to softwood lumber, that we should fight it out, we should litigate, we should look for endless legal victories, and that will save chapter 19 of NAFTA are really kidding themselves. Because what they're really doing is creating an environment in which a protectionist Congress will simply start to look at its own laws and make adjustments, or pass new laws, and make it much more difficult to win chapter 19 and dispute resolution cases.
That's dispute resolution under NAFTA. It's not pretty, but it's what we have and it's better than nothing.
There are advantages to having NAFTA chapter 19, as I said the last time I was at the committee. It gives us an opportunity to recover duties after we win a dispute. But NAFTA needs some more work; it needs collaboration, and it needs good will among the partners in order to make it a more effective instrument in going forward. That will be a critical priority.
I would also point out that Canada has fallen behind over the last ten years in terms of launching bilateral free trade agreements with other countries. When you look at the United States and Mexico, you're looking at countries that have entered into a multitude of free trade agreements with other countries. The United States has 12 free trade agreements with 18 countries. Mexico has 13 free trade agreements with 43 countries. Australia has been aggressively forging free trade agreements. Canada has really only entered into one free trade agreement in the last five years, and that was with Puerto Rico,
If you believe, as I do, that Canada and our prosperity is going to be fundamentally driven by international trade, we have to re-energize and focus on a successful WTO round. We also have to hedge our bets and look at more aggressive negotiations of bilateral free trade agreements. The free trade agreements of our trading partners are creating advantages for our competitors in third country markets. We cannot sit back and simply allow Canadian companies to be discriminated against as a result of what has become a competitive proliferation of free trade agreements.
Perhaps I'll end on the general issue of competitiveness. People will realize that there's been a lot of talk about productivity performance in Canada in the last few years. Our productivity has not been great. Our competitive position, even though we've had a strong macro economy, has not been very strong and we've been falling behind the United States, not to mention some of the really fast-growing, high-octane economies in the world.
As part of our trade development program in going forward, we're going to have to focus on the nexus between trade and competitiveness. It will mean that we'll have to look at a lot of domestic policy issues running from taxation through to regulation, infrastructure investment, gateway transportation logistical systems, and infrastructure in terms of broadband and access to the information economy. All of those areas of public policy are going to be central to ensuring that Canada's competitive position is strong when going forward.
The bottom line is this. Canada is the most trade-dependant economy of the major industrial economies, which means our trade performance will cause us either more happiness or more pain when going forward, depending on how we do in relation to competitiveness and how we do in relation to evolving trade agreements. It will be a fundamental driver of the Canadian economy, wealth creation, our ability to fund social programs, and our ability to provide the kinds of employment opportunities that our kids and our grandkids are going to aspire to.
Thank you, Mr. Chairman.
:
Thank you, Mr. Chairman.
Thank you, Mr. Minister, again, for making yourself available to the committee. We had a discussion on softwood with you some weeks ago. You came back very quickly on the main estimates—I certainly appreciated that—with your officials, who we also welcome to the committee.
Mr. Chairman, I had two questions for the minister, and if there is some time remaining before we move down, or go to the vote, I know Mr. Maloney also had some questions, or perhaps he'll come to them on the second round.
The previous government had looked at a proposal called CAN-Trade. I know you were familiar with that in your previous capacity. In my understanding—and you would perhaps have more details than I had—it was a proposal for about $470 million over five years to increase the budget of your department, to communicate challenges of new markets to small and medium-sized businesses, to showcase Canada as a potential high-tech joint venture partner and a place in which to invest in order to access NAFTA, to help some of the small and medium-sized businesses break into some of these new and emerging markets, and also to increase the presence of trade commissioners and people who work in your department, who from my experience do phenomenal work in difficult circumstances, in places like China.
One of our colleagues was suggesting increasing from five posts to 25 in China, because there are 53 Chinese cities with over a million people, for example. You would know this, Minister, better than the rest of us. I'm wondering what your department's plan is with respect to the CAN-Trade initiative. Do you see that increased funding on the horizon, and if so, how would you be using that additional money to improve, as I say, what I think is the phenomenal work that your department does at various posts around the country and here in Canada?
I have a second question, and I'll give it to you, Minister, so that you can perhaps answer without my having to interrupt you again. When you were here, we talked about remanufacturers with respect to softwood lumber. You said--and I thought that was very positive--you hoped to perhaps appoint a person who could really address directly the concerns of the remanufacturers. I know that they still have major concerns with respect to the potential softwood deal. I'm wondering if you have appointed somebody who is now in place to work with them on a thing like, for example, a carve-out quota, or some provision so they don't end up getting a haircut inadvertently in some future deal.
Similarly, you had talked about looking at options to get some of the deposit money into the hands of Canadian companies, which I know are in very difficult circumstances, sooner than perhaps the normal mechanism, complicated as it is, might allow. You said your department was looking at options or something, recognizing that perhaps six, nine, or twelve months may not be acceptable. I'm wondering if you have an update on what that might be.
Thank you.
:
On CAN-Trade, we are doing a strategic assessment right now. I would say I am, and have been in the past, very positive and supportive of more resources to be put into trade development. That's a combination of International Trade and Foreign Affairs, Export Development Corporation, Canadian Commercial Corporation. We need more boots on the ground and we need more people who understand what the value proposition is to the private sector to have government people providing them with information to open doors for them, to help them identify and execute joint ventures, and all that kind of thing. I'm very supportive of that.
I believe the way we need to approach it, however, is to start with the architecture of our trade agreements. In other words, in the case of China we really do need to make more progress, and we are making good progress on a foreign investment promotion and protection agreement. The architecture needs to be put in place. We're very close to signing a science and technology cooperation agreement with China. Again, we need to create the policy trade investment architecture under which we can then encourage our entrepreneurs and businesses to participate in foreign marketplaces.
The first priority is to focus on the architectural fixes that need to be put in place. We are developing some proposals that will be not dissimilar to CAN-Trade and will be considered by the government going forward. I can assure you that it is something we've got to put our shoulder to.
On the remanufacturers, we have appointed on contract a gentleman by the name of Doug Ketchison. His job is solely to focus on remanufacturer value-added issues and to look at how we can, in the fine-tuning of the agreement going forward, ensure they are treated in the most advantageous way possible. There are complexities, as you perhaps know, because some remanners actually have forest tenures. That creates complications, as you know, because it's the tenure holders who are really the target of this protectionist attack to begin with.
On the matter of deposits, we continue to examine in the context of finalizing the legal detail of an agreement how we might be able to ensure a more rapid payout of deposits than what might otherwise be the case. As you know, if we carry on with litigation it will be years before people see money, or it may be never. We think we can create a basis for an accelerated payment and we're looking at options for doing that.
:
Very well then. Thank you.
Thank you, Minister, for joining us. Since we are talking about credits, I'd like to broaden the discussion a little. I too have several questions concerning the softwood lumber agreement negotiations. First, however, I'd like to know two things.
Firstly, the International Policy Statement put forward by the former government contained an international trade component. Does this statement still have some merit, or is the Conservative government planning to formulate a new policy on international affairs, one that, obviously, would have an international trade component? If so, how will parliamentarians be involved in the process?
Secondly, you pointed out that protectionism was on the rise in the United States and that throughout the Western world in general, and I might even venture to say, everywhere in the world, people are wary of globalization and market liberalization. This is evident at the WTO. It's not just the protesters who are leery. I'm talking about countries like Brazil and India that are bucking the strong trend that prevailed several years ago. The notion of a Free Trade Zone of the Americas has been completely dismissed, particularly by MERCOSUR. Even NAFTA is being challenged throughout North America, and in Mexico in particular. People are highly distrustful of the Security and Prosperity Partnership of North America; they do not understand its full implications.
This brings me to the following question: how transparent will government's and the department's ongoing negotiations at the WTO level with Korea and the countries of Central America actually be? Without wanting to point any fingers, we often feel that we're chasing after information. With respect to services, negotiations are again moving forward. I met with Mr. Gero and put the question to him. That's the response he gave me. It's not that he was unwilling to provide me with an answer. I hadn't had the opportunity to put the question to him.
In my opinion, we need to develop a mechanism with parliamentarians and civil society groups, in order to get a clear picture of what's at stake and of the ongoing negotiations.
The CAW is currently campaigning against a free trade agreement with Korea. They are concerned about the automobile sector. Is their concern justified? I can't answer that question, but no doubt this agreement would adversely affect a number of regions, particularly some in southern Ontario, if it lacked transparency and if the concerns of the public were disregarded.
My other question concerns the legislation to implement the framework agreement with the U.S., as you just alluded to. When I put a question to you in the House about this very subject, you also hinted at a notice of ways-and-means motion. Therefore, provided there is still some time remaining, can you talk to me about these two initiatives and what role they will play?
:
As I said in my introductory comments, NAFTA has been in near unanimous agreement among analytical people, which has been a very big benefit to Canada. Over the last few years, I think NAFTA has become a bit of a negative for Canadians, through the media and because of the prominence of issues like softwood lumber. It's been seen by most people as characterized by significant problems. So it's getting a bit of a tarnished image.
As I also said in my introduction, that same attitude is prevalent in the United States and Mexico. NAFTA creates an agreement and a basis—a framework—for free trade, but a framework built on domestic laws. If you have ill will in any or all of the countries, then domestic laws can evolve and be changed in ways that hurt NAFTA and undermine it. Therefore it is very important that we maintain and nurture goodwill among NAFTA participants, in order to avoid the undermining of NAFTA through regulations: through legislation that can be quite compliant with NAFTA, but destructive of it.
The meeting in Acapulco was the first time the NAFTA commission actually met and talked about the future of NAFTA, and how we could work more collaboratively to ensure that it is a healthier, more vibrant instrument. We recognized that North America has an opportunity to create integrated supply chains, which, if they are running smoothly without impediments and disruptions at borders, can make North American industry more competitive against the outside world.
It's my view that if we do not take advantage of NAFTA as a way of making sure our auto industry or our technology industries are participants in efficient supply chains, then we are going to pay the price internationally. Because what you'll find, in terms of the world economy today, is that competitiveness derives much more from clusters of companies and the movement of goods, inputs and people—from capital, ideas, information between a multiple.... Literally thousands of companies in a supply chain are in a cluster.
That's where competition comes from, much more so than just the efficiency of an individual plant, like an auto plant or a lumber mill. Efficiency of factories is important. But in terms of overall competitiveness in the global economy, you're seeing much more efficiency come from the supply chain itself and from the way the supply chain integrates suppliers and integrates down to the marketplace, in terms of logistics, transportation, and so on.
I would like to thank the minister for coming before this committee. I'm replacing Peter Julian today.
I have a couple of questions about softwood, NAFTA, and free trade. In your opening remarks you talked about a lot of jobs being created and a good climate, but also the effects of the Canadian dollar.
I'm from Vancouver Island north and represent people from forest industry towns. A lot of jobs have unfortunately been lost due to raw log exports. Mill jobs have been lost because of the impacts from the softwood lumber dispute. The rising dollar is also impacting some of our kraft paper mills. They're seeing the effects of that. That's just to give you a bit of sense of where I come from.
On the softwood lumber issue, I see that an independent arbitrator from London, England, has been named. Is that in this budget? Is that person who was named in the agreement? Are those costs projected in this budget? How often would we expect that person to be used, if that's the case? We're just hearing these things. Is there a budget assigned? Why would we have an independent arbitrator if we already have a dispute resolution mechanism under the free trade agreement?
We're also hearing rumblings in B.C. about an alternate version of the deal that the Americans have presented to their government. If that's true, how do we reconcile that? Will there be extra costs in the negotiations of that deal? Will that increase the timelines for the settlement process? What will the financial impacts of that be?
On free trade, you also talked a lot about how NAFTA is not perfect--and we've always known that. I think negotiations have been started to resolve some of the issues there. But when you talk about looking at all areas of public policy under trade agreements, will you commit to looking more at fair trade agreements? Will you have witnesses come in to explore some of the processes under fair trade rules that will be beneficial to the economies in other countries where we have trade dealings, and are also better for the environment and the economy? We've seen a lot of success with fair trade goods. It's in the public mindset, and I think it's something this government needs to explore.
Thank you.
:
Thank you very much, and welcome to the committee. It's good to have somebody from the north island talking about forestry.
In terms of the independent arbitrator, there is a provision in the framework agreement for an arbitration mechanism outside NAFTA. As you know, chapter 19 of NAFTA is the primary dispute resolution mechanism, but when you go to chapter 19 there are all kinds of problems.
You don't need to have a very persuasive or powerful case if you're on the U.S. side and you want to bring a countervailing duty or an anti-dumping duty. In fact, we've consistently seen that the cases have been flimsy. But you can go through years and years of interim duties, where companies are paying out cash duties, and it takes something like five years, as we have seen, to bring the duties down to even a modest level.
Chapter 19 is a cumbersome way of resolving disputes. It is hoped that by having an agreement, first of all, the disputes would be relatively technical in nature and wouldn't be great neutron-bomb types of attacks or problems. Those would be better dealt with through an arbitration mechanism within the agreement itself. I would think that would be much cheaper than chapter 19, simply because you're not depending so heavily on big Washington or Toronto law firms, and so on, to do a lot of the work.
You referenced that a London arbitrator has been appointed. To my knowledge, there has not been a specific arbitrator and there is not a specific arbitration at this time. But the agreement provides for the arbitrators to be non-North American for the purpose of ensuring there would not be a perception or a reality of bias. That's what is going on there.
You spoke about Canada's position and a counter-position from the United States. That is true. In fact, what one tends to see in these negotiations is that Canada will put a position forward and the United States will then put a position forward. Everybody wants to hold the pen when drafting the agreement, because it's perceived that if you hold the pen, you have an advantage.
Right now we are in the process of trying to merge the U.S. text with the Canadian text. That's where the grinding and the bumping in the negotiations tend to occur. We're working through what the American side would like to see in the detailed agreement and trying to reconcile that with the Canadian side. It will hopefully work out to advantage.
Your concerns about public policy issues and fair trade are well taken. We are certainly cognizant of that. Indeed, when Mexico entered into NAFTA there was some kind of clause or provision included in NAFTA because of concerns about labour and the environment in Mexico. The same would apply with other free trade agreements. We would very much want to try to ensure that another country was not taking advantage of lax environmental practices, labour standards, or intellectual property protection as a way of competing against our companies. It is something that we consider.
:
Let me just begin by saying we are not proceeding with Korea with undue haste. We've been working on this for over a year, I think. We've been having consultations with industry.
We are working closely with the automotive industry. The automotive industry, as you know, has been a happy recipient of hundreds of millions of dollars of taxpayer money in Canada. We've worked closely with them on environmental safeguards. We have brought the Canadian automotive industry to a position of competitive leadership in North America, and I think that's widely recognized now.
If you look at the Canada-Korea relationship, you have to observe that Korea is going to be manufacturing a substantial number of vehicles in the United States. Those vehicles will have duty-free access to Canada under NAFTA. Eighty-five percent of Canadian vehicles are actually sold in the U.S. So the amount of competitive threat that the automotive sector faces in Korea is not as dramatic as is being portrayed.
There is no doubt--and we've been working closely with the auto sector on this--that there are non-tariff barriers to trade in Korea that are difficult to deal with. We've been meeting with the industry and with the industry in the United States and the U.S. government to collaborate on how we, Canada and the U.S., can ensure that any free trade agreement that the U.S. or Canada might put in place would be fair and would have adequate protections for the auto sector as well as other sectors.
I should point out, though, that the automotive industry is basically saying “We don't like free trade because the Koreans are going to be unfair and we won't get into the Canadian market; therefore, we want to have some quantitative test put in place. We want there to be a certain level of import penetration in the Korean market before Canadian tariffs come down.”
The reality is that if you were to apply to Canada-U.S. trade that same test, the trade balance test that was referred to by Stanford in his article in the paper this morning, we'd be in serious bloody trouble. The Americans would want all the jobs back that we have brought into Canada, because we have a favourable balance with the Americans. To make that argument with respect to Korea but not want to apply it with other trading partners strikes me as logically inconsistent, but we're working with them and we think we can get through it.
The Canada-Korea potential free trade agreement does have the potential to offer substantial benefits to Canada. We've quantified them and modeled them. They're well in excess of $500 million, perhaps upwards into the range of $1.5 billion to $2 billion a year. So it's not that we're trying to get into a free trade agreement that is going to be harmful to Canada--quite the contrary.
You recently demonstrated to us that international trade was a priority of yours, not just an election campaign issue. Congratulations on taking this position.
However, regardless of how the government, or a department such as yours, performs, the public tends to judge us on the basis of the number of jobs lost in certain sectors. The public tends to be critical of our performance when job losses occur. Regardless of our overall policies, if people lose their jobs, the government gets a negative rating. People wonder why it is not doing more to protect their jobs.
This brings me around to the bicycle manufacturing sector in which many jobs have been lost as a result of bicycle imports. The Canadian International Trade Tribunal did an in-depth review of the situation and found that, as you most likely know, domestic production has declined by 23% and that 259,000 fewer units were produced in this country. The situation is serious indeed. The CITT therefore ruled that Canada should impose safeguard measures of $400, and less in the case of bicycles of lesser value, to protect the bicycle manufacturing sector and to save jobs.
One industry located in the minister's own riding sustained heavy job losses. In response to a question in the House, you stated that you wanted to keep prices as low as possible for consumers. However, that's a difficult choice to make when Canadian workers are losing their jobs.
Could you clarify your position on this matter? Why are you refusing to enforce the CITT's ruling?
I mentioned earlier that competitiveness in today's global economy requires Canadian companies to participate efficiently and effectively in global supply chains. In order to do that, you really must have access to world-scale competitive logistical and transportation systems.
My portfolio includes the Asia Pacific gateway, which is a series of transportation facilities and corridors, primarily in western Canada, which, as we invest in them, and as other stakeholders invest billions of dollars in them, will give Canadian companies the opportunity to participate in just-in-time supply chains, to become suppliers to these supply chains, to manage these supply chains, and to be world-class competitors.
I might also add that the gateway concept has applications across the country. People will recall that when the Vancouver port had a shutdown last summer, the repercussions were felt in central Canada, they were felt in Toronto, they were felt in Montreal, and they were even felt in Halifax. What we have to focus on is the fact that transportation gateways and transportation systems are going to be critical, not just to the west, but to all parts of Canada. And indeed, there is potential for gateways in eastern Canada, just as there is in western Canada.
I might underscore the fact that the transportation gateway concept in western Canada builds on the idea that we can move goods and services between Asia and all of North America, not just Canada. For example, when you ship containers through the port of Prince Rupert, you can then ship them right down the rail system to Chicago for dissemination into the United States market. You can do the same thing through Vancouver. Getting U.S.-bound products coming through our transportation system, and Asia-bound, U.S.-originating traffic going the other way, allows us to develop a transportation system that is far more efficient than if it were dependent on Canadian traffic alone.
So again, you're creating a transportation system and a competitive advantage that could be taken advantage of by Canadian companies. The same can happen in eastern Canada. We have the Windsor-border corridor. In a sense, that's a gateway. Montreal has been positioning itself as a transportation gateway, as has Halifax.
So the opportunities are substantial, and the link to competitiveness is very direct.