Proceedings of the Standing Senate Committee on
Fisheries
Issue 4 - Evidence - March 19
OTTAWA, Thursday, February 19, 1998
The Senate Standing Committee on Fisheries met this day at 9:05 a.m. to consider the questions of privatization and quota licensing in Canada's fisheries.
Senator Gerald J. Comeau (Chairman) in the Chair.
[English]
The Chairman: I call the meeting to order. I welcome the witnesses. I would like to end the first part of the meeting around 10:15 and then I ask members to stay on to do a future business section.
With that in mind, I would ask the witnesses to give us a full briefing on the MAI. We are all familiar with the intent of the MAI. Our intention is to look at the impact of the MAI on ocean resources, especially as it relates to fish and fish resources and the ownership of fish resources. Is there any impact of the MAI on such resources? We know that historically Canada has tried to honour or has accepted the premise that foreign ownership of our fish resources is not acceptable. We want to see if there will be any changes under the MAI that will impact on this historical policy. Please proceed, Mr. Moffat.
Mr. Marshall Moffat, Director, Economic Analysis, Economic and Policy Analysis Directorate, Department of Fisheries and Oceans: With me today are Mr. Aaron Sarna, Director, Multilateral Relations, International Affairs Directorate, Mr. Ken Roeske, Chief of Trade Policy, Economic and Policy Analysis Directorate and Nadia Bouffard, legal counsel from the Department of Justice, Christopher Leggett, a trade policy officer in the Department of Fisheries and Oceans, and Susan Waters, also a legal counsel from the Department of Justice. I believe you know Darlene Elie from the Department of Fisheries and Oceans.
Would you like me to read through the opening statement or would you like me to just give some extemporaneous comments?
The Chairman: Most of the members have received the opening comments, which has helped us immensely, so you may proceed from there.
Mr. Moffat: From our standpoint, we have been monitoring the work of the negotiating team representing Canada in the OECD discussions in Paris on the Multilateral Agreement on Investment. They have advised us of the nature of the disagreements and the nature of the discussion in trying to move forward with a consensus on this agreement.
We have indicated to them the types of sensitivities that you outlined at the beginning. We have discussed with them the best method for ensuring that these types of potential impacts on the fishery sector here in Canada are avoided.
First of all, let me address the manner in which the agreement is finalized. As you probably know, there is not yet a consensus among OECD countries on the content of the agreement; so our first strategy is to negotiate with our fellow nations some definitions in the agreement, which we will get into in a moment, that will minimize the possible implications in a number of policy areas for the government of Canada, and particularly for the fisheries, which is our concern today.
The second thing is that, in accordance with the provisions of the draft agreement on investment, Canada intends to exercise its right to communicate exceptions that it wishes to maintain. In other words, if we negotiate an agreement that is acceptable to Canada, Canada has the power to indicate as part of its acceptance that there are some exceptions to the application of the commitments in the MAI that we wish to register. Those exceptions, once we register them, become an integral part of the agreement. Those are the two aspects.
I will give just a few more details on the first aspect and then I will go on to the second. In the negotiations on the definitions in the agreement there are two key aspects affecting the fisheries. One is the definition of "investment" itself. In the North American Free Trade Agreement the definition of "investment" is more narrow, more closely focused on capital equipment and financial capital investment than is the wording currently used in the MAI. The negotiating team is trying to have the definition of "investment" narrowed to a definition very similar to that used in NAFTA.
Some of the items included in brackets in the agreement at the moment include licensing and permits, actions that a national government will take under its national legislation that are clearly linked to an investment but are not an integral part of the substance of that investment. The negotiating team is trying to narrow the definition of "investment" so that there will be fewer potential implications for those types of legislation and regulations in member countries.
Another area of the agreement of concern to us is expropriation. The two overriding objectives of the MAI are to ensure that foreign investors are treated equitably in comparison to domestic investors and to ensure that, when foreign investors make an investment in a country, their investment is protected from expropriation. "Expropriation" is a term that may also be interpreted narrowly or broadly. Our negotiating team is arguing for a very narrow interpretation of "expropriation," similar to the definition of "investment," that would relate only to substantial capital equipment and financial investment.
There are bracketed terms that can be interpreted as increasing the scope of what you would interpret as expropriation, particularly if you have terms like "licensing" and "permits" and so on in the definition of "investment." The negotiating team is trying to narrow the definitions of "investment" and "expropriation" to keep the definitions the same as those NAFTA uses.
The question of exceptions is another area in which the team is working to ensure that the agreement will not in any way trespass on the powers of the Minister of Fisheries and Oceans. In that respect there are several key areas and key pieces of domestic legislation about which we are concerned.
We are concerned about the licensing powers of the Minister of Fisheries and Oceans. We want to ensure that the Minister of Fisheries and Oceans has full flexibility, in line with the powers conferred by Parliament, to decide on the licensing of commercial fishing activities within Canada's zone. The policies related to that restrict access to commercial fishing licences for domestic quotas within our 200-mile zone to Canadian entities. Our policy place restricts the foreign ownership of a commercial entity that is eligible to receive a commercial fishing licence in the domestic commercial fisheries of Canada to 49 per cent.
Under the Coastal Fisheries Protection Act we also have a number of measures that control the access that foreign nations might be given within our 200-mile zone. Under the Law of the Sea coastal states are required both to manage the coastal resources they are responsible for and to provide access to foreign fishing countries when there are surplus resources available. "Surplus" means that the Canadian industry is not able to, or does not want to, exploit a fish resource in our exclusive economic zone. As I am sure the committee is well aware, our obligation is to offer up and make those surplus resources available to foreign fishing nations.
We control the definition of "surplus." We control the kind of access that foreign fishing companies may have. We control the conditions they must meet in order to receive licences. We also control access to our ports for supply and services for their vessels while they are in our zone. At the present time there is very little foreign fishing taking place in Canadian waters. There are essentially only two species -- hake, both silver and Pacific hake, and squid -- that are approved and permitted for foreign fishing in Canada.
In dealing with the legislation permitting the Minister of Fisheries and Oceans to restrict access to the Canadian zone there are certain exceptions that we are concerned with. The two key areas are the licensing powers under the Fisheries Act and the Coastal Fishery Protection Act powers to restrict the access and to control foreign fishing companies that are deliberately given access within our zone. Essentially, those exceptions allow the Government of Canada, through the Minister of Fisheries and Oceans, not to be required to give national treatment or equal treatment to a foreign company compared to a domestic company as far as access to the Canadian fish resource is concerned. That is the key factor.
Senator Jessiman: You are here on behalf of the Department of Fisheries and Oceans. Are all departments of Canada involved in auditing or overseeing these negotiations as well? Are there other departments and do they all take the same stand as you take? Is it Canada's view, not just the department's view, that these exceptions that were an investment and expropriation should be limited as they are limited in NAFTA?
Mr. Moffat: Yes, that is the Government of Canada's objective right across all federal departments.
Senator Jessiman: It does not just affect fisheries, it is a policy that affects others. Of the 29 member states that are negotiating now, how many of them would be coastal where fish is involved?
Mr. Moffat: In fact most of them. Some of the European countries of course are not, although some are in the Baltic. Most of the members are.
Senator Jessiman: Where does the United States stand? I am assuming they are part of the 29, is that correct?
Mr. Moffat: Yes.
Senator Jessiman: Where do they stand? They are members of NAFTA themselves. They must have agreed to the definitions. Did they agree to them reluctantly and now want them to be extended? Did they take the same stand as you take?
Mr. Moffat: The U.S. position on definition is very similar to Canada's. Both Canada and the United States have proposed that the NAFTA agreements on investment should be the starting point and the scope of the definition in the multilateral agreement on investment.
I would like to add an additional piece of information to the answer to your question because I think it will help. The issues that we have raised specific to the fisheries sector have not only been raised by Canada. There is a long list of OECD countries that have raised concerns very similar to ours.
Senator Jessiman: Of the 29, would there be a majority?
Mr. Moffat: Definitely. I could list them for you.
Senator Jessiman: Tell me the ones that are against it.
Mr. Moffat: I will list the ones that have indicated for the fisheries sector that they have concerns and want to have exceptions -- and the exceptions are similar to ours but not identical to those we have asked for: Australia, Belgium, Canada, Denmark, Greece, Ireland, Iceland, Italy, Japan, Korea and Mexico. Japan has a very long list of exceptions, and describes its list with a lot of words.
Senator Jessiman: Which countries are on the other side of the coin? Which are saying, "To hell with them"?
Mr. Moffat: There are very few. The list goes on: New Zealand, Norway, Poland, Spain, the United States -- actually, it would be better to list the other countries, there are so few of them.
Senator Jessiman: The Chairman is suggesting that it would only be Portugal and Spain. Is that correct?
Mr. Moffat: Spain has indicated. Portugal has not. Portugal, France, Germany and Austria have not. The Czech Republic has not; of course you would not expect them to have a concern.
Senator Jessiman: To get an agreement do you have to have unanimity or a majority?
Mr. Moffat: It works on a consensus basis at the OECD, so it is fair to say that there is a very large number of countries at the OECD who have concerns very similar to Canada's with respect to fisheries. In the statement that we tabled with you, we raised the possibility that it might be feasible to negotiate a general exception that all signatories would agree to for the fisheries sector in the area of protecting a coastal state's right to manage its own fish resources and to exclude foreign countries from getting direct access to fishing licences within their zone. It is possible.
We have raised this matter with the negotiators; in fact, they were the ones who originally raised this possibility with us. They cannot promise that it will be done, but they certainly are attempting to get a general exclusion. From our standpoint, that would be the most effective way because a general exclusion would carry more weight than a set of individual country exclusions.
Senator Jessiman: Notwithstanding the fact that you have been negotiating these matters for more than two years, you are now saying that you must have an extra year to get there?
Mr. Moffat: The official deadline is still May of 1998, but just looking at the document you can see that there really are a lot of areas of concern. This is one area where there are a great number of member countries that share a concern and would like to have an exception, so with the large number of issues still in play it would be a monumental task to finalize all of them and have a consensus document available for ministerial approval in May of this year.
The Chairman: Most of the briefings that we have seen on the MAI list a number of areas on which the government has expressed concern publicly, such as cultural matters, education, health, social services, and aboriginal and minority interests. I believe I have seen that in a number of documents presented by government and heard it in speeches by the minister.
Now the problem with inclusions is that, when you prepare a list of things that the government is concerned about, there is always the chance that those other areas that are not included on the list will be considered unimportant or considered an afterthought, or will be subject to negotiation or what have you. In other words, we have not seen ocean resources and fisheries resources included as an area on which Canada has expressed public concern on behalf of Canada, and I would like to know why such an important area, which basically employs millions of people in Canada, would not have been on the list of those areas that the government considers important?
Mr. Moffat: I must agree with you. It is very important. Canada has already tabled a series of exceptions that we are demanding as part of our negotiation on the MAI. We have circulated the fisheries exceptions that we have registered. We have made it absolutely clear to the other negotiating countries that the Fisheries Act and the Coastal Fisheries Protection Act are pieces of domestic legislation for which we are seeking, and will demand, an exception to the requirements of the MAI. So fisheries is very definitely in.
Fisheries, as a specific case of a natural resource sector, is not always mentioned in speeches and so on, but I can assure the committee very definitely that we have formally registered those exceptions on the negotiating table in Paris. The Minister of International Trade has referred to the need to protect domestic legislation relating to the agriculture sector in terms of supply management boards. He has also referred to the management of exhaustible resources and renewable resources in the resource sector in some of his public speeches.
The environment is another area which touches on the Department of Fisheries and Oceans, of course, in respect of the preservation of the fish habitat. These aspects are very much front and centre in Canada's position.
The Chairman: You know where I am coming from on this. I have not seen or heard the word "fish" in any of the Minister's statements anywhere. In various documents, statements and speeches and so on there is often a reference to the environment, and the list goes on, but, when you present a list, the exclusions all of a sudden become glaring and are in the forefront by the very fact that they are exclusions. I make this point so that the Minister might at least mention the word "fish" in one of this future speeches; it might not then raise as much concern among some of us as it has.
Senator Stewart: I want to ask a macro-economic question; it is a big question and I do not want anyone to misunderstand the thrust of it. Because it is such a big topic, in a sense I must abbreviate it and therefore caricature my position.
Domestically, we hear that there are pressures within Canada to privatize the fisheries. Now, there are those who are uneasy about the implications of privatization; they fear that what would happen with a deep or extensive privatization of the fisheries would be that the fisheries would simply be run almost like a factory, in which there would be the management, and then most of the people who traditionally have been independent fishers would be employees.
Turning now to the MAI, as I understand the government's view, the government is not prepared to have an MAI apply fully to the fisheries. The argument is -- and here I may not have a full appreciation of the position -- that the application of the agreement to the fisheries might very well mean that the fisheries would be run by foreign employers and would be run strictly on market principles to achieve a profit.
To put the question tersely from the viewpoint of the small fisher, what difference does it make to him if his employer lives in a fine apartment in the City of Halifax or in the City of Montreal or in Toronto, on the one hand, or lives in a fine apartment in the City of New York? Are we resisting the MAI on a ground which, when we deal with our domestic legislation and policy, we do not respect?
Mr. Moffat: That is a very good question. First, on the pressures for privatization of the fisheries in Canada, it is true that views have been expressed by a wide range of people that moving to individual transferable quotas and other kinds of quasi-property rights could lead to the fishery's operating much as you have outlined, as a factory with managers and employees.
The experience of other countries, though, that have implemented property rights is that in fact that does not happen. The rights are retained by those who already now have licences to fish. It is their decision on what happens with that right. So the privatization movement does not necessarily equate with major capitalist companies or very large companies taking over the entire fishery.
The examples in Iceland and New Zealand in particular show that it is possible to have privatization and property rights in fisheries and still have vibrant, local, small-scale fisheries and medium-scale fisheries that operate on an individual, owner-operator basis. That is one of the major study topics for the committee right now and it is one that I very strongly support and think is a very important initiative.
To the question whether it makes a difference whether it is a foreign owner of a property right in the fishery or a domestic owner of a property right in the fishery, the answer is that it makes a huge difference. We know that foreign fishing companies would very much like to get access to the fish resources that swim within our 200-mile zone. Fish harvesting companies have mobile capital resources. So it would be possible for a foreign company, if it came to own a quota within Canada's zone, to bring in some of that portable capital in the form of a factory freezer trawler, catch its resource with its own foreign vessel, with its foreign employees on it, and leave our zone and never even land or come into port in Canada.
That is the difference. That is what the Law of the Sea provides protection against. That is what our domestic legislation in the Coastal Fishery Protection Act and the Fishery Act allow Canada to protect. That is the main reason why the various coastal states have identified the fisheries sector as an exclusion.
Senator Stewart: To supplement my own question, in the first part of your response you said that it does not necessarily lead to a concentration of ownership. You said that it is the decision of the owner of the right whether or not he or she will sell to someone who wishes to accumulate rights.
It seems to me that if you go that step, the government and Parliament will have put the future shape of the fisheries, into which there has been privatization, in the hands of those who have the rights. That will end the government's role, unless of course the policy is reversed.
So, assuming that what is not necessary does happen, then my question is revived. I accept your last point that certain national policies could be imposed upon Canadian owners of concentrated rights that could not be applied to non-Canadian owners of concentrated rights.
Mr. Moffat: In this regard, this is a very important area for the committee to investigate. It is very interesting to see what some other countries have done, who have gone farther down the road of property rights and fisheries. They have been concerned about exactly this issue. I will give you two quick examples that might help you to understand what might happen in Canada with regard to the vehicles that are available to Canada to continue to have a role of control over the development of the fishery.
In New Zealand, the government backed away from the allocation process. They went to individual transferable quotas. Those quotas were fully tradeable. They were allocated to the licence holders. The licence holders were free to sell them to whomever they wanted, but they had to be sold domestically to domestic owners.
What happened, though, is that the government put some constraints on that process. It was not full freedom. The government would not permit more than a certain percentage of the total quota for a given species to be owned by one entity. In other words, corporate concentration was limited. Depending on the fishery, that limit was 10 per cent or 20 per cent or 30 per cent depending on the amount of participation from small-scale fishing enterprises. The more the fishery consisted of small-scale enterprises, the smaller the corporate concentration target was. So for some of their in-shore fisheries, that is why it was 10 per cent.
They put that policy in place; they allocated all the quota and it was fully transferable, unlike here in Canada where for most fisheries it is not. Here, it is only transferable temporarily within one season; there, they went the whole way. They had these constraints for various fisheries. They are now 10 years into it and they have not hit any of those maximum corporate concentration levels. So their system worked.
In Iceland, they took a different tack. In Iceland, they also went to individual transferable quotas, but they had a fishery which we would call mid-shore/off-shore. There were very few small boat fisheries but they still had small boat fisheries operating.
There was a sensitivity among individual fishing communities, who were worried about exactly this issue: corporate concentration. They were worried that big businesses would buy up quota and concentrate the fleet in a particular port and their community would lose the basis of its livelihood. The way the government in Iceland dealt with that issue was to open up the policy decision-making process for approval of transfers. So the governments in both New Zealand and Iceland have to approve the transfer of quotas.
The conditions attached to it are that the communities receiving and giving up quota and the unions representing the fishers in those communities must agree with the transfer before the government will allow the transfer to occur. So in that case individual communities had a direct say in how the transfers took place. Those are two examples of just a maximum corporate concentration and a consultation and involvement in the decision of communities in Iceland. Those two mechanisms both have led to a result where you do not get the big, corporate concentrated industry approach.
Senator Stewart: What is the position of Iceland and New Zealand with regard to the multilateral agreement on investment in so far as fisheries are concerned?
Mr. Moffat: Both of those countries have raised issues very similar to Canada. They want to preserve their right to exclude foreign owners from domestic fishing licences.
I add one postscript. New Zealand is in the process of considering whether they will open up their individual quota system to foreign purchasing. They have not decided to take that step. It will be a huge issue in New Zealand if the government proposes to do that, but I must tell you that New Zealand is considering doing that. New Zealand are farther along on the property rights regime than Iceland or anyone else.
Senator Jessiman: Are Iceland and New Zealand part of any free trade agreements?
Mr. Moffat: Yes. New Zealand of course are with Australia in their free trade agreement. Iceland, while not in a fisheries free trade agreement, is a member of EFTA, a group of countries, which has a preferential trading agreement with the European Union.
Senator Jessiman: Are those free trade agreements similar to what we have with NAFTA?
Mr. Moffat: In the case of New Zealand and Australia it is quite similar. In the case of EFTA it does not go as far. It reduces tariffs and sometimes eliminates them, but it is not as extensive an agreement as NAFTA.
Senator Jessiman: You gave an example in restrictions for Canada and you talked about marketing boards. I am not an expert on this by a long shot, but it is my understanding that the long-term view of NAFTA is that you eliminate those marketing boards. What does NAFTA say as far as fisheries are concerned? Is there anything in NAFTA that says we can keep it?
As I understand free trade, if you have complete free trade, everyone would just say, "I am a free trader; be my guest." Senator Stewart gave the example of someone coming along and taking all the fish and moving it all away, but, if we were entrepreneurial and we had the wherewithal here, we could do the same to them; right? It is free trade. What is the long-term view of these things? Is it that we all restrict within our own area and if it helps us that's great? Then if we were really true free traders, we could do better than anybody else in the world, if we were better, more entrepreneurial, innovative and harder working. So let us get on and forget about being protected. What is the long-term view? What do we really want? Is our policy such that we do not want to be truly free traders? Or do we want to be free traders but certainly want our culture to some extent protected -- I guess against the United States?
Mr. Moffat: I would like to answer that in two parts. It is another very good point. First, I will answer with respect to the multilateral agreement on investment and then I will ask Mr. Sarna to speak to NAFTA. On the MAI, the Minister of International Trade has made it clear that the intent of the Government of Canada is that the exceptions that we register will be permanent exceptions for all time.
Senator Jessiman: This is on the MAI?
Mr. Moffat: Yes, the MAI. The term that the negotiators use is "roll-back," to equate to exactly the scenario you outlined, where we would roll back or reduce our exceptions so eventually we would have no exceptions.
Senator Jessiman: Are there any countries who take that view?
Mr. Moffat: Some do.
Senator Jessiman: What does the United States do? What is their view?
Mr. Moffat: It is still a question of discussion within the U.S. administration.
Senator Jessiman: They are not as great free traders as they hold out they are, as I understand it. They talk of free trade, but then they have a lot of things in there that they want exceptions to as well.
Mr. Moffat: Exactly right. In the case of fisheries, they agree with Canada, that the fisheries is a special case because of the problem of foreign fishing companies. They can come in and take your fish and leave. Well, if you had that, we would be right back into the 1960s and 1970s where the foreign fleet was grossly over-fishing, for example, on the Atlantic coast. I am not a biologist, I am an economist by training, but my thinking is that you cannot have that extremely high level of fishing take place for two or three decades and not have a long-term impact from it. The level of fishing that occurred in Canada after we declared our 200-mile zone in 1977 was a mere fraction of the prior level of fishing that took place by those distant water fleets.
So if we say we are free traders and we will not have an exception in the fisheries case, we will go right back to that and we will have huge fleets of factory freezer trawlers just vacuuming up all the resources on the Atlantic coast, there would be no chance whatsoever that the groundfish resources would ever recover, because any slight recovery would be immediately taken by those vessels.
In the case of fisheries, you really need exceptions to what is in the MAI and exceptions elsewhere in terms of access that the foreign fleets will get within the zone. That is the principle of the Law of the Sea. When the Law of the Sea gave coastal states exclusive rights and responsibilities to manage coastal renewable resources, marine resources, the principle was that the best way to conserve the world's fish resources was to give the local coastal state the power to conserve it. They have the highest motivation to try to conserve those stocks of fish, because their people and citizens depend on that fish the most.
This is how you solve the common property problem internationally. It is by going to exclusive economic zones. That solves it. You get rid of all those factory freezer trawler fleets that have been over-fishing for so long. That is the philosophical approach, if you will.
In the context of the MAI itself, the Minister of International Trade, who was outlining several key conditions and requirements that Canada had, said that there would be no stand-still or roll-back requirements in any of these areas of reservation or exception, including the fisheries. In other words, he said that in these areas we will not accept any restriction on our freedom to pass future laws or any commitment to gradually remove our policies into conformity with MAI requirements.
So in answer to your question related to the MAI, the position of the government and the negotiators is that the exceptions that we register for fish are for all time; they are permanent.
Now you were also asking about what is in the NAFTA with respect to fish and the exclusion of fish and whether that was a permanent commitment or whether that would evaporate over time. Mr. Sarna will deal with that.
Mr. Aaron Sarna, Director, Multilateral Relations Division, International Affairs Directorate, Department of Fisheries and Oceans: The Canadian fishing industry is very largely export-oriented. The fishing industry on both coasts believes that free trade is very beneficial. So in all international bodies, whether the NAFTA, the FTA or the WTO, we are always pushing for liberalization of trade barriers. From that point of view, the long-term objective of the Government of Canada is that free trade is good for the fisheries.
When it came to extending free trade in goods and services and capital investment, then both we and the United States and Mexico in the NAFTA negotiations raised a red flag, saying that free trade in the management and conservation of natural resources such as fisheries posed a problem, basically because the central problem in fisheries is conservation and we did not want to do anything that would undermine national policies that would promote sustainable management and conservation of our resources.
So the United States put on the table, in the NAFTA negotiations, several exclusions for legislation pertaining to management of fisheries. There were the Magnuson Act, the Anti-Reflagging Act limiting vessel ownership, the Jones Act controlling inland coastal shipping, and various other measures.
Canada in return reciprocated. We excluded the Coastal Fisheries Protection Act regulations, port access policies, and investment policies regarding foreign ownership of licences. The idea was that these would be permanent, long-term exceptions because they were critical to the conservation and management of national fisheries.
The government has said, with regard to the MAI, that we will continue to seek those similar exceptions that we have in NAFTA for fisheries in the MAI and in any other international agreements.
There was a code in the WTO called the Code on Maritime Services. Negotiations have been suspended on that code because the provisions were quite controversial. There were provisions in there as well for access to ports for foreigners and so on. The Canadian position was that, had that come to fruition, we would have sought exclusions to protect our conservation prerogative.
It is not a question here of being protectionist; rather we are all in favour of free trade to promote seafood and fisheries exports, but when it comes to questions of conservation, the government's power to license foreigners in our zone --
Senator Jessiman: Could you not do that by agreement among the parties? Could you not do that rather than saying it is the local people, like an act in Canada or an act in the United States, or an act in Mexico? You could have some agreement for conservation as far as fisheries are concerned, without the act, and then say, "You are not subject to the act; you are subject to this agreement. This is what we all agreed to. If this happens we must all stop fishing." Would that not be the case?
Mr. Sarna: The basic framework is the United Nations Convention of the Law of the Sea, and for that to be implemented each country must enact that into its own legislation.
Senator Jessiman: You could have an agreement among the three parties to NAFTA.
Mr. Sarna: Yes, but you must have a regulatory framework. In the 1980s there were some Mexican vessels coming up off Newfoundland to fish groundfish on an unauthorized basis. We asked them to leave because they were not respecting the international management regime.
So free trade is wonderful, but if it will undermine conservation, the government says it cannot go that far.
Senator Butts: My first question is probably half answered. Everywhere you go you are asked to sign a petition against MAI. What I am looking for here today is some arguments for MAI. You tell us about various exceptions and all the rest, but just what great thing will this do for our fishermen or our industry?
Mr. Moffat: The basic principle of freeing artificial investment constraints to advance economic growth does apply to the fisheries sector as well as to other industry sectors here in Canada. We are becoming a mature economy. What that means is that we are not trying to attract foreign investment into Canada just to supplement the capital and investment capacity domestically. We are now becoming a nation that invests significantly abroad. That is a natural progression as part of the evolution, development and maturation of an economy. It is not a bad thing; it is a good thing; it shows that the Canadian economy is becoming stronger on the world scene.
So right now, if you look at the total amount of investment, the value of it that exists here in Canada from foreign investors, it is about $180 billion. Surprisingly, the total value of the investment that Canadians have made internationally is $170 billion. Last year the amount of foreign investment into Canada was $12 billion. The amount of foreign investment out of Canada elsewhere in the world was $10 billion -- almost equal to the amount of investment coming in.
Now in the fishing industry, over the past two or three decades there has been an incredible development of our fishing industry. The strengthening of our fishing companies on the world scene has been great. At first glance you might wonder how that helps the individual fisherman. The impact is that fishermen must be able to sell their fish to someone. Second, they need to be able to sell their fish at a price that is attractive and is the maximum price possible given market conditions.
Our processing sector and both the larger and the smaller firms marketing Canadian fish products have gone through a two-stage evolution over the past two or three decades. The industry used to be very production oriented and would export almost exclusively to the U.S. market, with very little processing taking place in Canada, and, as a result, the price that the processing sector was able to pay fishermen was relatively low compared to what it could have been. The first thing that happened was that the Canadian fishing industry invested in the U.S. market. Initially, that was before the free trade agreement and we had tariffs to contend with. In order to get under those tariffs, we invested and built processing factories in the United States. We had factories in Canada and processing factories in the U.S. That foreign investment into the U.S. was an important advancement for our industry. It made it more profitable and made it possible to pay fishermen a higher price for the fish because there was more value added in the industry.
Now there is a second wave of advancement in the fishing industry. It is becoming globalized. Almost everyone talks about globalization and how that hurts Canada, but some talk about how globalization helps. In the fishing industry, our country is ahead of many other fishing nations in its globalization. We are not ahead of the Japanese yet, but we are sourcing raw material internationally around the world, from China, Norway and Russia. Our companies are buying fish from these other fishing nations. We are processing it in Canada and in the United States. Sometimes we will pre-process it a little bit in China and then bring it into Canada for final processing and then export it into the U.S. market.
For instance, a company that does not have enough groundfish available to it may buy fish from Russia, from the Bering Sea, have it pre-processed in China, process it some more in Canada and then export it into the U.S. market. That is a globalized company. It is not just the big companies but the small companies in the Canadian industry that are doing that.
Where the multilateral agreement on investment comes in is that, when this agreement goes forward within the OECD and then later finally goes forward within the World Trade Organization, the Canadian fishing industry's foreign investments will pay big dividends. It will mean, for example, that the kinds of investment that the Canadian fishing industry is undertaking in China -- and China will soon accede to the WTO -- and in Southeast Asia, in South America, in Central America and even eventually in Europe will indeed pay big dividends. They will make our industry more profitable, more competitive and able to pay higher prices for the domestic sources of supply that they have.
So the advantage of the MAI is that the Canadian fishing industry is now a world-scale operation. The Canadian industry is investing abroad. The profitability that that generates in the industry allows it to be able to pay fishermen, because fishermen know they are profitable. There is a negotiation process here between the unions and the corporations. That is how the MAI will assist the fishing industry itself.
Senator Butts: On the flip side, I am not a fisherman, but it looks to me as if we are trying to stop people from fishing our fish, but at least on the East Coast we want them to bring it all in to be processed, regardless of the kind. We will do anything as long as we can get the jobs and the processing. Is there a dichotomy in this, a problem in this, or is the problem just in my head?
Mr. Moffat: It would be one thing if we could be sure that the foreign players who would want to invest in the Canadian fish harvesting sector would return some benefit to Canada, but the fact is that they would just bring their big boats in, catch the fish and leave, with zero employment and zero economic benefit for Canada. There would be absolutely no economic benefit whatsoever to Canada; there would be no Canadian employment, no Canadian sales, nothing; they would come in, take the fish and then leave. They would not even land in our port. There would be nothing for us.
If we knew that those foreigners, instead of doing that, would rather invest in Canada, invest in the processing sector, invest in building a stronger industry here in Canada, if we could be assured of that, then we would have no problem and we would be true free traders. We would open up and we would not have any exceptions under the MAI and we would benefit hugely from that foreign investment.
However, the commercial reality is that what is in the commercial interests of those foreign fishing companies is not to jump on the bandwagon and help the Canadian fishing industry become a world power. They just want to get the resources themselves and build their industry to be a world power in fish. So that is why the United Nations reached an agreement on the Law of the Sea. The main motivation for that was to conserve the world's fish resources by giving coastal states power over conservation of resources and fish.
However, it also means that you are changing the rules of the game on access to resources around the world. So there is a dichotomy conceptually between restricting access to fish, on the one hand, and, on the other, making markets as free as possible for the products that are produced. It is inconsistent in some ways, but without that we would have a severe over-fishing problem of the world's resources and be in much worse shape from a conservation standpoint than we are now. So conservation is the reason why we need those restrictions.
Senator Adams: You have been negotiating in other countries. I am hearing mostly about groundfish today. Will you be discussing any other species in the future? I just came back from the World Council on Whaling held in Victoria, B.C. about a week and a half ago. Other countries were concerned about quotas on whales and so on. Are you negotiating with other countries in that respect?
In the Arctic, maybe next year one humpback whale will be the quota for the Inuit people. That concerns us. Will we have as big a quota as New Zealand, Australia, the Philippines, Japan, Iceland or Greenland, for instance? The Indians from around the area of Washington state have a quota of five great whales. They do not know how long that will last.
My concern is that Canada has more mammals and a bigger sea. Other countries now are concerned about this too, because a lot of their people do not eat fish and a lot of them do not want to catch the whale in order to sell the meat in other countries. My concern is with how other countries feel about whaling.
Mr. Sarna: The negotiations or discussions we have had with other countries on whaling, for example, have been very controversial. There is an opinion or view among many nations in Europe, and even in the United States, that whaling should be outlawed, certainly commercial whaling. They have even criticized the very minimal aboriginal whaling that we have in Canada. The United States particularly wants us to join the International Whaling Convention which we see as a forum that is biased against whaling. The decisions really are not based on scientific calculations. So particularly with the United States we are trying to protect our aboriginal whaling decisions and prevent any retaliation measures.
We have tried as well in the marketing of marine mammal products, seal products and so on, to reach untapped markets, like Japan and so on. The native people as well have discussed with the Department of Foreign Affairs how to open up the United States market to marine mammals in Canada, because they are currently banned. These are all controversial issues.
Certainly, many countries do not see whaling as a legitimate activity so we constantly must defend our position.
Senator Perreault: The statement today has been of great interest, however we seem to be obsessed with terms like "investment" and "jurisdiction." We have been told that the world fisheries are in a state of crisis, that there is a decline of valuable species throughout the world. Surely to heaven we should address ourselves to some of the environmental matters associated with the fisheries and conservation.
I am from the West Coast. We have a serious problem out there as you well know. It defies logic; in some cases it defies scientific analysis. Yet here we are cutting up a pie that may disappear. It seems to me that this jurisdiction must be preserved. It may be a jurisdiction preserved over a pretty small resource if we do not do something about conservation. Is the world seized with the importance of this thing?
I was in Belgium when we were fighting the turbot battle. A Portuguese delegate came to me and said, "The Spanish do not know the word "conservation." It does not translate easily into Spanish." The conduct was that of a buccaneer almost: "After we raid this fishery and clean it out, then we will go someplace else, probably down to the coast of Scotland."
Is the world addressing properly the basic problem of conservation in this world? Fish protein is a vital element of keeping millions of people alive on this planet, and yet we seem baffled about how we will save the resource. I remember a meeting at Woods Hole Institute five or six years ago. The scientists could not explain it. It is partly a matter of over-fishing, but not entirely. It could be that the hole in the ozone layer is killing the plankton, and the plankton are not available to be eaten by the fish. There does not seem to be anything in the statement that you have brought before us today relating to conservation. I am sure you have strong views as well. I think we would like to hear those at some point.
Mr. Moffat: I agree entirely with the emphasis on conservation. In the Department of Fisheries and Oceans conservation is the fundamental core mandate on the fisheries side.
Senator Perreault: Are other countries similarly seized with the importance of it?
Mr. Moffat: Most are, but not all. There are two sets of problems here. There is a question of each coastal state having in place the kind of fisheries conservation policies and programs and approaches with industry that will ensure conservation of those domestic resources. That is the first thing.
The FAO has done some important work in identifying a code of conduct for responsible fisheries. The OECD and the fisheries committee of the OECD are evaluating at this moment what are the economic implications of this in the member economies of the OECD. What have been the economic benefits and economic costs of transition into these kinds of more responsible fisheries? The OECD are world leaders in responsible fishing practices. We have that kind of work underway.
In APEC we are negotiating a free trade agreement with all of the APEC partners in the fish sector, but it is not just a free trade agreement. It has a huge conservation component to it as well. We are not just liberalizing trade and markets. We are putting in place new international and domestic mechanisms to ensure conservation.
One of the major accomplishments internationally, and of Canada as well, was the U.N. Fish Agreement which closed some of the loopholes in the Law of the Sea. Canada was one of the leading nations in achieving that agreement which helps ensure conservation of fish stocks around the world.
There is more work to be done on this issue. There are areas, for example, of the world's fishery where there is no coastal state jurisdiction. That is wide open. Anybody can fish there and they take as much as they possible can. So we need to take some of the regimes that individual countries like Canada and New Zealand and Iceland put in place to try to conserve coastal resources better. Property rights, which you are investigating in this committee right now, is one of the key concepts that could be used internationally for areas of the world's oceans that do not have a custodial coastal state looking after them.
So we are certainly moving to make a whole series of changes to how we cooperate and implement the conservation mandate with provincial governments and with the industry. We are moving as well internationally with other countries to try to put in place better international conservation regimes, not only for coastal states, but on the open seas so that conservation will be adhered to.
I am an economist. In my thinking the most crucial thing that must be accomplished is to ensure that economic incentives are right for conservation. As long as individual participants are trying to capture more fish resources, either by disobeying regulations to conserve resources or by trying to get resources reallocated from some other fleet to them, as long as we are concentrated on those kinds of things, we have not got the incentives quite right yet. We must have incentives so that individual countries and individual fishing enterprises see it in their best economic interest to conserve those resources on which they depend.
The work that you are doing in this committee is absolutely crucial because you will help resolve some of the techniques that government needs to put in place to achieve that.
Senator Perreault: There must be good faith bargaining. I remember in negotiations over in Europe one of the great speeches was made by a woman delegate from Scotland, who said, "You pious hypocrites. Some of you people here are constructing fishing vessels with false holds in them, and you are in this room right now, you people who are doing this."
The point was that it is difficult to negotiate anything constructive if you have people deliberately employing government funds to build such vessels, but not a person in the hall stood up to refute what she had said. If you have people like that out there, it is piracy; it is not an attempt to try to resolve issues.
Mr. Moffat: That is why the U.N. Fish Agreement is important, and the agreement we reached with the E.U. after the famous Estai case, that agreement to tighten up the controls on the foreign fleet as well as the domestic fleet to ensure that they follow the agreed scientifically based conservation objectives of NAFO. That was an example of a major accomplishment,
One of the things they found was precisely what you are saying, because those false holds were there.
Senator Perreault: It is appalling, knowing the nature of the problem, to use government funds to build vessels of that kind.
Senator Meighen: On a point of clarification arising from the line of questioning from Senator Butts, is there anything traditionally, or anything now under the exceptions we are filing under the MAI, that would prevent us from issuing a licence to a foreigner to fish in our economic zone subject to processing in whole or in part in Canada? Is there any legal restriction?
Mr. Moffat: That is an interesting idea. There are rules of the game on performance. They are called performance requirements. Under the MAI, there is a section that we have not talked about here today that requires countries not to put in place performance requirements on foreign investors. In other words, if a foreign investor were to invest in Canada, and get a fishing licence and so on, and we then held him to a commitment to process in Canada, that investor would say that that was a performance requirement that we were imposing. You do not necessarily impose that on your domestic companies because they do some of their processing abroad. Then we would be in trouble.
Senator Meighen: You say, "some"; so some of the processing at least is done abroad.
Mr. Sarna: I would like to supplement that. There are certain arrangements on the East Coast called charter arrangements. In the very northern areas, north of Labrador, sometimes Canadian fishermen cannot catch Greenland halibut because they are at depths that require types of gear they do not have. So sometimes the government authorizes foreign charter arrangements. A foreign vessel would come in and catch that halibut, for example, but as a condition of the arrangement they have to land it in Canada and it must be processed in Canadian plants. Some of these arrangements are currently active.
Senator Meighen: You may not be the right people to ask this question of, and I am not trying to sneak anything in, in a provocative way, but are you satisfied that for whatever you negotiate here under MAI we have the means and ability to offer reasonable enforcement of our laws within our economic zone?
Mr. Moffat: You would want to have someone from the enforcement arm of the department answer that, but in my knowledge of the capabilities that Canada possesses on the enforcement side, if we are not the best, we are one of the most well-equipped nations to protect our fish resources from over-fishing. So I would say yes.
Senator Meighen: Speaking from a vast ignorance, I would venture to say that, if you asked 10 people out in the street, their answer would be the exact opposite, that we do not have sufficient protective capacity and that we do not protect our fishing. Certainly, the record does not bear that out.
Mr. Moffat: There is a point here that is very important. The power of the ability to conserve fish resources is multiplied in order of magnitude. If the licence holders and fishermen who depend on that resource are as committed to conservation as the government, if the people in the industry are behaving in a way that is in their own personal interest and their own family's economic interest but is not collectively in the interest of the resource, and all the pressure and all of the onus is on government, as a big brother, to control conservation, that is not as effective an approach as having the people who depend on the resource and government working hand in glove to try to conserve.
This is where some of the new approaches that the Department of Fisheries and Oceans is trying to implement, with the cooperation of industry and the provinces, are so important. We can multiply the effectiveness of our enforcement capability tenfold or a hundredfold if we have the commitment of licence holders and fishermen to conservation in the daily fishing activity that they undertake. That is what the department is striving for now and I think that is the answer to your question in the long term.
The Chairman: Thank you, Mr. Moffat. As you can see from the questions this morning, this has been an extremely interesting and enlightening session today. We appreciate your time. It has been very helpful.
Mr. Moffat: It has been a pleasure and we certainly want to wish you well with the topic that you are working on at the moment. This will be a very important report. I am looking forward to reading it and learning something.
The Chairman: You might advise the Minister of International Trade that in fact this committee is watching his deliberations under the MAI very carefully, in case he did not know. We will be watching to see that not only the fisheries resources but the oceans themselves are being given the merit they are due.
I still have a few questions, but with your permission I will be submitting them in writing to you. If any of the other senators have questions, I would be glad to include them in a letter to Mr. Moffat.
I would ask the committee members please to remain. We will proceed in camera for a bit of future business. Thank you very much.
The committee continued in camera.