Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 2 - Evidence
OTTAWA, Wednesday, October 29, 1997
The Standing Senate Committee on Foreign Affairs met this day at 4:05 p.m. to examine and report on the growing importance of the Asia-Pacific region for Canada.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we resume our work examining the growing importance of the Asia-Pacific region for Canada.
Today we have three witnesses, one being Professor Michael Hart. Professor Hart is a former official in the Department of Foreign Affairs and International Trade. He was involved in the Canada-U.S. free trade negotiations, the North American free trade negotiations and various GATT textile and commodity negotiations. Professor Hart has a degree from the University of Toronto and has written copiously.
Professor Martin Rudner, at the Norman Paterson School of International Affairs at Carleton University, has served as Associate Director of that school. He was born in Montreal and was educated at McGill, Oxford, and the Hebrew University of Jerusalem. Professor Martin has written many books and has lectured at universities and research institutions in Japan, Southeast Asia, Australia, Taiwan, Europe, South America, the United States, and Canada. He is Past-President of the Canadian Council for Southeast Asian Studies.
From the Department of Foreign Affairs and International Trade we have Dr. John Curtis, the Senior Policy Advisor and Coordinator, Trade and Economic Policy Branch. I am told that he is responsible for providing overall trade and economic policy advice and for directing trade and economic policy analysis and research within the department, particularly with respect to the emerging trade issues, the evolution of the world's economic and trade system, and the links between Canada's domestic economic structure and performance and international economic forces.
Our work this afternoon focuses upon a study entitled "An Assessment of the Prospects for Trade Liberalization in APEC," which was commissioned by this committee and has been circulated to all members of the committee. I will ask the authors to say something about their report by way of introduction. Perhaps they would like to call our attention to passages which they regard of particular importance. I leave it up to them how they wish to introduce us to this study.
Professor Hart, perhaps you could begin.
Professor Michael Hart, Centre for Trade Policy and Law, Carleton University: Thank you, Mr. Chairman, for this opportunity to appear before the committee and introduce the paper that we wrote for you this past summer. I will not take a lot of time with introductory remarks because the paper has been circulated, but let me highlight what I think are the most important conclusions we were able to draw in doing the study.
We conducted both a literature search and a series of interviews with officials; in addition, the other members of the drafting committee relied on my memory as an official. Even though officially I am supposed to have forgotten everything that I learned as an official, I really have not. I was never formally debriefed, so I do not have to forget yet what I learned. We used some of that information in writing this report.
We basically examined the extent to which APEC is a useful vehicle for promoting Canadian trade policy objectives. One thing we tried to diminish is the portrayal by the media of APEC as a negotiating forum in the same way the World Trade Organization is a negotiating forum and the NAFTA is a negotiating forum as well as a contractual agreement. The member countries of APEC have been very careful not to create another negotiating forum, and they have tried to convey that in a number of ways. One way is by using the concept of open regionalism; another is to emphasize that decisions are all taken by consensus.
The best way to explain it is to look at the kind of work that APEC has done since it was founded in 1989. Putting aside the big annual meetings which take place at the level of leaders, it is more useful to look at the plumbing work that is done in APEC. Over the last seven or eight years they have put together a very ambitious work program to help the less-developed members of APEC learn the plumbing of international trade agreements.
Over the past ten years we have seen an extensive effort at trade liberalization through regional agreements: in North America through first the FTA and then the NAFTA; in Europe through the extension of the EEC into the AFTA; in Latin America through the Mercosur agreement, the ANDEAN Pact and similar agreements; and to some extent in Asia through the ASEAN group of Southeast Asian countries.
What that has done is to deepen the commitments that governments have to trade liberalization. From the perspective of APEC, the most interesting aspect of that process is the extent to which developing countries have embraced the concept of an open economy, which has meant entering into contractual commitments and agreeing to liberalize their markets both through tariff reductions and through other kinds of non-tariff reduction agreements. However, because many of these countries have not had the same kind of history as we have had in Canada, or as the Europeans or the Americans have had, they lack the infrastructure, the knowledge, the resources, and so on, to actually implement these agreements. In our view, the most important work that APEC has done over the last seven or eight years is to begin to fill out what is required to implement the obligations of the World Trade Organization and regional trade agreements.
By working on such things as Customs facilitation, trade regulation, trade remedy law, transportation agreements and so on, by giving these countries the technical assistance, the technical knowledge, to pursue these kinds of agreements, a much firmer base is laid for future trade liberalization. Again, in our view, APEC is a very useful forum for sharing views, for building networks, for strengthening confidence among the member countries, but we also feel that these efforts in the long run will be pursued less through APEC directly and more through the World Trade Organization and other kinds of agreements.
In many ways, we look upon APEC as a facilitation and technical working kind of organization, rather than one that is purely dedicated to trade liberalization.
In our report we outline these views and look in detail at five areas of technical cooperation where we think the Canadian officials have been particularly instrumental in advancing views. This includes work in the areas of deregulation, standards, conformance with international standards, Customs procedures, transportation and environmental regulation. In all these areas, there has been significant progress in deepening understanding, and in building confidence and a much better knowledge base and understanding among the member countries as to the likely future of international trade negotiations.
That is what I have to say by way of introduction.
The Chairman: Professor Rudner, was there anything you wished to add at this point?
Professor Martin Rudner, Norman Paterson School of International Affairs, Carleton University: Yes, Mr. Chairman. Continuing on from where Professor Hart has left off in describing the work itself, it might also be useful to members of the committee to have a view of the Asian perspective. After all, this is an agreement involving Canada and other countries on this side of the Pacific with their counterparts in East and Southeast Asia.
It is important to recall in this context that Canada, in fact, was not among the original invitees to Australia to form APEC. In fact, we were excluded; we were not considered at that time to be part of an Asia-Pacific wider regional economy. I dare say it took a visit to Japan and other Asian countries by Mr. John Crosbie, the then minister -- he knocked on doors, perhaps even kicked in doors -- to get us an invitation to Canberra. We were, in the end, invited and so we have been in the organization from the beginning.
That episode is telling. It tells us that some Asians, at least, did not regard us as part of the Asia-Pacific region. In my opinion, a part of Canada's agenda vis-à-vis APEC is in fact introductory and, to use Professor Hart's phrase, networking and building of understanding and confidence between ourselves and other nations in a region where we did not have deep historical ties.
I will conclude this introductory comment by saying that the APEC framework of meetings and working groups has enhanced Canadian engagement with our partners in the Asia-Pacific region in a way that was probably not attainable without the existence of APEC. That has been to our benefit, certainly, and I hope that one could say also for the benefit of our partner countries in APEC.
The Chairman: Dr. Curtis, would you like to address us at this point or would you prefer to have the authors of the paper expose themselves a little more before you speak?
Dr. John Curtis, Senior Policy Advisor, Trade and Economic Policy Branch, Department of Foreign Affairs and International Trade: I will wait for my academic colleagues to speak to their excellent document. I shall be pleased to provide the reality check, senator.
The Chairman: I wanted to ask a question concerning the attitude of the countries participating in APEC. I am looking at pages 15 through 17 of the paper.
I gather that there was, at least initially and perhaps continuing, a considerable difference in the ambitions or aspirations or hopes of different countries. For example, how would you compare the attitude of Australia, on the one hand, and the United States, on the other, toward APEC goals? Would it be helpful to us to make that comparison? If that is not the best comparison, you could pick your own.
Mr. Hart: What I find interesting about APEC is that there is such a wide variety of approaches to the organization. I should not even use the word "organization" because the members themselves do not refer to it as an organization. It is a kind of forum.
Some Americans, particularly Fred Bergsten, who was a very important player in the early days of APEC and who chaired a group of eminent persons which produced a document called "A Vision for APEC," had a very ambitious view as to what could be done through APEC. He saw it as an opportunity to establish a free trade area around the Pacific. The U.S. administration had ambivalent views about that, but was prepared to enter into discussions. I think their attitude is less positive today. There may still be members of the administration, in the trade representative's office or in the State Department, who would like to use APEC in that way. However, since the administration does not have any authority to negotiate any kind of trade agreement, they are, by force of that circumstance, forced to take a less ambitious approach to APEC now.
At the very beginning of the process, the Australians, who were among the prime movers in establishing APEC, looked upon it as a kind of counterforce to what they saw as the regionalism in Europe and in North America, from which they were excluded. The Australians at some time looked to the possibility of negotiating free trade with the United States, but were dissuaded that that was a reasonable direction, and increasingly saw themselves as a member of that part of the world's economy. They were looking for institutions and organizations to advance their interests with the countries of the region and saw APEC as part of that. Before that, there were a number of private sector and academic institutions, such as the Pacific Economic Cooperation Conference, PAFTAD and the Pacific Basin Economic Council, which had already created a community in the area, a network of businesses and scholars. The Australians sought to build on that at the governmental level, hoping that such an organization would eventually emerge as a regional force similar to the European and North American ones. I believe they have been disappointed with that. However, while we were working on this paper last summer, I had lunch with an Australian official and I got the impression from him that they have adjusted to that. They are prepared to see it go further, but they are also prepared to live with the present slower pace.
Many of the countries who are members of ASEAN, and similarly Korea, like the fact that this is not a contractual organization. In many ways, because it is based on a voluntary contribution, they very much control the pace of their own contributions to this organization. The idea of concerted unilateralism is very attractive to them because it is not a tit-for-tat negotiation where people are looking for concessions, but a cumulative process of talking to one another and building up the confidence to go further while maintaining control.
At the extreme other end of the spectrum, for China and Taiwan, APEC serves an important legitimizing function. It is the only forum where both China and Taiwan are active participants in a multi-lateral dialogue, and where they are welcome. In many ways, it serves as a legitimizing function for both of those regimes, as they seek to become more integrated into the global economy.
From that perspective, members of the committee can appreciate the wide range of views that are exhibited by the members countries and the different strategic views they hold of this particular forum.
The Chairman: In the case of the People's Republic of China, would it be fair to say that one of the principal values of APEC is that they have an opportunity to associate with other Pacific countries in these meetings, and it gives them an opportunity to demonstrate their progress toward the point where they would be qualitatively ready for membership in the WTO?
Mr. Hart: I think it serves that very important function. They have been seeking membership first in the GATT and now in the WTO for 11 years. They have not been successful. There have been both trade and non-trade reasons why they have not been successful. APEC provides a forum where they can fully explore the issues surrounding the WTO without making any commitments. That is very valuable to them.
The Chairman: Before I let go of this question, I would like to ask about Japan. How does Japan view itself as a player in APEC?
Mr. Hart: Ambivalently. Japan finds it very difficult to exercise leadership but, at the same time, it wants to make sure that the United States, Australia, Canada, and others do not push matters too quickly.
Japan has the greatest difficulty in resolving issues in APEC. Based on my conversations with both Japanese and Canadian officials, the Japanese leadership was one of the most ambivalent because of the difficulty they have.
The Chairman: Why do you say they have difficulty exercising leadership?
Mr. Hart: Because of the collective decision-making process in Japan, it is very hard for anybody to be too far out in front without feeling that they do not have the consensus that they need to proceed. Because of APEC's concerted unilateralism and the fact that the chairing economy is supposed to provide leadership, Japan was in a very difficult position during the year that they held the chairmanship of this forum.
Senator Stollery: Mr. Chairman, this follows along from your question. We have been through this before. I find APEC to be a very vague organization with so many member countries with nothing in common. It has always seemed a bit wishy-washy.
The Chairman: We were told, senator, that it is not an organization.
Senator Stollery: That is right. It is not an organization. It is a group of people who get together and talk.
I have heard lately, particularly from South America, that there is a certain disillusionment with the free trade approach, the business of a free trade agreement between countries as being a practical approach to increasing trade opportunities, and an interest in what we might call an incremental approach -- a little here, a little there.
Regarding this business of the talking shop that is to take place in Vancouver, I understand that the Australians were feeling excluded from it. It was part of Australian foreign policy to get itself more centred into Asia, but we are not involved in Australia, nor are most of the countries that are in APEC.
The participants must be looking for a reason for being participants. Could it be that APEC could have a role to play in the emerging interest in a more incremental approach to trade problems?
Mr. Hart: If by incremental you mean that it provides a much firmer foundation for future trade liberalization, it has a very important role to play.
We conduct many training programs for officials in countries in Latin America, in Asia, in Russia. One of the things that we have learned through those training programs is how shallow the knowledge of trade agreements is in these countries and how much work is required to bring these officials up to speed so that they can participate much more effectively in trade negotiations. They require a great deal of training regarding what is involved in the administration of the tariff, what is involved in dealing with anti-dumping and countervailing duty regulations, what is involved in valuation regulations, and so on.
One of the most valuable aspects, not only of APEC but, similarly, of the FTAA process in Latin America, is the deepening of the understanding of officials in those governments of what is really involved in these agreements.
The WTO agreements, which occupy something like 450 pages of closely-spaced text, is a mystery to many of these governments, even though they signed them. Implementing the details of those agreements into their domestic laws is a major challenge. APEC, the FTAA and similar processes provide a very neutral forum within which to deepen their understanding and to build awareness, confidence and the contacts they need in order to live with these agreements.
For many of these countries, until the Uruguay round of negotiations, the GATT really did not have much of an impact. Because of the differential application of GATT principles, many of these countries had the rights of the GATT but did not fully implement the obligations. As a result, many of them did not have fully bound tariffs; many of them had wholly discretionary trade regimes. It was not until this round that they accepted much more onerous obligations. Over the next ten years we need to ensure that they have the capacity to actually implement those obligations.
Senator Stollery: As we have listened to evidence about APEC over the last year or so, there were many times when the witnesses have asked, "What is it?" I suppose one could say it is an organization in search of a goal. It just happens that they have this organization, which was an idea of the Australians for foreign policy reasons, and I am sure the Americans got into it because they did not want to see something happening without their presence. You can easily read that story.
However, there is a real problem generally, and that is that while everyone seemed to support the idea of free trade agreements, they had not considered the many types of other problems that these agreements can cause. I do know, from people that I talk to, that there is a disillusionment with that approach. APEC is therefore a place where they can have a more incremental approach, and by that I mean that perhaps non- controversial tariff issues can be solved first. As you say, there are these vast agreements and you yourself do not even know what they say.
When the APEC representatives get together in Vancouver, an agenda is forcing itself upon them in a way. That is not an outrageous thing to say, is it?
Mr. Hart: I would look at the Vancouver meeting as being kind of the tip of an iceberg. What is really important is that huge piece of ice under the surface, which is the work that has been ongoing for the past few years in much smaller committees at much lower levels.
The Chairman: Senator Stollery, as you were speaking, I was wondering if an argument could be made that, even if we focused on China alone, the incremental approach to which you referred would not be adequate to justify APEC. We have a potentially huge player in the world economy outside the formalized structures of international trade. Here is a forum where they can talk to us and we can talk to them, quite aside from everybody else.
Mr. Rudner: Senator, may I offer a slightly different perspective on this very important question? Within APEC itself, of course, some of the countries have a very different viewpoint of what the regional agenda ought to be. I am thinking here of Dr. Mahathir, the Prime Minister of Malaysia, who very early put out a concept of an East Asian Economic Group, which would have been Asian APEC without North America, Australia and New Zealand. In fact, he saw this as the natural framework for regional trade.
From a Canadian perspective, the strength and value of APEC is precisely that it creates a broader architecture for trade and investment embracing Asia-Pacific economies beyond just the Asia-Pacific Rim. Asian members of APEC do not see the alternative as being a slower incrementalism to regional trade and investment liberalization. The APEC process represents the incrementalism they are all agreed to. Rather, the alternative, for some, consists of a narrower, more exclusionary East Asian economic grouping which would achieve the same ends, but within these limited geographic confines. From their point of view the problem is: What are the boundaries of the region?
The Malaysians -- and the Chinese have backed them on this -- have said the boundaries should be the Pacific Rim, excluding North America, Latin America and also Australia and New Zealand. We have been very helpful here, in terms of Asia's long-term interest, by being able to persuade most Asian countries that we are all in the same trading arrangement and that this is what could be called experimentation. We could make our moves forward by agreement and by consensus, and we do not have to fall back on geographically exclusionary, almost racist, trading arrangements.
Senator Andreychuk: Thank you for bringing that point up. As I recall the history, it was going to be an Asian trading block, as defined by the countries that see themselves as Asian, act Asian, are Asian. Australia entered into it and said, "No, we have what we consider Asian aspects." I recall there were political debates about severing Commonwealth ties. Then they said, "We are really part of Asia-Pacific or Pacific Rim." Now we have included Canada and the United States, and we are considering South America.
Is part of the problem of APEC that it is not a definable region? When you start putting Canada in Asia-Pacific, you arouse interest because Canada sees itself also Trans-Atlantic and American. Asia sees itself as Asia. It is trying to define and make workable something that is a little bit of one and a little bit of another: Asia-Pacific. We are certainly an Asia-Pacific country. The members who are coming to this forum from Malaysia or China still appear to see the organization as strictly Asian, and their long-term goal is to keep it that way, whereas we are trying to broaden their focus and trying to create a new experiment, which involves our ideas on human rights and on liberalization, areas where our experiences and our knowledge base are different. Is it not an experiment yet to be determined?
Mr. Rudner: Senator, I believe you are right, but there is also another part to the APEC identity question. Asians are grappling with an identity question, but APEC does not fall into that historical experience. Its origins were Australian-Japanese. Japan is certainly part of Asia; Australia is as close to Asia as you will get geographically, if not culturally. However, Mr. Hawke, who invited members of what is now APEC to come to Canberra to deliberate on the future of Asia-Pacific Economic Cooperation, certainly saw Australia's destiny within the framework called Asia.
Most Asian countries are very happy with this wider boundary. Dr. Mahathir is, in a way, the maverick, although I do not recommend anybody in government call him a maverick. He gets very upset about these things. As scholars, we can do that. Most Asian countries, including most Malaysians, are very happy to see the geographic boundaries of Asia-Pacific Economic Cooperation where they are. In fact, the idea of an East Asian Economic Group has now been transformed into a caucus within APEC, but it is important to recall that the rejection of the East Asian Economic Group, as an exclusionary body, was Asian. It was the Thailand, Singapore and the Philippines who said, "No, this is not the APEC we want to see." It was they who insisted that Dr. Mahathir transform and broaden his conception of Asia-Pacific regional integration.
Senator Bolduc: You have talked about APEC as an instrument for the technical education of Asians on trade agreement administration. The OECD does the same, I suppose, for Eastern Europe, at the request of Eastern Europe. The OECD countries give them technical training about the private market system and things such as that. There is a demand for that.
With the Asians, is that training given because we push it or because they want it or need it?
Mr. Hart: There is a fundamental difference between the kind of work the OECD is doing with the countries in Eastern Europe and what is going on in APEC. In the case of OECD and Eastern Europe, it is clearly a training relationship, meaning a request by the countries in that part of the world for technical assistance from OECD countries. Some of that is provided on a bilateral basis, some of it is provided through the organization.
In APEC, by contrast, the approach is for members of those governments meeting in committees collectively as equals to work together on common problems. There is less provision of direct technical assistance, but in many ways the approach is more effective because it requires the members from these countries to come to these meetings, to be prepared to do the background reading, to have the discussions, to talk about these issues in the quarters, and so on. While it is not looked upon as a training exercise, this intensive participation has a very effective indirect training impact.
At the same time, there are technical assistance projects going on with some of the countries in that part of the world. For example, last week Carleton University hosted a group of seven senior officials from Vietnam who were here to learn more about the WTO process and what is involved in membership.
APEC does not provide direct technical assistance, but it has a technical assistance impact.
The Chairman: I would like to ask a question for clarification. You said earlier, Professor Hart, that what will happen in Vancouver is simply the tip of the iceberg.
You have told us now that there is a lot of preparatory work, and I hear that as meaning preparatory for Vancouver, but I suspect that, quite aside from Vancouver, there is a lot of exchange. Let me ask you a specific question. What about the training of Customs officials; what about the plumbing, to use the term you used? Do we train plumbers?
Mr. Hart: No, we do not train plumbers. We train trade officials in the plumbing of international trade agreements and in their administration.
The meeting in Vancouver, and earlier meetings in Bogor, Osaka, Manila and so on, provide the political momentum which keep officials working on these much more detailed things. I do not think that Mr. Chrétien and his fellow leaders are going to have a detailed discussion on Customs procedures or on transportation facilitation and so on. They will look at the collective action plans that were agreed to in Manila, and at some of the individual action plans that are supposed to be part of the momentum, to see how much progress is being made. Out of that, they will put together a communiqué which gives more direction and more vision to this ongoing work. However, I see the value, not in the statement made at a summit meeting, but in the follow-up work that fills in the details of the broad vision that is adopted at summit meetings.
Senator Andreychuk: After reading your report and listening to many of the previous witnesses, I have a question about the future. If the World Trade Organization integrates China and these other countries and they become expert in all the fields you have mentioned, in other words if we have been successful in some of the shared technical assistance programs we are involved in, what then will be the role of APEC? Will it continue? Will it have to move into another direction? If the World Trade Organization is to work properly, some of the functions of APEC will have to be within the World Trade Organization.
Mr. Hart: In my experience with international organizations, it is very hard for them to disappear once they have been established. Even if APEC does not have a useful role any more, it will likely still convene meetings.
I think it will be a long time before the WTO fully assimilates all these countries into the agreement, so that there will not be a need for these kinds of smaller groups to hold caucuses and meetings to build relationships.
As Professor Rudner indicated, while the focus of APEC may be trade and economic issues, much of what it does has a foreign policy-foreign relations side effect -- a very positive one. It allows Canada to deal very effectively with these countries on technical issues, and on building relationships which we would not otherwise have.
Even if a lot of the work does gradually migrate to the WTO and the WTO deals with those things successfully, there will be similar kinds of challenges which APEC will continue to consider.
Mr. Rudner: I would like to add to what Professor Hart has said. There is an topic of interest arising in APEC which, I think, could be of interest to this committee, although it is a bit beyond the terms of our report. That is the area of Human Resources Development. It is actually the subject of one of the working groups in APEC, which distinguishes it from some other international trading arrangements. Within the framework of the HRD working group, one of the main items of interest to Asian countries is what is called the international trade in education services. This comes under the architecture for education mobility through a sub-organization of APEC called UMAP, which stands for University Mobility - Asia-Pacific, and through other arrangements to encourage student exchanges and facilitate cooperation in the knowledge sector.
Canada has been merely marginally involved in this burgeoning trade in education service in the Asia-Pacific region, and our share of this trade has been actually diminishing in recent years. We have been outside; we are only observers in UMAP. The trade in knowledge services, at the last accounting, is worth about $27 billion U.S. a year. Asia-Pacific countries, almost without exception, have turned to Canada and asked us to be engaged, but we do not yet see this as part of our involvement within APEC and international trade, even though, in terms of economics, foreign policy and culture, the value added is significant.
Senator Andreychuk: I would like to follow up on the issue of human resources.When this committee asked questions regarding human rights and the agenda, we were told that that topic is off limits; no human rights will be on the agenda. Certainly, I would have preferred that it was. I respect the fact that the meeting is going to deal with trade and Customs issues, and so on. I can see why we would not want to jeopardize the success of the meeting. I know that if you narrow your agenda, you do better.
If APEC is to be a forum where we share who we are, what we are, and what we know, surely we should bring to the table all of our values, one of which is respect for human rights. We were told that the working group on human resources is where we put forward the ethics and the values of we bring to doing business, and that the human rights aspects will subliminally come through that process.
I hear you now say that we are not as strong in that area, particularly in the university sector. Did you mean to say that? I ask because we heard quite the opposite from departmental officials who said we were making our mark and putting forth our values, at least in the human resources area if nowhere else.
Mr. Rudner: On the question of the Human Resource Development Working Group, Canada has been very active. In fact, we were shepherds in that group.
Our main involvement there has been in the area of manpower, such things as manpower planning and labour issues. We have not been as active in the education component of the human resource development agenda in APEC, for reasons that have to do with the Constitution of Canada, which gives education predominantly to the provinces, and the fact there is no Government of Canada minister responsible for higher education or for education generally, and for reasons that have to do with foreign policy planning in this country.
Certainly, our universities are not at all active in the immense burgeoning inter-university arrangements taking place between Asia and the United States, between Asia and Australia, and within Asia itself. We are marginal, and our involvement over the past ten to 15 years has been diminishing, rather than increasing.
The Chairman: May I remind members of the committee what we were told by Dr. Saywell in Vancouver? He said that no country in the world has a better education and training structure than Canada. He told us it is competitive, in terms of price, and is delivered in a safe, friendly and hospitable manner.
Evidently we are not marketing it very well.
Senator Andreychuk: But we are entering into internationalization of education. I am a member of the subcommittee on post-secondary education and during our study we have heard thousands of examples of ways in which universities are extending their campuses and branches and marketing their services elsewhere than in Canada. It is not the same as sending, say, Professor Hart or someone like him to Malaysia to do technical training. The universities are becoming internationalized and are not just serving Canadian needs. You are saying it is a field that we are not really involved in, but one that has great involvement by other countries, particularly the U.S.
Mr. Rudner: APEC has a framework for it, and we have not taken advantage of that framework to build ourselves a position in this trade, if we want to call it a trade.
Senator Whelan: From my experience, trade practices that are used in the Pacific Rim countries leave a lot to be desired. I will give you an example.
I was in Indonesia visiting an Australian research centre which studied sheep and goats. The scientist was showing me all the good work they were doing. We raced past two big black stalls, and I happened to notice two red and white Holstein bulls. I said, "Wait a minute. Let's go back and look at these beautiful animals. What are they doing in a sheep and goat research station?"
He said, "There was no place to put them. They are gifts from West Germany for the President."
We were not prepared at that time to enter into the practice of giving gifts to the president, but I am told that it is a common thing in Pacific Rim countries. They expect, shall we say, a "charitable donation" to recognize your friendship. Do you have any comment on that?
Mr. Hart: I know from my own experience in Asia that gift-giving is very important. I also know that business people in Canada find that it goes beyond gift-giving and enters into practices which they find highly questionable involving participation by Asians who are not making an economic contribution but rather a political contribution to the venture. That goes beyond acceptable practice from a North American point of view.
This is one of the most difficult issues that the trading system will face over the next 10 to 15 years, whether you call it corruption or whether you call it business practices, to come to a better common understanding as to what is within the pale and what is not.
If it is just a matter of giving gifts here and there, no problem. When it goes beyond that, there is a problem.
Mr. Rudner: One of the virtues of APEC will be its transparency. To the extent that trading rules and tariff rules are made explicit, and to the extent that procedures are liberalized, this ends the requirement for pay-offs which can tend to be both extortion and bribery. This would end the need to give beyond token gifts of personal appreciation.
In that sense, APEC trade liberalization is precisely the kind of instrument which, as it unfolds, lessens the extortionist capacity of the gatekeeper.
Senator Whelan: In my experience, having travelled around the world quite frequently, I found this to be a common practice. Some of the worst offenders were our great friends in the G-7. Britain did not care how they got a deal; they just worked to get the deal. Their former colonies had been trained well by their British overlords on how to deal and how to get the contracts, whereas we innocent Canadians, because we are honest and we aim to provide good services and good equipment, never get a contract.
You talked about the iceberg. I could not help but think about the Titanic, too. When we look back at history, it is obvious that, thousands of years ago, trade existed between Chile, Peru, and China because the Chinese learned the metal-works of the Indians in South America who, in turn, learned cloth-making from the Chinese. These are three countries in the world which also share a similar calendar. I refer to the Aztecs or the Indians in South America.
In talking about new trade, I have strong feelings about this great globalization and the World Trade Organization. Everyone thinks we are moving into a new era. We make it sound like this is something brand new.
Take Marco Polo, for instance; he was not a tourist. He was paid to travel to China. Everyone thinks he was Italian, but he was really Croatian. We can check out others, too. Christopher Columbus was paid by the money people, the traders who were looking for gold or whatever else they could capture, steal, plunder -- including slaves.
We are doing things in a different fashion now. Reebok goes to Malaysia to make our shoes, so the slaves are there. They are paid $1 or $2 for a day's work. Bata was paying $3 a day and was nearly thrown out of the country.
I have strong reservations about some of the things we are doing. What can the Canadian government then, as chair of the 1997 APEC Summit and manager of the APEC agenda, do to encourage APEC governments to protect human rights and to strengthen the rule of law? If incorporating the issue of human rights in the official APEC agenda is a non-starter, would it be more productive to raise the issue on the margins of APEC meetings?
Mr. Hart: As a general proposition, the discussions in APEC and in the WTO -- and in similar organizations where there is emphasis on due process, on transparency, on the respect for law, on the embedding rules within those societies -- have an indirect but very important impact in developing more fruitful dialogue about human rights in those countries.
Over the last 40 years, there has been no shortage of United Nations pronouncements on human rights issues. However, few of these declarations have been anything more than political assertions which heads of governments are happy to sign and to promptly forget.
The process through APEC, through the World Trade Organization and in similar kinds of discussions, provides a much stronger basis for actually implementing these kinds of agreements. However, nothing will make implementation more difficult than to insist from the very beginning that it be tied immediately to specific human rights provisions.
If the countries of Western Europe and North America insist that the advances in implementing trade agreements are contingent upon the implementation of human rights agreements, then neither objective will be achieved. As these countries become more willing to implement legal principles and legal regimes and so on, the task of implementing human rights provisions will become that much easier.
Senator Whelan: Let us move into a different area and talk about the Helms-Burton law which is contrary to the World Trade Organization and contrary to every international agreement. Should we not be condemning that or should we just brush it aside and allow that, because the United States is big, it can do whatever it wants?
Mr. Hart: I would agree, senator, that Helms-Burton is a very poor example to show to the rest of the world of how the trading system ought to work, but the United States has a regime which allows very eccentric people to become senators, and we have learned to live with that.
Mr. Rudner: I would like to make a comment on two points that Senator Whelan has mentioned.
First, on the history of Asia's trade, you are absolutely right; Asia historically does trade. Trade is not new to Asia. Colonialism was new to Asia and it distorted historical trade paths.
Senator Whelan: They traded opium.
Mr. Rudner: They traded opium, among other things. Twenty years ago, most ASEAN countries traded only about 10 per cent of their product among themselves. Now they are as high as 50 per cent for a country like Thailand, and that is a transformation that has followed upon the liberalization and expansion of regional trade in recent years.
Second, on human rights, one must not forget that within Asia are people and organizations who are also concerned for human rights in their own countries. Asians tend to be reluctant to accept being preached at for faults of which they are already painfully aware.
The issue is not so much that Canadians or Americans or Europeans presume that one could or should leverage Asia on human rights through trade. It is, rather, a matter of, engagement. There are people, groups, universities, non-governmental organizations, and governmental organizations in Asia who say: It is for them to enhance their human rights performance because it is good for their societies; it is consistent with their national identity.
How then does one create links between those organizations and their counterparts in other countries, including Canada? How do create a synergy? How do we learn to listen to them? Many Asian human rights advocates can see in Canadian society things which, from their point of view, are tarnished or ugly here and about which they also want to have a say.
For example,there is a Malaysian non-governmental organization that feels that Canada treats its native peoples considerably worse than Malaysia treats its own Orang Asli, its indigenous communities. They are rather vocal on this, which is not inappropriate when one looks neutrally at both societies.
Senator Whelan: You could say the same thing about Indonesia, where they kill people because of religious beliefs.
Senator Bolduc: I have a question for Dr. Curtis regarding Japan. Japan has a big economy, representing 20 per cent of the world's economy. We send them natural resources but very few added-value products. I have in front of me a document from the Canada-Japan Trade Council which refers to a recent report by the Australian government. In that report, they described the Japanese economy as being broken down into eight major regional economies and they ranked the GNP of economies in relation to the economies of a number of Asian nations. The three largest economies on that list are those of Kanto, Kansai and Chubu, all in Japan. China ranked fourth. Of the top ten economies, six were regions of Japan.
The Japanese economy is ten times larger than the Chinese economy. It is equivalent in size to the combination of the British, French and German economies. That is a huge base.
There is tremendous work to be done to increase our exports. Do we have the resources in the ministry to go after the Asians -- APEC, I suppose, needs a lot of resources -- but at the same time to look to the Japanese market where we can make money?
Mr. Curtis: Senator, I have found the discussion very interesting and beneficial. I would be pleased to address the comment of Senator Bolduc and then several other comments.
The regional economies of Japan are very large, not unlike the regional economies within the United States. Canada, as a whole, trades as much with Ohio, for example, as we do with most of our other national trading partners. You have pointed out very clearly and accurately the importance of focusing our trade activities on national governments, particularly in terms of trade promotion and investment promotion. Indeed, it is national governments who negotiate these trade agreements and participate in inter- governmental fora.
Your question specifically asks about various regions which are important regions to us, be they regions in the U.S., in Japan or in the different Chinese provinces. For example, southeast China is very different from northeast China and from various parts of inland China.
You asked if our government has sufficient resources. Every individual has a different view of the role of government in trade. I would agree with my colleagues from Carleton. The primary job of government, I would suggest, is to work to open markets and to ensure the rule of law and the framework within which Canadian-based firms or individuals can trade and invest into those economies on an equitable -- in other words, a non- discriminatory -- basis. That is the primary role of government. That is the purpose behind these trade arrangements and inter-governmental discussions.
Whether government should be financing, through trade commissioners or other programs, any specific export promotion or investment promotion is really a whole other discussion. The current Minister for International Trade and his government are giving great thought to how and in what ways government should most efficiently and effectively work with the private sector to help them move through the doors which government has already opened for them.
Senator Bolduc: I was referring to the utilization of your own personal ministry and the management of your own people and resources in the ministry for the job which is before you. You have a job to do. Either you put 50 people on APEC issues or you put 40 people in Japan. The more staff you utilize in Japan, the fewer staff you have for other work.
Mr. Curtis: Senator, staffing is the topic of ongoing discussions both within the Departments of Foreign Affairs and International Trade, and in our sister departments. It involves, for example, Senator Whelan's former department as well. How many agricultural attachés do we locate abroad? How many fisheries experts do we locate abroad and where do we locate them? Do we put fewer staff in Europe because the Canada-European relationship is changing, or do we put more in Asia? Do we put more manpower on trade policy to make the rules and open up markets, or do we put them in export promotion?
That question is always being addressed. In one sense, there is no answer. There has been some shift of Canadian government foreign trade resources, no matter from which department they come, to place relatively fewer staff in Europe and the United States and relatively more staff in Latin America and the Asia-Pacific region.
That is as firm an answer as I can give without going into a very detailed discussion, which I am not equipped to do. It is complicated. For example, how much time does one ambassador spend on trade issues as opposed to consulate issues in other contexts? It is very hard to make that calculation or that judgment.
The Chairman: Senator Bolduc focused on Japan. I do not know very much about the nature of our efforts to increase our exports to Japan, but I have been reading for years that the United States has been making efforts to more effectively break into the Japanese market. I get the impression that they have not been entirely satisfied with the fruits of their efforts.
Suppose you were to double your staff in Japan to work not on opening doors, but on actually promoting Canadian exports to Japan. Do you think the marginal increase would be very high?
Mr. Curtis: You are asking me to speculate. Economists are paid to forecast, but government civil servants are not, even if they, too, are economists.
My sense is, no; that it is fundamentally the competitiveness of the specific resource endowment or of the knowledge base, which in fact determines the ebb and flow of trade. From my general knowledge, our trade with Japan is concentrated largely in natural resources and in selected higher value goods, if I can use that term, such as prefabricated houses from both Alberta and B.C., in particular, and from Ontario to some extent.
To get right down to the people side, our consulate general in the Kansai region of Japan along with certain lumber exporters, following the Kobe earthquake in 1995, figured out that there was a good market there. They had the product; they went to Japan and ensured a spectacular success in that specific instance. However, in general, throwing money at any market, be it national or regional, has not shown a tight correlation in trade growth.
The key is to recognize the opportunities, to have government open the doors, and then to do the work. We are not as unhappy as the United States is about Japan, for example, because we are doing better than the United States .
Senator Andreychuk: Surely, though, within your department, you make an assessment that change could come because of political will and, therefore, we see the American approach into Japan: You must move at the top levels to get anything done.
Because we work in niche markets, we sometimes feel we need to do more trade shows, to be better known, to avoid being lost in the shuffle. Are you saying that an increased departmental effort to make Canada's presence known would have no impact in Japan?
Mr. Curtis: No, senator. I said one cannot correlate the exact number of staff to specific trade flows in a particular commodity at a particular time. I was making a very careful economist's point.
If you are asking me the more general question, is it important to mount trade fairs, is it important that Canada become better known, then I would go back to Professor Rudner's point: We should, of course, in whatever way we can, such as, for example, working actively in APEC, become clear members of the Asia-Pacific community and be seen to be that. The better known we are, the more a Japanese importer, for example, or a Chinese state enterprise will look to Canada for the product they need.
Information and knowledge of markets and visibility is absolutely critical. My point was only that one cannot just pour money into staffing and advertising unless one has the fundamental product or service to sell.
Senator Whelan: I remember that we once had we had 1.5 person-years on agriculture trade with Mexico while the Americans had 452. Would you call that a subsidy to American agriculture?
Mr. Curtis: Americans have all sorts of subsidies. They just do not like to call them subsidies. I am sure my academic colleagues would be more free than I to discuss that in this public forum, but my sense is that there is some difference between American mythology, rhetoric and action on the ground in trade matters.
The Chairman: Senator Whelan, may I give you a footnote. President Johnson once said that, in Texas, we do not believe in socialism, but anything that is good for Texas is not socialism.
Carry on, Dr. Curtis.
Mr. Curtis: I have several points to add, partly because I, as a public servant, was privileged to be involved in APEC matters right from the "pre-beginning" when, as Professor Rudner states, Canada had to ensure, in response to this major initiative of Australian foreign policy, that we were to be considered bona fide Asia-Pacific players. We had to point out, amongst other things, that Vancouver is in fact 20 kilometres closer to Yokohama than is the Port of Sydney, Australia. That is the kind of discussion that one gets into when advancing your country's interests. This was part of the great internal debate of 1988-89. While many Canadians were worried about the Free Trade Agreement with the United States, we were also worried about the distance between Yokohama and specific ports west and south.
I have had the benefit of having looked at some of your earlier work and your reports on APEC. I would remind you that APEC is not uniquely a trade organization nor a trade institution. That is important to emphasize because it refers back to some of the earlier questions in this afternoon's session: If you finish this part of your work, then is there anything else to do?
Trade and investment, liberalization, rule-making, transparency -- all these issues were raised by my two colleagues as very important parts of the APEC agenda and these issues are particularly important to the agenda which the United States and Australia and New Zealand will bring to APEC.
However, there are other aspects to the APEC work that have arisen in the past ten years. The Asians, particularly in China and Japan, keep referring to APEC as being on two wheels. This, of course, reflects the concept of balance in Asia. One wheel is trade and investment liberalization and facilitation, such as customs facilitation and other things. The other wheel is economic cooperation and technical development, the so-called "ECOTECH" aspects.
That is mentioned in this document but is not highlighted because the document is meant to be about trade. However, there is a huge agenda over and above the trade and investment work. It touches on human resource development, as Professor Rudner discussed, largely from the Canadian perspective, relating as well to manpower planning and skills training. The universities network and Canada's involvement in it are a little more active than he implies. In fact, there is an APEC study consortium involving a number of universities around the region. It does not just involve Carleton.
There is also within APEC on the Eco-tech side a science and technology working group and a telecommunications working group. There is a marine resources working group, which focuses on clean oceans. The fisheries working group is very active. There is an agricultural technical cooperation working group. These are all components of the APEC work, along with all the analytic work which I supervise as Chairman of APEC's economic committee. We measure the impact of trade liberalization on APEC. We examine the experience of investment liberalization within APEC, for example, and the role of economic and technical cooperation within and amongst APEC members.
There is technical training but it is not only, as before, donor to recipient. There is evolving at APEC something quite interesting -- the sharing of best practices. What have we learned? What have other countries learned from each other? What cn we teach each other about, for example, planning and building major infrastructure projects.
The port of Shanghai is one example. What lessons did we learn in developing the port of Vancouver that can benefit the Chinese as they build major infrastructure developments such as airports? What can we learn from them, particularly about different methods of dispute settlement and avoiding litigious methods, something more in keeping with our aboriginal traditions, for example?
You mentioned the Aztecs, but there are also aboriginals in this part of the world. They sit around in a circle and discuss problems. There is no one guilty party; rather, everyone is somewhat guilty because they are all partly responsible for a given situation. Some may be more responsible than others. We would call that them guilty when, in fact, there is a different way of resolving disputes, and that has been brought into the APEC discussion.
Finally, I might mention that APEC has a summit aspect, as was mentioned -- the tip of the iceberg. That is not unlike the G-7 notion where leaders get together to understand each other better. You might not see a specific increase in your export of fish in the following year, but the fact that 18 leaders come together each year is really quite an incredible story in terms of understanding each other better and understanding what motivates each leader. That summitry aspect of APEC is particularly important, along with the work of the more technical groups as discussed by Michael Hart.
All of these things are part of the APEC experience. I heard Senator Stollery say that APEC is perhaps a little fuzzy. It is in some sense of the word fuzzy because APEC is something very new. It is not an organization with a large central secretariat, which goes against the usual bureaucratic tradition of international economic organizations that have developed since World War II.
APEC is primarily capital-based. We do the work on a voluntary basis, for example, in Ottawa. We work together with officials in Beijing or in Kuala Lumpur or in Canberra, depending on where the interest happens to be. We may work in a small group or, sometimes, all 18 work together; but the work is done on a voluntary basis without large budgets. There is no central secretariat except a basic "post office" or information clearing house of 23 individuals.
APEC is really a new-age development, a forum, an organization, an institution. It is a little bit of the WTO; that has been accurately discussed in the report. It is a little bit OECD in the sense of where the analytical work gets done. It is a little bit of the G-7 where the leaders meet, the trade ministers meet and or the foreign ministers meet. It is a little bit of an umbrella organization, where the Chinese sit down with the Taiwanese and with Hong Kong representatives at the same table on an equal basis. It is a little bit of a political forum also.
On and on it goes. It is a little bit of all those things. Therefore, anybody who tries to characterize APEC as like anything else will have real difficulty. It is a virtual network of 18 member economies which are dealing increasingly with each other at the official level, drawing on business.
There is an Asia-Pacific Business Advisory Council increasingly involving other members of our societies over time. Because all members of APEC are somewhat different, this takes some time. It is not quite as easy, to put a fine point on it, for the Chinese to include NGOs as it is for us. Our political traditions, our cultural traditions are quite different. However, over time, we are coming together to learn, to build confidence, to work together, to evolve. There will always be change.
There may be more specific questions, but I thought it would be useful to re-emphasize that APEC has an agenda for trade and investment liberalization facilitation, and , similarly, it has all these other activities which attract political interests and the interests of the business sector, the private sector, universities and officials. It is rather hard to capture it all in one quick 30-second bite, which might make APEC, to some, a bit fuzzy.
Senator Bolduc: We had a financial turmoil in Southeast Asia recently. I suspect there will be, if it is not already the case, some currency depreciation. What is the impact of that on trade with America and Canada?
Mr. Curtis: If I really knew, I would be in the private sector making money.
One of the important lessons coming out of the currency turbulence, I would say, is that it indicates the increasing interdependence of the world's financial system. So all of the reverberations in other parts of the world, including stock markets and currencies, are thereby affected.
It happened ten years ago in a different context -- in Latin America and, more recently, the peso crisis in 1995. This is an increasingly global capital and financial market.
The impact of trade is probably not very large in the short term because exchange rates, from the academic and empirical literature of which I am aware, does not have short-term effects on trade flows. Basically, trade is influenced by fundamental factors of the environment for investment: trade practices, tax policy or the level of exchange rate in the long term. Short-term fluctuations are not very significant in terms of the impact of trade.
What it can do, of course, is affect longer-term growth prospects. It is the longer-term growth prospects which affect trade and investment flows in the long term, and that is still an open question.
My own sense -- and, again, you may want to ask finance officials and the Ministers of Finance in particular -- is that the Southeast Asia economies, and indeed all the Asian economies, are fundamentally strong. This is basically transitory and the result of capital flows and domestic economic management which has resulted in the market saying that the policies that the affected economies are pursuing are such that investors can gamble against them. However, there is noise, and over time, despite the impact on confidence and stability, those economies are fundamentally strong.
Mr. Rudner: Just before coming here this evening, the word from Singapore was that Singapore has offered Indonesia financial support to the order of $10 billion U.S. to tide them over what they see as a period of turmoil. The fundamentals, in their view, are right.
Aside from the magnitude of the support, it is significant in our context today that countries within Asia -- even developing countries, the ASEAN countries -- see themselves as increasingly interdependent, not only in terms of buying and selling with each other but in terms of the more fundamental synergies of development and growth.
The Chairman: I read here that the $10 billion U.S. which Singapore has tendered reflects one-eighth of Singapore's foreign reserves.
Mr. Hart: Let me just add to these very optimistic views of my two colleagues. There is another dimension to this -- that you cannot avoid the fundamentals. Malaysia, Thailand and, to a lesser extent, the other countries were trying to maintain exchange rates which did not reflect fundamentals, and that cannot be maintained very long. Many of them are now seeing the advantages of a floating rate over the fixed rate that got them into this trouble.
This shows one of the weaknesses in these economies which is addressed by the APEC process and by similar kinds of processes. Without some of the institutional safeguards, you do end up investing in holes in the ground and you are not as confident about that investment as you might be and you end up paying a premium for that. That, again, is reflected in the stability of those economies.
I would not disagree that these are fundamentally sound economies in the long run, but they are not as fundamentally sound as the Canadian, U.S. or European economies. There are some real problems in these economies that need to be addressed over the medium term.
Senator Bolduc: Is it because their monetary policy has been erratic in the last two or three years or is it more than that?
Mr. Hart: They have tried to defend the exchange rates which the fundamentals would not allow them to defend. Mr. Soros is very good at finding those kinds of weaknesses.
The Chairman: To focus on Indonesia, Singapore had foreign reserves of $80 billion U.S.; Indonesia needed help. Why? Is there something wrong with the management of that economy?
Mr. Hart: They allow their exchange rates to be favourable to their trade position and so on, but that does not reflect the fundamentals of their economy. Therefore, they get further and further out of whack and they do not have sufficient money in their reserves to be able to pay up in the face of a short-term run such as that made by Mr. Soros.
China is at the other end of the extreme. I saw estimates recently that China has between $200 billion and $300 billion in foreign reserves right now. That is an astronomical amount for that kind of an economy. In other words, they are prepared to defend any run on their economy. They have also been very willing to help the ASEAN countries now. Some of the help that was extended this summer came from China, of all places.
Senator Whelan: You mentioned Mr. Soros. I do not claim to thoroughly follow his actions all over the world, but I do know a little bit about him.
When we talk about trade, we talk about a product and we deliver the product to you. I have strong feelings that as long as we can electronically and instantaneously move billions of dollars, we will never have true stability while people like Soros are running around. He knows how to really screw up the system and do it to his advantage.
The Chairman: The witness has told us that he merely detected the weakness.
Honourable senators, I would thank Professor Hart, Professor Rudner and Dr. Curtis for their help. We have available copies of the document which we have been using as the basis for our discussions today. I will table that in the Senate in order to make it readily available to others.
The committee adjourned.