Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 31 - Evidence
OTTAWA, Tuesday, April 15, 1997
The Standing Senate Committee on Foreign Affairs, to which was referred Bill C-81, to implement the Canada-Chile Free Trade Agreement and related agreements, met this day at 3:20 p.m. to give consideration to the bill.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, on Thursday, April 10, 1997, the Senate gave second reading to a bill to give effect in Canada to the Canada-Chile Free Trade Agreement and related agreements. Subsequently, a motion was carried in the Senate referring that bill to the Standing Senate Committee on Foreign Affairs. We are here today to consider that bill.
We have with us the Honourable Art Eggleton, Minister of International Trade. I understand that Mr. Eggleton has commitments outside Canada and cannot stay the full afternoon. He is now appearing, and, as they say, at some point he will disappear. I have told him that, consequently, we will ask all the difficult questions before he leaves, and we will save the other minor questions for the officials after his disappearance.
Minister, please make your opening statement.
The Honourable Art Eggleton, Minister of International Trade: Mr. Chairman, honourable senators, thank you for allowing me to appear today with respect to Bill C-81. I am happy to have with me Keith Christie, who did the negotiations and who knows the bill inside out. I am sure he can answer any questions that I cannot answer or that come after the time I must leave.
I should like to reiterate the government's strong support of Bill C-81, following through on the government's commitment to implement the Free Trade Agreement with Chile. We have appreciated the many constructive interventions which have been made by members of all parties.
Our government believes this trade agreement is an important step in developing our global markets and in securing Canada's place in a competitive, dynamic, international trading system. Therefore, I urge the committee to ensure that this forward-looking piece of legislation is approved and can be implemented by June 2, which is the date the government set for implementation of the Free Trade Agreement with Chile. Failure to meet this deadline will delay both nations from benefiting from its provisions and can cause problems for Canadian industries.
I understand that you have received letters from a number of companies which are counting on the scheduled implementation of the agreement. Many of them have won contracts on the basis of delivering their goods after June 2, 1997 at an 11 per cent cheaper rate because of the removal of the duty. We hope that they will have an opportunity to be able to follow through on those contracts on time.
In addition, the telecommunications industry, environmental technologies, the automotive industry, industrial machinery, and manufacturing, to name a few, are also looking forward to the agreement coming into force, as it will provide Canadian companies with a competitive edge in emerging business opportunities in Chile.
[Translation]
Exports led us out of the recession in 1982 and in the early 90s and it is exports that are driving the current growth in Canada's economy.
[English]
In Canada, one out of every three jobs is dependent upon trade. Trade in goods and services accounts for more than 40 per cent of our entire economy, our GDP, and $1 billion in new exports creates or sustains 11,000 Canadian jobs. In fact, Canada is more dependent upon trade to produce jobs and economic growth than any other developed country. It is difficult to exaggerate the importance of trade to Canada. We must to be able to maintain our standard of living and our quality of life. We trade three times as much as the Americans per capita and twice as much as the Japanese per capita, which indicates just how trade dependent we are.
This dependence is not something to be feared, but it is something which must be understood. This government has pursued a comprehensive and coherent policy for international trade. I recently released a detailed description of our trade policy agenda in the form of a report entitled "Canada's Market Access Priorities". International trade is central to our economic policy. The focus is on growth and job creation.
We want more Canadian companies selling their goods and services abroad, which is why we are working on freer trade on a number of fronts: bilaterally, including agreements such as this one and the one with Israel which came into effect earlier this year; multilaterally, through the World Trade Organization; regionally, through such opportunities as APEC, with free trade by 2010-2020; and of course the Free Trade Agreement of the Americas, bringing this hemisphere under free trade by the year 2005.
My trade policy objectives include the following. To increase our trade, more Canadian companies must be involved. We have approximately 5,000 regular active exporters, and I should like to double that by the year 2000. In order to do that, we need to engage more small- and medium-sized enterprises. Therefore, we must retool and refocus our assistance and our operations. That is one objective.
Another objective is diversity. Over 80 per cent of our trade is with the United States, which amounts to more than $1 billion a day. However, there are growing dynamic markets in which we need to increase our opportunities. Latin America and the Asia Pacific are the two most promising.
My priorities also include managing effectively our relations with the United States. I am pleased to say that 95 per cent of our activities progress without any problems, even though the other 5 per cent gets all the news headlines. Other priorities include pursuing and promoting a multilateral, rules-based system through the World Trade Organization and pursuing regional initiatives in support of those multilateral objectives.
These remain the organizing principles of our trade policy. I will be speaking more about the future directions of Canada's trade policy in the weeks and months ahead.
I should like to talk about how the free trade agreement with Chile fits in with this and how our four objectives in pursuing the free trade agreement with Chile have been met.
Our first objective was to obtain barrier-free access to the Chilean market; second, to protect Canadian investment in that country; third, to make Canada more attractive to investment coming from Chile; and, fourth, to provide a bridge for Chile's accession to the North American Free Trade Agreement. These objectives, Mr. Chairman, have been met.
Under the Canada-Chile Free Trade Agreement, a wide variety of products exported by either country will have immediate duty free or low duty access to each other's markets on June 2. This agreement gives Canadian companies a head start into the Chilean market. Canadian exporters' and investors' overall access to Chilean markets will now be better than it is for most of our competitors.
The free trade agreement with Chile is one aspect of a much broader effort to strengthen our economic links with the dynamic markets of South America. In May, I will attend an important meeting to plan the evolution of the free trade area of the Americas process which envisions liberalized trade throughout the hemisphere. Next week, we will welcome to Canada the President of Brazil, and high on the agenda will be the subject of trade liberalization, the FTA process, and our relationship with the MERCOSUR countries.
I urge members of this committee, Mr. Chairman, to consider the broader context of the Canada-Chile FTA. This agreement is a good deal for Canada, and it will help us advance our objective of opening up markets in the Americas. Implementing the Canada-Chile Free Trade Agreement sends a strong signal that Canada is ready to move forward in this area.
This agreement is also vitally important in the narrower context -- in what it does for Canada and Chile. The agreement provides significant protection for Canadian investors in Chile with guarantees that are unprecedented outside the NAFTA agreement.
Canada has been an active proponent of Chile's accession to the NAFTA. While we have created this bridge, the crossing of it has not yet occurred because the U.S. administration has not been able to get fast-tracking negotiating authority from the Congress. Congress is studying the issue, and we are hopeful that an agreement on fast-track can be reached. That certainly was the message the President of the United States gave to us last week during our visit to Washington.
The Canada-Chile agreement was designed, after all, as an interim measure to smooth the way for full NAFTA accession. It can be folded into NAFTA when Chile becomes a member later, but it can also stand on its own should NAFTA accession be delayed or not be possible in the short run.
The Canada-Chile agreement is not an exact pattern of NAFTA, but it is largely patterned after it and contains similar benefits. The most important aspect of the agreement is the removal of duties. The Canada-Chile agreement will result in immediate duty-free access for most industrial goods -- they account for 80 per cent of Canadian exports -- and the elimination of Chile's 11 per cent import duty on almost all remaining goods over five years.
The agreement also provides clear and straightforward rules of origin. These rules are modelled after those in NAFTA, but they are a little more flexible, particularly with respect to manufactured goods. The Canada-Chile Free Trade Agreement requires a lower percentage of the content of a manufactured good to be produced inside the two countries than is the case under NAFTA. The rules for agriculture and forest products are exactly the same as they are in NAFTA.
The Canada-Chile accord -- and this is a feature of this bill -- forbids the use of anti-dumping measures between Canada and Chile against each other's exports within six years or upon the elimination of a tariff on a given product in both countries, whichever comes first. This has been a long-standing objective of the Canadian government with respect to trade remedy reform.
This transitional period of up to six years will give us time to assess the effect of the exemption on a range of sectors and to review its operation. Producers will still have access to safeguard measures to respond appropriately and quickly to any import surges. This is an important issue for us because, since NAFTA's inception, Canada has been trying to get the United States and Mexico to agree that NAFTA partners should not impose anti-dumping duties on each other's exports. Our pact with Chile will set a good example. I am attempting to obtain that kind of agreement with Mexico as well. Canada and Chile share the long-term view that there is no role for anti-dumping measures in a free trade agreement.
The pact also establishes a committee on trade remedies whose purpose is two-fold: To act as a forum for consultation about the accord's subsidies disciplines, and to work toward limiting the need for countervailing duties in the future.
To resolve any disputes that might arise under the agreement, both sides have agreed to be governed by a dispute-settlement mechanism which is patterned after NAFTA. We anticipate that our new trading relationship will also lead to improvements in living standards and working conditions. The Chilean government is working to adapt its labour and environmental laws and its enforcement practices to better meet the needs of a modern, industrialized society.
To complement the trade agreement, we have also negotiated labour and environmental side agreements which are similar to those in NAFTA. In NAFTA, they were the first of a kind, so this is only the second time this has occurred.
Chile has committed itself to promoting a series of 11 important labour principles in the area of industrial relations, employment standards, and safety and health on the job. For the first time, Canadians will have an official forum in which to raise any concerns about the enforcement of labour legislation in Chile, an obligation which Chile does not have towards any other country.
We will also be undertaking a series of cooperative activities, together with business and labour, to help us better understand labour law, its enforcement, and labour markets in Chile.
The Canada-Chile agreement on environmental cooperation promotes openness, transparency, accountability, and enhanced environmental cooperation. The agreement will also help ensure a fair and predictable playing field for trade through explicit commitments to effectively enforce environmental laws. Moreover, it provides specific remedies which can be used by citizens, non-governmental organizations, and the governments of Canada and Chile to ensure the effective enforcement of environmental laws.
In Chile, this commitment has created the political momentum required to modernize its environmental laws. Chile has committed to complete this task within two years of entry into force of the agreement.
[Translation]
Mr. Chairman, Chile has the most stable and fastest growing economy in the region; over the last decade, annual economic growth has averaged almost 7 per cent.
[English]
Market-oriented policies have encouraged an entrepreneurial spirit and a strong private sector. In 1995, Chile had a budget surplus amounting to 2.6 per cent of GDP. Foreign debt was only 10 per cent of GDP. With low unemployment, falling inflation, and increasing wages, Chile has established its credentials as a desirable trade and investment partner.
I therefore urge the members of this committee to support the Canada-Chile Free Trade Agreement. It is a good deal for both countries, in keeping with the objectives as I have outlined them with respect to foreign and economic policy. All parties in Parliament can proudly support it because it benefits all parts of Canada. It gives us important advantages in a very competitive world.
Thank you, Mr. Chairman.
Senator Carney: Mr. Minister, we appreciate you taking the time to attend and discuss this most important piece of legislation.
You mentioned that this bilateral agreement is not the same as NAFTA. It is a bilateral agreement, but you say it is not a copy of NAFTA. Could you tell us, on the basis of your discussions last week, when the U.S. will be ready to negotiate an agreement with Chile, given the problems and the hostility of the Congress?
If the U.S. is able to negotiate better access to the Chilean market, will these improvements automatically be extended to Canada, since you said that it is not a copy of NAFTA? For example, will the anti-dumping exemption continue after Chile accedes to NAFTA, given the Americans' resistance to including such a clause?
I am asking you to explain the integration of this bilateral agreement with the umbrella NAFTA agreement as well as its extension in principle to other countries in the hemisphere.
Mr. Eggleton: The agreement provides that if they get something from the U.S., we also get it. We will not be at any disadvantage when they are finally negotiating with the United States.
When will that be? The President and his cabinet are anxious to seek fast-track as soon as possible. However, at the moment, they appear to be occupied with budgetary issues in the United States. It may be some weeks or months before their full attention is turned to this. Meanwhile, my discussion with congressional leaders of both Democratic and Republican persuasion would seem to indicate that they are waiting for details from the White House with respect to fast-track authority being sought. These details would then help to determine what position they will take.
Debate is ongoing on the environmental and labour side agreements. They appear to be the biggest issues to come up for discussion in the Congress and in their discussions with the White House.
There is also some talk in the U.S. that, once it gets fast-track, it might enter into discussions with Chile on a bilateral basis. We will watch that situation carefully. Any advantages they get in a bilateral agreement would then flow to our agreement. We want to ensure that that is followed through in terms of the accession to NAFTA, because this was the objective.
When the heads of the four countries came together at the Miami Summit in 1994 -- the four amigos, as they are called -- they agreed that they wanted to bring Chile into NAFTA. When the U.S. became stuck on being able to negotiate, we went ahead and negotiated. We did it on the basis of an eventual accession to NAFTA. We have a great opportunity with bilateral trade and the trade barriers coming down, but ultimately we want them to become part of NAFTA, and we have made that quite clear to the administration.
The anti-dumping would still prevail. There is still a bilateral agreement. We would maintain anything we reach in that agreement.
Senator Carney: You say you would maintain; however, if Chile joins NAFTA, NAFTA would supersede the bilateral, would it not?
Mr. Eggleton: That does not mean that we would have an anti-dumping regime with the United States. That will take longer.
Senator Carney: This is an important point. In the free trade agreement, we were to negotiate an end or an alternate form of anti-dumping and countervail within a specified period. I believe it was seven years. We have not been able to do that.
Now you have achieved the objective with Chile, and I am interested in what happens when Chile joins NAFTA. Surely this must have been discussed.
Mr. Eggleton: As I said a few moments ago, this will still prevail as a bilateral arrangement between Canada and Chile.
Senator Carney: That does not fit with the concept of a NAFTA.
Mr. Eggleton: We would love it to be a part of NAFTA as well. In fact, that is our long-term objective.
Senator Carney: You do not have bilateral agreements with countries you are involving in an umbrella agreement like NAFTA. You have one set of rules with Chile as a trading partner under a NAFTA-type arrangement and another set of rules under a bilateral. Which will prevail? That is important to Canadian industry.
Mr. Keith Christie, Department of Foreign Affairs and International Trade: I would draw a parallel with the results on the tariff negotiation. Under the NAFTA, in effect, you have three different results, or the results of three bilateral negotiations under the umbrella of the trilateral. The phase-out on different tariffs on different products under the NAFTA is a bit different, depending on which of the pairings you are looking at -- U.S.-Mexico, Mexico-Canada, and of course the Canada-U.S. tariff elimination was not done in the NAFTA but was done in the original FTA and carried forward into the NAFTA.
We would envisage something similar in the area of trade remedies, particularly anti-dumping. In the NAFTA, the focus of the negotiation for Chile would be access to the Chapter 19 dispute resolution mechanism which originated in the FTA with the U.S. and was then carried over with some slight modifications and clarifications into the NAFTA.
What Canada and Chile decide to do in terms of anti-dumping is between the two of us. As a matter of policy of several governments now, if the United States were to agree to the mutual exclusion on anti-dumping, I suspect the government of the day would probably find that fairly attractive on the assumption that they are not yet ready for that, and that would seem to me to be a practical assumption.
Chile would be seeking to negotiate Chapter 19-like terms with the United States. We, of course, would retain the Chapter 19 vis-a-vis the United States. As between Canada and Chile, we would carry forward the anti-dumping exemption because that is the ultimate goal we want to reach.
The Chairman: For the sake of our record, will you explain the rationale or the argument that anti-dumping regulations ought not to apply within a free trade arrangement such as the one we are now discussing? What is the economic analysis behind that?
Mr. Christie: Mr. Chairman, the traditional or historic rationale is that dumping arises when you have two segmented markets, the segmentation largely being achieved through the introduction of a tariff regime. It allows for a higher price in one market or two different prices for the same product in the two different markets. It allows businesses to potentially play with that margin.
Once the tariff is fully eliminated, which is the case under the free trade agreement, it would make little sense for a company selling from market A into market B to dump into market B. Once the sale is made, the recipient of the good in market B could immediately sell it back into market A. There would be nothing to prevent him from doing so. That would undermine the original businessman's intent.
Within a free trade area where you have barrier-free entry, the rationale for anti-dump disappears.
The Chairman: The purpose of the advocates of anti-dumping would be to intrude a form of protectionism for their own particular industry -- steel industry, coal industry, whatever -- within the free trade agreement. That would be a surreptitious purpose. It is not an ordinary, defensible, economic argument. It is an industry-specific attempt to achieve protection.
Mr. Christie: I would not want to comment on the motivations of particular producers. Historically, the anti-dumping regime was created because of a concern of predatory pricing by companies in another market. A fair amount of work has been done over the last several years in the OECD context which demonstrates that, in most countries investigated, the vast majority of cases of dumping action were taken in instances where there was no such predatory behaviour likely. Therefore, some commentators have taken the view that the way in which anti-dumping measures have been used in recent years has gone a long way away from the original purpose, which is to protect companies from predatory pricing, something that a competitive policy now does within the domestic market.
We do not have anti-dumping measures when goods are shipped from Ontario to Manitoba or from B.C. to Alberta. If a firm is attempting to drive a competitor out of the market on a permanent basis, then you have competition law to balance that.
Mr. Eggleton:We frequently find ourselves the victim of cases that are launched in the United States against us. They create an instability, an uncertainty, and, quite frequently, unfair moves with respect to these procedures against Canadian companies.
Within the proper free trade framework, we can hopefully ultimately eliminate them. That is not something the American government is willing to consider in the short run; however, by getting this anti-dumping measure with Chile and perhaps even one with Mexico, we close in on the main target.
Senator Carney: That is an interesting subject we can pursue in our committee. Talking about Mexico, we have had a case of U.S. school children contacting Hepatitis A from strawberries imported from Mexico, and that may be being used in the U.S. to justify their coolness to extending these kind of arrangements.
What assurances are there in this agreement that Canadian consumers are adequately protected from similar outbreaks from food products imported from Chile? I know there will be provisions for standards, but we get a great deal of food products from Chile, and there is concern about food hazards. You are phasing out tariffs over six years on horticultural products. How will we be protected under these arrangements?
Mr. Christie: The products most likely to be considered when this question is raised already enjoy duty-free entry into the Canadian market or face an extremely small tariff. From an import side into Canada, the impact of the free trade agreement will be quite marginal. It will not lead to a sudden surge in the importation of Chilean grapes. These grapes already come into Canada duty free.
The ultimate responsibility for ensuring the safety and health of the people of Canada rests with the Government of Canada. There is nothing in this agreement, just as there was nothing in the NAFTA, which undermines the right of the Government of Canada, through its various agencies, to take whatever measures it feels appropriate to protect the health and well-being of Canadians. This would include sanitary inspections at the border where it was thought this was necessary.
Senator Carney: Is there a move toward harmonization of these standards between the two countries in this agreement?
Mr. Christie: This particular agreement does not establish any new sanitary disciplines. We have both recently signed, under the World Trade Organization, a state of the art SPS agreement. Both Canada and Chile are party to that. The norms laid down in that agreement will be the ones that setting the standard, as it currently does, as between Canada and Chile.
Senator Grafstein: Minister, from the meetings in Washington last week, I was satisfied that, from your efforts and the efforts of the government, for the first time we are goading the Americans where it hurts. You had taken a jump on the administration there with respect to this free trade agreement. I congratulate you for that.
I believe the administration would like to move forward. It is having trouble with its Congress. It was clear to me in talking to congressional leaders that there is a split between administration and Congress. Administration would like to move, but they are paralysed. That gives Canadian producers a small window of opportunity. In that sense, well done.
I have a strategic question and then a tactical question. My strategic question is this:
The big market in South America is the MERCOSUR. It is a gigantic market which includes Brazil and its collaborators. Chile, as I understand it, has opted out or has stayed out of MERCOSUR. MERCOSUR is a customs union. How will the terms of this agreement help us penetrate the MERCOSUR market, if at all?
Mr. Eggleton: Chile is not a part of the customs union, but they do have a bilateral agreement. They are an affiliate of MERCOSUR in that respect, but not a full member.
This agreement certainly demonstrates Canada's desire to trade in the area and to be able to enhance its opportunities. It shows its interest. For many years we did not look much further south than the United States in terms of our major trading efforts. There was only modest trade with Latin America. This certainly demonstrates Canada's seriousness in terms of opening up opportunities in the Latin American market.
Our biggest country of trade in South America is still Brazil. I am looking forward to the opportunity of discussing with President Cardosa and Foreign Minister and Trade Minister Lampraya what we might be able to do in advancing relations between Canada and MERCOSUR, and particularly to talk about the Free Trade Agreement of the Americas. We are part of that agreement, and we will be coming together in Brazil next month to discuss how we advance that towards the year 2005.
MERCOSUR is becoming a stronger and bigger entity within the southern cone of South America. This is a good time to be having discussions between NAFTA countries and MERCOSUR countries in order to advance opportunities.
Senator Grafstein: The tactical question deals with rules of origin. Would you take us through a Canadian producer who uses a blended product of American and Canadian goods and now wishes to use that same line to export that same product to Chile. How does that work, or does it work?
Mr. Christie: That question was of central concern to the Canadian negotiators during the negotiation with Chile. This is not an issue with resource-based products or agricultural products, where both Chile and Canada can qualify for the NAFTA rules of origin on their own because they are resource-based and agricultural-based economies to an important degree.
However, in certain manufacturing areas, we rely more heavily than the OECD average on imported inputs. Certainly that is the case in machinery and equipment, for example, where we rely reasonably heavy on inputs from the United States.
The NAFTA rules of origin in these areas are based on a regional content level of 50 or 60 per cent typically, depending on the method of calculation. Those percentages will, in most instances, eventually become 62.5 per cent. These percentages were negotiated on the basis of the characteristics of the three NAFTA economies and where negotiators thought those economies would be headed over the medium term.
Because of the heavier reliance of Canadian manufacturing industries on imported inputs, those percentages on their own just applied to bilateral Canada-Chile trade would have led us to having eliminated the 11 per cent duty, for example, on mining machinery, but then that machinery may not qualify for duty-free entry because of the relatively high percentage of regional content. In the negotiation for those products, we have lowered roughly by one-half the level of regional content.
Chile could have accepted Mexican and U.S. content as if it were Canadian, in which case they said, "Because of our free trade association agreement with MERCOSUR, we would like to include Argentinean and Brazilian inputs brought through Chile as if they were Chilean." For two reasons, we decided not to go that route. The first was that we thought it would greatly complicate the eventual Chilean accession to the NAFTA in trying to determine in a North American context with Chile what to do about MERCOSUR content with respect to the rules of origin. As well, when we consulted the industries concerned, they frankly did not favour that route. They much preferred to have the lower content. They have tracking mechanisms in place which can handle that and can make the adjustment from 50-60 to 25-30 reasonably easily. That is how we addressed the problem in this negotiation.
Senator Grafstein: From a Canadian producer's standpoint, will he not have a great deal of difficulty adjusting his lines to a specific line of content and inputs for the Chilean market for value-added products?
Mr. Christie: He will not be required to change the product at all. If you are producing a mining drill and you need 50 per cent under one of the formulas to qualify in NAFTA, it is now 25 per cent Canadian content. As long as he knows what the Canadian content is, which he should anyway, then there is no problem. You are not running two different production lines.
The Chairman: Before he disappears, I should like to ask a question of the minister relating to the West Indies. When the NAFTA was being discussed, we were told that there was a real danger that some of our long-term friends in the West Indies were being left behind. We were going south without including them adequately.
Can the same comment be made now? Are we taking proper cognizance of our long-term friendly relations with certain Caribbean countries?
Mr. Eggleton: The short answer is yes. Last year I attended the first meeting of trade ministers of the Free Trade Agreement of the Americas. We had reports from our various sub-committees. I believe there were 11 sub-committees at the time, but we have a few more now.
Canada has been quite strong in helping to ensure that the economies in the Caribbean are brought on board and are receiving the kind of assistance they need as smaller economies to be able to be a part of this and not be left behind. Not to forget any one, this includes the economies of Central America as well.
We have had a long and positive relationship particularly with the Commonwealth part of the Caribbean. We will not forget that. We will continue to deal with their interests and ensure that they are brought along as part of this entire endeavour.
The Chairman: If your department has statistics relative to imports from the old Commonwealth Caribbean countries, the committee would appreciate having them to determine if, in fact, exports such as bananas, for example, are still coming from those islands rather than from places on the mainland of the continents.
Mr. Eggleton: The comments I made were not relevant to particular imports or exports. They were relevant to the process of the Free Trade Agreement of the Americas and ensuring that they would not be left behind, that they would be part of this process. I would be happy to provide get you with the particulars.
Senator Stollery: As you know, I do not support the free trade agreement with Chile. On Thursday, I spoke in the Senate on this subject.
I believe that the hemispheric free trade system is a naive project which will never happen, but that is another story. There are so many reasons which I will not go into today.
What concerns me about the Chilean free trade agreement, Minister, is that when we talk about people's standard of living, the people whose standard of living about which I am most concerned are Canadians. I was looking through the figures for Toronto, and the job loss has been in a state of decline for quite a few years. According to the Economics Department of the City of Toronto, not Metro, there has been a loss of 30,000 jobs. The City of Toronto has a low unemployment rate in Ontario.
My criticism is not particularly directed at Chile. It is the whole international movement of capital which seems to be depriving many people in the industrial countries, of which Canada is one, of their jobs. We have an enormous job loss in this country.
Will this agreement make it any easier -- it may not -- for capital to move from Canada to Chile which, if not a third world country, is certainly a two-and-a-half world country? Will this agreement make it easier for capital flow to leave Canada so that a Canadian company can threaten its employees that, if they do not take lower wages or make some concessions, the company will set up in Chile, as has happened with so many countries? Does this agreement make that capital flow easier or more difficult, and how does it contribute to the job situation in Canada?
Mr. Eggleton: You started by talking about standard of living. If Canadians want to maintain their standard of living, we must be an exporting nation because we cannot sustain the standard of living on the size of our domestic economy. Canadians understand that in greater numbers than ever before. We now have a situation where exports equal 40 per cent of our economy. More than one in three jobs in this country depend upon exports.
Senator Stollery: The demand inside Canada has been so eroded that we are depending on exports for our economy.
Mr. Eggleton: We could debate that, but we do have a high standard of living in this country and a small, dispersed population by comparison to the other economies in the G-7. We are doing quite well, and, if we want to maintain that, we will have to increase our market access.
There are many reasons for job losses. In the early years of the NAFTA agreement, job losses occurred because of the adjustments that were being made. Now there are substantial job gains in NAFTA and better access to markets because of a slow domestic economy. The exports have been leading the economy in the past few years.
Technological changes are part of the problem of job losses, as are the downsizing of companies and the downsizing of government. You cannot pin those on free trade agreements or NAFTA.
If this agreement did not go through, contracts in Ontario would be lost. Northern Telecom made an agreement on the basis of an 11 per cent spread in duties, subject to it going into effect June 2 and delivery of merchandise after that. We would lose contracts and jobs in Ontario if this bill did not pass.
The biggest capital investment in Chile right now is from the mining industry and its expertise from Canada. The capital going there is helping to employ Canadians because of contracts for services and equipment. Export of goods and services relevant to the mining industry are among our biggest selling items in terms of exports to Chile. This agreement also gives better protection to those investments in Chile.
We win in many different ways in helping to preserve our standard of living with this kind of free trade agreement.
Senator Carney: It is music to a Conservative's ears to hear a Liberal minister praise free trade.
Mr. Eggleton: We did long before the Conservatives did, if you remember Laurier.
Senator De Bané: First, with regard to financial services, is it true that our financial businesses will not be able to reap the benefits of free trade with Chile? Second, there is a 30 per cent reserve on capital inflows. Third, traditionally grain and cereals from Canada were one of our major components of exports to Chile, and I understand that, in practice, there will be another government levy on our grains and cereals.
Mr. Eggleton: I will give you a general answer to this, and Mr. Christie will follow up with more detail.
Within 15 months, we will be negotiating an agreement with respect to financial services.
Senator De Bané: At the moment, it is not covered?
Mr. Eggleton: It is not covered right now, but it is covered in the sense that provisions exist for further discussions and negotiations.
With respect to the 30 per cent holding provision, in this agreement, we have been able to put a freeze on this thing which they call the ENSEAD. The freeze will mean that we will not face more restrictive measures. They are doing this to protect their currency and their inflow of capital.
We do get duty-free access on our biggest selling item, which is durum wheat. Mr. Christie will go over the details of that and some other provisions.
The Chairman: Senator De Bané, the minister's aide will deal with your questions. We will come back to those questions with the staff after the minister has gone. I would like to recognize Senator Andreychuk while the minister is here.
Senator Andreychuk: Mr. Minister, I understand why the Chilean Central Bank has the requirement of 40 per cent of the investment being held in the Central Bank for one year. Under this agreement, it is being reduced to 30 per cent in our favour.
While that is welcome, concern has been expressed by smaller firms that this kind of imposition is difficult for them to deal with. I understand why Chile has done what it has in response to the Mexican situation but has Canada contemplated supporting smaller businesses moving in because of this restriction? Two years is a long time for a small business.
Mr. Eggleton: The legislation does provide for a 40 per cent holdback, but in practice it has been 30 per cent. This agreement will ensure that we are not any worse off with respect to the position in which we are now, although other countries could well be if the Central Bank exercises its full rights under their legislative authority. I will let Mr. Christie take it from there.
Senator Andreychuk: Your government's position before you came into authority was that labour and environment should be imbedded in any trade agreements, but then side agreements were made. I fail to see where these agreements have made any strikes. I appreciate that you made some strides in other areas, but it seems to me that these are afterthoughts in important areas.
Mr. Eggleton: We have made great strides. If we did not have this free trade agreement, we would not have any ability to influence the Chilean government with respect to these matters. We can now monitor what they do, and we can ensure that they follow their law. More important, we have an opportunity to talk with them, to influence them, and to use whatever technical assistance we can to help them improve the law. We can now play a substantial role in terms of the improvements in both labour and environmental laws. We also have some good-faith measures on their part which indicate that they do want to make reforms.
They are obviously out to improve their economy and to improve their status as an industrial country, emerging out of the status of being a developing country. We have a great opportunity to show them how we do things here and to influence their movement in law in those areas.
Senator Andreychuk: Some businesses as late as yesterday told me that hell would freeze over -- that proverbial phrase -- before anti-dumping provisions will be included in a NAFTA. You seem to think that if you go bilaterally and have it eliminated, the collective pressure on the United States would lead to that. How do you come to that conclusion?
Mr. Eggleton: It will not happen in the short run; however, in the long run, the more countries that are willing to entertain anti-dumping exemption measures, the more we bring the matter onto the agenda with the Americans. That is our ultimate goal. If there are other free trade partners in NAFTA -- the ones that we hope will be eventually Chile and Mexico -- involved with us in that, then we have a better chance of showing how it works, setting a good example, and hopefully working towards reforms with the United States. We may not get an anti-dumping exemption measure from the United States for a long period of time, but it may move towards reform in some other way. We will continue to press that issue.
The Chairman: I am beginning to think you are like Cinderella and that, at a certain hour, you disappear. I thank you for attending, Mr. Minister. We assume that your departmental officials will stay with us.
Mr. Eggleton: Mr. Christie will stay and answer in more detail the senators' questions.
Senator Corbin: Mr. Chairman, will we be calling other witnesses besides departmental people today or some other day? What is the agenda, in other words?
The Chairman: No witnesses have asked to be heard. You have had a good deal of representation yourself by fax and otherwise. We have all had that.
Senator Stollery: It must be reported back fairly quickly, does it not?
The Chairman: We will do a proper job on the bill.
Senator Carney: Is there anyone you think should be called?
Senator Corbin: No. I was only inquiring.
Senator De Bané: My first question is with regard to financial institutions. Am I right in saying that Chile is one of the few countries in which Canadian financial institutions are already major players?
Mr. Christie: The question was also the treatment of financial services in the agreement.
Senator De Bané: Yes.
Mr. Christie: Canadian banks have become increasingly active in a number of offshore markets, including in the United States in recent years. I would not want to characterize Chile as being the only market where they have brought themselves into a position of being relatively major players.
Two Canadian banks -- Nova Scotia and the Banque Nationale -- have fairly significant equity stakes in Chilean banks. At least three others have representative offices. It is an important presence.
When the negotiation began, the Chilean authorities approached us with the proposition that we not proceed at this time with the full-fledged negotiation in the area of financial services partly because these are still underway and under the auspices of the WTO, but also partly because they had recently reformed their Banking Act and wanted some breathing room to see how that would work out in practice before taking what they themselves admit will be the final step of fully opening their financial services market.
Given the interest of the Canadian financial institutions in the Chilean market, we did two things on an interim basis which are useful for the Canadian banking community. Firstly, in the first instance in the investment chapter, the ability of Canadian banks to transfer in investment capital; and, secondly, protection against potential expropriation and due compensation being included for the financial services sector.
We do not anticipate that Chile, with its current policies, would contemplate expropriating, but in many ways this agreement is a bad-weather insurance policy.
Senator De Bané: Surely you have treaties against expropriation with a great number of countries.
Mr. Christie: We did not have one with Chile.
Senator De Bané: The Prime Minister of Lebanon was here last week. We signed an agreement with him. We sign these kinds of treaties with many countries. Surely we do not need to go through a Free Trade Agreement to get protection against expropriation.
Mr. Christie: No, but as one element in a much larger agreement, we thought, and the banking association agreed, it was a useful component.
We also have a commitment from the Chilean government, included in the agreement, that, within 15 months of entry into force of this agreement, if NAFTA accession negotiations for Chile have not begun, then Chile shall enter into bilateral negotiations under this agreement to develop full-fledged financial service provisions modelled on Chapter 14 of the NAFTA. These negotiations would be concluded no later than the end of April, 1999.
We have a window to determine what is happening on the NAFTA accession front. If nothing is happening, we have the guarantee that Chile will come back to the table and fully flesh out this particular part of a NAFTA-like agreement.
Senator De Bané: Tell us about capital inflow for two years.
Mr. Christie: We have negotiated a freeze on capital inflows. It is important to focus on the capital transfer issue, but also on the overall provisions under the investment chapter.
Overall, Chile has entered into an extraordinarily high level of discipline. They have agreed to all the non-discrimination features of the NAFTA, the expropriation and compensation features, the prohibitions on performance requirements that we have agreed to in the NAFTA context, and for the first time have agreed in this form of treaty to investor-state dispute settlement. Like all the NAFTA countries, Chile sought and achieved a certain limited number of exceptions to these general disciplines.
I do not want to trivialize the point by referring to the number of pages, but the number of pages do, to a large degree, reflect the substance. Chile has taken about half the number of exceptions that Canada has just at the federal level. This is a tribute both to the high quality of the Chilean investment regime and to the ability, through the negotiations process, to lock Chile in at a quite high level of discipline.
Chile is a unitary state, not a federal state. In the case of Canada, we have one generic exception which covers in excess of 350 provincial exceptions to this agreement, just as was done under the NAFTA. Chile has no such provision. As a unitary state, what you see in the agreement is what you get. In terms of sector-specific or industry-specific exceptions, they have taken on fewer exceptions than Mexico or the United States or even Canada.
One area where we still have an exception under this agreement, as we do under the NAFTA, is that of investment screening. Under the NAFTA, we continue to retain the ability to screen large investments for net benefit to Canada. Chile has agreed under this agreement not to do that. It has waived its right to screen Canadian investment, but not necessarily investments from other sources.
The one area in which Chile felt extraordinarily vulnerable, in part because of the Peso crisis in Mexico, was that of short-term capital flows, or large movements of capital into quite a restricted market. Our view was that they are headed in the direction where they do not need these types of controls and that probably their view was somewhat exaggerated. Nonetheless, it was the single most difficult issue for them in the negotiation.
They agreed to freeze current practice. The Central Bank, which has extraordinary authority to impose controls on capital, whether it be portfolio or direct investment capital going in or out of the country, has agreed to freeze that. The 30 or 40 per cent rule under the Central Bank regulations can be applied forever, if they want to. They have absolute discretion.
Under this agreement, they have locked into their current practice, which focuses only on portfolio capital; that is, short-term movement of relatively small amounts of stock on the stock market or credits, foreign loans. If capital is brought in in the form of direct intra-company transfer, then the 30 per cent restriction does not affect it and cannot in the future, if it is a Canadian investor under the terms of this agreement. It is now locked in or focused entirely on the area of capital brought in in the form of credits and short-term portfolio investment. The locking of the capacity of the Chilean Central Bank to, under a different government, quickly expand the level of their restrictions, if they had a mind to, is an important achievement.
This is an interim agreement. When we get back to the NAFTA accession table, I can assure members that this issue will again be discussed.
The Chairman: You say the requirement of the deposit of 30 per cent applies only in the case of loans and portfolio investments. Suppose I suddenly were wealthy and wanted to invest $100 million in portfolio investments in Chile. Does that mean that $30 million would be put as a deposit in the Central Bank and that only 70 per cent would actually go to purchase equities?
Mr. Christie: It would depend, Mr. Chairman, on how much stock you were expecting or wanting to buy in a particular company. Let us say you went into the Chilean stock market and said, "There's a particular company I am interested in. I am going to spend $50 million of my $100 million to buy 40 per cent of the stock." That would not be a portfolio investment. Under OECD definition, that would be a direct investment. You would not be subject to the 30 per cent.
It will make it more difficult for mutual funds to buy relatively small amounts for short-term investment purposes. They would be required to pay the 30 per cent. If you are a large mining company, for example, or other major investor, and if it is your money you are bringing in, there is no problem.
The Chairman: Would a mutual company be depositing three-tenths of its investment for a period of two years with the Central Bank?
Mr. Christie: Currently it is one year at the Central Bank.
The Chairman: Is that to prevent hot money from departing quickly?
Mr. Christie: That is correct.
Senator Carney: Canada is a major source of mine financing. One of our biggest interests in Chile is the fact that we do a great deal of exploration and development of mines. The money is raised in Vancouver and other areas for these ventures.
Is there anything in this agreement which makes it more difficult for mine financing to be raised in Canada for Chilean investments?
Mr. Christie: The answer would certainly be no, there is nothing in this agreement that would make it more difficult. Indeed, I would argue on this particular point that, because of the greater security that investor has, the rules of the game will not get worse. Again, the current practice, which has been locked in, is that they cannot take the 30 per cent, 40 per cent, or 50 per cent and freeze it in for ten years or five years or six years. To some degree, it facilitates the raising of that capital because of the greater security.
If it is the company's own money, then the 30 per cent does not apply. Under this agreement, the Central Bank could not in future apply it.
Senator Carney: I asked that because, after the Bre-X situation, the segment of the industry raising financing in Canada is quite nervous about barriers elsewhere.
Senator De Bané: I understand there is a price ban on grain and cereals. Are there many countries which impose that kind of import levy on our export of grains?
Mr. Christie: A number do. The European Union has a variation on this. I should specify that the price ban system in place in Chile covers only a certain number of grains and grain-related products. For example, it does cover spring wheat, which is the area where we have the 17-year phase-out of the tariff. It does not cover durum wheat and, under this agreement, cannot be applied in future to durum wheat. It does not apply to barley. It does not apply to malt.
We have export interests in a broad range of products where the price ban system does not apply, and under this agreement the Government of Chile would not be able to add these products to the list.
Moreover, on milling wheat, the single product where there is a relatively long phrase-out period, I emphasize that the Canadian competitive position on most grain products is now better than that achieved by Argentina and Brazil in their bilateral negotiation. It is definitely better than that achieved by the U.S., which has not been able to negotiate yet. With respect to milling wheat, we are no worse off. The 17-year treatment we have on milling wheat is exactly what Argentina got. Our competitive position vis-à-vis a major regional competitor has not changed.
A provision in the agreement stipulates quite clearly that if, in some future negotiation, Chile were ever to offer quicker access to the MERCOSUR countries for milling wheat, as well as a number of other products, or if they were ever to offer such better access to the United States, Canada would get that better access automatically. We would not have to renegotiate it.
We have achieved much better access on most agricultural products, although the progress has not been quite what we would have anticipated. The competitive advantage has not been eroded, and we have an iron-clad guarantee that if someone by chance does better -- one of our major competitors, the U.S. or Argentina -- then we get the same treatment.
Senator De Bané: What did we get in return for this concession of 17 years of phasing in? Did we get anything in return for this protectionist measure?
Mr. Christie: With respect, I do not like making direct linkages, but the fact is that Canada also has a number of sensitivities on the import side, and these have been fully respected in this agreement. There is no elimination of the above-quota tariff on supply-managed products, for example, that respects the FTA result and the NAFTA result. Above-quota tariffs are quite high on dairy, egg, and poultry products. These were not captured by this agreement and, therefore, that import sensitivity was addressed.
In the areas of apparel, textiles, and footwear, where we have some import sensitivities, the tariff phase-out is the longest that we have agreed to in this agreement, which is six years. The rules of origin are NAFTA rules of origin; they were not modified. They tend to be relatively tight and will be not easy for the Chileans, who are not major exporters in these areas anyway, to penetrate.
In a number of areas where we have traditional sensitivities, because of the interests of certain provinces or the interests of certain producers in this agreement, we have respected those sensitivities.
Senator Corbin: I looked at the formal consultation activities you had in 1996, and nowhere in there do I see fish. I see agriculture; I see food generally; I see beverage. Have you consulted with the fishing industry in Canada, particularly the salmon farmers in the Bay of Fundy? As you may know, they are highly concerned.
Mr. Christie: On the export side, we did consult with the fisheries industry during the course of the negotiation. Chile will eliminate its remaining duties on all fish and fish-related products immediately upon entry into force of the agreement.
Senator Corbin: How much fish do we sell to Chile?
Mr. Christie: Not much, because they are major fish producers themselves.
Senator Corbin: How much fish do we buy from Chile?
Mr. Christie: Not much.
Senator Corbin: On how much fish do we compete with Chile in the U.S. market?
Mr. Christie: In terms of frozen whole and filetted salmon, it is quite considerable in the New England market.
Senator Corbin: Are not Canadian producers at a disadvantage with the Chileans in the U.S. market?
Mr. Christie: The Chilean producers would claim that we have an enormous advantage in terms of transportation costs because we are so much closer to that market. In any event, this agreement is not an agreement about Chilean access to the U.S. market, where those salmon products are duty free.
Senator Corbin: I appreciate that, but nevertheless it will all impact on the outlook for Canadian-produced fish, especially salmon. You must be concerned about that.
It is interesting that people who raise fish now in the Bay of Fundy are investing or have invested in Chile so that they can compete to a much greater advantage against their own Canadian competitors in the U.S. market.
Yes, it is free trade, but I share some of the concern expressed by my colleague, Senator Stollery. It is such good trade and there are such grand opportunities that we will be putting people out of work. From what I have read, there is reason for grave concern. We cannot discard some of the arguments raised by Senator Stollery. This is true for fish, and it is true for other matters as well.
The overall picture may be brightly painted, but some sectors in the country are being adversely affected. There is no doubt of that. It would be nice if we had a clear admission of that. The issue seems to be fluffed over, if I may say. As a Canadian, I am concerned about that, especially since I come from an area in the eastern part of the country where types like Frank McKenna are required to dig in their heels and go begging and knocking on other people's doors in order to get people to invest in the area. The little advantages or opportunities that we have will now be pulled out from under our feet.
That is what Chile means to some people in the Maritimes. You may not have an answer to this, but at least my concern is on the record.
Mr. Christie: Your concern was eloquently put, and we have heard and discussed this in some considerable detail with salmon fishers and the associations from New Brunswick in particular. Indeed, we had fairly detailed discussions with trade representatives from the Government of New Brunswick who also brought these concerns to our attention. Through the discussions, it became clear that Canadian product is a good product. It has a comparative transport advantage to the New England market.
If there had been an import sensitivity into the Canadian market -- and, after all, all we could address under this particular agreement is access into the Chilean market and access into the Canadian market -- and representations had been made whereby we would require some additional protection in the Canadian market, even if only on a transitional basis, we would have looked at that. However, that was not the concern. The concern was competitive conditions in the New England market.
We have a good quality product which is recognized. There are other producers coming on-stream and competing with us in other markets, so we can only compete with them. We have managed to do that as a country in a number of other sectors, and there is no reason why we should not in this.
The salmon in this country is already duty free. That is a tariff which was bound years ago under the GATT and was not subject to change under this particular negotiation. This was a negotiation about access to the Canadian market for Chilean product and access for Canadian product to the Chilean market. How we compete with each other in third markets was beyond the scope of my negotiation and beyond our ability to address.
Senator Corbin: I appreciate that, but we as politicians must be mindful of it nevertheless.
As an aside, we had a matter of dispute with Australia on Canadian salmon. It was a technical matter. Do you know if that has been resolved?
Mr. Christie: That is definitely beyond my current knowledge.
I would ask Dan Daley, who was the legal counsel during the negotiations, to comment.
Mr. Dan Daley, Department of Foreign Affairs and International Trade: The question of Canada's access to the Australian market for uncooked salmon is currently the subject of a dispute-settlement proceeding in the World Trade Organization. A panel will be hearing submissions from Canada and Australia concerning the consistency of Australia's measures with Australia's obligations under the World Trade Organization Agreement.
Senator Andreychuk: In light of the late hour, and being mindful of the fact that we have no realistic ability to change and renegotiate, it seems to me that we started this whole process of going into the free trade agreement because of particular concerns that were well stated, well documented, and what we thought would be the outcome of free trade.
We were then confronted with NAFTA, not of our own making, as I understand and recollect. An agreement between Mexico and U.S. was imminent, and the question was, "Do we do better by staying out or going in?" We eventually chose to join the negotiations.
I wish the minister had been able to stay longer so that he could have explain this. The government starts out with the thought that they are always interested in multilateral, rules-based systems, but increasingly we seem to be doing these bilateral agreements and stating that it will be compatible with the WTO and NAFTA. The reason given for going ahead with this agreement now is to get a leg into Chile. We will be there before the U.S. If we can manage NAFTA or if there is a bilateral the other way, we will be more entrenched and ahead of the game.
It seemed that we found ourselves reacting to the Europeans when they were expanding, without really having had a game plan in place. Much of the statistic-gathering equipment was not in place. How will you determine that breaking the rule of first seeking a multilateral agreement should not be the order of the day and that the bilateral agreement was the way to go? How will you track that? What systems do you have in place?
Mr. Christie: We have a fairly fine-tuned department. As well, other departments follow the minutiae of both the implementation of trade agreements and new issues as they come forward.
Although this clearly is a bilateral agreement, it was not the government's view that it in any way violated the basic premise of Canadian trade policy, which remains multilateral in essence. The practical difficulty is that the international trade agenda continues to expand in terms of the areas being looked at and the number of countries participating seriously in it, so a multilateral trade round becomes an extremely important exercise but one which takes time to develop, to put the various pieces in place, to launch the negotiation, and to bring it to a conclusion.
The last process took 10 years. In fact, if you go from the end of the Tokyo Round to the end of the Uruguay Round, it was more like 15 years, with excellent results at the end of it. In the meantime, you have two challenges. One is the capacity of a country to try to do a little better in the interim in certain areas; and second is that by doing a little better and putting some pressure on other players who may be holding back, they may realize that the world is moving on and the train has left the station. If they do not get something going regionally or preferably multilaterally, they will find that their exporters are in a worse position than they were several years ago.
The Free Trade Agreement with Chile helps establish independent Canadian trade policy credentials in the region as a whole because we did not stop when the U.S. stopped. It helps create some pressure within the U.S., as U.S. exporters come forward and say, "We can't get our act together in Washington. We can't get fast track, and there go the Canadians. We've just lost a $250 million contract because the Canadians have got this free trade agreement. For God's sake, let's do something."
It helps if viewed not as a permanent solution but as an interim step to help keep the free trade bicycle moving between major rounds. It can make a major contribution to keeping the overall trading system moving forward. In its own way, the Canada-Chile Free Trade Agreement can help to make that sort of contribution. If, by the by, some of our exporters get a leg up on their American competition for a few years, why not?
Senator Andreychuk: I would hope that we would have some way, at the end of the day, to come back and say that that actually happened rather than our best guess.
The information going out is that the tariffs all collapse either immediately or within six years, or at least the comments to my office have been to that effect. Milling wheat is 17 years, and others are five to ten years. The impression is being built that it is more immediate than in fact it is.
Once this bilateral agreement goes through, I assume from your comments that you will bring pressure to see whether the NAFTA extension can include Chile. Where next, and how into Latin America? What is the strategy of the Canadian government?
Mr. Christie: Before I comment on the question, I should like to make a comment on the previous statement. Yes, milling wheat is 17 years. The fact of the matter is, though, that if this agreement goes into force on June 2, 1997, 75 per cent of current Canadian exports will get immediate duty-free access into the Chilean market and almost all the rest within a five-year period. The one major exception to that is milling wheat.
On the longer-term strategy, the minister himself, in statements made last week, gave a fairly clear indication that the preference of the Government of Canada continues to be to move forward expeditiously with the larger free trade of the Americas initiative. For that to work, the U.S. must get its act together and achieve fast-track and an arrangement between the administration and the Congress. If that does not happen, then the minister suggested publicly that some hard questions would be asked about what we might do in the interim. I would not want to prejudge the results of that discussion.
Senator Andreychuk: In your own briefing books in agriculture, for example, you say that it improves market access for most agri-food products which, with the exception of milling wheat, sugar and beef, will be duty free either immediately or within five to ten years. The difference between five and ten years, if you are out in the field, is dramatic.
I do not have the agreement right at my fingertips, but there are other examples like that. It is misleading to say that it happens that quickly. The message going out should be more precise. I am not worried about the large investors or the ones that are there. I am more concerned about the businesses who see the potential and need some immediate, accurate information.
The Chairman: Would you undertake to give us a written statement of particulars on that point?
Mr. Christie: Yes, indeed. I know the Department of Agriculture, on the agricultural front, has a detailed list product-by-product of what goes duty free when. The two key products that are at ten years or more, apart from the milling wheat, are in the red meat sector, pork and beef in particular. Although the tariff is phasing out over a longer period of time, we negotiated as part of this agreement duty-free tariff rate quotas of several thousand tonnes in each instance. We were in close consultation with pork and beef producers in Canada. We ship very little pork and beef right now. The new tariff rate quotas, which will be duty free as of June 2, 1997, provide ample room for immediate, new market access for the red meat producers. Even where a tariff is phasing out over a longer period of time overall, we have frequently been able to negotiate tariff rate quotas at duty free within that.
The Department of Agriculture on the agricultural front has this all laid out, and we could certainly make that available to the committee.
The Chairman: Subject to it being manageable, perhaps we could include it in our record of the meeting.
Senator Andreychuk: I will spare the committee and the witnesses a compelling statement about milling wheat and why it seems to be always the one that is thrown into the mix at the end. Since you have already heard about salmon, perhaps that is sufficient for today.
The Chairman: Senator Carney was going to ask you about our bilateral trade between Chile and Canada and what areas are growing. Perhaps if you put that information in writing, it could be included as a supplement.
Mr. Christie: Certainly.
Senator Grafstein: The numbers in the press releases are a little confusing, and I would like to know if I have it straight.
Seventy-five per cent of all of our tariffs will be immediately reduced, and 85 per cent of our agricultural product tariffs will be immediately reduced; is that correct? To clarify for the public, what are the meted benefits and what are not in percentage terms? Start with overall exports as a percentage.
Mr. Christie: Perhaps I could deal with agriculture on the one hand and manufacturing on the other, and build up rather than build down.
Eighty per cent of our exports currently are in the area of manufactured and resource-based products. Of that 80 per cent, approximately 80 per cent will go duty free immediately and the rest within five years. In some cases it is less than five years. There are some paper products with a two-year phase out. Outside of the agricultural sector, within five years it is all duty free, and the vast bulk of it is duty free immediately.
On the agriculture side, which accounts for 20 per cent by value of our current exports, immediately upon entry into force, the amount that goes duty free is approximately 5 to 6 per cent of that 20 per cent. It becomes a little bit more than a quarter of that 20 per cent. It becomes half of that 20 per cent within five to ten years, on the understanding that on some of the ten-year products the tariff rate quotas are duty free immediately. I would say that in around five years, with that caveat, half of the agricultural trade becomes duty free.
The single item of milling wheat accounts for the remaining 10 per cent. There we have a 17-year phase out, which is what Argentina got, and they are a much closer neighbour with a much stronger historical linkage. There is no deterioration in our competitive advantage, and if, through further deepening of MERCOSUR-Chile relations or through Chilean accession to the NAFTA, Chile were to offer a ten-year phase out or some sort of tariff rate quota system on milling wheat, then whatever that result is, if it is better than this, we get it automatically.
Senator Grafstein: Is that a most-favoured nation clause as it applies to milling wheat? Is that a fair way of putting it?
Mr. Christie: Yes.
Mr. Grafstein: I have a generic question. My colleague Senator Stollery has raised this before with respect to Mexico. His made some perceptive insights about this. His concern covered a whole raft of issues as it applies to Mexico, but one that was of particular interest to me was the role of private commercial law in Chile and whether it is fair to say that, given the Canadian investors', exporters' and producers' protection, if you will, against disaster, based on your previous testimony, 99 per cent of that does not apply to people who are conducting business on a day-to-day basis in the private sector. That is insurance.
The greater reliance of insurance in our experience in North America and in Europe is based on private commercial law. You enter into a contract with your expertise or your company, and, if you have a dispute, an independent judiciary allows you to then settle that dispute under the rule of law. How would you characterize the independent judiciary as it applies to commercial private law in Chile? What would be the department's view of that?
Mr. Christie: I have a three-part answer.
The agreement does provide two equally solid options to the use of domestic courts. The first is state-to-state dispute settlement under the agreement. If, in the future, we think Chile is acting in a way which is inconsistent with its obligations, we can take them to binding dispute settlement.
Second, the investor now has a treaty-bound right to international arbitration. There are a number of internationally-recognized arbitration processes around the world. Chile would probably, but not necessarily, have to recognize those processes. Under this treaty, Canadian investors have the right to take that path if, for some reason, they prefer to take advantage of an international arbitral process rather than the domestic courts.
On the domestic courts side, I have heard Canadian businessperson after Canadian businessperson state unequivocally that the business ethics and the business law underpinning those ethics in Chile is of the highest quality within all of Latin America. I have heard people say that it is just like doing business at home or with western European companies. That is not me saying that; that is business people who are doing business there who have told me that. It is of very high quality, indeed.
The treaty, as it has been negotiated, once passed through the Chilean Congress, a process which is now reasonably well advanced, becomes law in Chile and becomes binding in the domestic courts. A Canadian investor who decides to go through the domestic court system can use this agreement in the domestic courts as well, if that is of assistance in building its case.
Senator Grafstein: Mr. Chairman, that is helpful because, if we choose to approve this agreement, there is almost a warranty or representation that Parliament makes that Canadians will be, relatively speaking, safe in conducting their business in a normal fashion. In effect, by this agreement, we legitimize private transactions between Canadians and Chileans. I welcome your assurance that there is at least a strong, predominant feeling that the local domestic law and the independence of the local commercial judiciary will enhance these relationships, which will allow business to proceed at a low level as opposed to having to go to international courts each time they have a dispute. That is not the way to conduct business. I assume the witness agrees with that statement.
Mr. Christie: Yes, very much so.
Senator Andreychuk: The anti-dumping measures are also being phased out; they are not immediate. If we went into a fast-track with the U.S. on NAFTA, the anti-dumping measures will not have had an effect. They will not have been entrenched before we get to the negotiation with the U.S., which even weakens our ability to say to the U.S., "It's a fait accompli; we are here; you must accept it." In the public sector with which I deal, there has been a feeling that the anti-dumping measures happen overnight when the agreement is signed.
Mr. Christie: There may be a misperception on how the anti-dumping mechanism is phased in. It is phased in on a product-by-product basis. That is true to the theory and the practice that if you have barrier-free access you no longer require anti-dumping duties or the rationale for anti-dumping duties disappears. As most products will be going duty free immediately in both directions under this agreement, the anti-dumping exemption will take effect for those products immediately.
On a tariff line basis, it is by far the majority of products, immediately upon entry into force of the agreement. Then, as other products go duty free on a product-by-product basis in both countries, up to a maximum of six years, the exemption would extend to those products as well. For example, by the year 1999, it would apply to newsprint, for example, and so on and so forth, to a maximum of six years.
Senator Stollery: I gather from what you have said that, in two or three years, there will be no duty on newsprint. If, for example, a Canadian paper company -- at one time, not so long ago, the largest employer in Canada, and it may still be -- could get Chilean pulp in southern Chile cheaply, if they wanted to close their Canadian operation and take their capital to Chile and open a Chilean newsprint mill, they could then export the newsprint back to Canada, and there would not be any duty; is that correct? In the process, they would have put some numbers of Canadians out of work. Do we have any protection against that happening?
Mr. Christie: That is not an accurate characterization in terms of results of this agreement. It is useful to recall that almost all Chilean product already comes into Canada free of duty, and that includes pulp and newsprint. That has been the case now for about 20 years. That is a bound tariff under the GATT and under the World Trade Organization. It was the subject of negotiations many years in the past.
This agreement rebalances the relationship as between Canada and Chile on the tariff. Almost everything they ship and produce gets into Canada duty free under either our GSP for developing countries or, in most instances, also under our GATT tariffs. Everything that we ship to Chile, on the other hand, faces an across-the-board 11 per cent tariff. As part of the negotiation, in almost every instance, we have managed to eliminate that.
In terms of newsprint, we found the forest products industry pushing hard in this negotiation to get the fastest possible elimination of the tariff. In the event that it will take us two years, it will not be at 11 per cent. It will be phased out over two years. They view that as good news. It means they will be able to compete with a quality product. For some of the fine paper industries as well, where they think they have business to do in the Chilean market, the elimination of the 11 per cent tariff will give those Canadian industries a leg up on the American competitors.
Senator Corbin: Do the labour dispositions in this agreement differ from the agreement with Mexico?
Mr. Christie: No, they are essentially the same. In both side agreements, some structural changes were made in some of the voting arrangements and the like to reflect the fact that there are two countries rather than three. The substance of the provisions is the same.
The Chairman: Senators, we have had no requests from other potential witnesses to be heard. Would I be correct in concluding that the committee is prepared to deal with the bill directly?
Senator Grafstein: Certainly.
Senator Andreychuk: The representations made to me from industries and individuals are that they would wish the tariff elimination accelerated and not to dispute this agreement.
The Chairman: Shall clauses 2 through 35 of the bill carry?
Some Hon. Senators: Agreed.
The Chairman: Shall the schedule to the bill stand part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Shall clause 1 stand part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Shall the preamble stand as part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Shall the title stand as part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Shall I report the bill as approved by the committee?
Senator Stollery: On division, Mr. Chairman.
The Chairman: In view of the rumours that we hear, I have been asked to put before you a draft budget. It contains only one major item for some research work. The content of the work has been approved by the committee, but we must go to the Internal Economy committee to get the money to pay our contract. That is the $20,000 item.
Senator Grafstein: I so move.
The Chairman: Is it agreed?
Some Hon. Senators: Agreed.
The committee adjourned.