Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 14 - Evidence
OTTAWA, Wednesday, November 27, 1996
The Standing Senate Committee on Foreign Affairs met this day at 3:23 p.m. to examine and report on the growing importance of the Asia-Pacific region for Canada, with emphasis on the upcoming Asia-Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's year of the Asia-Pacific.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we continue our work relative to Canada's relations with the Asia-Pacific region, and this afternoon we have witnesses representing two different organizations. We have a witness from the Conference Board of Canada and witnesses from the Canadian Shippers' Council. We will hear first from Dr. Charles A. Barrett, the vice-president for business research for the Conference Board of Canada. If you will excuse me, given the time circumstances, I will omit putting on the record Dr. Barrett's distinguished record.
Dr. Barrett, would you proceed with your opening statement.
Dr. Charles A. Barrett, Ph.D., Vice-President, Business Research, Conference Board of Canada: Let me begin by saying that the Conference Board is very pleased to have this opportunity to appear before the committee and to contribute to the committee's mandate of examining the growing importance of the Asia-Pacific region to Canada.
The Conference Board, as you may know, is Canada's largest independent applied economic and management research institute and our mandate is to assist our members, which consist of senior management in major Canadian corporations and public sector institutions, to anticipate and respond to the changing global economy. Given the rapid integration of the world economy our work quite naturally has emphasized Canada's economic linkages with other parts of the world, including the dynamic emerging economies of the Asia-Pacific region. Over the last 10 or 15 years we have undertaken quite an extensive body of research on various aspects of Canada's economic relations with the Asia-Pacific.
In my presentation you will find a complete list of Conference Board reports related to Asia-Pacific in an appendix to the presentation. We have brought along some reports that we think will be particularly germane to the committee's work this afternoon, and, of course, we would be happy to make any of that information available as background to assist the committee's work.
We have been directly involved in the APEC process since 1992. We have managed, on behalf of CIDA, the Canadian participation in the four networks of the Human Resources Development Working Group. Since 1994, the board has also served as the international coordinating institution and chair of the Business Management Network, which is one of these four forums of the APEC Human Resources Development Working Group and is the group concerned with the development of capacity for management education and training within APEC economies.
As you may be aware, the Conference Board's mandate is also to be independent and non-policy-prescriptive in all of our work, and so in keeping with this role the remarks I wish to make before the committee this afternoon will really focus on what we have learned through our research and through our participation in the APEC process. I do not propose to make specific recommendations regarding Canadian foreign policy with respect to the Asia-Pacific.
I wish to touch on five interrelated themes this afternoon. The first, and really context-setting theme, is the impact of globalization on the Canadian economy. Following that, I will touch on the growing importance of the Asia-Pacific region in the world and to Canada. I will then say a few words on the experience of Canadian business in Asia-Pacific, speak briefly on the significance of APEC, and then, finally, I will deal with some other considerations.
By way of background I will just say a few words about globalization.The international trade sector of course is very important for Canada; exports now account for over 40 per cent of Canadian output. That has risen sharply in recent years in response to the trade liberalization process which has intensified throughout the 1980s and 1990s. The impact of trade has been to significantly increase competition for domestic producers in all countries, but this has been particularly significant for open economies such as Canada's.
The composition of Canadian exports continues to reflect our comparative advantages and, in particular, our strong natural resource base, but it is also important to bear in mind that Canadian exports have steadily moved up the value-added chain and increasingly are specialized in products and services that are intensive in the use of skilled labour. Foreign trade also of course has been the driver of economic growth in Canada since the recession of the 1990s; for example, last year over half of all growth in Canada was accounted for by an increase in exports.
A related development of globalization has been its impact on foreign direct investment, and an increasing share of world economic activities, as you know, is accounted for by multinational enterprises. The growth in worldwide foreign direct investment has exceeded both the growth in world trade and the growth in global output. Indeed, transnational companies have become a major force -- perhaps the major force -- for trade and investment liberalization. In all three major regions of the world it is increasingly the needs of the business community that drive official policy towards liberalization, rather than the other way around.
I will not read it in detail, but I say a few words in my presentation on the development of integrated strategies and management processes in transnational economies which I think you will be familiar with. Then I also say a few words on the consequences of this for the growing intra-firm trade, or trade amongst related parties, which, by the way, is particularly important in the case of Canada.
Canada was the first major destination of U.S. foreign direct investment, going back to the turn of the century and, despite the growth of truly global U.S.-based transnational companies in the last three decades, Canada remains an important destination for U.S. investment. However, our place has slipped in the last few years from third place to eighth place as a site of inward direct investment, and that is largely because of the growing importance of Asia. That is significant, because we in Canada continue to depend on foreign capital and technology for our economic growth and for our future productivity and living standards.
If I were to summarize this context-setting, my point would be this: Canada's role in the global economy in the next century will differ significantly from our role in the past. Given the limitations of a small domestic economy Canadian firms must serve a much wider world market and, unlike the past when investment in Canada has focused on developing our natural resources for export and on a limited number of major manufacturing sectors such as motor vehicles and parts, in the future Canada's attractiveness as a site for investment in plant and equipment will be based across a range of industries and will be based on our ability to serve markets not only in an integrated North American economy but also beyond.
It is also significant that Canada has become a major source of outward indirect investment since the 1970s; in fact, the stock of Canadian direct investment now is equivalent in value terms to about 18 per cent of our GDP, almost as great as the stock of inward direct investment in Canada, which is about 22 per cent of GDP. Although naturally Canadian investment abroad is also concentrated in the United States, other parts of the world, and in particular the Asia-Pacific, are growing destinations for Canadian investment.
That is a few words about Canada. Let me then turn to the importance of the Asia-Pacific region in the world economy and for this country. Clearly, Asia-Pacific has consolidated its position as the most dynamic region of the world economy. The rapid growth in the region has resulted in increased incomes and living standards, on less reliance on the older industrial regions for markets, capital and technology, and, I would argue, on increased influence over the direction of the world economy.
Clearly, Asia-Pacific has been the fastest growing region of the world. Over the past 25 years the region's share in world output has doubled to approximately a quarter. The 18 member economies of APEC now account for over half of the world's GDP, and Asia-Pacific on balance continues to outperform the older industrial regions of North America and Western Europe, despite the fact that there have been slowdowns in Asia in recent years with the Japanese economy essentially being in recession, China's economy slowing down to growth at a more sustainable level and some signs of short-term slowdown in some of the South-East Asian economies.
Strong growth in the region has resulted in impressive gains for both individual economies and for an increasing economic weight for the region as a whole. The newly industrializing countries or so-called "tigers" now have per capita incomes and living standards comparable to some members of the European Union. Korea will soon become the first of these to join the OACD, and, if present trends continue, will soon be closing in on Canada's standard of living; in some cases, based on official statistics, GDP per capita already exceeds Canada's.
The World Bank predicts that China will be the world's third largest economy by the year 2000; indeed, it may already be the world's third largest economy, if you accept purchasing power parity as an appropriate measure for making comparisons in economic size.
It is also important to underscore the fact that Asian growth is increasingly Asian-centred. Trade and investment are growing very rapidly within Asia itself and this regional and subregional integration has been driven by market forces and by the private sector. Regional institutions such as APEC are really a response to the forces of the marketplace as much as the other way around.
As Asia expands, it will become more self-confident and more self-assertive. Asia is becoming less dependent on North America and Western Europe and there is a clear desire to have global institutions become more Asian in character. That is quite obvious in the evolution of APEC.
For Canada, Asia-Pacific has attracted sharply increased interest on the part of Canadian business. Canadian trade and investment with the region are growing faster than with any other region, North America excepted, and Canadian governments have clearly made the development of economic relations with the region a priority.
APEC accounts for 90 per cent of Canadian exports and 80 per cent of our imports. Obviously this reflects the importance of our trade with the United States, but if one looks at our trade outside North America the importance of Asia-Pacific also becomes clear. Exports to Asia account for half of our overseas trade, a portion that has doubled in the past 30 years.
It is worth noting that you really must look behind the trade statistics to have a sense of what is going on. North American integration, by definition, has led to a greater concentration of Canadian merchandise trade with the United States. In terms of our trade with Asia there is a very heavy weight of traditional natural resource exports sold in major markets under long-term contracts. This masks what is going on in the other categories of trade; it masks the significant growth and diversification taking place in Canadian exports to the region, including the growth of high-value-added exports.
Moreover, the Canadian business potential in the region may be based as much on our technical know-how as on merchandise trade and it may not be fully reflected in the limited data on trade in services. Of course, trade in services data is more difficult to capture than is information on merchandise trade, where customs documentation provides a clear paper trail. Finally, there is some evidence that at least for some Asia-Pacific economies trade between Canada and the region may be understated because trade takes place through the United States.
Although Canadian merchandise trade is increasingly concentrated in the United States, this is less true of the increasing stock of Canadian direct investment abroad. About half of the overall value of Canadian direct investment abroad is outside North America, and the share of Canadian investment going to Asia-Pacific has risen in recent years. If you just look at the last decade and look at APEC economies, excluding those in North America, the share of Canadian direct investment in these economies has risen from eight to eleven per cent.
Our trade and investment interests in the region reflect our traditional comparative advantages. Resource sectors dominate exports, but there are other areas of Canadian strength, such as agri-business, food processing, and a range of specialized knowledge-based services ranging from architecture and urban planning to education and training, as well as large-scale project management and remote sensing technology.
It is important to emphasize the importance of Asia's infrastructure requirements, in particular in telecommunications, energy and transportation, as these are all areas of Canadian strength. They are also areas that were previously the preserve of government or were highly regulated, with limited opportunities for foreign participation. This is changing, and private investment and foreign participation are now being increasingly welcomed.
These sectors in Canada now face slow growth either for demographic reasons or because of the change in structure of the Canadian economy. Moreover, they are sectors that are undergoing deregulation in Canada, which is putting pressure on margins and hence costs.
Let me turn then from the interest of Canadian business in Asia-Pacific to the actual experience of Canadian organizations in the region. While I think it is clear that there is a sharply increased interest in Asia, in practice the results have been mixed. While the subject is complex and one must interpret the data with some caution, the data do indicate that while Canada's business links with the region are rising our market share is actually falling.
Markets in Asia-Pacific are clearly difficult. The Conference Board has conducted a couple of rounds of surveys of Canadian business investment intentions in China, the largest market in the region, and the indication is that only 40 per cent of the firms that have invested in China in recent years have made profits. Even companies with a major strategic commitment to China and a long-term presence, such as Nortel, really have not seen much in the way of a return as yet.
There are a great many business risks, given the complexities of the Asian environment, the differences in culture, and changing government regulations. These risks can be mitigated through careful business planning. The choice of a suitable local partner is critical, as is patience and a long-term perspective. Throughout Asia, business depends critically on developing long-term personal relations, which the Chinese refer to as "GuanXi," and it is quite clear that North American short-term, task-based approaches simply will not be successful.
There are examples of Canadian companies that have recognized the importance of the role that Asian Canadians can play in helping to understand and develop business relations in Asia. Quantifying the contribution these individuals can make can be difficult; however, it is quite clear that it is likely to be substantial. Other countries have recognized this. For example, the Australian Department of Foreign Affairs and Trade about a year ago completed a detailed study entitled "Overseas Chinese Business Networks in Asia," which examined the significant role that the overseas Chinese community plays in developing China's international trade.
In the same vein, feedback we hear frequently from Canadian business executives would suggest that consideration be given to increasing the tenure of commercial officers posted in Asian markets so as to increase their awareness of relationship-based business environment and to increase their effectiveness and performance within their postings.
The point I really wish to make is that Canadian businesses, particularly small to medium-sized businesses, need to develop competencies in cross-cultural management before they can really contemplate a deal in Asia. Many forms of business linkage are involved in our economic relations with Asia. One cannot generalize, but a fairly typical pattern would be to evolve from direct exporting from Canada, through the establishment of local distribution networks, through the transfer of technology, to the establishment of a long-term partnership or joint venture with a local organization.
Development of this sort takes considerable time, and different stages of the process require increasingly sophisticated cross-cultural knowledge and management skills. For example, the major challenges for businesses that are at the stage of establishing a local practice typically revolve around human resource management issues and the process of localization. The requirements that they have are obviously quite different from those of an exporter who is contemplating an initial entry into the Asian market.
We have recently done some work on the community investment activities of Canadian firms in Asia, and I highlight in my presentation Inco's experience in Indonesia as an interesting case study. The approach emphasized community development by investing in local infrastructure and improving the lot of the workers. Inco was successful, and the key success factors involved becoming an integral part of the local community, establishing a philosophy that views corporate responsibility as a long-term strategic investment, and ensuring that company policies reflect local culture and customs in the hiring and training of local employees.
Let me turn now to the significance of APEC. I include in my presentation some background information which you will be familiar with. I mention that APEC began in 1989 as an informal mechanism for dialogue and has since evolved into a multilateral institution promoting trade liberalization, trade facilitation and economic cooperation among its member economies. I mention the Bogor Declaration of Common Resolve of November 1994 and the commitment in principle to achieve open regional trade among the developed members by 2010 and for APEC as a whole by 2020.
I also mention the 1995 Osaka Action Agenda and the two-part action plan that was developed to achieve the goal of free trade, Part I focusing on trade and investment liberalization and facilitation, the core of the APEC agenda, and Part II focusing on the program of technical cooperation through the ten APEC working groups.
In the ministerial meeting and economic leaders' summit just completed in Subic Bay, member economies provided individual action plans to address the Osaka Action Agenda, while APEC forums presented collective action plans to develop Part II. Canada has been actively involved in this process, and in particular I wanted to mention the importance of the so-called "eco-tech" report, drafted by Canada, that outlines the full range of technical cooperation across APEC.
The challenge, it seems to me, will continue to be to find a way of encouraging all members of APEC, with their different economic structures, different levels of development and different cultural and political traditions, to agree on a practical action plan for trade liberalization. The approach to trade liberalization in APEC is quite different from the traditional approach under the GATT or WTO, and rests on the notion of "concerted unilateralism" and on a collective action plan.
The key question is how much can one achieve in practice by using this "concerted unilateralism" approach. Its success will depend on its comprehensiveness, the development of measures of comparability among individual action plans, and the development of some means of dispute resolution.
From a Canadian perspective, it is quite clear that the WTO remains the foundation for multilateral trade liberalization. The WTO has a comprehensive framework for addressing policy issues and it also has substantial resources and expertise. APEC, by contrast, is a very modest undertaking, with a limited budget and a small secretariat, and it is not a professional secretariat, of individuals seconded from the member economies.
I believe, on balance, there is a consensus emerging that APEC's potential lies in its capacity to facilitate trade and investment rather than to oversee trade and investment liberalization. A number of practical projects are under way in the ten working groups that will help to promote business linkages in the region, ranging from facilitating customs clearance, and developing an APEC business visa, to training programs on export insurance. I also believe that the range of technical cooperation projects under way provides a mechanism for sharing ideas and experience and building relationships across the region. These will, over time, serve to facilitate the trade and investment relationship.
Having said that, however, it would be inappropriate to dismiss too quickly APEC's potential to promote trade liberalization. The APEC model is very different from the traditional approach to international trade, and Canada has been an advocate for 50 years or more of a transparent, rule-based international trade system. I come back to my earlier point that, as the role and weight of Asia-Pacific in the world increases, there will naturally be pressure to have multilateral institutions take on a more "Asian" character. This will probably mean a less transparent and more relationship-based approach, which to date is manifest in APEC.
Canadians may not like that, but I guess I am pointing to a scenario that I feel we must be cognizant of.
APEC has yet to develop its own approach to dispute mediation, and here too, if it is successful, it could adopt a very different, Asian approach, and not what we are used to in the traditional post-war institutions.
Finally, business has a very important advisory and consultative role to play. The "concerted unilateralism" approach can work only if practical means are devised to measure the equivalencies of the commitments of individual members. Canadian government officials must develop information on specific access barriers facing Canadian business in Asian markets.
I might say, en passent, that I do not believe on balance that Canadian business has either a great deal of understanding or perhaps much interest in the institutional side of APEC, but that may well change.
Let me just deal with some other considerations. I come back to the fact that I believe that Asia-Pacific will continue to be the most dynamic region in the world economy. The importance and influence of the region will grow, and the incomes and quality of life of its citizens will improve. There certainly will be political, economic and social challenges, but I think on balance the most likely scenario is that the increasing self-confidence in the region will allow its members to address these challenges successfully.
What are the risks? What could go wrong? While the most likely prognosis is positive, I think one does need to understand that there are forces that will challenge the future progress in the region. I mention four in the presentation. The first is the pressure of demographics; the second is environmental degradation; the third is tensions arising within that region as a result of disparities of power and classes of ideology; the fourth is the limits to domestic and regional integration.
When I think of those four, the one that is really most significant is the question of political instability and the challenge to peace and security, which obviously have a direct bearing on risks associated with doing business, to say nothing of Canada's overall interest in the region. Here, of course, the role of China is critical and in particular China's internal political stability, as well as its relationship with Hong Kong and Taiwan, and its larger role in the region. China continues to be viewed, and perhaps always will be viewed, with considerable wariness, particularly in Southeast Asia.
I do believe there is a close relationship between the economic and political dimensions of our relations in the Asia-Pacific. On the one hand, frameworks for economic cooperation in the region, notably APEC, can play a role in building a regional political framework that will contribute to future stability. On the other hand, the pattern of economic growth in the region will itself affect the distribution of political power, because increased wealth is being directed to increased military spending. The unequal distribution of wealth in Asia is a potential source of instability, a source of rivalry and conflict.
Just to conclude, clearly more and more Canadian businesses are looking across the Pacific. This fascination with Asia will intensify if, as I believe it will, Asia continues to outperform the rest of the world economically. While Asia is becoming more familiar territory, it is not for the faint of heart. The business environment there is very different from that in Canada, due to economic structure, business practice and culture. It is a tough business environment.
Despite the ongoing allure of the potentially enormous Asian market, Canadian businesses would be well advised to consider carefully all of the factors that could affect risks and return. Again, I cannot emphasize too much the importance of cross-cultural understanding and the development of appropriate business competencies. Even Canadian businesses that have no specific plans to enter the Asian market would certainly benefit from understanding developments on the other side of the Pacific, if you accept my hypothesis that Asia will inevitably play a larger role on the world stage and assert great influence on the future direction of international institutions.
For their part, Canadian governments may wish to broaden and deepen their policies with respect to our relationship with Asia. There has been some tendency in recent years to emphasize the economic relations, which is understandable given the opportunities that exist in Asian markets, but it is important to bear in mind that other aspects of the relationship closely relate to the region's continued economic success and its attractiveness to Canadian business. Clearly, many in Canada would like to see other aspects of our relationship with Asia debated, bearing in mind the importance of Canada's economic relationship with the region.
The Chairman: Thank you very much, Dr. Barrett. I will ask Senator Carney to begin the questioning.
Senator Carney: The area I would like to talk about involves one issue and a sub-issue, and that is discussion you touch on at page 10 about the need for multilateral institutions becoming more Asian in character. You have laid out very well the fact that we in Canada and in Europe are strong advocates of the transparent rules-based international trade system; that has certainly been their experience, and that is what we are comfortable with. You then point out that APEC must become more Asian with different approaches. Could you give us some concrete examples?
In our recent study of Europe we learned that Europe is only just becoming conscious of the Asian potential. We discovered that Europe is extremely Euro-centred, and is only now becoming interested or aware of the potential in Asia-Pacific. Bearing that in mind, do you think perhaps Canada could play a bridging role? If so, it would be important to include that in our report.
Can you give us an example of how we have to adopt multilateral institutions and trading relationships and unilateral trade to become more Asian? Can you give us some practical concepts and then show how Canada can be a bridge between these two very different models.
Dr. Barrett: As you may have gathered, my intent in the paper was to raise a conundrum, and I believe clearly there is a conundrum. In terms of practical examples, I would turn to the experience I have had within the APEC process, which I would say is very "Asian". Perhaps this takes place in other international forums, but it depends very much on consensus; what happens in the corridors is more important than what happens in plenary, and relationships with key players is a practical matter of importance to getting things done.
I know, just in terms of colleagues within APEC, that the Asians like to go to Singapore rather than to Geneva. The dilemma is that it is clearly in Canada's interest, as a highly trade-dependent economy and as a middle power with limited influence, to have a transparent rules-based system. We spent certainly the last ten years in trying to do that and in trying to protect ourselves against concerted unilateralism on the part of the United States.
Whether in the end APEC has influence on the system I do not know, but I made the case that as Asia becomes more important Asia will want to exert more influence on the system, and that would include things like dispute resolution and trade mediation.
Let me give you a concrete example of a clash of cultures. For the United States and China, their bilateral trade relationship is very clearly a clash of cultures, where you have the weight of the United States and the notion of the rule of law and you have a culture in China which is based on compromise and is based on pragmatic solutions. I cannot paint a clear picture of what the outcome will be, but I clearly see a conundrum and a dilemma for Canada.
What I see as an opportunity, and you sort of alluded to it in your question, Senator Carney, is that perhaps Canada can have a foot in both worlds. We have something to bring to the APEC table because of our competency as a middle power broker. We have limited influence, but I think some competencies in terms of behaving like a middle power in that setting. We have competencies because of English language capabilities -- and language is a real issue for many of the Asian members of the economy -- and I think we have trust and credibility. If we can use that opportunity to understand the Asian culture and the Asian way, perhaps we can play a bridge between the Atlantic world and the Pacific world.
The Chairman: Is it accurate to say that there is this kind of Asian economic culture or is there a great diversity within Asia?
Dr. Barrett: Absolutely, senator; of course, you are quite correct. When I say "Asian culture", view that as shorthand. I do not mean to suggest it is monolithic at all; it is not.
Senator Andreychuk: You mentioned the conundrum of doing it either our way or their way going into WTO, but isn't the difficulty at the moment that there are certain members of the Asian establishment who want to do it their way or no way?If we could get to a point of compromise, I think that is what the international system is used to; but what we are being faced with, particularly in China, is simply that they are saying, "Take it our way or leave it." That is a slightly different conundrum; how do we deal with that one?
Dr. Barrett: You are referring, I assume, to China's attitude after the initial round of the WTO and the scenario in which China might say in the end, "Well, yes, we will just do it our way, thank you very much." The dilemma is that China is a pretty big player and it has a long history of viewing itself as the middle kingdom, the centre of the world; and as China increases in economic weight it will increasingly behave as a great power. The conclusion one comes to is that, if a middle power firmly rooted in the traditions of the west can also become competent at dealing with Asia, then I think we can play a useful and constructive role.
Senator Andreychuk: I guess you leave us with a conundrum.
Senator Grafstein: The canvas is so broad that it is very difficult for small, intermediate and even large businesses to decide strategically where to apply their resources, particularly when it is clear that the chance of immediate return is not as high as people would believe. Someone once said about China, "If I could only sell one bobby pin to every person in the Chinese population, I would be a billionaire." The problem is that they do not necessarily need bobby pins.
Has the Conference Board, looking at this vast growth market, developed models of priority of trade in a sectoral sense, and in a national sense? I believe you know Canada better than anybody from a business standpoint. Have you decided that there are natural relationships? If we had 50 things to do but we only had money for five things, where should we deploy our attention for appropriate growth? Can you give us any generic guidance about how to get at this, because we hope that our report will be helpful not just in terms of the APEC transparency. More specifically, have you developed a model here, a country-by-country model or a regional model, that could act as a data base for people who want to access this market?
Dr. Barrett: If you mean is there a sort of cookbook in which we could give a priority of country markets and sectors in the normative sense, the answer would be no. I am not sure that that is appropriate and I am not sure that it is correct either. However, having said that, there are insights one can draw that can aid in the process. First of all, we know something about the behaviour of Canadian companies by talking with them quite extensively, and they do view Asia as a regional market. If someone crosses the Pacific to go to Singapore he will also go to Malaysia. That is a pretty obvious example. There certainly are individual country markets and sub-regional markets within Asia, but once across the Pacific people tend to look at other markets systematically in the region.
With respect to China as the largest market, of course one of the big issues in China is the lack of integration within the economy, both in the sense of the limited infrastructure and in the sense of the different applications of business practices and policies in different parts. Consequently, if one is looking at the Chinese market one tends to look regionally or sub-regionally.
In terms of sectoral priorities, I think we can say with some confidence where the regions of opportunity for Canada are, and, as I alluded to in the presentation, many of them are in what I call the "know-how services". With some exceptions, Canada is not necessarily at the leading edge of technology, but with our know-how, whether it is how to build or run a hospital, or do urban planning or is in environmental services, there are niches that one can identify with some certainty, and a number of them have been covered in the report that the Conference Board has done.
Senator Grafstein: Just as an example, today's Globe and Mail tells of interesting battle between two Canadian companies for a resource in Indonesia, and what was necessary to get the job done. That may not be the traditional way of Canadians doing business, but obviously it was a good thing that it was at least between two Canadian companies as opposed to a third party.
The problem I am having is to try to end up with a report that will be helpful as opposed to being merely a compendium. Do we not have a natural, national, competitive advantage for resource development? Are Canadian companies doing the best that they can in Asia, not only for the development of resources, but, in addition to that, in providing services and so on? I mean all of the supplemental companies that get into the resource business; and I would ask the same for mining and for pulp and paper. Have you developed anything along those lines for us, or could you?
Dr. Barrett: Actually, we do have some "tombstone" data on Canadian investment in Asia; the largest single piece of Canadian investment in the region is in resources, and that is the Inco investment in Indonesia. However, with respect, senator, I would tend to come at it in a different way; I would come back to the question of competencies. It is an important role to focus on sectors, bearing in mind that there may be niches in other sectors, but it seems to me that there are some common themes on the competency question.
I know a number of North American firms that are established in China. As they will tell you, once you are there, there are all real, serious, human resource management issues -- and they are interested in talking about those human resource management issues, because they are operating in a totally different environment; it is not all strategic. There are some very practical issues, such as how to provide housing and schooling for your workers and their families, and these sorts of things.
As an institution that is in the business of selling knowledge, we have to ask what kind of knowledge we can offer to our members. It is not so much a matter of identifying for them a particular technology, or even a sector, as it is of ensuring that they have the competencies and know-how for entering the market -- and I would have thought that that might also be helpful for governments trying to enter the market.
Senator Carney: Yesterday, we heard witnesses from several groups, including the North-South Institute. They told us that part of our culture includes human rights and individual rights, and that this issue -- and I am referring to the Code, when I say "human rights" -- should be part and parcel of our trade policy, instead of being placed on the margin in an NGO, shoulder-conference, type of environment.
Do you agree with that or does it pose a problem for you? I am trying to link yesterday's testimony to today's.
Dr. Barrett: Heather Gibb, of the North-South Institute, is very much involved with us in the APEC process; we work quite closely with our colleagues at NSI. A careful reading of the last couple of pages of my presentation might have uncovered a very oblique reference to this issue; the reference is not explicit.
Let me make several points. First, I believe constructive engagement is really the only sensible way to proceed. You do not accomplish anything or influence any process by not doing business with people. Second, if we take China as an example, it is my understanding that in private in every meeting between Canadian officials and Chinese officials the issue is brought up, but it is brought up in a manner exemplifying quiet diplomacy.
It is important to have policy acknowledge a broad range of issues; I think that we have gone perhaps too far towards the extreme of not recognizing a multiplicity of dimensions, but I do not believe that you really can exert any constructive influence at all by lecturing our trans-Pacific partners. However, I would not assert that culture is value free. I do not believe that. My values are very much in tune to my culture, but I do believe that different cultures have different tests.
Senator Carney: So, given all your constraints, you would not agree with the statement that human rights should be part and parcel of our trade policy; you would separate them on the basis of constructive engagement, and so on?
Dr. Barrett: I think human rights should clearly be part of our relationship, but I would suggest that the way to do it is through quiet diplomacy.
The Chairman: Thank you very much, Dr. Barrett. Your presentation has been quite informative.
We will turn now to the Canadian Shippers' Council. We have Mr. Malcolm S. Hackett, Chairman and Director, Distribution and Inventory Management; Mr. Marc J. Leblanc, Manager, Logistics and Customer Service; Mr. Graham Allen, Manager of Marine Transportation, and Mr. Walter Mueller, Secretary.
Would you proceed, please, Mr. Hackett.
Mr. Malcolm S. Hackett, Chairman and Director, Distribution and Inventory Management, Canadian Shippers' Council: Mr. Chairman, in making my remarks, I will first address a practical issue concerning a potential and serious impediment to our trade with the Asia-Pacific area; and it is a issue that is all too familiar to us. I will go through the outline, or brief, as quickly as I can, and then in my summary I will try to clarify the issues for you.
As I indicated, we are concerned about a potential, serious impediment to our trade with Asia-Pacific. It arises from a situation that is supported by Canadian legislation, and that is the core of our attack. I refer to price-fixing cartels in the shipping industry.
The Pacific Rim area is very much of increasing importance to Canadian exporters, as is readily recognized by everyone here, and the anticipated market growth will be drastically higher than elsewhere in the world. To give you an example, my own company, Inco, has a $10 billion investment in Eastern Canada, the success of which will very much depend on our being able to dramatically increase our penetration of Japan, China -- especially China -- and the other Pacific Rim countries. This issue, therefore, is very close to the hearts of those of us who are involved substantially in the export business.
Because we are all targeting that part of the world for our growth in the next few years, Canada must have the most cost-effective transport system at its disposal, and it must be unencumbered by those price-fixing cartels in the shipping industry to which I have just referred. This is a big problem which we face, and which we will continue to face, and it really is serious for us.
Liner shipping, which means vessels running to timetables, if I may take the precaution of educating you in case you do not know, really represents the ocean carriers or groups of ocean carriers providing regularly scheduled service for movement of cargo in containers. This is a key issue. The problem is that these carriers are mostly operating as cartels, which are legalized in Canada and elsewhere in the world, but which, in Canada, under the Shipping Conferences Exemption Act, are exempted from the full application of the Competition Act. The effect of this extends not only to members of the cartels but to the lines that are not in the cartels, because the lines that are not in the cartels automatically follow the trends or the levels set by the cartel members.
We are here to talk about the Pacific Rim; the focal point there of the cartel system is an organization called the Canadian Westbound Rate Agreement, the CWRA. Liner shipping in general and the CWRA carriers in particular are of critical importance to Canadian trade for the future, and especially for the future in the Asia-Pacific region. Altogether, they carry the vast majority of the cargo that goes from Canada to that region.
It is an error to overlook the part that freight costs play in delivering goods to our customers. It is easily done in my own business particularly, where we have a high-value product, nickel, and the freight proportion is relatively small, but in many cases the freight proportion can be 50 per cent of the total cost. If you take products like China clay and certain timber products, that becomes very important; therefore, the fact that it is in the hands of a shipping cartel is a serious problem for us. This is especially important when surcharges, which are imposed by the shipping lines and which are not covered by the Shipping Conferences Exemption Act, are imposed on shippers willy-nilly with the most slender of excuses. When that takes place, it further impedes our ability to do good business in those areas; but of more importance to Canada, and I know this from personal experience because it directly has influenced my decisions, it can impede exports to the extent that we may look for suppliers from an alternative source.
Indonesia is a good case in point: If the freight works too much against us then we can well ship the sourcing to another location. As Canadians that is not our intention; therefore, this subject of surcharges, particularly taken in conjunction with the fact that price fixing is legalized, presents a serious problem for us.
You may well ask what the impact of the cartel system is on freight rates. It is a tough question for us, but fortunately we have the benefit of a recent study in the United States. We can provide you with details of that and copies, if you so wish, but that study has shown that the effect of cartels on shipping costs is to increase the costs by around 18 per cent. If you take Inco as an example, that means that we are paying $7 million to $10 million a year extra on our freight costs. Quite frankly, rather than having that money go to the shipping lines, it would be probably very much better used going even as tax. Eighteen per cent for us represents around $7 million to $10 million, depending on how you make the calculation. So they are big numbers and the impact on my colleagues is equally great.
The most serious problem concerns the very large number of small and medium-sized companies in Canada that are exporting, or trying to export, and on whom so much employment depends. They have a very serious problem. We are here not only to represent our own companies, Noranda and J.M. Asbestos and Inco, but to represent those myriad small companies who are so important to our country.
It is clear, and without any doubt at all, that the Shipping Conferences Exemption Act has had a significant impact on the success -- or failure -- of Canadian trade development in the Pacific Rim; that is especially true for the small and medium-sized companies.
For many years, Canadian shippers and the Canadian Shippers' Council have had really serious difficulties with the CWRA. You will recall that that is the rate fixing organization across the Pacific from Canada. For example, we are given very short periods of validity, which makes it difficult to make CIF prices. We have a problem with the extent of surcharges, which I have mentioned and will elaborate on, I hope dramatically, in a moment. We have also had difficulties with a key element of the Shipping Conferences Exemption Act, namely meaningful consultation. Before there is a rate increase, meaningful consultation should take place. Quite honestly it is often a farce, and we could give many examples of that as well. Many discussions have taken place with this particular cartel, as well as the others, but they have led to no positive results. Meanwhile, abuses and exploitation of Canadian shippers continues.
One example which I think is appropriate to give you at this stage is the very familiar marine services fee, which has been very much in the news, and which is part of operating costs for lines. The CWRA proposed, or advised us or told us, that they were to impose a surcharge for the marine services fee. In our opinion it should be part of the operating costs and the regular rate change discussions, but, no, they made a surcharge of it. That was bad enough, but, as a second example, the surcharge itself was about double what we had calculated as appropriate for the marine services fee.
Those two issues are really unacceptable, because this has become just another means of enhancing revenue.
A third and spectacular example is the charge that was imposed by the CWRA that included some lines which sailed exclusively from the United States. Fortunately we, with a lot of effort, managed to convince the cartel that we would take this matter to Ottawa and make a big issue of it; after a lot of discussion and argument they did drop this particular one. In the information we have provided to you are the details of another 13 charges, all of them surcharges, which have impacts of varying degrees; when taken together and they can add up to, in some cases, more than the basic freight rate, which is nonsense.
Bear in mind that the freight rate itself is exempt under the Shipping Conferences Exemption Act; surcharges are not. So, if I were a carrier, I would not change the basic freight rate; I would just keep adding on surcharges. That is the problem we face and it is of serious concern to us.
In spite of our representations to them over the years, Canadian legislators have really been reluctant to take steps to effectively protect shippers. I have seen this quite visibly in the four years that I have had, indeed, the privilege of living in Canada as a landed immigrant, having been transferred here by Inco. All the protection has been for the carriers, but shippers need protection from the conferences. The excuse has been put forward that Canada does not want to do anything unless another major trading nation does something comparable. I am a little disappointed in that.
At a conference last year, almost exactly a year ago, I had the task of participating in a debate to judge the future of conferences. I put forward what I hoped was a vigorous case as to why the exemption of conferences from competition rules should be wiped out. I was followed by our good friend and colleague, the Deputy Minister of Transport, Nick Mulder, who stood up and agreed unequivocally with everything I had said on behalf of Canadian shippers. "However," he said, "the only question is when, and we really need to have some other major nations do it first." We are talking about Canadian exporters; we are not waiting for other nations to do things first and, therefore, I really feel that this is of relevance to the committee and we need to make that point.
Meanwhile, shipper groups in the United States and Europe are pressing for major reforms of their maritime liner industries. In the United States, a consensus is very much emerging on the Shipping Deregulation Act of 1995, while in Europe -- and I am an active member of the European Shippers' Council because Inco is also a big exporter from Europe -- in Europe, we have launched a Europe-wide campaign to abolish the block exemption from price fixing which is enjoyed by liner cartels. In Japan, the Japan Shippers' Council also is vigorously pressing for a comprehensive review of the nation's maritime transportation law. In all cases, without exception, it is the antitrust immunity that is at the centre of all these deregulation efforts.
Our purpose in appearing before you today is, first, to make your members aware of the problems Canadian shippers experience in trading, particularly in the Asia-Pacific region, and the problems they have, indeed, with the trade hindrance, and it is a hindrance, that the cartel system represents to them. Second, we are very grateful that it gives us an opportunity to vigorously appeal for your support within the Canadian government to get rid of what we regard as the anachronistic remnants of the British Empire. The cartel system came from the British Empire, and it is an anachronistic remnant that still exists, and it affects us as Canadian exporters.
We are earnestly seeking your support to get rid of this legislation, namely the Shipping Conferences Exemption Act of 1987. However, if you feel unable to do that, we would ask you to support, equally vigorously, some amendments to the regulations to enable us to have teeth and not be walked over by these cartels.
We shall be very happy to answer questions. This is an issue very close to our hearts. Our time on behalf of our companies is well dedicated to this campaign, because it matters and affects many people.
Senator Grafstein: Since this appears to be a systemic issue in the world trading order as we know it, have any steps been taken by shippers here and elsewhere to move this forward at the WTO as an agenda item? Perhaps more to the point, are there any remedies at the WTO to tackle this problem so that it would be dealt with as a universal issue as opposed to a domestic issue, which might set up, I suppose, a leakage in the Canadian shipping system?
Mr. Hackett: That is a very relevant question. I would like to see this matter pursued at the WTO, but, to my knowledge, very little has taken place there. All of our efforts have been aimed at the competition directorate in Brussels. I have been deeply involved in that. My company has spent a lot of money in fighting, at least partly successfully, some of the major Europe-U.S. cartels, which have been stretching their charges beyond belief by increasing rates by 60 and 70 per cent a year, and well beyond the limit. We all contributed large sums of money, each company, and employed some professional help for the fight in Brussels. We succeeded, not totally, but in part, and it was the first great step forward for shippers.
However, the WTO is a path which has not been pursued, and I recognize that it may be something that we, both here and especially in Europe, may have overlooked. Now it is on its feet and beginning to have influence. I agree that that is a very relevant point; if something could be generated there starting from Canada that would really make all of very pleased.
Senator Grafstein: Am I right in understanding that this mechanism -- I say "mechanism" because nobody likes the sound of "cartel."
Mr. Hackett: That is why I used it I am afraid. It should be referred to as a conference.
Senator Grafstein: You have alerted us. Nobody likes the idea of a cartel; we have tried cartels and they tend to be inefficient and contrary to the most efficient trading system and so on. We are all familiar with the notion, and the barrier that it establishes for the freer transfer of goods and services. However, was the exemption put into place for the particular reason of protecting Canadian jobs that might have been vulnerable to the ups and downs in the rates of return in terms of shipping? Tell us what the public purpose was for the governments -- Canada, U.S., Japan, Europe -- to allow this exemption? What was the perceived public interest?
Mr. Walter Mueller, SCS Secretary, Canadian Shippers' Council: The system is about a hundred years old or more. It originated in England in the days when sailing ships were used and steamships were used, and it was to protect trade routes between various parts of the world. At that time ocean transportation was totally different from what it is today. Even though conferences will tell you that, if the Shipping Conferences Exemption Act did not exist here in Canada, they would not call on Canadian ports, we think that is a lot of hogwash, because we know as a fact, for instance, that on the North Atlantic the conference that serves Canada out of the east coast carries 65 per cent of its cargo from the U.S. Midwest, where they operate as non-conference carriers. Even if the Shipping Conferences Exemption Act did not exist, it would be certain that these carriers would still come into Halifax and Montreal, if for nothing else than to service the 65 per cent of their cargo that comes out of the U.S.
Senator Grafstein: Your position is that, if there was a serious amendment to this protective mechanism, it would not cause Canadian jobs and Canadian investment in the shipping industry to deteriorate, or we would not then be at an international disadvantage, if you will?
Mr. Marc Leblanc, Manager, Logistics and Customer Service, Canadian Shippers' Council: There is one thing you should understand in particular about the members of the CWRA: None of them are Canadian companies; they are all foreign companies. While they do employ some people in Canada, there is not one of them that is a Canadian company.
Senator Grafstein: So we are not protecting Canadian jobs by this measure?
Mr. Leblanc: I cannot say that these people do not employ Canadians; of course they employ people in their offices in Canada.
Senator Carney: I am now confused on this issue. I thought my question had been answered, because I was looking at the part of our briefing paper by the Library of Parliament that discusses the implications for Canadian trade with Asia-Pacific, and our briefing paper points out that the Canada Westbound Rate Agreement is the prevailing instrument that affects liner shipping. The question that had occurred to me was whether we are at a particular disadvantage in the Pacific vis-à-vis other shipping to Asia-Pacific, and I thought your answer indicated that we are.
Mr. Hackett: Potentially, yes.
Senator Carney: Potentially or really? We have now more trade across the Pacific.
Mr. Hackett: We can give examples of these. Certainly, my colleagues have thoughts on this particular issue, and it is inevitable that some of these issues are personal to our own companies. If you take my own company, we are moving nickel from South Africa to certain destinations, because we can buy it very cheaply in South Africa and we can ship it very cheaply in South Africa, and we are shipping it to Korea. That, of course, has an impact here. The impact at the moment is fortunate, because we are short of product.
That is a direct and positive example of where it can be worth our while to source from elsewhere because of freight costs. Where our profit becomes very marginal, which it does with some products, freight costs can make all the difference; so there is an impediment to our trade in that respect.
Senator Carney: It is my understanding that we now have more volume moving across the Pacific than across the Atlantic. In view of that, could you give us some concrete examples for our report of actual commodities, or actual products, where we are at a disadvantage?
Mr. Hackett: I was speaking of nickel, so we can have some other products.
Senator Carney: I believe that is true for coal, is it not?
Mr. Leblanc: I cannot speak for coal. I could take my own industry. I work in the asbestos industry. Right now 52 per cent of our sales are to Asia. All of our production is out of Quebec; 52 per cent of our sales are to Asia. By the year 2000 we expect to it be 60 per cent and by the year 2010 we expect it to be 75 per cent.
Senator Carney: You do not seem to have a competition problem.
Mr. Leblanc: I was about to get to that. Our survival actually depends on Asia, and if we cannot meet these figures we will close. Whereas, as you probably know, we are having great difficulties in Europe and other places, the one area where we still manage to successfully maintain a market is Asia. However, we face a great deal of world competition from Russia, South Africa and Zimbabwe. Both Zimbabwe and South Africa export out of the port of Durban in South Africa; similar to what my colleague was saying, they can ship asbestos to Korea for $60 U.S. a tonne. Out of here the cheapest we can do it right now in containers is $90 U.S. a tonne.
Senator Carney: "Out of here" means what?
Mr. Leblanc: Out of Montreal. As you can see I am at a disadvantage. We have been losing sales, because in our industry a difference of $30 U.S. a tonne is significant. So we are disadvantaged from this point of view in terms of the transportation costs alone. It is not the actual value of the product; it is the transportation costs. What is interesting is that the same carrier that is carrying the business from Montreal is the one carrying it from South Africa.
Senator Grafstein: One is conference and one is not?
Mr. Leblanc: They are a conference out of Canada, but they not a conference out of South Africa.
The Chairman: Are there other examples that you want to adduce?
Mr. Leblanc: We also face competition now from Brazil. Believe it or not, Brazil is able to ship to the Far East more cheaply than we can from Canada; they use a route that goes from South America over to South Africa and then goes on to Asia. They can ship for lower prices than we can and there is also a large exporting mine in Brazil.
Senator Grafstein: What is the difference in mileage on that?
Mr. Leblanc: In terms of nautical miles it is more significant than what we have out of Canada. For whatever reasons, the trade lines out of that area are offering much lower freight rates than the ones out of here.
The Chairman: Your answer now raises a question for me. I assumed that the reason the Government of Canada did not want to move on this unless one or more other major countries did was that there was a kind of universal pattern and Canada did not want to break out of that pattern; but you are saying now that that is not correct, but that it is only in certain countries that are within this cartel arrangement. Is that correct?
Mr. Leblanc: This specific cartel only deals from Canada but it also belongs to a sister organization called the Trans-Pacific Westbound Rate Agreement, the TWRA; they are really the same entity, which is from North America to Asia. There are not cartels from every country in the world to Asia. It is not universal that cartels exist. They exist where they feel they can discriminate and achieve higher revenues.
Senator Andreychuk: You were saying that Canada's reason for not moving was that it would be disruptive to some international pattern.
Mr. Hackett: We are not saying that.
Mr. Leblanc: That is what the government is saying. Really, what they are saying is that until the United States does away with it they do not want to make the first move.
The Chairman: That is exactly the question I was going to ask, because Mr. Hackett in his testimony referred to "another major trading nation", and then later we heard expression, "with some other major trading nation." I guess you really meant the United States in those cases?
Mr. Hackett: Mr. Mulder actually said to me, "The U.S. or U.K. or Brussels."
Mr. Mueller: There was an NTA review commission that dealt with the Shipping Conferences Exemption Act, and it recommended that the SCEA should be abolished as soon as the U.S. does the same. After that it went to the transport committee in the House of Commons. They looked at it differently, and the term become broader; it became: "If either the U.S. or other major trading nations does the same thing."
Senator Andreychuk: I believe you said that it costs you $90 a tonne to ship out of Canada and $60 a tonne to ship out of South Africa. If the SCEA exemption were done away with, would there be there any other costs? Would you still have a disparity and would it be based on something else? In other words, you would go down from $90, but would you go down to $60?
Mr. Leblanc: If they did not have the ability to collude, I would certainly have a better ability to achieve a lower rate, perhaps not $60 a tonne, but much closer.
Senator Andreychuk: They still have a competitive edge?
Mr. Leblanc: Yes, because they do not have a cartel from South Africa.
Mr. Hackett: In that situation you would say to the line serving Canada, "If you want that business, you must equal the rate from South Africa or come much closer to it." Under the cartel system we cannot do that.
Senator De Bané: Two elements seem to show that the conferences are not that powerful. First, the actual increase in rates over the last ten years has been quite moderate. Second, they have often announced rate increases but have been unable to make them stick. You seem to have a lot of power, because, although they announced those increases perhaps four or five times in a year, obviously, when you mustered your strength, they were unable to make their prices stick. So, if we look to the last ten years, the price increases have been very moderate.
Mr. Leblanc: First off, if you want to look at a ten-year cycle, I can give you the prices that I was charging for my commodity ten years ago, and they were higher than what we are charging today.
Senator De Bané: This is the government's examination of those prices.
Mr. Leblanc: I mean that the price of our asbestos was higher ten years ago per tonne in Asia. I am not talking about transportation costs now, just our commodity. The business cycle was such that, due to competition and whatnot, the prices were lowered. In other words, their rates as a percentage of our transportation costs have actually increased over the last ten years because the value of our product has decreased.
If you look at it for the last five years, you will see that they have taken a much larger percentage of the market. There are fewer and fewer non-conference lines in the Asia-Pacific trade. You also see a new phenomenon now, in that many carriers share one ship; you will have several carriers on one ship, and that also promotes this collusion.
Senator De Bané: Are you saying that, because there is less demand for asbestos and the price of asbestos has gone down, therefore they should also decrease their rates?
Mr. Leblanc: Actually, the demand for asbestos in Asia has increased in the past ten years. It is the competition that we are facing from Russian mining that is the problem.
Senator De Bané: But you are making a link between the market price of asbestos and the price you are charged for transportation. I submit, respectfully, that that is a non sequitur.
Mr. Hackett: In the last ten years vessels have become very much more efficient; they are much larger and their crews are smaller, having dropped down to 14 or 17 for a vessel carrying 6,000 containers, compared to ten years ago, when 6,000 containers would have been carried on four vessels. Those kinds of issues have not affected it, but it would be wrong to say that shippers are powerless; of course it would; we do have some influence. If we pull out of the market because it is just not economic for us to ship, and that does happen sometimes, then the lines will come and say they will drop the rates. However, it is the marginal and the middle range of shippers that are hurting; it hurts particularly the myriad of small shippers. I keep reminding myself that part of my role is to represent the small shippers, but the fact is that, taken all together, the small shippers are more important than the big shippers, in many cases.
Mr. Mueller: I would like to give you an example. In the past ten years the operational costs of shipping lines have dropped considerably because of modernization and rationalization. Freight rates, however, have still gone up, and they do tend to go up and down with the trade density.
Senator De Bané: If I follow your logic, using Coca-Cola as an example, surely their bottlers are more efficient today than 15 years ago, but that has not prevented the price from going up.
Mr. Mueller: Ten years ago most of the shipping lines lost money; today most of them are making money. If you take the case that was presented here on the CWRA, the actual freight rate may be lower or not much higher than it was ten years ago, but we now have a whole slew of surcharges that are separate, and they add up to more than the freight rate in many cases.
Mr. Hackett: I may be wrong, senator, but I suspect that the analysis you may have been referring to is of the ocean freight rates without perhaps all of the additional charges that are put on.
The Chairman: I assume that a study has been made of this phenomenon. Am I correct? If so, could you provide us later with any data which would support one view or the other?
Mr. Mueller: As we mentioned, we have a study on transportation costs for the U.S. agricultural industry which we have used as an example; according to that it is 18 per cent of the total transportation costs. We in the council do not have a study on how the transportation costs in Canada have actually developed from regional product line to product line.
The Chairman: You have obviously made efforts to get this situation changed, and the reason given for not changing it is that Canada does not want to be out there alone; but would I be incorrect in assuming that there is a powerful shipowners' or line operators' lobby that is effective in Ottawa?
Senator Grafstein: And in Washington.
Mr. Hackett: And in Brussels. I know very definitely that there is a mighty lobby there comprised of both lawyers and people specifically allocated for that.
The Chairman: However, there is an effective lobby in Canada, yes?
Mr. Hackett: I cannot answer in the case of Canada.
Mr. Mueller: Well, conferences have put on a fairly strong lobby, and I believe one of your senators was very much involved in the transportation side.
The Chairman: Not a member of this committee?
Mr. Mueller: Formerly from Stikeman, Elliott.
Senator De Bané: David Angus.
Mr. Mueller: His firm has been working for conferences for a long time.
The Chairman: We will not need to go very far to get a witness, then.
Mr. Mueller: I would like to quote a couple of statements that were made by John Snow, who is the chief executive officer of CSX Corporation, which owns Sea-Land Services. Sea-Land is the largest container carrier in the U.S. and one of the largest in the world. In a recent interview by Jane Boyes, he stated that:
-- conferences get in the way of industry taking sound, cost-based decisions and disturb the economics of the business and the workings of the market.
Mr. Snow is also the chief executive officer, indirectly, of one of his subsidiaries; so he is a very large conference carrier. According to Ms Boyes, perhaps the most important point is that:
-- Snow also believes that conferences undermine the ability of carriers and their customers to form mutually beneficial partnerships. "The conference system puts a veil between individual shippers and individual carriers."
And I think he sums it up there.
Mr. Hackett: It goes right to the heart of our situation.
Mr. Mueller: Sea-Land has been part of a process that has taken place in the U.S. in the Ocean Shipping Deregulation Act. It went through the House of Representatives and got into their Senate, but because of the election they did not have enough time to vote on it. Had that gone through, their shipping regulations similar to ours would have been abolished.
The Chairman: I had not thought that we had a major remnant of the mercantile system still with us, but we have and I am much enlightened.
The committee adjourned.