FAIT Committee Meeting

37th PARLIAMENT, 1st SESSION

Standing Committee on Foreign Affairs and International Trade

COMMITTEE EVIDENCE

CONTENTS

Thursday, February 7, 2002

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

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

The Vice-Chair (Ms. Jean Augustine)

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

The Vice-Chair (Ms. Jean Augustine)

Mr. John Harvard (Charleswood St. James--Assiniboia, Lib.)

Mr. Keith Martin

Mr. John Harvard

Mr. Keith Martin

The Vice-Chair (Ms. Jean Augustine)

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Professor Robert A. Pastor (Department of International Relations, Emory University (Atlanta))

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The Vice-Chair (Ms. Jean Augustine)

Professor Kenneth P. Thomas (Department of Political Science, University of Missouri (St-Louis))

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The Vice-Chair (Ms. Jean Augustine)

Mr. George Haynal (Fellow, Weatherhead Center for International Affairs, Harvard University)

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The Vice-Chair (Ms. Jean Augustine)

Mr. Keith Martin

Prof. Robert Pastor

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The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde (Mercier, BQ)

Prof. Robert A. Pastor

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Ms. Jean Augustine

Mme Folco

The Vice-Chair (Ms. Jean Augustine)

Prof. Kenneth P. Thomas

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Mr. George Haynal

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Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

Ms. Meredith

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The Vice-Chair (Ms. Jean Augustine)

Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

Ms. Diane Marleau (Sudbury, Lib.)

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The Vice-Chair (Ms. Jean Augustine)

Ms. Diane Marleau

The Vice-Chair (Ms. Jean Augustine)

Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

Ms. Francine Lalonde

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Prof. Robert A. Pastor

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The Vice-Chair (Ms. Jean Augustine)

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

Prof. Robert A. Pastor

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The Vice-Chair (Ms. Jean Augustine)

Prof. Kenneth P. Thomas

Mr. George Haynal

The Vice-Chair (Ms. Jean Augustine)

Ms. Meredith

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The Vice-Chair (Ms. Jean Augustine)

Ms. Meredith

The Vice-Chair (Ms. Jean Augustine)

Mr. George Haynal

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Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

Mrs. Marlene Jennings

Prof. Robert A. Pastor

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The Vice-Chair (Ms. Jean Augustine)

Prof. Robert A. Pastor

The Vice-Chair (Ms. Jean Augustine)

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CANADA

Standing Committee on Foreign Affairs and International Trade

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NUMBER 056

l

1st SESSION

l

37th PARLIAMENT

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COMMITTEE EVIDENCE

Thursday, February 7, 2002

[Recorded by Electronic Apparatus]

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[English]

    The Vice-Chair (Ms.Jean Augustine (Etobicoke--Lakeshore, Lib.)): Good afternoon. We have a motion from Mr. Martin.

    Pursuant to Standing Order 108(2), the study of the North American integration and Canada's role in the light of new security challenges, we have before us today three witnesses; but before I introduce the witnesses, I understand there is a bit of business to be completed.

    Dr. Martin, is there...

    Mr. Keith Martin (Esquimalt--Juan de Fuca, Canadian Alliance): Madame Augustine, I have a motion on the floor that deals with the crisis in Zimbabwe with a series of solutions. I would like this committee to deal with this as soon as possible, but because the gentlemen who are here have come a long way, and we're very interested in what they have to say, I propose that we table the motion for the next sitting of the committee.

    The Vice-Chair (Ms. Jean Augustine): Thank you very much, Dr. Martin. We appreciate that. As always, you are a reasonable person. We'll deal with that issue later.

    Ms. Aileen Carroll (Barrie--Simcoe--Bradford, Lib.): I want to be clear that we have agreed as a committee to table it to the next meeting of this committee, not later in the day.

    The Vice-Chair (Ms. Jean Augustine): That was the understanding, Ms. Carroll, the next meeting of the committee--the next day we're sitting as a committee.

    Mr. Harvard.

    Mr. John Harvard (Charleswood St. James--Assiniboia, Lib.): I would like to make one small suggestion--mostly with the wording, not the substance of it, Keith. Perhaps what we can do is discuss the wording some time before this presentation. I don't think you're exactly clear in what you're saying. I think it could be written better.

    Mr. Keith Martin: I'm open to suggestions to make it clearer.

    Mr. John Harvard: I'm sorry to upset my friend from Montreal.

    Mr. Keith Martin: Any suggestions that can come from members of the committee would certainly be appreciated.

    The Vice-Chair (Ms. Jean Augustine): All right, thank you.

    We'll move on, then, to hear our witnesses. We want to say words of welcome to you. We know you've come a long way to be with us and we appreciate this. We also want to say to you that we hope your stay in Ottawa will be an enjoyable one and that you will come and come again.

    Dr. Robert A. Pastor is the Goodrich C. White Professor of International Relations at Emory University. He has written 14 books. Of particular interest to us is one that our clerk has, and many of you might want to see this, Toward a North American Community. His other books include Limits to Friendship: The United States and Mexico; A Century's Journey: How the Great Powers Shape the World;, etc. So here is someone with some expertise and authority who has come to meet with us today, to speak with and exchange ideas with us. Welcome, Dr. Pastor.

    I'll also introduce at this time Dr. Kenneth Thomas. Dr. Thomas is from the University of Missouri, St-Louis. He is an associate professor of political science and fellow at the Center for International Studies at the University of Missouri, St-Louis, and the author of Capital Beyond Borders: States and Firms in the Auto Industry. Dr. Thomas, welcome to Canada. We look forward to hearing your presentation.

    A third witness, homegrown, is Mr. George Haynal, fellow of Harvard University's Weatherhead Center for International Affairs and former assistant deputy minister for the Americas in the Department of Foreign Affairs and International Trade. The work and the business of this committee is no stranger to you, sir. Welcome.

    We'll start with Dr. Pastor. You have about ten minutes or so to make a presentation to us. We'll ask questions at the end, after hearing all the witnesses. Thank you.

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    Professor Robert A. Pastor (Department of International Relations, Emory University (Atlanta)): Thank you, Madam Chair and members of the committee.

    As a citizen of the United States, but a resident of all of North America, I feel very much honoured to be invited to testify before this committee. I commend the committee for seeking to chart some new foundations for this North American entity that has emerged over the last decades, which has become so integrated economically and socially, but may not have been quite as integrated in policy and politically.

    The preamble of the Treaty of Rome, establishing the European Economic Community, began by expressing the determination of its members to “lay the foundations of an ever closer union among the peoples of Europe”. In contrast, the North American Free Trade Agreement reads as if it had been drafted by Lily Tomlin, the comedian, who once said, “Together, we are in this alone”. NAFTA reads as if it were a business contract aiming to eliminate barriers to trade and investment, but lacking a broader vision, a sense of direction of where we should go. It assumes that the magic of the marketplace will heal all of the problems of North America. But we have found that is not the case.

    We should not look toward the European Union in order to copy what they've done. Our two regimes are very different from each other. They have problems that we don't need. But I think we'd make a bigger mistake if we didn't try to learn something from their experience. That's what I try to do in my book.

    NAFTA, in my judgment, is a success for what it was designed to do. It did remove trade and investment barriers. It has nearly tripled trade and investment. There are problems related to compliance that you all understand. But in my opinion, the biggest problem was not what was in NAFTA, but what was outside of NAFTA--what it has omitted.

    It didn't have a large idea, though we are, in North America, the largest free trade area in the world, with a gross product of 15% greater than that of the European Union. In many ways, it made the opposite mistake of the European Union, which over-institutionalized. We don't have any institutions to speak of. It was this failure to create institutions that led to our not being able to anticipate or respond to the peso crisis in 1994-95, to the steady deterioration of the Canadian dollar, and more significantly, to not be able to forge a common response among the three countries of North America within days of the tragedy of September 11.

    Americans appreciated the sympathy and support that Canada gave the United States after that event, but personally I was disappointed. I was disappointed that the next day we did not see all together the Presidents of the United States and Mexico and the Prime Minister of Canada sitting down, expressing their solidarity and forging a common approach. I think the absence of that common response coming immediately after September 11 is a direct function of the lack of institutionalization.

    So what do we do now? With the limited time, let me just list 10 specific proposals, and I would welcome fuller discussion with all of you.

    First, the most important step is to establish a North American commission--not a sprawling bureaucratic administration like that of the European Commission. This should be lean--five members from each of the three countries--and it should be advisory. Its principal purpose should be to draft and propose a North American agenda for the three leaders to consider in a summit that should occur periodically, perhaps every six months, perhaps once a year.

    Second, you can take the initiative here. There are two bilateral parliamentary commissions--the U.S-Mexican commission and a Canadian-U.S. commission. You could take the initiative in moving to establish a North American parliamentary group. I daresay the United States Congress would benefit enormously from hearing the concerns and the sensitivities of our two neighbours. I believe bringing all three sides together would enhance the ability to understand what problems are in common, and what solutions should also be forged in common.

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    Third is a permanent court on trade and investment to replace the ad hoc dispute settlement mechanism. There is now sufficient precedent that we should no longer rely on recruits for each dispute, particularly because that is increasingly leading towards conflicts of interest. A permanent court would allow us to build on those precedents and solve some of the trade and investment disputes perhaps more quickly.

    Fourth, and in most ways most significant, NAFTA fails to address the development gap, primarily between Mexico and its two northern neighbours, but more generally than that. Since the beginning of NAFTA, actually, the gap between all three countries has widened. The European Union offers a wonderful example of what to do with regard to that. From 1986 to 1999, the disparities between the rich and poor countries of the European Union narrowed significantly, and it was not simply that the magic in the marketplace narrowed those differences, it was a significant development effort and development strategy.

    That bring me to number five, the establishment of a North American development fund. This is not a new bureaucracy; it could be administered by the World Bank and Inter-American Development Bank, and building on the lessons of the European Union, it could focus its funds primarily on infrastructure and education, primarily in Mexico, to lift Mexico so it grows at twice the rate of its northern neighbours and therefore begin to close the gap.

    I can understand why Canada looks at the relationship with the United States as primary, but Canada also has taken the lead in the world in international development and Mexico is particularly important in that. If we can show the middle-income developing countries that they can close the gap with the industrialized countries, this would be a wonderful model for the 21st century.

    Sixth, the North American commission should propose a specific plan on infrastructure and transportation. Here the member of Parliament, Val Meredith, has already taken the lead in preparing a report for your Parliament, making some suggestions on what needs to be done. I believe a lot more should be done along these lines.

    Seventh, there are other areas in which a North American commission could propose a common continental approach, whether it's on agricultural subsidies, regulatory policy, electricity or technology. These are all areas in which a North American commission can propose for the three leaders ways that we can more efficiently improve the standard of living of our people.

    Eighth, the integration dilemma stems from a single problem, and that is that as we facilitate trade and movement of people, we also facilitate the illegal movement of goods and people. This gets to the security problem that we've all had, because the converse has an even more powerful logic; that is to say, when you restrict what is going on at the border in order to prevent the movement of terrorists or illegal goods, that has dramatic and adverse consequences for our economy. The question is how to deal with it.

    I suggest one way to reduce the documentation by half is to establish a North American service on immigration, customs and enforcement. Instead of having to pass through four different lines on the U.S.-Mexican side and the Canadian-U.S. side, you have one service corps, made up of officials from all three countries, providing documentation that is essentially the same. But the real way to reduce it even more significantly than that would be to move to negotiate a customs union with a common external tariff, and that customs union would necessarily have to be thinking about a perimeter on tariffs, through a common external tariff, as well as on security. I realize that term is controversial here, but I invite Canada to define for itself what it would like that perimeter to look like. I hope it would look like a collaborative approach among the three countries to deal with common security and economic problems.

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    Finally, I would encourage all three countries to promote the establishment of North American research centres. The European Union currently finances 10 to 15 European Union centres in the United States to increase awareness. For a little bit of seed money, you could begin to develop a new perception in the three countries and a new base for research that would help Parliament here as well as in the other three countries.

    Is all of this desirable and feasible? There is a lot of concern about sovereignty, but in my book I looked at the way that term has been defined over time. I found there is no word that has been more abused than the word “sovereignty”. It was used in this country to prevent a change in energy legislation, which subsequently occurred. It was used in Mexico to prevent election monitors, and that was subsequently changed.

    The point is, if you look at what the people believe, public opinion surveys in all three countries say that a majority in each of the three countries are prepared to experiment with being part of a North American entity, provided they're convinced it would improve the standard of living, not threaten culture, and improve the environment. But they make it clear in Canada and Mexico that they don't want to be part of a wider United States. I think that broader vision of a North American entity, which is different from the three countries but shares a sense of community, is a direction many of the people may aspire to and we ought to look more closely at.

    I think there are 400 million residents in our three countries. Our governments have sometimes devoted so much effort in defining our differences that we haven't seen all we have in common. What we have in common is not just geography but values, an agreement, and a desire to improve the lives of all our people and preserve our sense of identity and our culture. I hope the conclusion of the deliberations of this committee will help the people of all three countries to eventually think of themselves not only as citizens of each country, but as North Americans.

    Will Rogers once said that even if you're on the right road, if you sit down you can get run over. I think we are on the right road and we ought to continue moving forward.

    Thank you.

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

    We'll move on then to Dr. Thomas.

    Professor Kenneth P. Thomas (Department of Political Science, University of Missouri (St-Louis)): I'd like to thank you, Madam Chair, and thank the committee for inviting me to be here today. Like Professor Pastor, I draw some lessons in my work from the European Union. I don't have quite the large picture that Professor Pastor has presented today--I'm looking at my small piece of the elephant, if you will. I'm here to talk about controlling the use of location and relocation subsidies in North America, which draws on my most recent book: Competing for Capital: Europe and North America in a Global Era.

    What I want to do in this talk is basically discuss three things. First, I want to discuss briefly the main problems with location subsidies, also known as investment incentives, investment subsidies, or in European Union parlance, state aid.

    Second, I want to say a few words about the North American context. Of course, softwood lumber is again in the news, and you can't just ignore that, so I'll say a little bit about some of the specific problems in the North American context with regard to subsidies. Here I'll include my estimates of U.S. state and local government subsidies, both in general and for those affecting the business location.

    Third, I want to suggest some elements of a solution, both short- and long-term. With that I will have some points of contact with Dr. Pastor's talk as well.

    I would argue that there are three basic problems involved with location subsidies for investment. It doesn't mean there's always bad policy in every case, but the presumption should be against using them for three reasons.

    First of all, these subsidies tend to be inefficient. They direct capital to uses in locations that are less than optimal, so economies grow less rapidly than would otherwise be the case. Second, subsidies are normally inequitable. They direct money from the average tax payer to richer investors. This makes income distribution less equal than it would be otherwise. Third, many subsidies promote activities that are environmentally harmful, such as building in wetlands. They have also been tied by studies in Minnesota and Wisconsin to the promotion of urban sprawl.

    Of course, in the North American context, subsidies have long been a sore point in Canadian-U.S. relations. As you're well aware, the U.S. is the most frequent user of countervailing duty complaints in the world, and Canadian subsidies such as softwood lumber have been a target very,very often, even though previous complaints have failed.

    Intensifying this fact, I believe, is the fact that the U.S. is in general not very favourably disposed toward the concept of regional subsidies, which of course is relevant for Atlantic Canada. We see it also in U.S. complaints against, for instance, subsidies given in the Italian Mezzogiorno. And this is despite the fact that the U.S. has a program called “empowerment zones” that springs from a similar locational motivation.

    A further problem we see is that some companies play off U.S. and Canadian locations, either for new investment or for potential closures. An example I saw in the news yesterday was motor coach industries pitting Manitoba and North Dakota against each other.

    Finally, I think the problem is that U.S. subsidy use is in general less transparent than that of Canadian subsidy use, primarily because it's given through tax expenditures rather than direct grants. This probably contributes to the U.S. notion that it's a low-subsidy country. But my research suggests it's not so exceptional in its subsidy giving as would appear, for instance, from national accounts data on subsidies.

    I constructed some estimates of U.S. state and local subsidies that suggest that $48.8 billion U.S. is given to firms annually, of which $26.4 consists of investment incentives. These figures are from 1996 and show a substantial increase over 1992, when I did a similar estimate for the first draft of my book. Because of the fragility of these estimates, I could go on and on about all the assumptions involved, but I won't. I'm hardly prepared to say they have a 60% increase, which was what my raw numbers showed, but it's pretty substantial when you look at it, any way you want.

    What can be done to solve these problems? I think the first and most critical element is transparency. As I said, my estimates for U.S. state and local subsidies are fraught with heroic assumptions, because few states and even fewer local governments have useful data for understanding what subsidies are actually given. Many economic development officials want to hide what they give from competing states or local governments, and many also want to hide them from “prying” citizens.

    In Canada, the annual report on incentives is likewise not a public document. I can understand why this would be the case. As one provincial official told me, it would be like waving a red flag in front of the U.S. trade representative's office, and well it would.

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    It hinders public discussion on both sides of the border to discuss the value of the subsidies given on their own merits. Now, I'm not going to tell you that Canada should take the first step, because obviously Canada is far more dependent on North American trade than the U.S. is. But the good news is that on both sides of the border you see increasingly assertive citizens organizations that are pressing governments to disclose the information precisely so these policies can be discussed on their own merits. They're from the New Democrats and the Canadian Taxpayers' Federation in Canada, from Ralph Nader to the Cato Institute in the United States. Right and left wings of the political spectrum are both involved in a movement due to the existence of efficiency and equity concerns about subsidies, as I mentioned at the beginning.

    As of last week, nine U.S. states now have substantial reporting requirements. This is down to the firm level--you know, firm XYZ received $300,000 from Minneapolis and was supposed to provide 80 new jobs, etc., etc. So this is quite detailed information available in some cases.

    The second element is accountability. Minnesota here provides a blueprint. It was the first state to adopt very explicit guidelines of what was required as far as disclosure goes, but it went further than that. It also requires state and local government agencies to set job and wage standards for the particular jobs created in these agreements. It doesn't mandate any particular level of wages--obviously rural Minnesota wages will be lower than those in the Minneapolis region--but they have to have some standard.

    A supportive aspect of accountability, which is not used in Minnesota yet but is used in a number of states in the U.S. now and is widely used in the European Union, is to contain a clawback clause such that if the agreement by the firm is not met--say it doesn't create the jobs it promised, or what have you--at least part of that subsidy is clawed back.

    The third element, and I think probably one of the more politically palatable ones, is to control relocation subsidies. The code of conduct on investment in the agreement on internal trade is definitely a step in the right direction, in my view, though I believe it needs a better enforcement mechanism. We saw in the British Columbia-New Brunswick case on United Parcel Services that the enforcement mechanism requires complaints and consultations and so forth. It looks a lot more like the old sort of GATT conflict resolution approach, and it's very cumbersome. You might be better to do it through the courts, as has been suggested, through procurement challenges, or it could be done through a federal tax on location subsidies, as former U.S. representative David Minge proposed, or it could be done through an independent agency like the European Union's Director General of Competition.

    As I say, Canada has already taken one step forward with this, and the U.S. desperately needs to address it itself. Since relocation subsidies are clearly the most blatant, there's no national benefit when New Brunswick gets jobs from British Columbia or Minnesota gets jobs from Nevada, or whatever. There's no net benefit to the country at all, and you wind up with tax revenues being given away.

    The fourth element is to discuss what would be acceptable subsidies. This is complicated by the World Trade Organization context, though the former list of green-light subsidies would be a good place to start. I certainly believe that regional subsidies should be permitted within limits, as the European Union does, and there is precedent in the U.S. as well for subsidies for disadvantaged regions. The long-term solution is probably to create an agency for NAFTA that is like the European Union's Director General of Competition. This would need to be supplemented, as Professor Pastor mentioned, by something like the European Union's structural funds for Mexico, so that Mexico can raise its standard of living rapidly rather than being a drag on wages in the U.S. and Canada.

    I should mention one last thing. People think a lot about the Irish miracle, and oftentimes they don't think about all the European Union structural funds that went there. I was in Ireland for a family reunion not long ago, a year and a half ago, and everywhere you go, there are new roads built by the cohesion fund, built by the European regional development fund. Obviously, again, in tune with what Professor Pastor said, a lot of money went into infrastructure in Ireland, Spain, Portugal, and Greece especially.

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    So thank you for your time, and I'd be happy to answer any questions.

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

    We'll have our third witness speak to us. Mr. Haynal.

    Mr. George Haynal (Fellow, Weatherhead Center for International Affairs, Harvard University): Thank you, Madam Chairman. It's an honour to be invited to speak to this committee. Of course, I do so very much in a personal capacity from some distance away, but permit me to talk about the notion of North America rather than, more specifically, issues of managing security. I took the liberty of passing a text I gave recently on border management to the clerk of the committee.

    I think it's not unhelpful to ask basic questions at this stage as one reflects on North America. For instance, what is North America? In Europe, we now have something that is identifiably Europe, that was built through a process of many years and many complicated arrangements and has now blossomed in the EU with common currency. But what is North America?

    North America at this stage is three countries of great diversity: the world's dominant power; a middle-level industrial democracy in the front ranks of the modern world; and a large, dynamic, emerging, developing country. Between them, these three countries have four relationships, some much better developed than others. The two that are organic and have historic roots and enormous power are those between Canada and the United States and between the United States and Mexico. The other, between Canada and Mexico, is something on which I'll speak very briefly at the end; that is now being built, and being built in unusually imaginative ways. The last, which is, I suppose, the subject of this conversation, is the trilateral relationship, one that would build in North America a form of community.

    Let me speak first about the organic relationships, because they bear some resemblance to each other but are at their heart quite different. Our relationship with the United States is one of unusual and implicit mutual confidence in the world. It's built on shared roots, a history of amity and cooperation, and as I said, these shared roots are not simply folkloric; they relate to institutions, legal systems, civic cultures, and have produced similar levels of educational and technological attainment.

    These attributes of similarity, if you like, speak and have spoken for a respectful and beneficial neighbourliness, if I can put it that way. Our history has indeed been one of moving closer together, both as societies and economies sharing space, but also as partners and allies working actively in the world.

    I don't want to leave you with an entirely rosy picture. There are anomalies in it, obviously, caused by the fundamental asymmetry of power between our two countries. For that reason, mutuality does not simply happen; it requires constant management, particularly on the Canadian side. But I'll come back to that briefly later on.

    Mexico-U.S. relations are of a somewhat different character, though they are intense, and in that they are similar. They are the result of, or we see them at a moment that has passed beyond, a much troubled history of annexation and invasion. There are profound differences in political, legal, and economic systems, and civic culture and social capital. But here too there is, if a more troubled, sharing of what I would call DNA. The two societies are increasingly bound together by people.

    Tens of millions--between 10 million and 20 million, depending on how you count it--of those with Mexican connections live in and work in the United States and are integral to the economy of that country. Their culture is having an important impact, especially but not only in the southwest, and they are increasingly becoming part of the political process in the United States, whose interests, economic and social, straddle the border. That is the great and powerful connection and, in some ways, the dynamic, or a central dynamic, of that relationship.

    I said when I introduced this subject that these two relations were converging. Let me say a few words on that.

    Within each, the parties are drawing closer together. They are increasing their interdependence, partly as a result of NAFTA and partly as a result of other organic developments within their societies. With that growing interdependence comes a greater level of mutual vulnerability. That vulnerability, of course, is not equal between the United States and its partners, nor is it unidimensional. Let me explain that.

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    Canada and Mexico are the United States' first and soon-to-be-second trading partner--or for all I know, that may be true at present; they may have made it. A substantial proportion of U.S. exports go to these neighbours, but these exports account for a very small percentage of GDP. Over 87% of the exports of both Mexico and Canada, however, go to the United States, and in Canada's case that accounts for over 40% of our gross domestic product.

    Any disruption in the guaranteed free access of either Mexico or Canada to U.S. markets, or even a threat of it, has potentially severe consequences. The situation, of course, is even more severe in Mexico, in part because among Mexico's major exports to the United States, as I mentioned, is labour, for which there is no guaranteed access at this point, and it's a very troubling social as well as economic issue.

    Thus, although the vulnerability between the U.S. and Mexico on the one hand and the U.S. and Canada on the other is mutual, it is far from symmetrical. The United States economy, for one, would not be affected in anywhere near the measure that the economies of its partners would be in the event of any interruption, threatened or implied, in those free flows. U.S. vulnerability, we must remember, has other dimensions, as we saw most horribly and tragically on September 11, but it is not only the threat to its security from terrorism but the threat from trade in drugs, trade in people, and other global flows that preoccupy the U.S. policy-makers. These vulnerabilities, I may note, we share with them profoundly as a fellow modern society in North America. However, in U.S. perception, often that sharing seems to be asymmetrical.

    That brings me to the third of the North American relationships I talked about. Any trilateral relationship, any further building of community in North America--the subject on which Bob Pastor speaks so passionately and so stirringly in discourse--has to be about lessening and managing these vulnerabilities that we share at their heart. That is the issue.

    As their reliance on U.S. markets grow, both Mexico and Canada are separately driven to seek greater and more systematic stability in that relationship, to seek uninterrupted access, unthreatened access. Such access can never be and is not unconditionally granted. There is a quid pro quo, and that quid pro quo in North America is a form of systemic compatibility. Let me discuss that notion very briefly further.

    In Canada's case, compatibility is seen as both a cost and an opportunity. That is to say, it can enhance our capacity to do things that are very much in our own direct national interest, where burden-sharing and agreed rules for actual cooperation with the United States and Mexico are very much of benefit to us; in other cases, it is simply a calculation to be made in the balance of benefits to be gained from policy decisions. In any case, we always have needed to manage our own affairs in a way that was sensitive to our fundamental interests vis-à-vis the United States. It is simply a part of the normal challenges of governance in this country.

    The Mexican perception, certainly under the administration of President Fox, I think, is different. Compatibility with North American norms is a goal in and of itself. It is a prize to be gained from North American integration, an opportunity more than a challenge. Let me explain.

    Modernizing Mexico is the key objective of the Fox administration. Only an open and democratic order is sustainable in the age of globalization. Only dynamic labour markets will provide employment and opportunity for a very young Mexican population--whose median age, I believe, is 17.8 years, something in that order--and only vibrant investment-driven economic activity will enable Mexican society to address deep regional and other inequalities. U.S. markets, U.S. investments, and the discipline of compatibility with North American norms are all vital to the realization of that vision. So compatibility becomes a value, as I said, rather than a management issue or problem.

    That is why I believe--and I take the liberty of speaking this way--President Fox has articulated a transformative vision of North America as a whole, one that includes a common currency, open labour markets, and a common external tariff, among other provisions. So the Fox agenda of a closer, EU-style North American integration is, as it should be, an agenda based on national interests. Is that interest shared by the other two North American partners? My sense is that, for now, with very important exceptions--one of whom sits to my left--there is little attention paid in the United States to this agenda. The most prominent mind open to this issue, and it's not one to be neglected, is that of President Bush, the former Governor of Texas. That mind, open and receptive to a discussion of these proposals, is now saturated with other noise.

º  (1615)  

    Views in the U.S. are, furthermore, divided about some issues of critical importance to Mexico, in particular the need to accommodate the reality of a significant Mexican labour force in the economy. There seems little predisposition these days in U.S. policy circles, at least for those in deciding positions, to use monetary instruments in the United States to sustain economies that cannot otherwise sustain themselves.

    Whether it is in the national interest--and I believe there are compelling reasons it might be--North American integration is not yet on the radar screen in the United States in the post-September 11 era. In Canada's case the agenda for further integration should also obviously be addressed in terms of national interest. We do not have a need for transformation or modernization, I suggest. We have our own way to be a modern and model nation. We do, however, have an interest in protecting the investment we have made in NAFTA and the consequent commitment of our economy to a North American economic space, if I can put it that way, both in terms of shared access and benefiting from a new relationship with a dynamic Mexico as an economic, social, and international partner. We need to move beyond NAFTA to do so. There's no question about that. So the question is how, not whether, in terms of proceeding to a vision of North America.

    What we do in terms of building this trilateral relationship and the community that flows from it does not always have to be initiated by three countries at once. Given the differences in capacity and the relationships between us, we should consider multiple approaches. We should consider, for instance, what measures could best be pursued à deux vitesses, to use the European phrase.

    I offer the FTA-NAFTA sequencing as perhaps one example of how that is successfully done. Canada and the United States, for their part, can initiate certain steps that are easier to accomplish between them and then invite Mexico's full participation, with Mexico's full knowledge of the procedures and process, on the basis of agreed, workable, and mutually respectful ground rules. We're seeing one example of that sort of process in terms of the border management issue in which Canada and the United States are now engaged. Similarly, Mexico and the United States can best pursue other issues between them, to reach agreements to which Canada could, if it chose, associate itself; for instance, the liberalization of labour markets, which are of critical bilateral interest.

    These organically based steps, if I can put it that way, to building the trilateral relationship can and should be complemented by other measures the three can take. Let me give you some brief examples of that. These are by no means original, but let me recite them, in any event. We're already engaged in discussions about North American approaches to the management of our energy needs and resources. Cooperation among us can have enormous beneficial effects, not just in supplying new sources of hydrocarbons, but in concerted action to address environmental challenges and stimulating research and development of new sources of energy. The consultative mechanisms that now deal with this issue, informal as they are, can potentially be made less so and more participatory, more in a position to sustain a policy discourse in which broader constituencies and publics are engaged.

    Similarly, in the area of environmental cooperation, the Environmental Commission set up as part of the NAFTA system could and should take a more proactive role and inform the discourse in all three countries about our shared challenges. In trade there's no question that disputes like that on softwood lumber are a virus eating away at the health of our economies and the relationship. There's no system in place that is adequate to contain these politicized actions in the United States. There may never be, but there's certainly room to examine whether the present trade dispute settlement mechanisms could not be made more robust.

    Other practical areas for trilateral cooperation abound. Markets are driving toward integrated and intensified North American transport infrastructures. Flows in North America have an increasingly dynamic north-south component. Governments need to ensure that the infrastructure is in place to facilitate that in a way that is congenial with our environmental objectives, of course, and not choke them off. Active discourse on the investments necessary to create these North American arteries would be timely for cooperation.

º  (1620)  

    So there's a possibility of a North American process. Will the end product be a North American community of the kind we see in Europe? That's very much an open question. Is there an end point where there is a North American community? I deeply believe there is.

    Let me conclude paradoxically with the fourth relationship in underlining this point, and that is the relationship between Canada and Mexico. Remarkably, it is there that I see the “bud of a new North Americanism”, as distinct from the convergence of the two bilateral axes centred on the United States that I talked about earlier. Canada-Mexico relations were very modest indeed until well into the nineties. Our trade was virtually insignificant considering the size of the two economies. Our people-to-people exchange was limited largely to southbound tourism. Cultural contact focused on the exotic. Political cooperation on the world stage was almost non-existent. NAFTA changed many things. Our level of trade now exceeds $8 billion per annum, for one thing.

    But the thing that is most interesting and little noted is the degree of government-to-government discourse and people-to-people discourse that has now developed between our two societies. This has taken a dramatic jump, certainly at the government level, since the election of the Fox administration. His desire for such cooperation is consistent with something I mentioned earlier about his goal to modernize Mexican society, to put it another way, to North Americanize Mexican life.

    In this ambition there is a remarkable and constructive convergence between interest and capacity. Canada is a modern North American society; it is not, however, the United States. Exchanges between our systems, learning from each other, supporting each other, is both practically beneficial and I believe socially acceptable and positive in both societies.

    We in Canada believe in our values and wish to have in Mexico a bilateral partner in a relationship with mutual benefit. We also want in Mexico--and I believe I'm speaking now from the Canadian perspective--a close partner of the United States who sees the world in a way compatible with ourselves. Without dwelling on this point, nothing could be worse than having a competitive dynamic between us in the management of this relationship.

    We have and want in Mexico a partner on the international stage who can help us pursue our values in the multilateral system while we have one. There's mutual interest in systemic cooperation--because every comment I made, I believe, is reflected on the Mexican side--a cooperation that builds a North American identity, that does not exclude the United States but is focused on a basic objective that it shares: the creation of compatibility within our separate systems so as to make closer cooperation and mutual benefit possible.

    I'll close with one example of this cooperation and how it works and then I will stop. President Fox's election was the cleanest in the history of Mexico. It was indeed a very clean election, and I am speaking absolutely, not relatively. That election was supervised by an electoral commission reformed by former president Zedillo, who was himself a visionary, to ensure that Mexican political life was compatible in character with that of its North American neighbours. The main source of outside advice and support for this reformed electoral process was Elections Canada.

    There is room, and need, for more of this sort of cooperation as a part of a broad array of initiatives from the public, private, and social sectors that will help build compatibility and, through it, a genuine North American community.

    Thank you.

º  (1625)  

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

    We'll now proceed to questioning of the witnesses. We'll spend five minutes. First the two opposition parties, then to the Liberals, and then back to opposition.

    We'll start with you, Dr. Martin.

    Mr. Keith Martin: Thank you very much, Madam Chair.

    Thanks to all three of you for coming here. It's a real honour to have you in front of the committee. Your interventions were most incisive.

    Professor Pastor was fantastic in articulating those 10 points. We don't want to be a part of Will Rogers' road being flattened; but we live beside the elephant, and we have to be cognizant all the time of which way that elephant rolls. As a much smaller country than the U.S., how can we be ensured that our interests are not going to be drowned out by American interests?

    This leads into my second question on something Professor Haynal mentioned. Truly, what interest is there in the American Congress and Senate--and indeed in the American public--to build these three-part commissions? It takes at least two to tango, three to tango in this case, as you suggest.

    What we continually hear and personally experience is that there's very little interest in Canada and in cooperation. Your wonderful suggestion about the U.S. building infrastructure in Mexico, and indeed in Canada, to equalize things would mean essentially that American money is going to come up to build Canadian roads and help Canadian education. It seems to me that it would be political suicide in the United States for American politicians to propose such a thing, as wonderful as it would be for us here in Canada. Perhaps you could address this.

    Prof. Robert Pastor: Sure. Thank you very much.

    I sent my longer testimony--I don't know if it has been made available--in which I developed some of these themes.

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

    Prof. Robert Pastor: But let me address specifically your question.

    I think the only thing worse than the United States not taking the lead in trying to move forward toward greater North American integration would be if it took the lead. We are where we are today in North America first because of the leadership of Canada in proposing a United States-Canada free trade agreement, and secondly because of the leadership of Mexico in proposing what is known today as NAFTA. The U.S. had actually been proposing those ideas for many years. The very fact of proposing them was probably all that Canada and Mexico needed to decide they didn't want to do them. I think the fact that the initiative for what became known as NAFTA came from the two “weaker” neighbours, if you will, made it possible.

    Similarly, this is a moment in which the absence of leadership on the part of the United States provides a new avenue for both Canada and Mexico to put forward their ideas. If you put forward your ideas together, you will get an audience in the United States. Whether the administration accepts them right away will largely depend on the nature of that agenda. But I think they will be taken seriously in certain sectors, and will influence the nature of the debate.

    Canada must first decide what it wants from this relationship. As Mr. Haynal just pointed out, the Mexicans have a vision now. They have the most clearly defined vision. I discussed the book I drafted, at some length, with the president and the foreign minister. They want to pursue this, but they can't pursue it by themselves. The United States has not yet figured out the best approach to it.

    I would urge you to promote an agenda mainly because Canada's leadership has always been in developing international rules and institutions. These are most needed right now in North America today. They give you the greatest defence from the power of the United States. The United States will not always follow all the rules--we know the history--but by and large it will accept the institutions and the rules.

    So leaving these wide areas open for just sheer power to have its effect confuses me, from your perspective. Why shouldn't you take advantage of your greatest strength, which is developing rules and institutions?

    You asked about the development fund idea. My proposal is that each country contribute to this development fund in proportion to their own wealth. That obviously means the United States would be taking the lead. Our economy is 10 times that of Canada's and 20 times that of Mexico's. The vast majority of the funds should simply go to Mexico, and perhaps just symbolic funds should go to Canada.

    I look at this in the same way as we contribute to the World Bank and the Inter-American Development Bank, except we have a very special interest in North America in reducing this enormous disparity between Mexico and the United States.

    I have discussed this proposal at some length with senior officials in the White House and the State Department, and with the deputy secretary of treasury as well. There's not enormous enthusiasm for the idea of going forward with a large new aid package, as it would be interpreted, but I didn't elicit a firm rejection either.

    If the Mexicans had come forward with this proposal first, rather than the immigration proposal, to be honest, I think they would have had it by now. If Mexico and Canada were to agree on it too, I think the prospects of the United States taking it more seriously would also increase.

º  (1630)  

    This is a new idea, and new ideas that require a great deal more funding usually take a bit of time or some particular crisis or some extra source of leverage before they are converted into a new policy. I think it's an idea that makes sense, and I would hope that Canada and the committee would think this idea worthwhile.

º  (1635)  

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

    Your time is through. We'll come back to you, Dr. Martin.

    Madam Lalonde.

[Translation]

    Ms. Francine Lalonde (Mercier, BQ): Thank you very much to all three.

    I am just back from a visit to Mexico with the leader of my party, the Bloc québécois, and another MP, where we have met with representatives of the government, such as the minister of the Economy, politicians and leaders in the social sector, with whom we discussed three issues: a social and structural development fund modelled on the European Union, a security perimeter negotiated among the three countries, modelled on what the Europeans did in Schengen, but with variations; third, a monetary institution of the Americas which would deal with currency matters in the coming years, for it is quite possible that in 15 years we will be compelled to go to a single currency.

    I listened carefully to everything you said and was delighted by what I heard, especially from Mr. Pastor. In my view, the best strategy, and I hope Canada will embark on it... You know that Quebec supported the first free trade agreement. Since I am from Quebec, I hope that such proposals will be picked up everywhere in Canada. We can both have an alliance with Mexico, as you said, and be taken seriously by the Americans.

    You wrote in your brief:

The most glaring omission in NAFTA is the failure to recognize or respond to the huge development gap between Mexico and its two northern neighbours...

    This is at the basis of the proposal Mr. Fox made when he came to Canada with this project of a fund, which we support and want to publicize. Would it be possible to sell the idea to the United States on the basis of their self-interest? There would be less migrants if Mexico achieved greater development thanks to better infrastructure such as transportation and education. It would also become a bigger market. I think this is a win-win proposal that Canada should promote vigorously.

[English]

    Prof. Robert A. Pastor: Pastor As I just said to Dr. Martin, I think this is still a new idea. The Republican administration doesn't begin with a great deal of enthusiasm for aid at all, but it does begin with a recognition of the importance of Mexico. President Bush has clearly signalled that this is important to him. I think they are discussing this.

    My personal view is that it makes eminent sense for the United States. To the extent that people are concerned about migration, for example, there is simply no way to reduce illegal migration without reducing the development gap, the income differentials, between the United States and Mexico.

    There is a development strategy implicit in NAFTA, and it's one that encourages immigration from Mexico to the United States. The implicit strategy is one in which 90% of the foreign investment that's going into Mexico is going into the border states with the United States, where there's very little population. The population comes from the centre and south of Mexico to the border. People know that if they step across the border, they increase their wages ten times, so in effect the overall purpose of this implicit development strategy is to encourage migration.

    There's a very simple way to deal with it. I've asked and interviewed multinational corporations, asking them why they go into the border area, where the labour turnover rate is 100% each year, your wages are higher than in the centre of the country, and the pollution and the congestion are so bad. The answer is very simple. There's no infrastructure in the centre and the south of the country. If you invest in infrastructure in the centre and if you build roads from the border to the centre and south of the country, foreign investment will follow that. Mexico's rate of economic growth should easily double that of the U.S. and Canada, and just the perception of that would begin to change the nature of this partnership.

    A separate issue from the development fund is the monetary issue. There are three options for us. Option one is de facto dollarization. That is to say, no government makes a decision, and increasingly Canada and Mexico use the U.S. dollar. Businesses and travellers use the dollar, everybody uses the dollar. More than half of the deposits in the banks in Canada, I understand, are now in U.S. dollars. Almost all the major corporations trading are trading in dollars. If we don't do anything, we move in that direction. It's easy.

    The number two option is de jure dollarization. Three governments all sit down and they decide the dollar makes sense: let's just use a single currency.

    The third option is a unified currency. Herbert Grubel has proposed this idea of the amero. In the United States I think they are very complacent, and they want everybody to come and adopt the dollar. But I think there is also a side of America that has a longer vision, the vision that proposed the Marshall Plan and that said it was in America's long-term interest to encourage unity in Europe. For the short-term interest it may not have, but for the long-term interest it did. Similarly, I think it's in the long-term interest of the United States to propose or to discuss a scheme in which all three countries feel there is space for them to define a portion of this larger entity of an amero system, not a dollar system.

    So those seem to me the three options. I think the most likely option is de facto dollarization, but it seems to me we ought to think hard about where we want to go as a community and ask ourselves if it makes more sense for us to define ourselves differently under this entity and to make the decisions ourselves.

º  (1640)  

[Translation]

    Ms. Jean Augustine: Thank you very much, Madam Lalonde.

    Mme Francine Lalonde: Thank you very much, Mr. Pastor.

    The vice-chair (Ms. Jean Augustine): Madam Folco.

    Mme Raymonde Folco (Laval-Ouest, Lib.): Thank you, Madam Chair.

    As a starting point, at the other end of the social and economic ladder, I am particularly interested in the role civil society plays in our policies, in view of the participative nature of our two democracies. I am talking here about Canada and the United States, but this is more and more true also of Mexico.

    My question is directed to all three witnesses, even though Mr. Thomas did not specifically discuss this aspect. How do you see the role of civil society in this master plan to fit the three countries within a single entity. Since the representatives of civil society are not elected officials for the most part, what sort of accountability framework do you envisage under this plan? This is my first question.

    My second is along the same line, but this time with regard to the private sector. The American economy is used as a model by many countries in terms of the role of private business; this role is often almost as great as that of government in some other countries. What would be the role, in your view, of private business in setting up this wider entity?

[English]

    The Vice-Chair (Ms. Jean Augustine): Dr. Thomas, it seems everybody is looking in your direction. Tie that in with subsidies.

     Prof. Kenneth P. Thomas: I think certainly that civil society has been quite active on issues of subsidies. As I mentioned, there are citizens' groups here in Canada and also in the United States. I'm much less familiar with the situation in Mexico as far as subsidies go or civil society's involvement with such issues.

    I think it's a fair question of asking, how does a civil society become accountable since it's generally speaking not elected, as you pointed out? I'm not sure of the answer to that one.

    I think the role of the private sector is a very important one. It seems to me that in many instances private firms even see themselves as ultimately not benefiting from systems of subsidies. When, for instance, non-competitive firms are propped up with subsidies or that sort of thing, it hinders the effective functioning of the market, it keeps down profits for efficient competitors, and I've heard rumblings here in Canada, actually more so than in the United States, that they would be willing to give up subsidies.

    You hear a little bit of that in the U.S. as well, but in the European Union the main private sector representatives have generally moved to a position of, yes, we want to get rid of subsidies and we'll complain about our competitors' subsidies, and it used not to be that way in the European Union, say, 20 years ago.

º  (1645)  

    Mr. George Haynal: I hope you don't mind my answering in English.

    You pose two very interesting and important questions and they have elements of [Technical difficulty--Editor] Not too long ago in Mexico, the notion of civil society involvement from outside Mexico was not very positively received, if I can put it that way. Governments actually discouraged it quite actively. With the administration of President Fox, there has been a sea change, encouraging both the existence of a domestic civil society and its engagement with civil society in the rest of North America. I think this is a powerful movement toward compatibility--I keep using this word, because it's a very important one. It makes other things possible. So I think the enrichment of civil society in Mexico goes hand in hand with broader support for the notion of shared community within North America elsewhere.

    I will make one point. I said earlier that there were 20 million Mexican Americans, and I've verified this number with Bob Pastor. You should reflect on that for a moment, because this is one very powerful component of American civil society. They're concentrated in areas where they have great political importance, great political influence, and the Mexican government has, quite rightly, been very active in engaging that community. In fact, they've restored the right of citizenship to people who have abandoned Mexican citizenship to assume American citizenship, so that they can vote now in both countries.

    There are, I believe at last count, 45 Mexican consulates or consulates general in the United States to engage this group of people and others. This is a part of the civil society discourse, and we must not neglect it. This is possibly the most powerful civil-society component in North America arguing for further integration potential--and consistent with the agenda of the Mexican government. We have, I think, 14 offices in the United States altogether.

    The question of private sector influence in this process is also enormously important to reflect on. I think it's fair to say the private sector has been way ahead of the public sector in this discourse, except perhaps in Mexico, where the private sector had to catch up with the public sector in some respects. Some sectors were for it, but those who enjoyed protection behind tariff barriers and other forms of protection were less favourable.

    In Canada, my sense is that there's almost a unanimous belief that there should be a closer level of economic integration, at least with the United States, and at least incidentally with Mexico. And I believe if you asked the opinion of business in the United States, that would also be its feeling, although--and this is my last point--in Canada, again as a reflection of asymmetry, the private sector is much more vocal in arguing this case than is the private sector in the United States. It's much less of an issue for the private sector in the United States than it is here.

º  (1650)  

    Prof. Robert A. Pastor: I agree with what Mr. Haynal just said, but to be a little more direct, which is the custom in the United States, let me say first of all that I think the question is an excellent one. The answer is that integration in North America has been pushed primarily by the marketplace and by corporations, economically, and secondly by civil society. It's governments in the public sector that have been far behind in recognizing this. Now obviously, in the case of the U.S. and Canada, our civil societies are much more developed. The number of professional associations, the number of meetings that go on, is huge.

    In Mexico, however, in some ways it's the most interesting. I knew President Salinas very well, because we went to graduate school together, and I've followed the evolution of his thinking. It was a great shock to me when he decided to propose the NAFTA, because his views until then were very reflective of the elite in Mexico, which were to keep the U.S. at a distance, because if you reduced your barriers to the United States, the United States would overwhelm your country.

    I think one of the reasons his mind changed is that he began to do extensive public opinion surveys in his country--and this was at a stage when Mexico was still not democratic by a long shot. The last 12 years have seen a dramatic progress, largely with the assistance of Elections Canada and with others as well, but at that time it was not. He was able, by paying attention to the public opinion surveys, to realize that the Mexican people's view of the United States had changed, more than the elite, and that they were much more ready to contemplate a different relationship with the United States than before.

    George is also right in saying that the presence of 20 million Mexican Americans in the United States is very important right now. The two political parties are competing with each other to accommodate themselves to this emerging ethnic group that has not yet set down its roots, and as such, the prospects of our being a little bit more sensitive, perhaps, than we have been in the past are much higher. Therefore it might lead to consideration of things like the development fund. The fact that President Bush has given such serious attention to a fundamental transformation of our immigration laws, the most sensitive and difficult issue of all, is one indication of that.

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

    Ms. Meredith.

    Ms. Val Meredith (South Surrey--White Rock--Langley, PC/DR): Thank you, Madam Chair.

    I can't tell you gentlemen what a delight it is to have some witnesses who not only agree with the direction in which I think we should be going, but are pushing the agenda and the envelope.

    I always like to refer to a statement that Dr. Papademetriou of the Carnegie Foundation once made, that Mexico and Canada are on the same continuum with the relationship with the United States, but just in different places, different spots. Having visited the Canada-U.S. border situations, as well as the Mexican-U.S. border situations, I came away feeling that if only more Canadians actually could experience the potential of the relationship between the three countries, they might be a little bit more willing to open it up.

    But I have to ask you, because in my years of working on the border management issues it has become very clear to me that when you talk about institutions, about the need to have developed institutions, it's the institutions that are getting in the way of this happening. It's the institutions of Canada customs and U.S. customs, of Canada immigration and U.S. immigration, of our various trade groups that continually pit one against the other as to who's in control, who's going to be the first one to give a little.

    I don't know the Mexican situation as well. I don't think they're quite as advanced, if you will, in this area. But I know in our discussions of the Canada-U.S. border accord, we had an individual who was from the bureaucracy--and I'm not going to say which side of the border, and I'm not going to say which part--who said there are about 152 regulations preventing this from happening.

    My comment was, why don't we tell the politicians and the people who can change the regulations and the laws what those 152 regulations are, so that we can get on with it? Nothing has happened from that point on. So how do we overcome this institutional resistance to changing the way things are being dealt with now, that allows us to progress to these other stages that you've placed before us?

    I have another question, specifically to you, Dr. Thomas, on subsidies. How do we get transparency in it? I don't know how many of our trade disputes come to the point of accusations of subsidies, yet I'll tell you, when I drive through the desert of southern California and I'm looking at all these irrigation canals, that's a direct subsidy to the farmers in the United States that's never talked about in trade agreements or in comparison to the subsidies that we're having, the softwood lumber issue.

    Because we do something differently doesn't mean it's a subsidy. Because our provincial governments control the manner in which these resources are being used doesn't make it any more of a subsidy than some of the American ways of manufacturing or of using the resource. So how do we get over these issues of institutionalization, rather than creating new ones?

º  (1655)  

    The Vice-Chair (Ms. Jean Augustine): Thank you, Ms. Meredith. You've used up quite a bit of your time, so there's only about two and a half minutes for an answer. We want to be fair.

    Prof. Robert A. Pastor: First, I'd like to commend Ms. Meredith for her own work in this area, also for thinking and for realizing that while the U.S.-Mexican, U.S.-Canadian borders seem so different, in actuality they're addressing the same problem. Indeed, I think you've posed the question perfectly just now.

    There are some old institutions that are getting in the way because they need some rethinking; they need some redefinition. The U.S.-Mexican border has been, for the longest period of time, characterized by American fear of drugs and illegal migrants. The U.S.-Canadian border hasn't been characterized by much fear at all; in fact, as we all know, orange cones were perceived as the major way to prevent people from crossing the border. I once addressed an audience and said the only people in the world that would be kept out by orange cones are probably Canadians. That's why the shock was so great here after September 11, and so there's that difference.

    But the point is that we need to redefine these existing agencies to understand that the central challenge is the same on both borders, and the only way you can redefine that is when people like you visit both borders and realize the challenges. How do you facilitate easy access by legitimate people, goods and services, and prevent access by illegitimate goods, terrorists, or whatever else? That's the challenge, and I think it becomes easier to redesign those institutions if all three countries are sitting at the table at the time, asking that question and then agreeing to get rid of all the institutions that exist and seeing if we can come up with one North American one that can do that better.

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

    Madam Marleau.

    Ms. Diane Marleau (Sudbury, Lib.): Our Prime Minister has been known to say that the Americans are our best friends, whether we like it or not. One of the things that some of us have known for some time is that we've always had more of a problem with people coming north than the other way around. But the real challenge is to get Americans to know us. They really don't, and it's incredibly difficult for us to make inroads there.

    You talked about some form of North American parliamentary group. I think it's a great idea and I'd love to see that happen, but I've travelled to the U.S. many times, and it's very difficult to even meet with any of the representatives. If you're lucky, you'll meet one and they'll last for five seconds. There's really no easy relationship, even though they're very nice people.

    So how do you propose we set this up and actually have people show up, other than the Canadians and perhaps the Mexicans? That's my first question.

    Many of the things you're saying are very important. The other real challenge is, of course, the size of the U.S. and the fact that while we would like to have nice rules and we'd like to follow them, the Americans have this capacity to change the rules to suit their purposes. How do you propose that we--and by we, I mean Mexicans and Canadians--find a way of neutralizing that? Who would actually enforce any decisions made by this super court that you've called upon? You say it would be not too much bureaucracy and this kind of thing, but what happens if there's a decision in favour of Mexico and the U.S. decides they don't like the decision? They just change the rules and go their own way.

    These are some of the real challenges. We would have to convince Canadians, first and foremost, that somehow there's a place for us. That's the biggest challenge. Many of the things you talk about, in an ideal world, would be wonderful.

»  (1700)  

    The Vice-Chair (Ms. Jean Augustine): Are we back to the issue of the elephant and the...

    Ms. Diane Marleau: Oh, it definitely is that. Of course, it's to our advantage to have the Mexicans there as well. There is a bit of a counterweight, and we're pleased to have that.

    First of all, on this idea of a relationship with elected officials between different jurisdictions, just doing that would be wonderful.

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

    Prof. Robert A. Pastor: I have two very hard questions. How do you keep the attention of American congressmen? They have an attention deficit disorder that is roughly comparable to most preadolescents.

    The Vice-Chair (Ms. Jean Augustine): Are you going back across the border?

    Prof. Robert A. Pastor: I am, I am. But they won't pay any attention unless you talk like that. That's my point. Frankly, I think within a trilateral setting you are more likely to get concerted attention.

    Secondly, I did a study of how the U.S. Congress has dealt with Canada and Mexico over time. I found that the Congress pays more attention when a few leaders are really interested. That will elicit greater involvement. Mike Mansfield, when he was head of the U.S.-Mexican interparliamentary group, really made it happen and made it work. So I think it's partly cultivating a few leaders and getting them to do it more.

    But I think it's an eternal problem. I'm reminded of Ambassador Allan Gotlieb's book--you know, “just five minutes, I'll be right with you”. Anybody who's worked in Washington for any period of time knows that's the way they work.

    The other question is: How do you get them to accept the rules? I think, by and large, there is a side of America that understands fairness and that can listen to that. I'm not saying the United States doesn't sometimes break rules or try to get out from under them, but I think you can appeal to that fairness, in a way. Most of the time I think it will work. I'll never say that it will work all the time. To the extent that there are existing rules and institutions that hold them accountable, I think it will work. I think the dispute settlement mechanism under NAFTA has worked quite well. I don't see any of the three countries openly violating those agreements. They may turn to the WTO for another ruling or something, but they accept the rules.

    A voice: Other than softwood.

    Prof. Robert A. Pastor: That has begun the process, that's right.

[Translation]

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

    Ms. Francine Lalonde: Mr. Pastor, you said that the social and structural fund could be administered by the World Bank or by the Interamerican Development Bank. We too have considered this. But it could not be only this. The reason the European Union fund has been so effective is because it did not only grant loans; it also made direct investments in infrastructure and, as Mr. Thomas mentioned, this made it possible to very quickly develop infrastructures which benefited everybody later on. Therefore, we would certainly need to create some other institution to manage this.

    I would like you to elaborate on the advantages for us to know more about Mexican society. I noted you have worked with Mr. Castañeda, who is now minister of Foreign Affairs, and who speaks English without any accent and speaks French like a Parisian. He is an exceptional man.

    I have spent almost a month in Mexico and marvelled at this Mexican democracy which is taking shape as we speak. The power of our Senate pales in comparison to that wielded by the Mexican Senate. Civil society is also very active and is developing fast. Let me also say that a social fund would encourage civil society to work for a more humane globalization instead of opposing it as it does now.

    A large part of Mexico is very modern and must be recognized as such. Mexicans do not see themselves as a developing country. They see themselves as a country with plentiful resources that need to be developed.

    It seems to me that, for us as well as for the Americans, this would contribute to a more balanced community.

»  (1705)  

[English]

    Prof. Robert A. Pastor: I hate to disagree with you, but let me just make a couple of points.

    First, I did study the European Union's funds. There are actually seven different funds they've had over a 40-year period. I would not want to replicate what they did. They have spent over $400 billion over the last 25 years and wasted most of it. From the analysis I did of what they did, I concluded that there were really only two areas that were very effective, and those were infrastructure and education. That can be managed very neatly by just the World Bank and the IDB.

    I would not want to set up a new institution, frankly. I think that's the beauty of North America, that we don't bureaucratize. Let's use what we can to keep it lean and keep it focused. I wouldn't move into social funding. I think there is enough that they can get from the Inter-American Development Bank. I would really target just those two areas.

    How do we get to know civil society? I know Jorge Castenada very well. We wrote a book together and we exchanged houses. You are quite right, he is quite exceptional. But I think that Fox is the culmination of a process of democratization in Mexico that is really quite profound and that has occurred in a relatively compressed period.

    I had the unique advantage in the year 2000 of being asked to organize the observation of two elections. Having been involved in the debate on NAFTA, I was aware of many predictions about what NAFTA would bring. But one thing that occurred, nobody had predicted it, and that is--I organized the observations and the elections in Mexico and the United States, and you know what happened: Mexico had a free and fair election, and the U.S. didn't. Now, nobody has blamed that on NAFTA, but I think it is a statement that Mexico had made a lot of progress. Maybe the United States has something to learn from its two neighbours on civil society and democracy too.

»  (1710)  

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

    Madam Jennings.

[Translation]

    Mrs. Marlene Jennings (Notre-Dame-de-Grâce--Lachine, Lib.): hank you, Madam Chair. Thank you for your presentations.

    Since I have been a member of the committee only since September and sat for almost five years on the Industry committee, I was greatly interested by two suggestions, one from Mr. Thomas and the other from Mr. Pastor. They deal with the fact that Canada is a world leader in the development of legislative and regulatory structures and institutions.

    Mr. Thomas, you talked about transparency and accountability in the area of subsidies and the possibility to create a structure based somewhat on the European model but without being necessarily identical.

    Mr. Pastor, you suggested a North American commission which would define the agenda for summit meetings of the three North American leaders and which would supervise the implementation of their plans and decisions.

    Frankly, how could Canada, while still pursuing its relationship with the United States, in terms of its reliance on exports to this country and so on, put greater emphasis on Mexico and develop its bilateral relationship with Mexico in order to improve its position within NAFTA vis-à-vis the United States and try to achieve greater openness in the United States towards tripartite solutions that are not based on power?

    Presently, I think there is no appetite for this in the United States, despite the presence of 20 million Americans of Mexican origin, as you mentioned, Mr. Haynal.

    I believe that at the political level there is no real interest for tripartite solutions. They are focussed on bilateral relationships. For Canada, bilateral discussions deal mostly with border and national security issues. Americans are not really bothered by delays at the border which are mainly a problem for Canadian businesses. Yes, discussions are ongoing, but I wonder what level of interest there is. Do you think Canada should start placing more emphasis on its relations with Mexico, focussing on areas where it is a leader, such as issues of governance, accountability, regulatory structures, etc.?

[English]

    Prof. Robert A. Pastor: You are right, American-led legislators are not really deeply interested in the trilateral relationship. They're interested in the specific issues. As your colleague pointed out, it's hard to get their attention on a sustained basis. That's one of the reasons I'm suggesting institutions as a way to routinize.

    Secondly, I hope Canada chooses to deepen its relations with Mexico for a variety of reasons, but also because that might encourage a more trilateral approach. But there's a critical thing in terms of how you get the attention of the United States. At the very beginning of NAFTA there was a feeling by both some Mexican officials and some Canadian officials that they might be able to sort of gang up on the United States. That proved to be very unproductive, and I think it would be unproductive.

    What I'm proposing is something different. Consultations to develop rules that make sense for all three countries in North America would be very beneficial,and could gain the attention of the United States in the proper way.

    This is a very long-term strategy. I understand the frustration you and others have, because it's frustration I share. I've had it also in dealing with Congress. It will take time. I think minds are beginning to change, and there are some small signs of it. We just need to keep working at it.

»  (1715)  

    The Vice-Chair (Ms. Jean Augustine): Monsieur Thomas.

     Prof. Kenneth P. Thomas: I think you're quite right in terms of the emphasis also on transparency and accountability.

    Going back to Ms. Meredith's question, I think one way it's going to happen is precisely through civil society. In some ways it seems as if governments want to hide things from each other and also from the public. That's why in my presentation I stress the involvement of nine governmental organizations .

    I also want to mention that even in the European Union you still have problems of countries ignoring decisions by the commission even after they've been ruled against at the European Court of Justice as well. But in the area I study of state aid in the European Union, they've slowly been ground down in terms of non-implementation. Even Germany, which has had a long history of conflict with the commission over state aid, has finally reached the point where they're more likely to give in more rapidly.

    Of course, the disparity between the U.S., Canada, and Mexico is even greater than that between Germany and the rest of the EU, so it could be a hard slog. But as Professor Pastor was saying, there are some people in the United States who will say, we lost, but it was fair and square . We may see something like this in the foreign sales corporations and the WTO rulings, too. The U.S. changed it once and it has been ruled against again, and eventually they probably will get ground down on that issue.

    Mr. George Haynal: Perhaps I could just add an observation to build on what Bob Pastor said. I'm not conscious that the Congress works on the basis of relationships, if I can put it crudely. The Congress works on issues and problems mostly for sectoral interest or selfish interest. So it's interests and issues, not relationships. So the case for a North American community is not going to come out of Congress.

    It may come out of the constituency level. Earlier there was a question about how you get to congressional leaders. To use the old adage, all politics is local. Maybe it's not that old, but it's a good adage. Reaching congressional leaders at home is probably a heck of a lot more effective than trying to reach them in Washington. So if it comes through Congress, it will come from their constituency.

    It's much more likely to come from the administration. Yet in the administration there is no one of whom I'm aware, other than the President, who believes in the relationship with Mexico.

    Furthermore, it's not a North American thing. I think this is something we always have to keep in mind. This agenda we've been talking about is largely a Mexican agenda, and I think it's an important one. It's not necessarily a United States agenda. It is our agenda in a sense by extension. So it's going to have to be fleshed out in order for it to be digestible. It's only when people in the political system in the United States especially can see it as a series of issues that this thing will move forward, but not as a vision. There's no Jean Monnet, other than Bob Pastor, around at the moment. So I agree with him that it will be a long slog. You will never ever be able to walk around this large black box of the congressional system into which things go and out of which things come. It's very hard to follow them as they move through.

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

    Ms. Meredith.

    Ms. Val Meredith: Thank you, Madam Chair.

    I want to continue this discussion because this is really the crux of what we have to overcome. And I'm going to give you a chance, Mr. Haynal, to respond to the bureaucracy and the problems we have there.

    We have enormous barriers to making this thing work, not just with the politicians down in the States, but also with the politicians here in Canada and in Mexico. Some of it is our reluctance to trust the United States, and some is a fear of cheap labour in Mexico taking our jobs.

    Is it just that we're so far ahead of the pack? Is this a futuristic kind of trail we're on, where others will catch up over time but you can't push it?

    I'm frustrated with the slowness with which this thing is moving, including finding acceptance to even get it into debate. You happen to be the first witnesses I've heard even talking about the North American concept. How do we break through the bureaucracy and the politicians to get this debate on the agenda for more than just one committee meeting?

»  (1720)  

    The Vice-Chair (Ms. Jean Augustine): We started here, Ms. Meredith, by opening up the question. We've been hearing witnesses, etc., and this is just part of the big plan. Maybe there is some leadership here.

    Ms. Val Meredith: Good. And Canada has often shown the leadership.

    The Vice-Chair (Ms. Jean Augustine): Thanks for being part of this. You're invited to join us at any time.

    Mr. George Haynal: Without taking time away from Bob... It's important to be very clear as to what is a North American agenda and what is a Canada-U.S. agenda, just as it is very important for Mexico to understand what is a North American agenda, what is a Mexican agenda, and what hides as what. Not everything is necessarily what is seems, and I keep coming back to this issue. The North American agenda is a very important part of Mexico's transformation into a modern state, and we should recognize it and support it as such. As such, it's in the Canadian interest to support it, but the North American agenda per se from our point of view looks very different from the Mexican point of view.

    All I'm trying to say is that as this discourse proceeds, it's going to be increasingly important to bring the North American dimension into it but not confuse it with the fundamental issue for us, which is a survival issue of managing our relationship with the U.S. well. If we don't manage that well, the rest of it doesn't really matter an awful lot.

    That would be my first answer to your big question about how this agenda should move forward. Once those issues are distinguished, some of the confusion is dispelled and the issues become quite clear, whether they are survival issues, issues of convenience, or issues of altruism. They need teasing out because there are a lot of big issues.

    On the bureaucracy, you might have been citing me, but I'm sure you were citing other people. By my count the Canadian Customs and Revenue Agency enforces 186 legislative instruments on the board. These are not their creations. These are politically mandated actions. I expect some of those restrictions or some of those actions they take have been against the imported buggy whips, because that border has been around a long time. To my knowledge, there has been no concerted review of just what is done on the border and why.

    I think there are political and bureaucratic inhibitions against doing that, if I may say so. Bureaucratically, simply, the bureaucracies respond to the political level, and I go back to the issue of clarifying what our objectives are. If we have objectives on the border that are in the national interest, the political system needs to give those signals that maybe what we're doing on the border is obsolete or in some measure obsolete, and then the bureaucracy can respond.

    At the heart of it all is an issue of self-confidence. Why is the border there? Against what is it protecting us? Is it a shared instrument or a hostile instrument? Is it a line that only divides our two countries, or does it unite our two countries?

    These are not questions for bureaucrats to decide. They may propose some vision of what this is all about, but I do believe that what you're doing in that respect and in many others is enormously important because it is a political question. They're all political questions.

»  (1725)  

    Prof. Robert A. Pastor: Those are very good questions.

    First, the bureaucratic question. It's very interesting that in your earlier question you had, in effect, articulated an insight that I think is very important, and it was that...

    The question was, which of our bureaucracies were the most advanced, the U.S. and Canada, or Mexico, with regard to the border? The great irony is that the two countries that were the most advanced countries actually may be the most retrogressive precisely because they have such deep institutions that seem to be impenetrable to needed changes. Therefore Mexico, with the least institutions, may be the most open.

    I've done a detailed analysis of Europe and North America as a whole, and I think the North American regime is very different precisely because we are much more pragmatic in North America. We don't get stuck with old institutions. We can modify them, and that's where we're at right now. I think the way you've posed the question offers a possible answer, which is, can't we redesign the way we think about bureaucracies? I think the answer is yes, but it will be very difficult, particularly for the U.S. and Canada, because we have very deep federalist systems, we have problems of central versus federal government, and we have old institutions that are resistant to change.

    Your second question is, how do we break through? I think the answer to that is coming, and it's going to come quickly, because we are very open societies and I think this is the future. I think George actually did a very neat job of explaining why each of our countries should approach North America for its own reasons but we all can find a powerful reason for doing it. Mexico's reason is to transform its value system. Canada's reason is that it needs to manage the relationship better.

    From my perspective, I think the most powerful and compelling reason for why the U.S. should move into North America is to deal with what I call the paradox of insularity in the United States. This biggest, most powerful country in the world is also the most insular, and I think the only way you break that is you have to change people's identities beyond just the United States. Americans need to think of themselves as something a little bit larger. Being a world citizen is just too large, too abstract. Being a North American, however, is very real. I think this is a way that America can change the way it thinks about its neighbours and itself and the rest of the world.

    I think those are all each individual reasons why North America, as a vision, is really the future, and when all of you go after your constituencies and begin to make that case and find some resonance, then I think we'll see change pretty quickly.

    The Vice-Chair (Ms. Jean Augustine): Thank you. Dr. Pastor. If you can bear with us for about five more minutes, then we'll bring closure to our discussion.

    Ms. Jennings has the final question.

    Mrs. Marlene Jennings: Thank you, Madam Chair.

    My last question is on the issue of... I think you've all agreed that in order for there to be real change, and to get the attention of America, there need to be issues. You put forward the idea, Mr. Pastor, of creating some kind of an ongoing summit, of not necessarily creating a permanent North American commission that has the authority to make the agenda, etc., but having an ongoing summit, a regular summit between the three leaders, on issues that are raised by one, or all three, or two of the three, but that should be of importance to all three. Is this something that could move the three countries into a better direction?

    Prof. Robert A. Pastor: I think summits would be useful, but they're inadequate. We saw what happened in April at Quebec City.

    Unless you have a separate, autonomous, continental-focused group proposing an agenda, I think the three leaders will be staffed by their governments, by necessity, to approach the immediate bilateral issues. I think the problem of summits without a good continental agenda is that they will become photo opportunities and not much more. There won't be a lot of substance there.

    It's going to take time for our three governments to shift their focus to thinking about what makes sense for North America. I think it's too big a leap. I'd prefer that our governments to continue to staff their leaders, but to address an agenda that's put together by somebody else, with options for somebody else. The idea of the North American commission is to think about North American infrastructure and to propose a whole series of ideas, and then have the governments staff their leaders to think about what's in their country's interest as they sit around the table.

    So I think summits are a good idea, but they won't really lead to the kinds of substantive exchange on North American issues, in the absence of a different group putting forth an entire agenda.

»  (1730)  

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

    We want to take the opportunity to say that your coming before us today and your presentations have really been almost food for thought as we continue to do this work. Lots of questions will arise, and we'll expect to take what we've heard from you and reflect that as we hear from other witnesses.

    So we thank you for the opportunity, we thank you for the benefit of your expertise, and we wish you the very best, not only in your endeavours over the next couple of days in Canada but also in all your future work.

    Mr. Haynal, you can come back any time--and I think you can cross the border freely.

    Dr. Pastor, on a lighter side, if you want to claim refugee status, we'll hold on to you. Take care.

    Prof. Robert A. Pastor: There was a moment when I considered that.

    The Vice-Chair (Ms. Jean Augustine): Dr. Thomas, thank you so much.

    Thank you. The meeting is adjourned to the call of the chair.