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37th PARLIAMENT, 1st SESSION

Standing Committee on Foreign Affairs and International Trade

COMMITTEE EVIDENCE

CONTENTS

Tuesday, February 5, 2002

0915

The Vice-Chair (Ms. Jean Augustine (Etobicoke--Lakeshore, Lib.))

Ms. Francine Lalonde (Mercier, BQ)

The Vice-Chair (Ms. Jean Augustine)

Professor Michael Hart

0920

0925

The Vice-Chair (Ms. Jean Augustine)

Dr. Jayson Myers

0930

0935

0940

0945

The Vice-Chair (Ms. Jean Augustine)

Dr. David Zussman

0950

0955

1000

The Vice-Chair (Ms. Jean Augustine)

Dr. David Zussman

The Vice-Chair (Ms. Jean Augustine)

Dr. David Zussman

The Vice-Chair (Ms. Jean Augustine)

Mr. Keith Martin (Esquimalt--Juan de Fuca, Canadian Alliance)

1005

Dr. Jayson Myers

Mr. Keith Martin

Prof. Michael Hart

1010

The Vice-Chair (Ms. Jean Augustine)

Mr. Martin

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

1015

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

The Vice-Chair (Ms. Jean Augustine)

Ms. Lalonde

Dr. David Zussman

Dr. Jayson Myers

1020

The Vice-Chair (Ms. Jean Augustine)

Ms. Aileen Carroll (Barrie--Simcoe--Bradford, Lib.)

Prof. Michael Hart

Ms. Aileen Carroll

1025

Dr. Jayson Myers

Ms. Aileen Carroll

The Vice-Chair (Ms. Jean Augustine)

Mr. Svend Robinson (Burnaby--Douglas, NDP)

Dr. Jayson Myers

Prof. Michael Hart

1030

Mr. Robinson

Prof. Michael Hart

Mr. Svend Robinson

Prof. Michael Hart

Mr. Svend Robinson

Prof. Michael Hart

Mr. Svend Robinson

Prof. Michael Hart

Mr. Svend Robinson

Prof. Michael Hart

Mr. Svend Robinson

The Vice-Chair (Ms. Jean Augustine)

Dr. David Zussman

The Vice-Chair (Ms. Jean Augustine)

Mr. Bernard Patry (Pierrefonds--Dollard, Lib.)

Prof. Michael Hart

1035

The Vice-Chair (Ms. Jean Augustine)

Mr. Bernard Patry

Prof. Michael Hart

The Vice-Chair (Ms. Jean Augustine)

Mr. Bernard Patry

1040

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

Mr. Jayson Myers

Prof. Michael Hart

1045

The Vice-Chair (Ms. Jean Augustine)

Ms. Diane Marleau (Sudbury, Lib.)

The Vice-Chair (Ms. Jean Augustine)

Mr. Jayson Myers

1050

The Vice-Chair (Ms. Jean Augustine)

Mr. Keith Martin

The Vice-Chair (Ms. Jean Augustine)

Mrs. Marlene Jennings (Notre-Dame-de-Grâce--Lachine, Lib.)

1055

Prof. Michael Hart

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

The Vice-Chair (Ms. Jean Augustine)

1115

Mr. Thorbjørn Jagland (Chairman of the Standing Committee on Foreign Affairs and the Enlarged Foreign Affairs Committee of the Norwegian Parliament (Storting))

The Vice-Chair (Ms. Jean Augustine)

1120

Mr. Ingvard Havnen (Norwegian Ambassador to Canada)

Mr. Gerald Schmitz (Committee Researcher)

The Vice-Chair (Ms. Jean Augustine)

Ms. Diane Marleau

The Vice-Chair (Ms. Jean Augustine)

Ms. Beth Phinney (Hamilton Mountain, Lib.)

Ms. Kristin Halvorsen (Member of the Committee, Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Bjørn Jacobsen (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

1125

Ms. Aileen Carroll

Ms. Marlene Jennings

Mr. Haakon Blankenborg (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Morten Høglund (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Finn Martin Vallersnes (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Inge Lønning (First Deputy Chairman of the Foreign Affairs Committee of the Norwegian Parliament (Storting); Vice-President of the Storting)

Mr. Christopher Stensaker (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Åslaug Haga (Second Deputy Chairman of the Standing Committee on Foreign Affairs and the Enlarged Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Jon Lilletun (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Lars Rise (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Gunhild Øyangen (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Svend Robinson

1130

Mr. Rune Resaland (Secretary of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

Mr. Dubé

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

The Vice-Chair (Ms. Jean Augustine)

Ms. Julie Christiansen (Member, Foreign Affairs Committee of the Norwegian Parliament (Storting))

1135

Mr. Keith Martin

Mr. Jens Stoltenberg (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting))

The Vice-Chair (Ms. Jean Augustine)

Ms. Marlene Jennings

1140

The Vice-Chair (Ms. Jean Augustine)

Mr. Jens Stoltenberg

The Joint Chair (Ms. Jean Augustine)

Mr. Dubé

The Vice-Chair (Ms. Jean Augustine)

Mr. Svend Robinson

1145

Mr. Jens Stoltenberg

The Vice-Chair (Ms. Jean Augustine)

1150

Mr. Thorbjørn Jagland

1155

The Vice-Chair (Ms. Jean Augustine)

Mr. Keith Martin

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

The Vice-Chair (Ms. Jean Augustine)

Mr. Thorbjørn Jagland

1200

The Vice-Chair (Ms. Jean Augustine)

Mr. Svend Robinson

1205

The Vice-chair (Ms. Jean Augustine)

Mr. Robinson

The Vice-Chair (Ms. Jean Augustine)

Mr. Thorbjørn Jagland

The Vice-Chair (Ms. Jean Augustine)

Ms. Åslaug Haga

The Vice-Chair (Ms. Jean Augustine)

1210

Mr. Thorbjørn Jagland

The Vice-Chair (Ms. Jean Augustine)

Mr. Thorbjørn Jagland

The Vice-Chair (Ms. Jean Augustine)

Mr. Thorbjørn Jagland

Ms. Julie Christiansen

1215

The Vice-Chair (Ms. Jean Augustine)

CANADA

Standing Committee on Foreign Affairs and International Trade

NUMBER 055

1st SESSION

37th PARLIAMENT

COMMITTEE EVIDENCE

Tuesday, February 5, 2002

[Recorded by Electronic Apparatus]

¿ (0915)

[English]

The Vice-Chair (Ms. Jean Augustine (Etobicoke--Lakeshore, Lib.)): Good morning.

Pursuant to Standing Order 108(2), this is a study of North American integration and Canada's role in the light of the new security challenges.

I want to welcome the witnesses who have come before us, and say to the committee that this part of our meeting goes to 11 a.m., after which time we will be welcoming the Norwegian parliament's Standing Committee on Foreign Affairs.

All right, then. We're now welcoming Professor Michael Hart, the Simon Reisman Chair in Trade Policy at Carleton University's Norman Paterson School of International Affairs; Dr. Jayson Myers, the chief economist for Canadian Manufacturers & Exporters; and Dr. David Zussman, the president of the Public Policy Forum.

We'll begin by asking...I'm sorry, there's a point of order.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): Madam Chair, I just wanted to say that as soon as we have quorum, I shall be making a point of order on how the subcommittee on trade is operating. The committee heard witnesses without any opposition members being present.

That is not the way either this committee or the subcommittee should be working. Consequently, I shall be making a point of order. Thank you.

[English]

The Vice-Chair (Ms. Jean Augustine): Yes, well, we'll start with Carleton University's Professor Michael Hart.

Professor Michael Hart(Simon Reisman Chair in Trade Policy, Norman Paterson School of International Affairs, Carleton University): Thank you, Madam Chair, for this opportunity to participate in the important work of this committee as it looks at the future evolution of Canada-U.S. relations in the light of the challenges raised by September 11.

I want to concentrate this morning on problems in the administration of the border and on some of the issues that have arisen in the administration of the border as a result of September 11, but I want to begin by emphasizing that some of the problems I will mention predate September 11 and are largely the result of the success of the Canada-U.S. Free Trade Agreement, the North American Free Trade Agreement, and the World Trade Organization Agreement, because over the last three years we have seen an exponential growth in the volume and value of bilateral trade—trade that now exceeds, by a large margin, the capacity of the border to handle that kind of traffic.

My colleagues and I at Carleton University, particularly at the Centre for Trade Policy and Law, have been looking at these issues for a number of years, and we were doing so well before September 11. September 11, of course, altered the equation quite fundamentally by adding a very strong security dimension to an issue that was already becoming problematic. I think it has added urgency to the need to address these kinds of questions and to come up with some solutions.

I also want to indicate that the issue of the border is a sensitive issue because it raises very broad sovereignty concerns, which often dominate this debate but which ought not to get in the way of practical solutions to real problems. I think Canadians like the border. They like it to be there as a political fact, but they don't want it to get in their way as traders, as investors, as tourists, as snowbirds, and in other matters. Similarly, Americans like the border. Perhaps they focus on it more from a security dimension than Canadians do, but they, too, do not look upon Canadians as a threat to their security. They look upon Canadians as neighbours, as friends, as relatives, and they, too, would like to see a more open border. So the challenge the two governments face is to come up with a series of accords that open the border, while at the same time ensuring the security of citizens on both sides of that border.

Much work has already been achieved as a result of the dialogue between the two governments, particularly the dialogue that resulted in the smart border accord that was announced by then Foreign Minister John Manley and Governor Tom Ridge, Director of Homeland Security, in December. A lot of work has already been initiated under that accord, but I must indicate that I'm not surprised at the comments recorded in the press over the weekend that indicated a certain amount of frustration at the slow pace in implementing the border accord.

I will return to that subject in a moment, but before I do, let me indicate a couple of other points that I think are important.

From my perspective, the most important point is that we deal with the commercial side of these issues. I think Mr. Ridge and Mr. Manley have the security measures well in hand, but we must now concentrate on dealing with the challenge of the border to commercial transactions; with the unfinished business of the FTA, the NAFTA, and the WTO, by dealing with the role of the physical border in slowing things down, in creating delays, and in raising costs in its administration; with the impact of regulatory differences, again involving costs, many of which are avoidable, by dealing with some of the factors that arise from deepening silent integration; and finally and most importantly, with the fact that the institutions, the procedures, and the rules the two governments have in place at this particular time are more in tune with the reality of a free trade agreement, but not with the depth of integration between the two countries, a depth that now goes far beyond the free trade agreement and is more like a customs union or even a common market. I think the most important challenge the two governments face is to find the appropriate institutions and appropriate procedures and rules that catch up to this reality. I think this will require some clear thinking, some hard work, and some cooperation between the two governments.

In order to do that, I think a number of things have to be made clear—things that I think probably get in the way of a clear-headed debate on these issues. The first of these really is the issue of whether or not Canada and the United States share a perimeter. I think we need to acknowledge that Canada and the United States have shared a perimeter for many years. It's a perimeter that is dictated by geography, by demography, by economics, by shared political and other values, by common security arrangements, and by common economic arrangements. The idea that there should or should not be a perimeter is a moot question. The question is whether it should be a strong or weak perimeter, and I think most Canadians would agree that we would benefit from a strong perimeter for both economic and security reasons.

¿ (0920)

Secondly, I think we need to acknowledge that a broad convergence in policy methods and ideas already exists between the two countries. The differences, for example, in our approach to immigration, to refugee policy, and so on, are nowhere near as profound as many people try to indicate. They are not matters of design, but matters of administration, reflecting differences in history and in legislative practice.

Thirdly, deepening integration between the two countries is likely to continue, and will deepen even more as the two societies become ever more connected. The question for governments, therefore, is how to manage, to help, or to hinder that integration.

Fourthly, if we are to make any progress on the economic front, on the commercial front, we will have to appeal to U.S. concerns about security matters. Americans are much more sensitive about security matters than we traditionally have been. In order to deal with the commercial matters, we therefore have to address the security matters. As I indicated earlier, I think a good start has been made in the efforts shepherded by Mr. Manley and Mr. Ridge.

Fifthly, I think the Mexican factor should not deter us from moving ahead. The United States has a different attitude toward Mexico. The Mexican response to the issues raised by September 11 has been different. Despite the fact that we have a common North American agreement, many issues between Canada and the United States are not shared by Mexico, and many issues between Mexico and the United States are not shared by Canada. At this particular time, it is critical that the two governments that share North America with the United States move ahead in parallel efforts, rather than in joint efforts. At some point in the future, they should determine the extent to which they have shared interests that can be brought into a single effort.

Finally, I think timing is crucial. It is very difficult to get the Americans' attention, but we have that attention. We have a dialogue that is in progress, and now is the time to move ahead with it. The difficult issue is how to do this. Traditionally, Canada-U.S. watchers have been of the view that in order for a Canada-U.S. initiative to succeed, you need to make a lot of noise in Washington and very little noise in Ottawa. In other words, you need to downplay the politics of the initiative in Ottawa and in Canada because of sensitivities, but you need to raise them in the United States. I think that's still very true in the United States, but I think the fear that Canadians will react adversely to a Canada-U.S. initiative is overplayed today. As a result of the FTA and as a result of the progress made in managing integration in the 1990s, Canadians have a much less sensitive concern about closer integration with the United States. I think that was clearly indicated in the reaction of Canadians to the events of September 11.

Rather than trying to soft-pedal things here, we need to be very active in promoting Canadian interests in Washington. We need to do that for the very simple reason that, in Washington, the way things work is very different from the way things work in Canada. In Canada, we're used to a form of government in which power emanates from a centre and spreads down and out from that centre. In Washington, it's exactly the opposite. Power emanates from the bottom and gradually concentrates at the centre.

In order to get attention in the U.S., you need to get the attention not just of the President, not just of his cabinet officers, you need to get the attention of all kinds of people who make things happen in Washington in the highly decentralized, highly fragmented U.S. system of government. Therefore, we need to have Canadian champions, both private and public, working constantly at reminding the United States and reminding U.S. interlocutors of the importance of Canada to their well-being, of the importance of Canada to their prosperity, and the importance of Canada to their security. Only by using a full-court press in Washington will we get the kind of attention that will lead to the kinds of results we are looking for. Without that kind of full-court press, we will become one of just many, many issues that are constantly talked about in Washington, but about which very little is done. If we want to have things happen, we need to work very hard at making them happen in Washington.

I want to quote briefly from an observation made by Allan Gotlieb, who was Canada's ambassador to the United States for most of the 1980s. In a very nice little memoir that he wrote on his retirement, called I'll Be With You in a Minute, Mr. Ambassador: The education of a Canadian diplomat in Washington, he said that “in Washington, ... a foreign power is just another special interest, and not a very special one at that”. He goes on to suggest:

¿ (0925)

The foreign government must recognize that it is at a serious disadvantage compared to other special interests for the simple reason that foreign interests have no senators, no congressmen, and no staffers to represent them at the bargaining table. They have no votes and no political action committees.

In order to overcome this natural handicap, Canadians need to be very active in dealing not only with the President and senior members of his administration, but with senior members of Congress and with senior representatives of a variety of interest groups who share our interests but who also need to be reminded of that fact. The reason we need to do so is that many agencies of government in Washington have a very independent base of power, as Mr. Manley is now finding out.

I have worked in the Canadian government, dealing with the United States Customs Service and with the Immigration and Naturalization Service, and I have learned just how independent those agencies can be. In fact, I'm convinced some customs and INS officers who work at the Canada-U.S. border are still unaware of the fact that we have a free trade agreement. Certainly, in their attitude towards the administration of that agreement, they're unaware of that fact, and that's because they work for relatively independent agencies. They have their own budgets—budgets approved by Congress—they have their own sources of power that come from legislation passed by Congress, and the senior members of those services may be appointed by the President, but that's again on the advice and consent of Congress.

These facts make those agencies very independent, very strong players. We were reminded of that over the weekend, when U.S. Customs Service Commissioner Robert Bonner responded to Mr. Manley's comment—I wouldn't call it a complaint—that things were going very slowly. Commissioner Bonner stated that the Customs Service is looking at increased security against terrorists at the border, but he doesn't think Canadians are looking at things in the same way. What he was basically saying was that he's not yet ready to deploy his agency's interests in this particular venture. Mr. Ridge may be, but he doesn't work for Mr. Ridge. He has an independent base of power, and that's a fact we have to deal with as Canadians when we negotiate with the Americans.

If we do negotiate with the Americans, in the end we need to have a treaty-based agreement. We need to have an agreement that puts these things in writing and provides a dispute-settlement and other institutional mechanisms to ensure that they are complied with. A good illustration of this is again afforded by the Customs Service and the Immigration Naturalization Service. Over the years, our services have worked with them and initiated a number of border programs, such as the INSPASS and CANPASS programs that I think have been very popular with frequent border-crossers, but which were suspended very quickly on September 12 because they have no treaty basis. There was no basis in law for those agreements, and they are still not restored despite Mr. Manley's Herculean efforts to have them restored. He indicated on the weekend that he hopes we'll have one pilot project back in place by the time of Kananaskis. But that's a very slow pace, and it's a slow pace because we're trying to do this on a piecemeal, incremental basis, rather than with the full-court press that is critical to success in the Washington context, as I indicated earlier.

If we do proceed, there's no shortage of issues that need to be addressed. Some of you may be aware of the study I did with my colleague Bill Dymond at the Centre for Trade Policy and Law—I've given copies of it to the clerk—in which we indicate the long list of issues that would need to be addressed in order to create what we would consider to be a highly desirable outcome. That outcome is a much more open, much more seamless border between Canada and the United States, a border for which the institutions, procedures, and rules in place are in keeping with the degree of integration that already exists between the two countries.

Thank you very much.

The Vice-Chair (Ms. Jean Augustine): Thank you for that.

We now go to our next witness, Dr. Jayson Myers, from Canadian Manufacturers & Exporters.

Dr. Jayson Myers (Chief Economist, Canadian Manufacturers & Exporters): Madam Chair, thank you very much for your invitation to participate in this very important debate. There's probably no issue of greater long-term strategic importance for Canada than better defining our place in North America. It's a fact that Canada's economy is becoming increasingly integrated with that of the United States, and the problems at the border in the aftermath of September 11 really illustrate how vulnerable we can be to circumstances that may impede our access to this major market.

Today, however, the issue of managing Canada's economic relationship with the United States goes well beyond the issue of securing market access for our exports or making NAFTA work better as a trade agreement. These are still important concerns, but they're part of a much broader issue of how to manage public policy in Canada in a way that recognizes the importance of economic integration, more fully develops the rules and the institutions governing our relationships with the United States, and at the same time assures Canadians of the quality of public services that we all expect.

The issue of North American integration has been pretty critical for Canadian business over a long period of time. The history of Canadian Manufacturers & Exporters reflects how powerful integration has been in reshaping the Canadian economy. CME was formed six years ago as the result of a merger between the Canadian Manufacturers Association and the Canadian Exporters Association. The Canadian Manufacturers Association was established in 1871 for the sole purpose of fighting free trade with the United States and protecting Canadian industry. The Canadian Exporters Association was formed in the 1940s for the sole purpose of expanding market access for Canadian products around the world.

Today, the challenges of international competition, together with the opportunities presented by global markets, and especially the North American marketplace, mean protection is no longer a viable option and Canadian manufacturers and exporters are really at the forefront of this process of economic integration that has been accelerating since 1989, when the Canada-U.S. Free Trade Agreement first came into effect.

Integration is a fact of life in the Canadian economy. I'm sure I don't have to remind you of how integrated Canada and the United States actually are. In 1989, the U.S. accounted for 71% of Canada's exports of goods and services, and those exports amounted to just over 25% of Canada's GDP. Since 1989, Canada's exports to the United States have more than tripled in value. Today, the U.S. accounts for 83% of Canada's total exports of goods and services, and that amounts to 38% of our GDP.

We're also more dependent on the U.S. for imports into this country. In 1989, 69% of Canada's imports of goods and services—about 24% of our GDP—originated in the United States. Today, over 72% of the goods and services imported into this country—over 30% of Canada's GDP—actually is derived from the United States. And the U.S. is also a primary source of foreign investment in Canada, accounting for 64% of foreign direct investment and 58% of total foreign investment in this country.

The acceleration of economic integration is particularly evident in Canada's industrial economy. In 1989, the United States was the market for 18% of all goods produced by Canadian industry. In 2000, 63% of Canada's industrial output was sold directly into the United States. The American market is market number one for Canadian industry today. Our domestic market accounts for less than 30% of Canada's industrial output. That's why economic recovery for Canadian manufacturers depends much more on how consumers and businesses are doing in the United States than it does on low interest rates and the state of the Canadian economy.

We're also buying more and more products manufactured in the United States. Today, imports from the U.S. account for more than 56% of the total value of goods purchased in the Canadian market.

The Canada-U.S. Free Trade Agreement and the subsequent NAFTA have opened up significant market opportunities for Canadian businesses across North America. They've also opened the Canadian market to intense competition that continues to drive down prices, and that requires Canadian companies to restructure in order to remain profitable and to secure a competitive advantage in the larger marketplace. Companies have been doing that by reducing their costs of doing business, by investing in higher-valued products and services, by expanding across North America, and consolidating their business activities on a continental basis.

¿ (0930)

Few companies today produce a variety of products to be sold only in the Canadian market. What we're seeing is companies that are producing fewer, more specialized products and selling those products across North America. We estimate that about 60% of Canada's two-way trade with the United States is intra-corporate trade, or flows of goods and services across the border but within the same company. As a result, more and more businesses and financing decisions are being made on a North American basis, and they're being paid for in U.S. dollars. In larger companies, investment and senior management decisions are more frequently being made in the United States. Companies in Canada are competing for product mandates, for investments, and for skilled personnel with other companies, and with divisions within the same company in the United States. These are challenges that integration poses for manufacturers and exporters in Canada today.

The need to differentiate products and services, to add value through greater specialization, and to attract investment on the basis of Canada's competitive advantage, is what it takes today to compete successfully in the North American market. The last ten years have shown it's not enough to be just as good as the competition. Success for Canadian business is built on being better.

Canada's economic integration with the United States is being driven by the successes and restructuring that continue to shape Canadian industry under the NAFTA. The nature of that integration, however, poses a number of key challenges for Canada and for Canadian business. It creates constraints for public policy, but the abrogation of Canadian sovereignty is not at issue, in my view. This is a debate about how best to manage our economic policy relationships with the United States and Mexico in a way that ensures continuous economic growth and the creation of high-value jobs in this country, while at the same time guaranteeing Canadians the ability to shape our own economic, social, and cultural futures.

CME addresses some of those challenges posed by economic integration, in my opinion, and what that means for public policy. First, it's important for us to put integration into perspective. Canada lives in a very lopsided economic relationship with the United States. What may be considered economic integration in this country is usually not seen that way at all in the United States. Canada is America's largest trading partner, but we account for only 21% of total U.S. merchandise exports, and that amounts to slightly more than 2% of U.S. GDP. Imports from Canada represent 19% of the U.S. total, but only 3% of U.S. GDP. It's true the bilateral trade and investment is crucial for the well-being of a number of major corporations headquartered in both the United States and Canada, but as the events of September 11 have shown, the importance of Canada's economic relationship is not all that well known south of the border.

There are, I think, some important policy implications for framing public policy in Canada. First, Canada cannot take its economic and political relationship with the United States for granted. We have to be smart about assessing the economic and social impacts of policy decisions in light of our unequal dependence on the American economy. We have to be focused, and we have to be proactive in defining the future of that relationship.

Secondly, the significance of Canada's economic relationship with the United States has to be better communicated to the American public, and I would say to the Canadian public as well.

Thirdly, close relationships between Canadian and U.S. policy-makers, together with Canada's ability to find allies within the U.S. and among other influential trading partners, are more important than ever in shaping policy outcomes in the United States.

And fourthly, rules and obligations established on the multilateral level within an FTAA or within the NAFTA continue to be Canada's best safeguard against unilateral actions on the part of the United States that have a negative impact on Canada.

A second challenge follows from this lopsided nature of our bilateral relationship with the United States. Canada is a small market. It has become a relatively poorer market over the past ten years as a result of declining real per capita incomes and a depreciating dollar. As a result, new products may not be introduced into the Canadian market. It's more difficult to attract and retain skilled personnel in Canada. Canada often struggles to attract investments and product mandates. In fact, Canada's share of total foreign direct investment in North America has fallen sharply over the past fifteen years, from 23% of the total in 1985, to less than 10% today.

¿ (0935)

Canada runs the risk of becoming a marginalized economy within North America. Here, the policy implication is very clear. Like Canadian business, it's not sufficient just to be as good as the United States in terms of the economic environment for business and investment in this country. Canada can offset the powerful attraction of U.S. market only by ensuring that we offer the best tax and fiscal environment, the best infrastructure, and the best returns on investment in North America. The common aim of all governments in this country should be to make Canada the preferred location in North America for businesses to locate, invest, manufacture, export from, employ, and grow.

That leads me to a third challenge, which is the increasing competitiveness of Mexico as an investment location, and of Mexican industry in the North American marketplace. Mexico has significant cost advantages over Canada. Mexican businesses have also made significant strides in improving their quality and productivity. They're competitors, but they're also customers and partners for a growing number of Canadian companies.

The Mexican market has tremendous growth potential, and it has the advantage of youth on its side. More engineers are being graduated today in the city of Monterrey than in all universities across Canada. All this means that Mexican competition now has to be factored into the design and the assessment of public policy in Canada. In many respects, Mexico has become the benchmark Canada has to surpass in building a more competitive business environment.

A fourth and very general challenge is to improve the efficiency of the North American marketplace. Mr. Hart referred to a number of things that must be undertaken here, like eliminating remaining restrictions on interprovincial trade in Canada; working with the U.S. to implement the thirty-point border agreement, and to implement it by June at the latest; simplifying the paperwork and the regulatory requirements for companies exporting and importing goods, as well as for bona fide travellers crossing the Canada-U.S. border; and lowering the costs and impediments of regulation more generally in Canada, largely by adopting mutual recognition agreements with the United States, with regulatory objectives that can be effectively met.

A fifth challenge for Canada is to improve the quality of our economic relationship with the United States. As I like to put it, how can we improve the competitiveness of the Canadian economy and ensure high-value jobs for Canada in an integrated North America? The issue in my mind is one of closing Canada's productivity gap with the United States. In turn, that depends on boosting investment and the innovative capabilities of Canadian industry.

The long-term depreciation of the Canadian dollar is probably the best indication of Canada's failure to take full advantage of a more integrated North American marketplace. Too many exporters have counted on a low and falling dollar to maintain their competitiveness. We haven't kept pace with our U.S. customers or competitors when it comes to enhancing productivity performance, investing in new technology, or bringing new products and services to market. The depreciated dollar reflects these facts as well.

Some experts are suggesting that Canada should adopt the U.S. dollar as our common currency. I think that would effectively lock in our losses in real income and eliminate any flexibility the Bank of Canada now has to affect monetary policy. But what seems to be behind this argument is the idea of jumping off the ship now before the dollar sinks further, because there's nothing we can do to turn it around, and it would hurt Canadian business even if we did. Well, I disagree. I think we can improve the innovation, productivity, and performance of Canadian industry, and that will help companies overcome the cost of a rising dollar. In my view, though, the debate around dollarization now focuses on the symptoms of Canada's economic malaise, not its root cause, which is our lagging productivity performance. I don't think official monetary integration, even if it could be achieved, is the answer. I don't believe it could be sustained anyway, not without taking steps to strengthen productivity and investment in this country.

¿ (0940)

I've focused my remarks primarily on challenges and implications of economic integration in North America. An underlying theme is that economic integration does not necessarily imply common policy approaches in the U.S. and Canada. It does mean policy decisions can no longer be made in isolation. We do share more policy objectives, but the means of achieving our policy goals can be different. It seems to me that our ability to determine the best way to achieve our policy objectives is the essential hallmark of our sovereignty as Canadians.

From the standpoint of the Canadian economy, integration is a given and it's going to become even more important in determining our prosperity in the future. But we have a lot to do to ensure that Canadians are reaping the full benefits of our close economic ties with the United States. In the long term, our ability to meet other policy goals will be determined at least in part by our ability to pay for them. Canada's position in North America should be determined by clear policy goals aimed at making our integrated economy work better, but we can and should also shape our economic future. I think our goal should be nothing less than to make Canada the economic powerhouse of North America.

Thank you.

¿ (0945)

The Vice-Chair (Ms. Jean Augustine): Thank you, Professor Myers. I hope there will be several questions to you following your very provocative presentation.

We'll now hear from Dr. David Zussman, from the Public Policy Forum.

Dr. David Zussman (President, Public Policy Forum): Thank you very much for inviting me to be here this morning.

I have carefully read your preliminary report entitled Canada and the North American Challenge: Managing Relations in Light of the New Security Environment, and I must say that we at the Public Policy Forum have been enormously impressed by the ambitious parameters of the study the committee will complete over the next year.

I want to say at the outset that I'm not an expert on Canada-U.S. relations, but as a part of the priorities of the Public Policy Forum, we have done a considerable amount of work in this area over the last two years. To a very large extent, my comments will be based on the work completed by my colleagues Yves Poisson, Peter Larson, and Erick Lachapelle. As a consequence, I'll be spending most of my time this morning talking about the outcome of some of our studies and round tables that we've done over this timeframe.

My presentation will be broken up into four different areas. First, I want to spend a couple of minutes explaining to you what the Public Policy Forum is all about. I then want to set the context of our work, provide an overview of some of our major findings, and, finally, suggest some areas of future work, research, and activities that could be undertaken by this committee.

Some of you already know the Public Policy Forum is a fifteen-year-old organization located in Ottawa. It's a not-for-profit think-tank that looks at all aspects of public policy in Canada. It's a membership organization that derives its membership from among 175 different organizations drawn particularly from the private sector, the public sector, the not-for-profit sector, and from unions.

Over the last three years, we've been working on four priority areas for our work, including trying to improve public management in Canada; exploring the interdependency of social and economic policy, which has largely meant doing a fair amount of work on the skills agenda; restoring trust in our public institutions; and lastly—and this was done three years ago by our board of directors—identifying the impact of North American integration on Canada as one of our priorities.

Many of you will also probably know that all of our work is based on multi-stakeholder round tables. We don't have any particular position going in, but we attempt to derive the right answer by bringing all of the stakeholders around a series of tables in order to discuss the implications and the future directions of various public policy issues under consideration.

In the context of the North American project, our major concern has been to try to answer one central question: What should Canadians do to secure our economic future and to continue to reap the benefits of sharing the same economic space with the most powerful country in the world, while at the same time preserving our unique values and our quality of life? That has been our challenge, and we've carried out a whole series of studies over the last couple of years, some of which I just want to briefly report to you.

Last year, we reported on an in-depth survey of fifty industry association leaders on Canada-U.S. economic integration. It included meetings with associations from all industry sectors, such as agriculture, resource sectors, manufacturing, finance, etc. I've brought a copy of that brief report with me today, and I'll leave it with the clerk for your reading.

As well, over the last couple of years, we've been sponsoring study tours. One study tour was to Washington, one was to Washington and Mexico City, and one was to the European Union. All of them included senior public servants from the federal and provincial levels, and their purpose was to learn more about the issue of economic integration and to learn what we can borrow from the opportunities the European Union might provide for us.

We held a round table on border management, transportation, and trade, in Toronto last April. It included private-sector and government representatives. We also held round tables in Toronto, Vancouver, and Halifax, on Canada's competitiveness, and that was sponsored by Industry Canada.

Over the last year, we've held a number of luncheon meetings with senior public servants in order to introduce them to interesting visitors who have a unique perspective on Canada-U.S. relations. Most notably, for instance, we hosted Anthony Zinni a year ago, and he discussed the issue of United States security and military readiness.

Lastly and most recently, in November, we hosted a conference on managing our border with the United States. It included representatives of the public and private sectors, from labour, and from academia. As well, we also had representatives from U.S.-based think-tanks and business associations. Finally, within the context of the borders conference, Mr. Manley was our keynote speaker at the dinner.

¿ (0950)

Now, where does that leave us? In the context of all this, before September 11—let's say by April 2001—when John Manley was Minister of Foreign Affairs, he identified a number of elements that I think describe our foreign policy with the United States. At that time, he emphasized a number of different features of our relations—and this became the basis for a fair amount of our work. In terms of priorities, one was that we had to maintain strong and working trade relations with the United States, particularly in areas in which we had some specific and distinct disputes that needed resolution.

In particular, we were then grappling, as we still are, with softwood lumber and with agricultural disputes. At the same time, we were giving a fair amount of consideration to our positioning regarding the Free Trade Area of the Americas and what Canada's position would be vis-à-vis that. As well, a year ago, we were grappling with the huge challenges that border management offered to us. In this particular case, we were very concerned about issues around facilitation and the free flow of goods and services.

A year ago, we were grappling with energy issues and whether or not we were going to deal with the notion of a continental energy policy. In that regard, we were looking at a U.S. national energy policy and were trying to react to that situation, one in which Canada would be seen as a major supplier of oil, gas, and electricity to the United States. We were also looking for new and innovative ways of exploration and transport of some of our northern energy resources.

A year ago, we continued to look at the implications of environmental issues, such as cross-border ones, Kyoto, climate change, and water resources. We were looking for multilateral foreign policy cooperation agreements in the areas of land mines, criminal courts, and the use of multilateral versus other mechanisms in dealing with some of these foreign policy issues.

In the security and defence areas, we were looking at the National Missile Defense proposal, Canada's participation in peacekeeping and military operations, and lastly, in that context, our role within NATO.

As of September 11, as has already been pointed out, an entirely different scenario exists for us now. New issues have come to the forefront and old ones need to be looked at with a new perspective. U.S. foreign policy has dramatically changed, and Canada has also adjusted its policies and priorities. In particular, as has been pointed out many times, we now deal with the issue of the border from a security point of view, as opposed to a trade expedition exercise.

Canada's participation in homeland security, and our policy coordination, intelligence, and immigration rules, are all under new types of scrutiny. In the security and defence areas, of course, as we all know, we are now involved in military operations and probably some new definitions of the meaning of NORAD.

In our view, to give context to this, the events of September 11 do not in any way eliminate the issues that were current beforehand. We still need to maintain and ensure the easy movement of low-risk people, goods, and services, and convince the Americans that this is not a threat to their security. We have to make the appropriate choices in relation to our economic integration with the United States, as the two previous speakers just pointed out. We have to decide, as does Mexico, how we will share our energy resources with the U.S. and contribute to their energy security. We need to decide the position we will take on Kyoto and how we can contribute to the overall protection of the environment. We must continue to find more effective dispute resolution mechanisms in trade disputes with the United States. We clearly still must review our foreign and defence policies.

Let me provide you with some overview of some of the key findings we have learned from our research, and then move forward.

From all of these round tables and conferences that we've hosted, we have learned that—again as has already been pointed out by the two previous speakers—economic integration with the United States is moving fast, and little evidence suggests it is going to slow down. This means more cross-border mergers, more head office transfers, and more discussion about challenges to Canadian sovereignty. As well, U.S. misconceptions about Canada pose a huge threat to Canada-U.S. relations. Some academics and many business people now believe the magnitude of the trade relationship with the United States is such that NAFTA has outgrown its purpose, and that discussions are needed on a customs union and on harmonization of regulations with the United States. As Jayson mentioned, some are even suggesting dollarization or a common market. Little is known of the impact of these proposals outside specialized circles of interest.

¿ (0955)

Security concerns should not overshadow Canada's growing dependency on immigrants for new labour market entrants and continued population growth, nor should they infringe on Canadian human rights. From our borders conference, we learned that the border is of great importance to Canada's economic prosperity and fiscal security—and Jayson has given us the numbers supporting that argument. We also note that Canada's economic security is inextricably linked to the physical security of North America. Canada has been aware of existing problems related to border infrastructure, as well as to its immigration and refugee determination policies, for a long time, but September 11 has provided an opportunity to fix them.

One of the other things we learned at our borders conference is that the large number of federal departments and agencies, as well as provincial organizations with an interest in border and Canada-U.S. relations issues, makes it difficult for the federal government to develop a consistent response and consistent strategy. Our governmental machinery is outmoded and not working as well as it might. We need to link our trade policy, our foreign policy, our foreign aid, and our security within some coherent system.

In the context of our policy options, we have noted, as Michael did in his presentation, that the window of opportunity presently available to Canada for engaging the United States in discussions related to further economic security is open, but it is unknown how much longer it will be. When dealing with issues that affect North America, it is imperative to include Mexico, while also recognizing that important differences exist, although there is no consensus among the people who attended our conference as to how this should be done or when the right time is to begin the engagement with the Mexicans.

Finally, the biggest finding from our border conference was that the single biggest policy challenge facing Canada is to come to terms with what it means to share a common economic space in North America with the United States, while at the same time benefiting from our proximity yet preserving our unique values. I want to congratulate the committee for in fact beginning to engage Canadians in this important discussion.

At the border conference that we had in late November, Mr. Manley said opportunities for real change now lie before us to build and to implement a long-term vision of what we want for this country and for North America ten, twenty, and fifty years from now. At the same time, Michael Hart and Bill Dymond were in fact suggesting, in their recent paper called “Common Borders:Shared Destinies—Canada, the United States, and Deepening Integration”, that this could mean Canada should not shy away from some fresh thinking and some new arrangements that go beyond the current free trade agreements.

What do Bill Dymond and Michael Hart mean by “fresh thinking”? We think we have a number of issues we'd like to throw into the mix in regard to this notion of fresh thinking. Here is our list of questions, followed by some suggestions of work that might be done.

How much economic integration is in the best interests of Canada? Should governments place a limit on the extent of integration? Will we know when we've reached that limit, or should we allow the integration to continue without question or challenge? Can Canada develop a coherent Canada-U.S. relations strategy by dealing with problems on a case-by-case basis, or do we need to develop a more comprehensive approach based on principles and frameworks? If we choose the comprehensive approach, how will this be done? What is the process that would allow for a free-ranging discussion, without forcing you, our political leaders, to declare a preference before you are ready to do so? Should Canada redefine its relations with the United States by engaging in a broader North American dialogue involving Mexico? If so, when and how, and what would be the characteristics of this dialogue? Lastly, in your report, you suggest that what really counts is Canada being able to provide the equivalent efficacy of Canadian border policies in an effort to prevent further terrorist incidents within North America. How could this advocacy be achieved?

À (1000)

In the short-term, I think a number of items might be taken on as a responsibility for Canada that might in fact help to answer these questions. For one thing, you've made a strong recommendation in your report that Canada needs to bolster its foreign policy capabilities—and this is a theme that also came up very often in our round tables as we've gone across the country. And we also suggest that there need to be new ways for parliamentarians to create new mechanisms for cooperation with their U.S. counterparts—and both previous speakers addressed this opportunity for us, as well as the energy that will be needed in Washington to convince your equivalents to act on the issues that are important to us.

We need to gather much more information about our relationship with the United States. By this, I mean economic, social, and often public opinion data. In fact, the Public Policy Forum is now working with Ekos Research Associates on a series of surveys to be conducted in Canada, the United States, and Mexico, about our relations with one another. Hopefully our results will be available to this committee by the end of April.

We think we have to do more analysis on the kinds of institutional responses we can propose that will resolve disputes between our two countries in a timely manner. However, this is not likely something the Americans are going to spend much time on, because we know it's not an issue of particular importance to them.

Lastly, we need to have a broadly based discussion with Canadians about the kinds of relations we want to have with the United States. This is obviously a very difficult issue for political leaders like yourselves to champion, since the outcomes are unknown and not particularly controllable. However, we know the public isn't interested in being involved in these key policy issues.

The Vice-Chair (Ms. Jean Augustine): Dr. Zussman, can I ask you to—

Dr. David Zussman: In conclusion—

The Vice-Chair (Ms. Jean Augustine): In conclusion? Thank you.

Dr. David Zussman: I was right there.

In conclusion, we'll continue to work on these topics at the PPF. As noted, the border has dramatically changed in the last while, and we feel Canada needs to develop its own agenda. In the past, when we've had an agenda, we've done extremely well. We need to know what we want out of our Canada-U.S. relations.

Lastly, as you conclude in your preliminary report, the development of Canada's policy regarding our relations with the United States should not be done narrowly or by a few individuals. Instead, the challenge to secure Canada's future within a more secure and outward looking North America must ultimately be a shared enterprise that involves all Canadians.

Thank you very much.

The Vice-Chair (Ms. Jean Augustine): Thank you very much. I think I can speak for the committee by saying we're very pleased that you've read our work and have analysed it so thoroughly.

We'll go to questions now, starting with Mr. Martin.

Mr. Keith Martin (Esquimalt--Juan de Fuca, Canadian Alliance): Thank you, Madam Chairperson.

Gentlemen, thank you very much for appearing in front of the committee today. I hope your comments will be heard not only by this committee, but by many others, including the finance committee and the revenue committee.

I would like to start with you, though, Dr. Myers. I want to thank you for giving us a positive, can-do attitude in terms of what we can do with respect to our economy, and for not adhering to the flock of economists who are pursuing the notion of dollarization instead of looking at the true pathology underlying our declining dollar.

Because your comments are going to be in the record and will be very valuable when we're putting our document together, for the record, Dr. Myers, could you tell us what those underlying problems are with respect to the lack of competitiveness that we have within our country—as reflected in our declining dollar—and what we need to do in our country to address the tax and fiscal policy challenges that are at the root of the declining dollar?

À (1005)

Dr. Jayson Myers: I do think the issue of this growing productivity gap between Canada and the United States is really at the root of many of our problems with the currency. Canada's dollar has tended to track commodity prices over a period of years, but the fact of the matter today is that every good produced in this country becomes a commodity very quickly. It can be a high-tech product or a resource, but it can become a commodity very quickly in a very competitive international environment unless companies are continually improving their products, services, and quality, and are meeting new customer expectations. The issue of innovation, which is also an investment issue, is crucial.

To me, the falling dollar is a reflection of that growing productivity gap, which itself is a reflection of the fact that we have not kept pace with investments in new technology. We haven't kept pace with investments in our labour force. We haven't kept pace with bringing new products to market.

What should be done to address that problem is at the heart of a debate about innovation that I hope we will also enter into very shortly. It's not just a problem of what government can do. Business itself should take prime responsibility in terms of improving business leadership and management capabilities.

On the tax and regulatory side, a lot of things could be done to improve the business climate for investment in this country. We do silly things like imposing a tax on investments in new technology and imposing capital taxes. On paper, we have some of the best R and D tax credits in the world, but when it comes down to actually administering them, they really don't work for the businesses making these investments.

There are ways to improve this situation. On the regulatory side, there are ways of regulating at a lower cost—and I would think more effectively—by bringing about compliance at lower cost. That's when we can start talking about some mutual recognition agreements, eliminating the interprovincial differences that we have across the country, eliminating the inconsistencies and duplication in our regulatory systems, and regulating smarter and better.

All of those issues are at play here. In my view, our economic relationship with the United States must also become a domestic issue about how best to improve the productivity of Canadian industry.

Mr. Keith Martin: Professor Hart, you mentioned the very important point that our trade has been exceeding our border capacity for some time, even before September 11. Can you give us some specifics as to what we can do to ensure that our border is going to be porous for goods and services, but a steel trap for unwanted criminals and terrorists?

Lastly, you made a very good point in articulating the different political environment that exists in the United States. Do you think we should have an institutional mechanism for what you're essentially saying is lobbying for Canadian interests in the United States? My personal view is that we need to have some more formalized fashion by which we can pursue Canadian interests in the decentralized system that is Washington. Do you feel the same way?

Prof. Michael Hart: Thank you.

On the first point on the capacity of the border, one way to do it, of course, is to increase the infrastructure at the border. We can build more bridges and build more crossing points, but that's a very expensive way to address this problem. The easier way, and what I think is the more effective way in the long run, is to look at things we're doing at the border that probably can be done either before or after the movement of goods and services. Some progress has been made in doing a pre- and post-audit kind of form-filling and so on, but much more of this can be done.

When a truck crosses the border, three things have to be checked: the truck, the load, and the driver. Even if you have a CANPASS, for example, it applies to the load, but it doesn't apply to the truck or to the driver. As a Canadian truck enters the U.S., not only do all kinds of customs forms have to be provided, all kinds of income tax forms that are part of that load are required. A heavy regulatory burden is still imposed at the border, and that burden slows down traffic.

Of the people and goods crossing the border, 99.9% are compliant with the regulations that are in place, so the most efficient way to deal with congestion at the border is to deal with more efficient ways to ensure that all those compliant Canadians—and those compliant Americans coming in the other direction, for that matter—can do so. A variety of techniques can be used to do that. CANPASS and INSPASS were early models, but much more can be done. The easiest way to deal with it, for example....

One of the things we continue to insist on is rules of origin. Rules of origin are required because of differences in tariff levels in Canada and the United States, but those differences are very small. If you look at the tariff lines between Canada and the United States, for several thousand of our tariff lines, we are within 1% of one another. That 1% creates a requirement for rules—and therefore for paperwork—that is the equivalent of 3% or 4% as a tax. A very easy way to deal with these kinds of issues, therefore, is to begin to look at what we are doing at the border in order to see if we can either get rid of it because it really serves no useful purpose anymore, or to see if we can do it in a more efficient way. So I would begin with customs administration as the easiest, first step toward that.

Secondly, I would like to see the day when we no longer ask what I consider to be an unnecessary question every time a Canadian comes back from the United States: “Do you have anything to declare?” If we have a free trade agreement, do we really have to confess that, yes, indeed, we did buy a pair of pants while we were in Syracuse? That level of trade no longer needs that kind of scrutiny and so on, and I think we can get rid of it. In fact, the then Minister of International Trade, Pat Carney, was very disappointed to learn the Department of Finance had overruled her desire to get rid of that particular, annoying question.

So there are all kinds of little things that, after a while, add up to a much better administered border, but better administration requires a high level of cooperation between the two sides and an understanding of what these kinds of rules are.

For example, Dr. Myers referred to mutual recognition agreements. There's no need for Canada and the United States to harmonize regulations, but much benefit is to be gained from a process whereby we mutually recognize each other's regulations, because for most of those regulations, the differences are very small and are the result of history, legislative differences, and so on. But we can recognize each other's programs. A lot of things can be done.

À (1010)

The Vice-Chair (Ms. Jean Augustine): Thank you. I'll stop you there. Maybe there will be an opportunity for you to provide more input on this as you respond to another question.

Mr. Keith Martin: Do I have any time left?

The Vice-Chair (Ms. Jean Augustine): No, you've run out of time. I've been very generous with you, Dr. Martin.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: I would like to thank the three of you for coming here this morning on such a cold day. It is even cold in this room.

Mr. Zussman stated at the outset that it was imperative to include Mexico. Both you, Mr. Hart and you, Mr. Myers, were less categorical about Mexico's role. As you are perhaps aware my Bloc Québécois colleagues, Gilles Duceppe, Yves Rocheleau and I took part in meetings with political and trade union stakeholders in Mexico. We looked at three issues, including that of a social and structural fund, such as the one in the European Union. Vicente Fox raised this issue when he came to Ottawa last August.

We studied the issue of an institute for a common currency of the Americas, not with a view to implementing a common currency in the short term, but rather to studying this issue, especially given the fact that the euro is likely to extend into Asia and given that we are already seeing this phenomenon in terms of the yen and the dollar in Asia. As a result, had we not better tackle this issue only once all aspects of it have been studied, rather than simply shooting the idea down for reasons which may very well be valid, but need to be substantiated.

The third issue that was raised concerned the perimeter. This would be negotiated at best on a three-way basis or, in the worst case scenario, a Mexican observer would be present at Canada-U.S. talks and the Canadian observer would be present at Mexico-U.S. negotiations. The rationale here being that Mexico is here to stay. Mexico plays an important role and we cannot simply ignore that fact. The answers to these three questions from all the communities we talked to were extremely interesting.

In terms of the social fund, everybody agreed that there should be one, whether it was done politically... Indeed, the people we talked to stated this quite clearly in interviews on Radio-Canada. Business people agreed that there should be a social fund and they were also in favour of looking at the issue of dollarization.

We also met with high level stakeholders to talk about the issue of a perimeter. Associations, who have—to put it mildly—misgivings about the benefits of globalization, consider the idea of studying the implementation of a social fund as an interesting one, but they believe that there should be other initiatives also. When they look at the idea of a perimeter, they look at it in terms of the current migrant problem, which is a huge issue for Mexico and the United States. We might think that this does not affect us. However, when you have as powerful a neighbour as the United States, as both our countries do, it becomes an issue for us too.

Consequently, I returned from Mexico convinced that—and no one mentioned this fact—we have to build our ties with Mexico in all areas because the proximity of the United States for Mexico means that the majority of their exports go to the United States. Mexico says that 87% of its exports go to the United States, whereas we would put this figure at something more like 83 or 85%. It really depends on the figures that you have. Perhaps if we worked to develop closer ties with Mexico, we could attract more attention from the Americans.

All three of you spoke, if I'm not mistaken, about this strategy. Consequently, I would like you to expand on this issue. In your opinion, do you think that Mexico is merely a competitor for us?

À (1015)

The Vice-Chair (Ms. Jean Augustine): Ms. Lalonde.

Ms. Francine Lalonde: Thank you, Madam Chair.

[English]

The Vice-Chair (Ms. Jean Augustine): You have about 30 seconds to answer. Madame Lalonde has used up most of her time.

[Translation]

Ms. Francine Lalonde: I am sure that they will answer that.

[English]

Dr. David Zussman: I'll simply say that when we talk about Canada-U.S. relations, I think there has been a tendency in Canada to sometimes forget the fact that Mexico is a major player in North America, both on a bilateral and a trilateral basis. Our feeling simply is—and this was also reflected in the comments of the two previous speakers—that we have to pay a lot more attention to Mexico as a competitor, as you suggested, but also as a partner in North America, understanding once again that the dynamics of the Mexican relationship with the United States are an important element in developing our own foreign policy strategy.

Madam Chair, I'll leave it at that.

Dr. Jayson Myers: I would just echo Dr. Zussman's comments. I agree. Mexico has many interests similar to those of Canada in its economic relationship with the United States, and it is important to realize that the relationship between Mexico and the United States has many implications for our own economic relationships. It's therefore very important to see Mexico not only as a source of competition, but very much as a partner, both economically and in terms of the development of our foreign and trade policies.

À (1020)

The Vice-Chair (Ms. Jean Augustine): Thank you very much.

Ms. Carroll.

Ms. Aileen Carroll (Barrie--Simcoe--Bradford, Lib.): Thank you, Madam Chair.

You made very interesting presentations this morning, and I thank you all for them.

Professor Hart, I would think Yves Fortier's article in the newspaper recently was pursuant to some of what you began with. I think it was very relevant to what we should be considering within the ambit of our study.

You made mention of Robert Bonner's comments. In many ways, I think they reflect the fact that there are a number of fiefdoms within the American political regime. Tom Ridge has run into some of them. I think he's having more success, but he's still running into them and he's inside the tent, with the President's approbation obviously. So what are we trying to do?

I agree with you very much that we do need to do a full-court press, because this is not a small undertaking. How would you strategize putting Team Canada on the floor for this full-court press, with some realistic goals? And don't misunderstand me. I agree with your philosophy. It's good, but I'd like to see the kit.

Prof. Michael Hart: The very first thing we have to do is make up our minds about what it is that we want to do. It would be very counterproductive for Canadians to go down to Washington for a full-court press if every Canadian is pressing a different agenda. It's important that we have a broadly agreed to agenda of what we're trying to do, and I think these hearings are very important in helping to define that kind of agenda.

I think it's counterproductive to think we can do things on an incremental basis, that we can add a little bit here, add a little bit there, and have a little bit of this and a little bit of that. That type of thing can never really gain the attention that is necessary. In the United States, it's big ideas that have an impact, because it's big ideas that major political figures in the administration, in Congress, can get a hold of and run with. It's only when you have that big idea that you then can do the second stage, the full-court press that involves not just the Canadian embassy, the Department of Foreign Affairs, or other departments here, but parliamentarians. I think your previous chairman was very active in Canada-U.S. parliamentary work, and he discovered how useful that kind of work can be.

Various private-sector organizations, both business and non-business, also need to work closely with their U.S. counterparts in order to ensure that there is a dialogue, so that at every opportunity, you can see Canadians talking to Americans and Americans nodding their heads and saying that, yes, what we're asking for is not just in our interests, it's in their interests. That's the most important thing. You must convince the Americans not that you're doing it because Canada wants it, you're doing it because it's in the interests of the United States to make progress on these kinds of issues, because only those kinds of issues get on the agenda in the United States.

During the Free Trade Agreement negotiations in the mid-1980s, we discovered, for instance, that we had to completely revamp how we did things, because we began the process in the old State Department to External Affairs kind of dialogue. We discovered fairly early in the game how irrelevant the State Department has become to these kinds of issues. It's nice to talk to them, but you have to have the major departments onside, the major agencies onside, and the major political figures onside. That requires a lot of homework and a lot of activity, and it cannot be done quickly. It's something that takes time. It means you have to have a clear agenda, that you work on that agenda, and that you then push every possible button along the way in order to ensure that they hear you. And it means we must not be shy about having the debate here.

Ms. Aileen Carroll: Thank you, Professor Hart, I was hoping you'd say all that. It's very good to have it on the record as we put a report together.

And I just have a quick second question for you, Dr. Myers. I very much enjoyed your presentation as well. I do think Madame Lalonde has hit on it, just as she has in the past.

I think we do need to look more clearly at the commonality that Canada and Mexico share. I think we've lost sight of it a bit, that we've gotten very shoulder-up and competitive with them in wondering if America loves them more. I don't think that's the issue, and I think your comments show you realize that. I think we have a lot to talk to them about, like how we cope with America on Kyoto or many other things.

I'm very glad to have heard your comments. We're grateful for them.

À (1025)

Dr. Jayson Myers: Thank you.

I agree. I think Mexico has to be much more of an integral part of the way we look at our relationship not just with the U.S., but with the rest of the Americas.

Ms. Aileen Carroll: I read your comments in preparation for today, doing our homework as we do. Is it trilateral, or is it Washington-Mexico City and Washington-Ottawa? There's another part to that triangle, and I'm glad to hear from someone who speaks for the numbers in the private sector that you speak for.

Thank you, Madam Chair.

The Vice-Chair (Ms. Jean Augustine): Thank you.

Mr. Robinson.

Mr. Svend Robinson (Burnaby--Douglas, NDP): Thanks very much. I want to thank the witnesses for their presentations this morning.

I must say that, as one member of the committee, I embark on this study of North American integration with a great deal of trepidation, because I happen to believe we are already a very long way down a road that is a destructive road not just for Canadian sovereignty, but for the quality of life of the people we represent, and the people in the United States and Mexico as well.

When I look at the impact—and I'd be interested in your comments on this—of the existing level of integration, to use the word that is the buzzword now, I ask myself it that has strengthened public education and health care in Canada. Has it reduced the gap between rich and poor in Canada, in Mexico, and in the United States? Has it led to greater environmental protection in any of those three countries? The answer to all of these questions is that it absolutely has not. In fact, it's quite the contrary. We just received a report from the Commission for Environmental Cooperation, under NAFTA. I'm sure you're all familiar with the results of that report, which showed quite a devastating decline in environmental quality and environmental standards, particularly on the issue of climate change.

When we talk about harmonizing, when we talk about integrating standards, I look at, for example, poor women who are working in the maquiladora zones in Mexico. One of my concerns is the conditions there. There are no environmental standards, no unions. I don't want to harmonize with that. Rather, I want what is hopefully a set of basic standards, core labour standards, environmental standards, and so on.

I see us selling out our country. Under chapter 11 of the North American Free Trade Agreement, I see more and more of a loss of our sovereignty. I don't want to take us any further down that road. Even Monsieur Jacques Parizeau is now saying maybe we should have read the agreement a little more carefully before we signed it. That's a very interesting statement, coming from Monsieur Parizeau.

What I want to ask you is how you would respond to the concerns I'm speaking of. I think you know many Canadians share these concerns. How do you respond to these concerns that even further integration is going to exacerbate some pretty destructive tendencies that we've already seen?

Dr. Jayson Myers: Maybe I could go first.

I'm not so sure the 1.5 million Canadians whose jobs directly depend on doing business with the United States would agree with you about the devastating economic impact of free trade. I think it's just the opposite. We've seen 600,000 new jobs created in manufacturing in this country. It's the one sector that has been most affected by free trade. I think free trade has given Canadian business an opportunity it wouldn't have had otherwise.

That's not to say, of course, that there aren't environmental issues that we have to deal with, or that there are no labour issues. But I am not convinced at all that this is a rush to the bottom. I think it's just the opposite, that without this free trade agreement, without the economic expansion we've seen in Mexico as well as in Canada, we would be in a much poorer position to address those labour and environmental concerns. I think most Canadian companies operating in Mexico and, in fact, most Mexicans whose jobs depend on that economic relationship, would probably see things a little differently from the way you've portrayed them.

Prof. Michael Hart: I would agree with Mr. Myers, Madam Chair, that Mr. Robinson and I are unlikely to ever agree on whether or not the FTA, the NAFTA, and so on, are part of a destructive road. Mr. Robinson's view of cause and effect is radically different from mine. It would therefore be hard for me to really respond to the question, because I don't share the premise. Fundamentally, I think the FTA and the NAFTA have made an astoundingly important contribution to prosperity in Canada, prosperity in the United States, and prosperity in Mexico.

À (1030)

Mr. Svend Robinson: Prosperity for whom?

Prof. Michael Hart: For the population as a whole, and without that prosperity, many of the kinds of things that are important to you, such as environmental standards, labour standards, and so on, cannot be achieved. It's a question of what you put first. I think you must put in place a regime that clearly recognizes that without prosperity, you cannot achieve many of these other human goals.

The second point that I think is an important one to keep in mind is that the FTA, the NAFTA, and the WTO Agreement are agreements that respond to the degree of silent integration that is the result of the individual choices made by Canadians, Americans, and others on a day-to-day basis, in what they purchase and how they want to live. What governments are doing is trying to catch up with that degree of silent integration by putting in place rules and regulations that recognize the preferences and priorities of most people.

With that in mind, I look at what the response by Canadians has been to the opportunities created by those agreements, and I say that what Canadians are now saying is that you need to go further. Other kinds of impediments need to be addressed in order to be able to take full advantage of the opportunities that exist in a more open economy. If you do that, if you create those further opportunities, you will again create jobs and prosperity, which will give you the opportunity to address these other kinds of social problems—real as they may be—that cannot be addressed unless society is capable of raising the wealth needed to address them.

Mr. Svend Robinson: Let me ask something else just before we hear from Dr. Zussman.

In the years since NAFTA came into force, Professor Hart, how many new environmental laws have been passed in Canada?

Prof. Michael Hart: I have no idea, but I think that's totally unrelated to whether there's a NAFTA or not.

Mr. Svend Robinson: You don't think the chilling effect of chapter 11, for example, has any impact?

Prof. Michael Hart: No, not at all.

I'm sorry you weren't part of a seminar we had two weeks ago, at which we examined chapter 11. The overwhelming conclusion of the participants at that seminar was that chapter 11 has so far been a chapter whose reputation has far outrun the reality of the decisions that have been made by various panels and tribunals.

Mr. Svend Robinson: Tell that to the people of Guadalcazar, Mexico, who didn't want a toxic waste dump in their community.

Prof. Michael Hart: And they don't have one.

Mr. Svend Robinson: And we were forced to compensate Metalclad as a result of that.

Prof. Michael Hart: They don't have one.

Mr. Svend Robinson: We paid $30 million to Metalclad as a result.

The Vice-Chair (Ms. Jean Augustine): Mr. Robinson....

Dr. Zussman, you have about half a minute to respond.

Dr. David Zussman: That's the advantage of being last—and I also wrote down “cause and effect”, by the way.

We haven't been able to determine, in our work, what the impact has been of NAFTA, but we do know there is a growing concern among Canadians about the issue of integration. That's why one of the questions I actually posed to this committee was how much integration is in fact in the best interests of Canada. I think the challenge for you people is to determine that.

What we're trying to do in our work is a number of different studies, one of which is a public opinion survey we're undertaking now that is in fact asking Canadians, Americans, and Mexicans about some of these issues. It's particularly asking what really are sentiment-type questions about what's going on. In a few months' time, I hope I'll be able to answer the broader question about concerns.

The other thing we've been trying to do—and we're not having very much success, in fact—is some studies about the various impacts, for instance, of head office movements and what impacts those movements might be having on employment and general decision-making. I can't report to you that we have much data to date, because this is one of those very difficult studies to do. It's well worth it, but, again, we don't have the information to answer your question directly.

The Vice-Chair (Ms. Jean Augustine): Thank you.

Dr. Patry.

[Translation]

Mr. Bernard Patry (Pierrefonds--Dollard, Lib.) Thank you very much.

[English]

I'm not going to make any opening statement. I'll go to my questions right away. I have two of them.

First, because of the size of the United States, is it realistic, and if it is, is it vital to achieve a strengthened continental political architecture? By this, I mean the creation of supranational political institutions that go hand in hand with efforts to integrate more closely.

That's my first question. I'll come back with the second one after you answer.

Prof. Michael Hart: The asymmetry between Canada and the United States is a fact of life that we have to live with. The U.S. economy is about fifteen or sixteen times the size of our economy. The population is just a little under ten times the size of Canada's. That's a reality we can't change. But what we have learned over the past fifty years—and I think it has been a hallmark of Canadian trade and foreign policy—is that by having rules, institutions, and procedures in place, we're able to address that asymmetry in power in a much more effective way than we can without those kinds of institutions.

Canadians have been the great institutional regime-makers of the last fifty years. There isn't an institution or regime that Canadians don't want to join, and it's not because we're Rotarians, it's because we know it's in our interest to do so because those regimes help us to deal with the disparity in power, and particularly the disparity in power between Canada and the United States. Much of what we do in multilateral institutions is geared toward addressing the relationship between our two countries.

Do I think we can continue to address that kind of asymmetry? I think it's not only that we can, but that we must. The only way we can live in harmony with our neighbour is by having rules in place that are implemented in the United States either through treaties or through congressional agreements, and that are therefore part of U.S. law. The record shows that when you have those kinds of agreements, the Americans are very law-abiding. They will live up to those laws. So in areas in which we are not satisfied with the rules, the challenge for us is to negotiate new ones and better ones that catch up to changing realities.

À (1035)

The Vice-Chair (Ms. Jean Augustine): Go ahead with your second question, Dr. Patry.

Mr. Bernard Patry: Again because of the asymmetric relationship between Canada, Mexico, and the United States, is there any lesson we can learn from the European experience with economic integration?

Prof. Michael Hart: A lot of people constantly reiterate the theme that we have much to learn from Europe. I doubt we do, because the situation is too different. First of all, the fundamental motivating force for the integration movement in Europe was a political one. It was basically a way to deal with the disruption of two world wars and a number of other wars that required that economic means be used in order to create political cohesion. That motivation means the integration movement in Europe has always been policy-led, whereas the integration movement in North America has been a response to silent integration, as I indicated earlier. Those two differences in motivation mean there really isn't as much we can learn from Europe as some people think.

That being said, the Europeans have done things in institution-building, in rule-making, and so on, that I think bear close study in terms of looking at what works and what doesn't work. But the fact is that in North America we have 3 partners, whereas they currently have 15 in Europe, and I expect to see a European Union of about 35 or 40 countries within my lifetime That creates a very different kind of dynamic than in North America, where you have one giant and two not-so-giant partners.

If I may, let me just take a moment to respond to the question Madame Lalonde asked about Mexico. I do not agree with Dr. Myers and Dr. Zussman that we should make Mexican priorities our priorities. I think Canada should be pursuing Canadian priorities. If those priorities are shared by Mexico, then let's work together. If they are not, then let's continue to pursue ours, as the Mexicans will pursue theirs. Their priorities are different than our priorities. Where they are similar, we need to work together.

I think it's wrong to say we have a North American community. We do not have that. We have a North American Free Trade Agreement that provides a basis for two free trade agreements, one between Canada and the United States, and one between the United States and Mexico. There really is no fundamental relationship between Canada and Mexico. Every time I go to Mexico, I'm reminded of just how thin that relationship is. I have been going to various kinds of committees, like the North American Committee, the North American Institute, and the Canada-U.S. Relations Committee—which is now the North American Relations Committee—and one of the things that is striking about those committees is the extent to which the Americans are no longer interested. They're no longer interested, because they have issues they want to discuss with the Mexicans and they have issues they want to discuss with the Canadians, but they are not issues they want to discuss on a North American basis. I think that reality should inform our approach to the kinds of issues we are currently facing.

Thank you.

The Vice-Chair (Ms. Jean Augustine): Thank you.

I think Professor Robert Pastor is going to be here with us on Thursday afternoon, and it would be interesting to hear his perspective on that topic.

Dr. Patry, you have about one minute left.

Mr. Bernard Patry: I just want your comments to understand what you said at the end. You mean that your approach is really to strengthen and deepen existing bilateral relationships before tackling the challenges associated with the North American economy. You really prefer to go bilateral instead of trilateral. That's what your focus is.

Prof. Michael Hart: Yes.

À (1040)

The Vice-Chair (Ms. Jean Augustine): Thank you, then.

[Translation]

Ms. Lalonde.

Ms. Francine Lalonde: I would just like to say quickly, in the absence of my colleague, that globalization is a bit like the tide. You might not like it but you just have to deal with it and try to sail through it.

Could you talk to us about the very serious and very tangible issues concerning the drop in productivity. A few evenings ago, I heard Mr. Parizeau give a very clear and very eloquent speech about the impact of the drop in productivity. He did not say that dollarization would be an immediate solution. However, he did say that anyway you look at it, we are currently facing a productivity-related problem and that if we were indeed to adopt the American dollar, we would need to have a relatively long lead-up period in order to avoid being crushed by the American dollar and to be able to take full advantage of it.

The drop in productivity is ongoing. I have sat on the industry committee and there I learned that this whole issue is a vicious circle, because a weaker dollar means higher equipment costs and also means that companies tend to only be able to take advantage of low export costs. This is a major issue.

I would be interested to hear what tangible solutions you might have to this problem.

[English]

Mr. Jayson Myers: I agree. There seems to be a bit of a vicious circle here. The lower the dollar falls, the more expensive it often becomes to invest in new technology and the more difficult it becomes to attract and retain skilled personnel. These are very important factors also in our weak innovation performance.

If you step back and look at Canada's growing productivity gap with the United States, it's surprising on one front. Why should we at the same time as we're becoming more integrated in our economic relationship see this growing gap in productivity performance? In fact, we're really not seeing a growing gap in our ability to produce products and to export those products into the American marketplace. The volume of our growth in industrial output and our growth in exports are pretty similar to those of the United States. Where the biggest difference occurs is in the investment in new technology. The studies show that Canadian companies have been lagging behind in their adoption of new technology, whether it's production technology, new processes, or new Internet technologies. We tend to lag behind.

That, it seems to me, is crucial here, and it's all about building a better investment environment in Canada. When I talk to our members across the country, there are few companies I visit that are not extremely efficient in what they do, far more efficient than most of their U.S. counterparts. But the question is, do they have the tools, and are they working with the same tools to give them the opportunities to improve productivity? That's where I think we've tended to lag behind. It's not that we haven't been making these investments and improving productivity, it's that our major competitors in the United States are doing much better.

Really, when we look at this problem, it becomes very quickly an investment problem, and in my view productivity is an investment issue. Productivity is a reflection of the return on investment, and that's why we also have to look at what can be done to reverse that. If our productivity levels were increasing more rapidly than those in the United States, if we were closing the gap in productivity, then the dollar could be rising and we could be extremely competitive with a higher dollar, but we simply can't do that today. If we don't deal with these issues of productivity and innovation, it also seems to me that we won't be able to sustain a peg with the U.S. dollar in the long run in any case.

Prof. Michael Hart : Could I just add a point to this that I think is important in this debate? First of all, it is wrong to suggest that Canadian productivity has fallen. The gap is growing because U.S. productivity is growing so much more rapidly than the productivity in other countries. If you compare Canadian productivity performance to other countries in Europe, Asia, Australia, and so on, our productivity performance looks about the same.

It is because the U.S. economy is red-hot and there is a very high level of take-up of new technologies, and so on. Studies done in Canada on productivity performance in traditional manufacturing industries, for instance, indicate that our productivity performance is very similar to that of the United States, except for the front-end industries. That's where the real gap is. As Jayson indicates, it's the innovation take-up that is so critical in the United States.

There are a number of factors at play there. Some of them are private factors, having to do with the size of the economy with other kinds of.... Some of them are public policy factors dealing with impediments to investment in Canada, looking at choices, and people investing in innovation in the United States rather than Canada.

We should do better. I think we can do better, but it's important to remember that our productivity is improving, but not at the pace we would like it to improve, and certainly not at the pace it's improving in the United States.

On the question of currency, I agree with Jayson that it would probably be very counter-productive--the problems raised by dollarization would be much larger than the problems solved. At the same time, I think the Department of Finance needs to do some very serious work looking at the extent to which the Canadian economy is already dollarized.

I think if Jayson were to do a survey of his members, he would be astonished at the number of companies that already price, buy, and do all kinds of things in U.S. dollars. I have seen estimates that as much as 40% of the Canadian economy is already dollarized. That in itself has an impact on lowering the Canadian dollar, because it creates a high demand for U.S. dollars, which would otherwise not be there.

À (1045)

The Vice-Chair (Ms. Jean Augustine): Thank you, Professor.

We will now go to Mrs. Marleau.

Ms. Diane Marleau (Sudbury, Lib.): I was told once long ago, when I started in politics, that all politics were local. Nowhere is that truer than in the United States of America. They are the best self-promoters, the biggest self-promoters around. They sell themselves first to themselves, and then to the rest of us.

We talk about breaking into this. It's incredibly difficult, as you all know--many of us have tried--because they are far more interested in who they are and how good they are than anything else. But we as a Canadian society have also fallen victim to that. We tend to beat ourselves up. I'm glad Mr. Hart talked about how our productivity gap has not really increased. We're falling prey to all that's being said about how great they are all the time. We beat ourselves up and forget that we are great in a lot of areas.

I happen to believe that the American dollar is overvalued--very much overvalued. They are the biggest debtor nation in the world, and their economy is not that red-hot right now. So I'm not sure we should be moving to total integration, in all senses. We have to realize we have some tremendous advantages, and we want to keep those advantages.

How do we promote ourselves to ourselves, first of all, and in doing that, promote ourselves to the Americans? I sat here, and in some instances I heard about how bad we were. It's always how bad we are. Somehow it's our fault that our dollar has lost ground against the U.S. dollar, but maybe it's not all our fault. Maybe the Americans are overinflated and.... So think about that.

How do we as a nation start selling ourselves more for what we are? We shouldn't say our productivity gap is no good, because it's not true. We're not perfect, but we have some very good areas. How do we let Canadians know? Then maybe Americans will understand, as well.

The Vice-Chair (Ms. Jean Augustine): Thank you, Madam Marleau.

Who will go first?

Mr. Jayson Myers: Maybe I could take a first crack at that.

I agree that we excel in many things, and we don't speak about that nearly enough. I think most Canadians are not aware of what we're good at; they're certainly not aware of what it takes today to compete successfully.

I wonder how many members of this committee have heard of Guigné International, a little company in Paradise, Newfoundland--a marvelous restructuring story, moving from sonar mapping of the sea floor to sonic levitation technology. It's the first commercial application of that technology that's been invited to participate by NASA in the space shuttle. It's a marvelous success story for a little Newfoundland company that I would classify as high-tech, but also manufacturing. I just wonder how many Canadians know of that success story.

I think we have a lot of work to do to blow our own horn. We can't expect that the Americans are going to listen if Canadians themselves are not. That said, we do have some world-class companies in Canada.

One of the problems, though, that we've seen recently--and part of this comes back to getting these messages across to the U.S.--is that there were several companies that were world-class that were recently closed by their American parent because it didn't make sense for them to keep those companies open.

Now, I think that is a challenge. It's a reflection, I think, of the small market in Canada that they were serving. It's a reflection, to some extent, of the fact that more and more investment decisions are being made in the United States, and not necessarily in Canada.

These are some of the challenges we have, not only in communicating our successes to Canadians, but also in making sure we have the rules and institutions in place and we're doing everything we possibly can to make sure our American counterparts, partners, and customers are aware of the importance of what we're doing here as well.

À (1050)

The Vice-Chair (Ms. Jean Augustine): We'll now go to Dr. Martin. I think, Dr. Martin, you have just one small intervention?

Mr. Keith Martin: Thank you, Madam Chairwoman. It's just a request, actually.

Your comments to my questions were so compelling that for the benefit of our committee, Professor Hart, I wonder if you'd be kind enough to submit to the committee the specific tax regulatory obstacles to the movement of goods and services in Canada that you mentioned. That would be very useful for us, if we could have that in our document and could offer it to the government to employ.

And, Mr. Hart, could you also submit the specific solutions that will improve our productivity--tax, fiscal, and educational--and the underlying pillars that will enable us to have the most productive, aggressive economy we could possibly manage? If you could provide that, and any other information, to the committee, it would be greatly appreciated.

Thank you.

The Vice-Chair (Ms. Jean Augustine): Thank you, Dr. Martin.

Madam Jennings.

Mrs. Marlene Jennings (Notre-Dame-de-Grâce--Lachine, Lib.): Thank you very much for your presentations. I apologize that I was not here at the beginning. There was a bridge closure from the Hull side into Ottawa, and that backed everything up, including me. But I did appreciate parts of the presentations you made. I've listened to the questions. I've been here for the entire question period, so I've had an opportunity to listen to my colleagues on my side of the House and on the opposite side pose their questions. So I'm going to come at it from a slightly different paradigm, the issue of governance, accountability, and transparency.

I come out of the law enforcement field, and I know for a fact that right up until 1997 Canada's systems of accountability for our policing services and our military were considered to be the model in the world, second to none. The Americans, the British, the Germans, the Italians, the South Africans, the Brazilians were coming to Canada to look at the models we had of civilian oversight of law enforcement. We are the first country to have a civilian military tribunal to investigate complaints against the military police. So when I look at the issue of North American integration, you're right, it's happened, and it's because of choices of Canadians. I agree with that. But I also know, with my knowledge of law enforcement, Canadians are very aware of the fact that there are mechanisms here in certain areas that are well established where we can actually go and get a credible investigation, a credible process leading to credible conclusions, recommendations, or sanctions, if need be. There is not that same confidence in what exists in the States. I think we have to look at Enron Anderson as a prime example

So given that Canada is known for work in governance, for the governance mechanisms we establish across the board, not just in law enforcement, but in civil areas, trade areas, etc., how do we integrate that, so that if we do a full-court press, we're also getting the attention of the Americans, so that whatever further integration we agree to, that becomes a big part of it, and it's our models, possibly with improvements, that are adopted, not the American models, which in many areas fall short of what exists here? It's a simple question.

À (1055)

Prof. Michael Hart: There are a couple of points I could make on this issue. I think negotiators, if they can, will use best practice, will try to put in place a regime that reflects the best practice in both countries. It's not always obvious what the best practice is. I will give you one example: government procurement. In Canada for many years government procurement was not nearly as transparent, as open, and as challengeable as it was in the United States. One of the requirements that was negotiated as part of the FTA and then the NAFTA was that we would have bid challenge procedures. The Americans wanted that in order to protect their interests. As a matter of fact, most of the people who use the bid challenge procedures now are Canadians who have made the Canadian procurement system much more transparent, much more open to oversights, and a very big plus.

One of the problems they have in the United States is the one I alluded to earlier, the separation of powers or the sub-separation of powers. There are just too many different kinds of people with fiefdoms. A good illustration is that within the District of Columbia in the United States there are 32 police forces, who don't always talk to one another. One of the big benefits Mr. Ridge would like to see as a result of the dialogue between himself and Mr. Manley is institutions in play that force those 32 police forces to talk to one another. So there you have an opportunity to improve something on their side of the border.

Similarly, I think most Canadians are unaware of the fact that there is a relationship between the Securities and Exchange Commission in the United States and the Ontario Securities Commission, which has been in place now for seven or eight years, where there is a high level of mutual recognition of the filings and so on required in each country. I think, as a result of the situation with Enron, there will be a look again at what the required filings are, but for many years the SEC was not enthusiastic about the OSC, because of Bre-X and similar kinds of scandals.

We all have skeletons in our closets, and one of the things these types of negotiations do is provide an opportunity to see what are the best practices and whether we can put in place a regime that provides international cover, to ensure that those best practices are implemented in domestic law. My experience is that this is often the best way to get better governance.

The Vice-Chair (Ms. Jean Augustine): Thank you so much, Professor.

I think we've exhausted your time, Ms. Jennings.

We want to take the opportunity to say thank you for coming before us this morning and making your presentations, as witnesses to the work we are doing. We also would like to invite you, if you wish to stay, to hear the Norwegian foreign affairs members who are visiting Canada and also the United States, and they will be with us this morning.

Thank you so much for your presentation today. Any further documentation that you would like to present to the committee, including Dr. Martin's requests...we'll be more than pleased to hear from you again.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: Could the steering committee meet on Thursday morning to do the spadework?

Á (1105)

[English]

The Vice-Chair (Ms. Jean Augustine): Yes. We have some time on Thursday morning, but I also want to remind the committee that Thursday afternoon is very important for the committee's meeting.

I also want to note that in the room we have the Honourable David MacDonald, professor, with his class from Concordia. Welcome. We're very pleased that you've joined us today.

We'll suspend for two or three minutes until our guests arrive.

Á (1113)

The Vice-Chair (Ms. Jean Augustine): Pursuant to Standing Order 108(2), the meeting will continue with members of the Foreign Affairs Committee of the Norwegian Parliament. I want to take the opportunity, on behalf of the Standing Committee on Foreign Affairs and the Parliament of Canada, to welcome the Norwegian committee here this morning.

I'm Jean Augustine. I'm vice-chair of the committee, and I am from the governing party, the Liberal Party. My riding is Etobicoke--Lakeshore in Toronto. I was first elected in 1993. Having started out with this, I want to extend a welcome to you, Mr. Jagland, as a member of the Norwegian committee and a former prime minister, and also to Ambassador Havnen and all the members of your committee who are with us.

We'll go around the table introducing ourselves in a very informal way so that we can know the work you're involved with in your own parliament. We'll also have an opportunity to know which parties each member represents in the House. We have translation services, and there are these little microphones and other things we give you, not only the translation but also the volume.

We'll begin then by asking you, sir, to give some words of introduction, and then maybe we'll just go around the table very informally.

Thank you.

Á (1115)

Mr. Thorbjørn Jagland (Chairman of the Standing Committee on Foreign Affairs and the Enlarged Foreign Affairs Committee of the Norwegian Parliament (Storting)): Thank you very much, Madam Chair. Can I first say how thankful we are for the way we have been received here in Canada. As I said at the dinner yesterday, where some of you participated, it's not by accident that the committee comes to Canada now for the first time in our history. It is because we want to develop the very good relations we already have between our two countries and would like to add one dimension to these good relations that are so important to Norway. We are, as you know, a tiny country and we want to have a little influence on global issues. Of course, we also want to safeguard our own interests.

Canada and Norway have many common interests, such as the fact that we are neighbours of Russia. We are situated in the circumpolar neighbourhood and we have a number of issues to take care of in that context. Therefore, we are very glad to be here to discuss with you many of the global issues where Canada and Norway are cooperating.

The Foreign Affairs Committee of the Norwegian Parliament has members from all the parties in Parliament. Many of them are also leaders of the party groups in Parliament, so it is a very representative committee that you are meeting here.

In my opening remarks I would also like to take the opportunity to extend an invitation to your committee to visit Norway so that we can continue the dialogue we have had here. I believe that cooperation among parliamentarians is important. Our two governments are cooperating very well. The King is coming here in May. Therefore the cooperation on the parliamentarian level is equally important.

So all in all, thank you for receiving us, and we are looking forward to the discussion. I would like to suggest that you could maybe start with the issue of U.S.-Canadian relations, which you have discussed this morning in the committee, and then we can move on to many other issues in which we have common interests, such as combatting poverty in Africa, in which Canada is now taking a lead to get at the top of the agenda in world politics, which they appreciate very much. The Middle East also is maybe where we can contribute something both from the Canadian side as well as from the Norwegian side. So if you could give us some news about U.S.-Canadian relations and maybe also relate them to the ongoing war against terrorism, we would appreciate that.

Thank you.

The Vice-Chair (Ms. Jean Augustine): Thank you, Mr. Chairman.

I know that we've worked on several issues, the human security issue, the land mine issue, small arms, the United Nations, and a whole series of things where Canada and Norway have been collaborators and partners, and we have supported each other in this respect. Our relationship, as we all know, goes back many years, and the partnership and working together are something we all would like to emphasize.

I'm pleased to hear about the visit of your king and queen to Canada. We are looking forward to this visit. It seems to me this is the year of royalty, because I think our queen is also visiting Canada this year.

We know and we admire certain things in your own system. Last night, as an example, I found out that you had 39.6% women in your Parliament, and with respect to the involvement of women in terms of the work and the general policy directions, we in Canada have a lot to learn from you.

What we will do is go around the table as was our plan, do a bit of introduction, and then go to our members, who have strengths in various areas. For example, Ms. Phinney is chair of our committee's subcommittee on human rights, and other members have taken on a specific role. As you speak, you can refer to those specific roles. We know that you're interested in terrorism, Afghanistan, security issues, and the situation, as you said, in the Middle East. So as we go around the table, members, if you could reflect and not only offer statements but also questions back to the group, I think that might be instructive for all of us.

So in the spirit of sharing and cooperating, Ambassador, the floor is yours.

Á (1120)

Mr. Ingvard Havnen (Norwegian Ambassador to Canada): Ingvard Havnen, Norwegian ambassador to Canada.

Mr. Gerald Schmitz (Committee Researcher): Gerry Schmitz, research staff of the committee.

I just was going to mention that the committee did a major report on circumpolar cooperation a few years ago, which was tabled in 1997 and which you may be aware of, and one of the committee was in fact in Oslo and perhaps met with some of the members of this committee. I was trying to go back to the witness list from that report. Certainly that has been a shared interest with this committee. I think there are some of the recent reports of the committee in a number of other areas, including most recently the Caucasus, Central Asia, and so on, ones that will be available to give to members of the committee to take back with you to give you a sense of the work of the committee.

The Vice-Chair (Ms. Jean Augustine): Thank you.

Ms. Marleau.

Ms. Diane Marleau: My name is Diane Marleau. I'm a Liberal member of Parliament. I represent a riding in northern Ontario, which is a giant mining centre, and I believe part of the nickel that is removed from some of our mines is transferred to Norway, where some of the finished product is produced.

I also have a question for you, and I hope that you'll consider this in the serious manner in which it's put forward. I would like to know how you Norwegians view Canada in light of the fact that Canadians are serving in Afghanistan in conjunction with the Americans and not under the auspices of the UN. Do you have any opinions on this? Also, how do you believe Europeans view this?

The Vice-Chair (Ms. Jean Augustine): Thank you.

Ms. Phinney.

Ms. Beth Phinney (Hamilton Mountain, Lib.): As Jean said, I am chair of the subcommittee on human rights and international development, and about five or six years ago I went to Norway and we were beautifully treated. I went with the NATO parliamentarian group, and we had a great time over there. We were very well received and very well treated and would go back any time. We ate a lot of salmon.

My riding is in Hamilton, which is between Toronto and Niagara Falls in Ontario, a nice, mild area where there's no snow today.

Ms. Kristin Halvorsen (Member of the Committee, Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Kristin Halvorsen. I'm leader of the Socialist Left Party in Norway. I've been a member of Parliament since 1989, and I am elected from Oslo.

Mr. Bjørn Jacobsen (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Bjørn Jacobsen, also the Socialist Left Party, but I've been in Parliament for only four months.

An hon. member: And you got a trip already?

Mr. Bjørn Jacobsen:Yes.

Á (1125)

Ms. Aileen Carroll: My name is Aileen Carroll, member of Parliament from Ontario. Many of the members of the government hail from that province. I'm parliamentary secretary to the Minister of Foreign Affairs. There are many of us to speak, so that's probably more than enough.

[Translation]

Ms. Marlene Jennings: Good morning. My name is Marlene Jennings and I am the member for Notre-Dame-De-Grâce—Lachine, which is a riding located on Montreal island, in the province of Quebec. I am also the parliamentary secretary to the Minister for International Cooperation.

[English]

Mr. Haakon Blankenborg (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Haakon Blankenborg. I'm from the Labour Party in the Norwegian Parliament, and have been a member of Parliament since 1981.

Morten Høglund (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Morten Høglund. I'm a member of the Progress Party, and I am also a new member in Parliament.

Mr. Finn Martin Vallersnes (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Finn Martin Vallersnes. I've been representing the Conservative Party since October last year. Within the group of the Conservatives in the committee, I am trying especially to follow Asia and Africa. That's why I have a small question.

I read with much interest the lecture your prime minister gave in New York last week, where he mentioned the African action plan. Could you elaborate a little further on what the key issues would be to forward that plan? I think it's a very interesting perspective. Thank you.

Mr. Inge Lønning (First Deputy Chairman of the Foreign Affairs Committee of the Norwegian Parliament (Storting); Vice-President of the Storting): My name is Inge Lønning. I am representing Oslo in Parliament. I'm the first vice-president of the Conservative Party. I am also vice-president of the Parliament.

Mr. Christopher Stensaker (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Christopher Stensaker. I'm representing the Progress Party. I'm from the central part of Norway, the city of Trondheim, and I've been in Parliament since 1997.

Mr. Åslaug Haga (Second Deputy Chairman of the Standing Committee on Foreign Affairs and the Enlarged Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Åslaug Haga. I belong to the Centre Party in Norway. I'm also one of the two deputies of the party. I'm a newcomer to Parliament. I've worked with foreign relations issues for quite some time, having been part of the foreign service for 12 years, and having been posted in New York and New Delhi.

I cover all aspects of foreign relations issues, but I'm a multilateralist by heart, and I'm very much interested in UN matters.

Mr. Jon Lilletun (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Jon Lilletun. I represent the Christian Democratic Party in Norway. I am leader of the parliamentarian group for the Christian Democratic Party. I have been in the Parliament since 1999, and I represent Vest-Agder and Kristiansand. Kristiansand refined and produced the nickel from your city, Madame, so I think we have good cooperation on that. Thank you.

Mr. Lars Rise (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Lars Rise. I represent Oslo and the Christian Democratic Party. I have been a member since 1997. I'm very engaged in human rights issues. I'm leader of the Kashmir committee in the Parliament. I've heard that there has been an initiative from a Canadian parliamentarian on Kashmir that I would like to hear more about, but I can come back to that later.

Mr. Gunhild Øyangen (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Gunhild Øyangen. I represent the Labour Party in the Norwegian Parliament. I just came from Rwanda in Africa, and I am very concerned that we should not forget the needs of development aid and support from the international society for the countries in Africa. Thank you.

Mr. Svend Robinson: My name is Svend Robinson. I'm a member of the New Democratic Party, which is a member party of the Socialist International. I represent Vancouver on the west coast of Canada. I've been a member of Parliament since 1979, and I guess, most importantly, min farmor var fra Ålesund i Norge, så siger jag velkommen til Canada.

My colleague here mentioned development aid. I just want to make a brief comment and then ask two questions. First of all, thank you for the leadership you provide, as Norwegians, internationally on foreign aid issues. It really is a beacon for the rest of the world, and I think all of us should learn from that.

I wonder if somebody could comment on two particular issues. One is the response of your committee--and I know there will be a variety of responses--on the issue of national missile defence. Many of us are very concerned about this and the weaponization of space.

Second is the issue that has given rise to a lot of concern in the Atlantic, and I'm sure some of you heard about it last night. That's the question of shipbuilding, and the potential impact of IFTA on our shipbuilding industry in the Atlantic.

Á (1130)

Mr. Rune Resaland (Secretary of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Rune Resaland, and I'm the secretary of the committee.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): My name is Antoine Dubé and I am the Member of Parliament for Lévis, which is located just opposite Quebec City, which is the capital of the Province of Quebec. I am one of the 38 members of Parliament representing the Bloc Québécois, as is Ms. Lalonde. Ms. Phinney and I are members of the Sub-committee on Human Rights of the Foreign Affairs Committee . I deal in particular with Asian issues and also with shipbuilding-related issues, as raised by my colleague Svend Robinson.

I do not know whether any of you have shipyards in your ridings or in the area that you represent, but I would be very interested in talking about this issue. The main shipyard in Canada is located in my riding. It is experiencing some difficulties, and is currently looking for a buyer. It appears that some Norwegian and Scandinavian countries have expressed an interest.

The issue of shipbuilding obviously covers the whole question of oil platforms. I know that in this area, you are one of the leading countries in the North Sea.

Therefore, as you see there are several aspects to this issue. We have the trade aspect but we also have human rights issues.

[English]

The Vice-Chair (Ms. Jean Augustine): I just want Mr. Dubé, as well as the rest of us, to know that this is being recorded for telecast. Therefore the ad you just put is now public.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: Thank you, Madam Chair.

My name is Francine Lalonde. I am the member of Parliament for a riding located in the far east of Montreal called Mercier. I am my party's critic for foreign affairs. I have been a member of Parliament since 1993. In a previous life I was a minister in René Lévesque's government.

I would like to hear what you have to say on the development of the Oslo process, which all began in Norway. Many of us here are concerned that the solution to the problem seems further and further away. I would also like to applaud your contribution to international aid. We often refer to Norway and the assistance that you provide in the Canadian Parliament.

Time permitting, I would also like to hear your comments on your relationship with the European Union and the fact that you have always refused to become a member. Thank you.

[English]

The Vice-Chair (Ms. Jean Augustine): Merci.

Ms. Christiansen

Ms. Julie Christiansen (Member, Foreign Affairs Committee of the Norwegian Parliament (Storting)): My name is Julie Christiansen. I am a new member of Parliament representing the county surrounding Oslo. As a former vice-chairman in the European movement of Norway, I have a main interest in the Norwegian relationship with Europe and the European Union. I also have a focus on security issues, in the broad sense.

Á (1135)

Mr. Keith Martin: Tusen tak. God morgen.

That's the extent of my Norwegian.

Thank you, again, so much for coming all this way. I know how jet-lagged many of you are after being up 24 hours yesterday.

My name is Keith Martin. I represent a riding on Vancouver Island, which is the tropics of Canada on the west coast. It's an island in the Pacific Ocean, wonderful for shipbuilding and for visits, so please come out and visit often.

I'm the deputy critic of foreign affairs for the chief opposition party, the Canadian Alliance. My interests are foreign policy, the prevention of deadly conflict, health care reform, social program renewal, and the environment.

I'm very interested, as mentioned before, in the excellent work that you've done in foreign aid, in your involvement with the Oslo Accord, where you can see where the international community at large can pursue the Palestinian-Israeli situation, and also in how we can improve economic ties between your country and ours.

Mr. Jens Stoltenberg (Member of the Foreign Affairs Committee of the Norwegian Parliament (Storting)): I'm representing the Labour Party in the Parliament. I'm chairman of the Labour Party parliamentary group. I'm representing Oslo.

I can make a short remark concerning shipbuilding, which some of you mentioned, because I met that problem for the first time when I was minister for industry and energy for some years at the beginning, in the 1990s.

I know we have an excellent relationship with Canada in all fields except shipbuilding, because the Norwegian oil and gas industry would very much like to participate in the development of your oil and gas resources--and they are doing that in some areas. The obstacle is the high tariffs on exports, not only on ships, but also on oil and gas installations. And there are a lot of shipyards, especially on the west coast of Norway, that would like to export more. On the other hand, there are shipyards on the east coast of Canada that would like to avoid imports of Norwegian oil and gas installations. That's also the main reason why we haven't been able to reach a free trade agreement between EFTA and Norway.

So this is, as far as I know, the only problem in our bilateral relationship, but it has been a problem for some years, and therefore it was interesting that you mentioned it.

The Vice-Chair (Ms. Jean Augustine): Since we've opened up with this, perhaps I'll see whether any other comments in that area are forthcoming from anyone else on the issue of the tariffs, on the issue of shipbuilding, and on Mr. Dubé's intervention in terms of the availability of a shipyard. Perhaps we could pursue that topic, since it is the one that is a little problematic in terms of our relationship.

Madame Jennings.

[Translation]

Ms. Marlene Jennings: Thank you very much. I would like to make a few comments on the issue of shipbuilding.

I sat on the Industry, Science and Technology Committee from 1997 until my appointment as parliamentary secretary in September. The Industry Committee undertook a major study of the whole issue of the shipbuilding industry in Canada. It made several recommendations to the Canadian government, some of which have already been implemented and some which are yet to be implemented.

On the issue of free trade between Norway and Canada in this sector, I tend to think that nothing will be done until legislation and policies are put in place to buttress and to really modernize the Canadian shipbuilding industry so as to enable it to boost its productivity and competitiveness on the international market.

Personally, I believe that any free trade agreement with Norway in this sector would sound the death knell for the Canadian shipbuilding industry.

Á (1140)

[English]

The Vice-Chair (Ms. Jean Augustine): A response from Mr. Stoltenberg.

Mr. Jens Stoltenberg: I think that we fully understand the problems you are facing, and this has been a problem for many years in many countries. Shipbuilding has been among the most protected industries in the world for many years, and also in Norway. We have given high subsidies to the shipbuilding industry in Norway, and until 1999 we gave 9% in direct support from the state budget to the different shipbuilding companies for each contract.

Then we agreed with the European Union, and now we have removed the direct subsidies to the shipbuilding industry. The remaining problem is that the U.S. is not taking part and Canada is not taking part, but the big pressure is from countries like Poland, South Korea, and so on, because they have no subsidies, there are no tariffs, and they would very much like to have free access to all markets in western Europe and North America.

Of course, for us to sign a free trade agreement that doesn't include the shipbuilding industry is a problem.

[Translation]

The Joint Chair (Ms. Jean Augustine): Mr. Dubé.

Mr. Antoine Dubé: I did not think that we were going to spend so much time on this issue, but it is indeed a topic which is of concern to people in my region and in other regions.

I would like to pick up on what Ms. Jennings said. As a rule of thumb, we do not argue in the presence of people from other countries and we will not do so here today. But I would just like to point out that I have looked at this issue in great detail and I even tabled a private member's bill which was passed at all stages, but which eventually died on the order paper because an election was called in the fall of 2000.

We are experiencing the exact same problem as the one you raised. We have an additional problem. In Asian countries, especially, shipbuilding companies are often exempt from taxes because they are State-run corporations. In addition, when these companies are in a deficit position, the country in question absorbs it.

To my mind shipbuilding and maritime transportation are connected. Currently, many international regulations do not apply to these areas. This is not just a problem between Norway and Canada. The real problem is that we do not have fair and equal international regulations for all parties.

I would just like to end by pointing out that the reason why people are somewhat opposed to the abolition of the 25% customs tarif is because our neighbour is the United States, which while maintaining protectionist rules is on a somewhat advantageous footing, because it is exempt from the customs tariff. On that note, I shall end. I have identified one of you, with whom I could continue to talk about this issue in private. Thank you.

[English]

The Vice-Chair (Ms. Jean Augustine): Thank you.

Mr. Robinson.

Mr. Svend Robinson: On this topic--and I know we want to move on to others--perhaps Mr. Stoltenberg could just clarify.

Obviously one of the concerns that my colleagues from the Atlantic provinces have, in areas like Halifax, Saint John, and elsewhere, is that you have ships presently that were built under conditions of very high subsidy. You've indicated that prior to 1999, that was the case. Norway is selling off these ships that have been built with extensive subsidies, and they are competing with Canadian shipbuilders who didn't have the advantage of those subsidies. Clearly it's not a level playing field with respect to those ships, and that seems to be the fundamental concern. As Ms. Jennings said--and this is certainly the position our party has taken--it's not fair, it's not a level playing field to have those ships that were built in those conditions competing against our shipbuilding industry.

How do you respond to that concern with respect to those ships that were built prior to 1999 with those heavy subsidies? We shouldn't have to compete with that.

Á (1145)

Mr. Jens Stoltenberg: This is not only ships, it's oil installations. They are already sold, so we don't have a stockpile of oil installations waiting for the opening of the Canadian market. I don't think that's a problem. The problem is that since we are not able to agree on shipbuilding, we're blocking the whole process of creating a free trade agreement between EFTA and Canada.

We should be able to find some kind of concession period, concession solution, so we can handle your problem. I admit that it is a problem just to open up and then see that perhaps you have to shut down or reduce your activities at your shipyards on the east coast of Canada. So I accept your interest, but we should be able to find a way to handle it so we can agree on the free trade agreement between EFTA and Canada.

The Vice-Chair (Ms. Jean Augustine): Let's continue that discussion. I think it is important.

Mr. Chairman, I think Madam Marleau had started with a question to you.

Á (1150)

Mr. Thorbjørn Jagland: Yes. May I say some words about that?

You asked us to comment on the fact that you are serving in Afghanistan together with the U.S. and not under the United Nations. Well, Norway has supported the war against terrorism from the very beginning, and there is a UN mandate for it. That is very important. We have to continue to put the UN in the leading role in what is going to happen in Afghanistan now.

I would like to stress three points. One is that we both need to have a short-term as well as a long-term perspective for this. So the military campaign is important. But then we have to focus on what has been the problem and is a problem in Afghanistan, namely, the problem with failed states. You have many of them in the world, not only Afghanistan. That was also the problem in Sierra Leone, where one had to intervene militarily as well as start to reconstruct the state and the civil society in Sierra Leone. We have to do the same in Afghanistan.

My second point is that we will not succeed in Afghanistan or in the war against terrorism if we are not focusing on the problems in the Middle East, because, as I see it, the roots for this terrorism are in the Middle East. Unless we are able to get the peace process between the Palestinians and Israelis on track again, we will not be able to combat terrorism.

I can talk somewhat about the Middle East peace process, because you asked about it. First, I would like to tell you I worked in the Middle East for 20 years, also as a member of the Mitchell committee. I would also like to say, because I was and am a member of the Mitchell committee, that the concept that Israel has adopted and the United States is supporting of the so-called “seven days of tranquility” will not work. This has been proven. How many Israelis and how many Palestinians have been killed after they adopted this concept of seven days of tranquility? I say that because this concept means that you put the development in the hands of the terrorists.

What we proposed in the Mitchell committee was to have a ceasefire and then go on implementing confidence-building measures, which means that Israel has to withdraw to the positions it held before September 28, 2001. This would be a major confidence-building measure. They have to stop building settlements or enlarging settlements, and Palestinians have to take care of the different military groups, to reap the armaments of the different groups, which has been going on in the Palestinian area and is not in accordance with the Oslo Accord.

Then--and this is my main point--you have to get the peace process on track again, negotiations between the Palestinians and Israel. I say this because of what the Oslo Accord meant to the Palestinians. The Oslo Accord opened up a way to freedom for the Palestinians, to get rid of occupation, and that is the main problem. If the perspective of getting freedom and getting rid of the occupation is not kept in the heads of every Palestinian, they will not be silent.

So what happened in Camp David was that the Palestinians got frustrated because the peace process was killed. I have a lot of things to say about the Palestinian leadership at Camp David, but what happened is the Palestinians got a message that the peace process was stopped, and therefore the second intifada started.

So unless Israel and the United States now give a clear signal that they want to return to the negotiating table in order to end occupation and to get the final status agreement, there will be no peace, and you cannot stop terrorism unless you are able to give that clear signal.

Being a member of the Mitchell committee, I would say that there has been a lot of misinterpretation of what we recommended. We did not recommend this concept of seven days of tranquility. We recommend a ceasefire, combined with confidence-building measures, and the major confidence-building measure would be to launch peace negotiations again, as outlined in the Oslo Accord.

So both parties now have to return to what they signed in Oslo--namely, to negotiate for peace without violence. I say this to the Palestinians as well as to the Israelis. That is what they agreed upon in Oslo, and that is the only way to peace. This is also imperative in order to combat terrorism.

The third point is combating poverty. If you can keep the Palestinians as a framework for reference, imagine that you've entered a Palestinian house in a refugee camp--one room, seven or eight people living there. You can see two things: one is a Palestinian flag, and the second thing is a television. This Palestinian flag symbolizes their hope for freedom, and on the television they can watch the wealth in other countries. We cannot live with this poverty any longer, because you will get new conflicts and new dangerous wars if you are not able to combat poverty, not only in the Middle East, but it's even worse in Africa. Therefore I'm very glad that Canada is now taking a lead role in combating poverty in Africa. That is the only way; that is the so-called final solution to this war on terrorism.

Thank you.

Á (1155)

The Vice-Chair (Ms. Jean Augustine): Thank you for that bit of clarification, and also thank you for the work you've done on that commission.

Are there any further comments? Dr. Martin, and then Madame Lalonde and Mr. Robinson.

Mr. Keith Martin: Mr. Jagland, thank you very much for your eloquent intervention.

In theHerald Tribune there's an excellent article that suggests that Mr. Sharon really has no interest in pursuing peace at this point in time and that Mr. Arafat has lost control over the ability to get Islamic Jihad and Hamas under control. So one of the questions I have is this. In your experience as foreign minister, how do you bring these two elements together at the negotiating table to ignore the ability of terrorist groups to derail the peace process?

And secondly, on the issue of Saudi Arabia, the export of terrorists from Saudi Arabia into Afghanistan is a direct effort to try to get rid of the problem. The problem remains within the structure of Saudi Arabia. What do you propose can be done to deal with the situation in Saudi Arabia, where we have a very unstable situation? My fear is that we're going to be faced with another cataclysmic event like took place after the shah of Iran. So we'll have Iran too developing in Saudi Arabia in the not-too-distant future.

The Vice-Chair (Ms. Jean Augustine): We'll have a few more interventions and then come back to the....

Ms. Carroll, your name is on the list. Did you have a question? No? Okay.

All right, then, Madame Lalonde and then Mr. Robinson.

[Translation]

Ms. Francine Lalonde: Thank you very much, Mr. Jagland. Could you tell us what you think we could do to persuade the Americans that they must encourage Prime Minister Sharon to come to the negotiating table, since the president of the Palestinian Authority, who continues to be besieged, must be able to act as an empowered leader. We are all aware that Mr. Arafat could have taken a different course of action, but by the same token, he is still the leader of the Palestinian Authority. Do you intend to talk about this issue in the United States when you meet political leaders there?

If you do have any suggestions for us, I am quite sure that the Foreign Affairs Committee would adopt a unanimous position to enable us to assist in resolving this situation. I agree with what you have said.

[English]

The Vice-Chair (Ms. Jean Augustine): I think Dr. Martin also brought in the Saudi Arabia question. Did you want to reflect on the two interventions?

Mr. Thorbjørn Jagland: You are right that Arafat has lost control. I must also say that this is very much self-inflicted, because he armed so many groups, which was not in accordance with the Oslo Accord. That must be made very clear. But he cannot regain control while being under house arrest. How can he get control under such conditions? If you have been to the area and have seen all the security measures that are impeding the Palestinian authorities from having control of their own territory, you can imagine the problem.

It's a good question: what is Sharon heading for? I don't know, but I'm convinced that the only solution is that the international community take greater responsibility. The international community established Israel back in 1947, and I'm convinced that the international community has to take the responsibility to establish a Palestinian state. The United States has to take a leading role, together with the European Union and Russia. We have no other means than trying to argue with the Americans that if they want to combat terrorism, they have to take a leading role in the Middle East. They cannot go on like this.

Everyone who has been working in the region has a lot of things to contribute from their experiences. Small nations such as Norway and bigger nations such as Canada, which have been working there, are better at listening in the streets about what is going on among the ordinary people. If you listen to the people on the Arab streets, you will also be able to see the solution. I'm convinced that if the peace process starts again, you will reduce tension and violence immediately. You will not stop it, but people will get hope back. That is what I'm hearing on the streets in the Arab world, particularly in the Palestinian area.

With regard to Saudi Arabia, in general I would like to say that I cannot understand why Israel and the United States don't see the advantage of peace between the Palestinians and Israel. They will profit from it, because I think this will open up the way for a reform process in many of the Arab countries. If you listen to the people in Egypt and Saudi Arabia, you will hear that they are frustrated. Now this frustration is directed against Israel, but if you get peace, then the frustration will be directed against the regimes in the Middle East and it will open up the way for reform, which we need badly in the Middle East.

Thirty years ago Iraq was a secular nation with freedom of the press. Women were at work. Now this is a disastrous country. Because of this conflict in the area, Saddam Hussein is there. But if we do away with this conflict, I'm convinced we'll get a new debate and a new situation in the whole region.

It's unbelievable that the Americans don't understand this. It is in their interest to open up the way for reform and a new situation in all of the Arab world.

Â (1200)

The Vice-Chair (Ms. Jean Augustine): Mr. Robinson.

Mr. Svend Robinson: Thank you very much. I wanted to pick up on a couple of the points that were made.

With respect to the Middle East, I have to say that I am a pessimist. I wish I could say I was optimistic. I think that with Sharon in power, when I look at his track record, particularly going back to 1982 in Sabra and Shatila, and when I look at his recent statements, the only hope I see is if the United States can be convinced by the rest of the world that they must put pressure on Sharon. He is not going to do it himself.

It's not just Sharon. Since Oslo, the number of settlements has almost doubled. They just carry on under Labour governments as well, I regret to say, the demolition of homes, the targeted killings, the shooting of teenagers who throw rocks. Their only hope, I see, is if the United States finally understands that they have to put a stop to this.

The other grievance, and you touched on it, Mr. Jagland, is Iraq. It is part of the axis of evil now that Bush is talking about. There are these sanctions that have killed half a million children. Our foreign affairs committee unanimously recommended to the Canadian government, all parties recommended, that these economic sanctions be lifted. Instead, we now have a real threat of an extension of this madness to Iraq. I would be interested to hear your comments about the possible extension to Iraq.

Also, I'd asked, and perhaps Mr. Jagland could answer, about missile defence. I had asked if your committee has looked at the issue of missile defence.

Â (1205)

The Vice-chair (Ms. Jean Augustine): Mr. Robinson, maybe we will just take one issue, maybe the missile defence, for a comment from the floor, simply because I am cognizant of the time and we have gone around with the other issue.

I want us to touch on the European Union, and I also want us to go back to the African partnership. We have just a few minutes.

Mr. Svend Robinson: Maybe then on missile defence.

The Vice-Chair (Ms. Jean Augustine): Yes, we'd like a comment on the missile defence, and if we can have it briefly, it will be appreciated.

Mr. Thorbjørn Jagland: I don't know whether I can speak on behalf of all the parties in the committee. I can speak on behalf of the Labour Party.

We are very much on the same line as we heard outlined by the foreign minister of Canada yesterday. We are skeptical. We don't know yet what impact it will make on the disarmament issues. Therefore, we want to know more about it before we take a clear stand. Our position now is to learn more and to analyse more on the impact of a number of issues.

The Vice-Chair (Ms. Jean Augustine): Thank you.

Ms. Haga.

Ms. Åslaug Haga: Our views are not very different on these topics within the committee. But I am certainly among those who are slightly more critical than Mr. Jagland is, in terms of what he just said.

We have been working on disarmament issues for 30 years, working hard on arms control. We saw just before Christmas that the U.S. lifted the ABM treaty, which certainly to some of us is the greatest concern. It is of course a part of the whole issue of the national missile defence topic

I think there are so many concerns to raise about this. One of course is the whole issue of disarmament, and where this is going to take us. I think the signals we are sending to countries like Pakistan and India are not very good. I think it is a grave concern that we do not have any idea about how China, for example, would react, although the signals that we get from Russia are slightly comforting.

There are so many topics and issues related to this, but certainly my main concern, and I mean main concern, is related to another topic that we will touch upon: poverty reduction. This national missile defence system is going to take so many resources. These are the resources that we definitely need in looking at the globe to do other things, but we are putting them into armament, which I think, unfortunately, is going to be the result of this process.

Thank you.

The Vice-Chair (Ms. Jean Augustine): Thank you.

Let's touch, then, on the issue of poverty reduction and the commitment Canada has made to the new African initiative. We've looked at the nine areas of the African initiative. We are now in the process of looking as parliamentarians and studying the issues. The Prime Minister is committed to championing this at the G-8 meeting that's coming up in late June or in July. We as parliamentarians and as a committee are beginning the study to offer our best recommendations and our best advice in that regard.

It is also important to note the work we've done so far through multilateralism, through the International Development Agency, with the focus we've put on HIV-AIDS, the education of the girl child, and conflict and with some of the work we've been doing with the various African countries.

We also know that we're not where we could be in terms of the development assistance program; we do look to Norway, and we see your commitment in that area. We know that you have large oil and gas resources, so maybe that's where you're sharing with the rest of the world, but this is just an aside.

Maybe we can get into that discussion around poverty reduction, the commitment to this new African initiative, and how you see yourselves playing a role in that initiative, which is put forward by African leaders for Africa, wanting to do it themselves yet looking to the rest of us for resources and expertise as they work the plan.

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Mr. Thorbjørn Jagland: I think we have to take a little different perspective, as we have in the past. One thing is access to markets, which I find is the most important thing, and then debt relief and of course also development aid. But we must direct the resources to reduce or do away with the obstacles for economic growth that are present in many places of the world, for instance diseases, malaria. There's been a lot of focus on HIV-AIDS in Africa, which is fine, but malaria is even more dangerous to the people in Africa.

Land mines and small arms--if you've been to any African countries, you can see with your own eyes that you cannot get any economic growth because of small arms, because the population is hostage to these evil weapons. There can be no real social life, and it's devastating to many of the local communities all over the continent because of things like land mines.

I think we should focus much more on these things in order to remove all the obstacles to economic growth that are there. We must try to direct more of our resources to that kind of thing as well as focusing on health, education, and all those kinds of things. But you're right, the development aid is too low in most of the countries of the world. We shouldn't only talk about the level of development aid but also how to spend the money.

The Vice-Chair (Ms. Jean Augustine): There's one last issue--maybe I'll ask Ms. Christiansen--the issue of the European Union and Norway's level of participation within the union. Maybe you could make a comment or two in that regard.

Mr. Thorbjørn Jagland: Maybe you should give the floor to the representative for the government.

The Vice-Chair (Ms. Jean Augustine): Oh, okay. The reason I went to Ms. Christiansen is because she said she was on the committee, but I will give the government a chance too.

Mr. Thorbjørn Jagland: She is also representing the government. It's not up to me.

Mr. Inge Lønning: Ladies first.

Ms. Julie Christiansen: As I mentioned in my introduction, we are, as you know, not a member of the European Union, but we are a member of the common European market through the agreement on the European economic area. That means that we have arrangements for taking part in the decision process on directives and rules concerning this common market, but we do not take part in the final decisions made on these issues within the EU.

We have procedures for implementing these rules concerning the common market into the Norwegian legislation, and this European economic area agreement also has arrangements for controlling the implementation of the directives and rules in Norway, Iceland, and Liechtenstein, which now constitutes the EFTA side of the EEA agreement.

In addition to this, we also have consultation arrangements with the ESDP process, and we have made it clear that we are ready and willing to take part with the military efforts and so on in eventual ESDP operations.

So I guess at this time we're content with the arrangement, but we also see challenges, because the EU now cooperates more closely on more issues and in different ways, which affects the competitive strength of their industries and businesses.

We see, of course, that the enlargement also puts new challenges on our agenda, and at the top of that agenda are our fisheries and fish exports. We now have good access to the eastern European countries, but when they become members of the EU they will raise their--how do you say--hold to our goods. So that is a challenge at this time.

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The Vice-Chair (Ms. Jean Augustine): Thank you very much. We'll have an opportunity to continue a discussion over lunch and to pursue some other areas. It's amazing how quickly the time goes when we're interested in hearing so much from you.

We have some material, Mr. Chairman, that I will present to you: Canada and the Future of the World Trade Organization: Advancing a Millennium Agenda in the Public Interest; Advancing Canadian Foreign Policy Objectives in the South Caucasus and Central Europe; Crossing the Atlantic: Expanding the Economic Relationship between Canada and Europe; and Canada in a North American Challenge. We have other documents here that we could make available to you. Or just let us know what the topics are; we have some excellent staff and research people who can provide you with extra documentation.

I'd like to give this to you at this time and thank you all. I hope you have a really good visit to Canada and that your discussions were fruitful. You'll have an opportunity after lunch to be at question period in the House in the Speaker's gallery, and we look forward to seeing you for the next few hours, especially at lunch.

Thank you very much.