Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 22 - Evidence
OTTAWA, Tuesday, June 2, 1998
The Standing Senate Committee on Foreign Affairs met this day at 4:49 p.m. to consider the consequences for Canada of the emerging European Monetary Union and other related trade and investment matters (briefing on EU enlargement and Canada-Europe trade and investment issues).
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this afternoon we turn to the second of our two references. This is the reference that relates to the consequences for Canada of the emerging European monetary union and other related trade and investment matters. As we approach the end of this part of the current parliamentary session, I thought that we should make it our business to be briefed on the progress that the EU has made with regard to its proposed enlargement, and on any developments that have taken place in relation to Canada's trade and investment involvement with the EU.
To help us with this important matter, we have, as our principal witness this afternoon, Mr. Jean-Marc Duval, who is not alone. Perhaps before he makes his opening statement, he will introduce his colleagues.
Mr. Duval, Director General, European Union, North and West Europe Bureau, Department of Foreign Affairs and International Trade: My colleague Hugh Moeser is acting director of the European Union division in the Department of Foreign Affairs and International Trade, dealing with, of course, our bilateral relationship with the European Union (EU). Bob Publicover also works with us on this important bilateral relationship.
Mr. Chairman, if it is fine with you, I will give you a brief update of the latest developments on the overview of Canada-EU economic relations. Following that, I will talk to you briefly about the progress the union has made on the enlargement question and then give you a brief summary of what Canada has been trying to achieve in its relationship with the EU since the signing of the action plan in December 1996, in Ottawa.
The EU is the world's largest market, a market of 374 million people, which, in 1997, had external exports in the value of $823 billion representing, roughly speaking, 10 per cent of its GDP. It gave the EU the highest share of world exports at 19.7 per cent. The EU was, for the same year, the world's second largest importer of goods, behind the United States.
[Translation]
In 1996, trade within the European Union accounted for 63 per cent of EU exports and for 64 per cent of overall imports. In 1997, the EU conducted 20 per cent of its foreign trade with the United States, 5 per cent with Japan and 2 per cent with Canada.
[English]
In fact, 33 per cent of our export growth between the period 1985-1997, outside the United States, came from our growth with the EU. The union is consistently Canada's second most important trading partner, after the United States, absorbing an average of slightly less than 7 per cent of Canadian exports.
In 1997, Canada's exports to the EU amounted to $14.4 billion Canadian and imports stood at almost $27 billion. If we look at the breakdown of our exports to the EU by commodity sectors, we notice that the most important one is industrial products, which represented 31 per cent of Canadian exports to the EU, followed by machinery and equipment at 24 per cent, and forestry products at 23 per cent.
For those who are interested in the numbers, we have brought some documentation with us, which we will leave behind, and all these facts are illustrated in the documents.
[Translation]
The European Union is also the second largest source of direct foreign investment in Canada after the United States. Direct EU investments in Canada accounted for 20 per cent of total direct foreign investment in Canada in 1997. Direct Canadian investment in the EU represented a further 20 per cent of all Canadian direct investment abroad.
[English]
I have talked briefly about trade and goods and the importance of the structural changes. It is also important to say a brief word on trade and services. Canadians received from the EU what amounted to $6.7 billion in 1997 for travel, transportation, and commercial and government services. Canada, on its part, disbursed for the same services $1.8 billion more, so we faced a trade and services deficit of $1.8 billion with the EU in 1997.
[Translation]
If we take a look at European investment in Canada, we see that in 1996, it totalled $37.4 billion.
[English]
The United Kingdom is the largest investor in Canada of all the EU member states, representing 41 per cent of the total EU direct investment in Canada. That share has been declining. It was 56 per cent in 1985, relative to other EU member state investors, like the Netherlands, France and Germany.
[Translation]
In fact, of the 10 largest foreign investors in Canada, the United Kingdom ranks second, the Netherlands fourth, France fifth, Germany sixth, Belgium eighth and Sweden tenth. Six of the biggest foreign investors are EU member countries.
[English]
Canadian investments in Europe also increased to a level of $41 billion in 1997, representing 21 per cent of all our investments, mostly to the United Kingdom. In 1997, our total investments there amounted to $21.7 billion, and we have been making progress in other countries, as well.
As you know, the union is now contemplating its fifth enlargement. The first took place in 1973, when the U.K., Denmark and Ireland joined. The U.K. was, and still is, our most important trading partner. In fact, in 1997, our exports amounted to almost $4 billion and our imports exceeded $6 billion.
[Translation]
The admission into the EU of Greece in 1981 and of Portugal in 1986 had only minor repercussions because our volume of exports to these countries is much lower than our exports to those countries which joined the union when membership swelled in 1973.
[English]
Austria, Finland and Sweden joined in 1995. The volume of our trade was substantial: $820 million. Duties were increased on important Canadian exports as these countries adopted the EU's common external tariff, and the compensation we were able to get, as foreseen under the World Trade Organization, was very hard for us to obtain, indeed.
It was claimed that Canada had to accept the good with the bad: that the lower duties in some cases offset the higher duties in others. We had to threaten to withdraw concessions that had lowered Canadian duties on EU goods before we could achieve a settlement in the form of reduced EC duties on selected Canadian exports.
[Translation]
Discussions have just now begun on the next expansion phase. The EU is poised to welcome the following new members: the Czech Republic, Poland, Hungary, Estonia, Slovenia and Cyprus. The admission of these six countries will mean major institutional reforms for the EU. Let me share with you some figures pertaining to the economic situation of these countries. If we look at the per capita GDP of the majority of the 15 EU member countries, at one extreme we have Portugal with a per capita GDP of $10,000 and at the other extreme, Luxembourg with a per capita GDP of $40,000 U.S. Portugal's GDP is expressed in Canadian dollars.
[English]
If we look at the six countries that wish to become members of the EU, Cypress has the highest GDP per capita, at $13,000 U.S., while Poland has the lowest, at $3,800 U.S. This illustrates the kind of discrepancy that exists in terms of economic development between the would-be next six members and the present 15.
[Translation]
Canadian exports to these six countries totalled $356 million in 1997, or .2 percent of our foreign exports.
[English]
You will recall that I mentioned earlier the total value of our exports to the EC, which in 1997 stood at $14.4 billion.
[Translation]
Major Eastern European countries have much higher tariffs in place than EU countries. Consequently, Canadian exports to these countries will benefit most of the time from lower custom duties than those charged in EU countries.
[English]
In a few cases, however, there will be increases in duties; for example, on pork, herring, fruit juice, and aluminum exports to the Czech Republic. There will be significant improvement in access for Canadian chicken, pork, turkey meat, durum wheat, and other products, to Poland.
We will then have to see what we do with the community, when they are more advanced in their negotiations with the present members. However, it looks like Canada might be in a difficult situation to get compensation, considering the higher tariff of the present six candidates, when they become members of the EU.
I will move to the third topic, that is, where we are in our action plan with the EU.
[Translation]
This document -- we have also brought along others arising from a joint political statement on relations between the European Union and Canada and the joint plan of action between the European Union and Canada -- was signed in December 1996 by Prime Minister Chrétien, by the President of the European Community and by Sir Leon Brittan, the Community's Commissioner for Foreign Affairs.
This document contains four chapters: one on economic and trade relations; a second on foreign policy and security issues; a third on trans-national issues and a fourth and final one on promoting ties.
[English]
Let me say a few words on each of these four chapters. "The Economic and Trade Relation" chapter has, as its main elements, the Canada-EU Joint Trade Study and the conclusion of various bilateral agreements between Canada and the EU.
We have signed agreements on fur, custom procedures, and the most recent one, at the EU summit last May in London, was a Conformity Assessment Agreement.
[Translation]
We have also put forward and we are currently working on a joint trade study with a view to identifying barriers to improved trade relations.
[English]
We must also find ways to increase our bilateral trade. We agreed with the commission early in September to exchange lists of trade barriers, which were prepared after consultations with the Canadian stakeholders, the private sector and the provinces.
We asked a consultant, as did the European Commission, to work on a report that was presented in draft form at the summit last May. More work is needed before the report is in its final form, and then the plan will be for officials to sit together, on the Canadian and commission side, and try to solve some of our difficulties, and then increase our trade.
[Translation]
Foreign policy issues, the second pillar of our action plan, provide an opportunity to engage in regular consultations in this field to resolve more easily differences in our respective positions and to better coordinate our actions on the international stage. The British Secretary of State Mr. Cook, Mr. Britten from the Commission and Minister Axworthy held some foreign policy discussions in Ottawa in January 1998. EU political leaders, and officials from the so-called troika, namely Austria, Great Britain and Luxembourg, met in London on May 8. On the agenda were timely issues such as the enlargement of the European Union, the Summit of the Americas, Cuba, the European Union's anti-drug initiative for the Caribbean and India's nuclear program.
[English]
The third chapter is on what we call trans-national issues: areas like immigration and refugees, terrorism, organized crime, drug trafficking and customs enforcement.
To more actively pursue topics covered under this third chapter, we appointed an additional officer to our EU mission last September. The officer has been there for the last nine months. So far, the results are such that we are happy with the decision that we have taken.
Finally, the third chapter deals with what we could call people-to-people matters, or fostering links between Canadians and Europeans. There are two subcomponents: one is business to business; the other is people to people. On the business-to- business side, the BCNI, a Canadian company, participated at the transatlantic business dialogue meeting last November in Rome, where major corporations from the United States and Europe met to discuss how best to improve trade between the various partners.
[Translation]
The Council's business representatives and Mr. D'Aquino are making plans to organize a one-day meeting in Canada, most likely this fall or next spring, of European and Canadian economic decision-makers to pursue these discussions.
[English]
We have also been working with our SMEs, with people from the private sector, to bring Canadian companies over to Europe, and vice versa. In fact, later this week, on Thursday, the first meeting between European and Canadian SMEs will be here in Ottawa. It is taking place at the same time as we have been working with CATA, a Canadian association.
We are aiming at working with information, technology and medical device companies to bring together not only trade, but also investment. For people-to-people exchange, we have been working on scholarships and student and worker exchanges between Canada and the EU to increase the level of awareness on each side of the Atlantic. When we were in London last May, both Ministers Axworthy and Marchi announced 55 new scholarships for Canadian youth interested in pursuing some `stage' in the EU during the coming months.
On this, Mr. Chairman, I will stop and try to answer any questions you might have.
The Chairman: Let me start off by asking a question concerning the possible impact upon our exports, the enlargement for Poland, Estonia, Cypress, and so on. My understanding, from what you have said, is that, unlike previous EU expansions, our exports to the new countries will not be negatively affected -- in other words, higher tariffs -- in general but that, in certain instances, such as pork, herring and fruit juices, there may be some negative impact upon our exports.
Did I hear you correctly?
Mr. Duval: Yes, you are correct, Mr. Chairman. What is happening with the new countries is that their tariffs, on average - there are exceptions, and I indicated some of them -- are higher than the EU tariff. When they join the EU, their tariffs will have to be lowered to that of the existing 15 countries in the EU. Therefore, it will be difficult to ask for compensation within the WTO -- but there will be exceptions.
The Chairman: You referred to a trade study to ascertain barriers for transatlantic trade between Canada and the EU -- a joint trade study, I believe, was your language. Is it premature to ask whether that study might be considered a preliminary step toward a Canada-EU free trade agreement?
Mr. Duval: I would be hesitant to use the words "free trade agreement," but the purpose of the study is certainly to identify barriers and then identify how best to remove them, either on a bilateral or multilateral basis.
If we can do it on a bilateral basis, then we will all benefit -- and then, yes, in that particular case we would have free trade for a given product. I do not mean to preclude the outcome of the study, Mr. Chairman, because it is still in draft form, and more work is needed. We will then sit down with our EU colleagues and negotiate where we go next.
I think it will be difficult, as a result of the trade study, to aim at a free trade agreement. I think we will have freer trade, but not a free trade agreement.
The Chairman: Would you make a brief comparison between our trade and investment relationship with the EU and that which exists between the United States and the EU, insofar as trade and investment are concerned. Where do we stand, in comparison to the United States?
Mr. Duval: I do not have the investment numbers, Mr. Chairman, but I think their numbers are bigger and more important than ours.
The Chairman: I was referring to the terms of investment and the terms of trade, if I may express it that way.
Mr. Duval: We signed our action plan in 1996; the U.S. signed theirs in 1995. Some people have asked why we did not do it earlier. In fact, the plan was ready to be signed a lot earlier, but there was a difference with one of the 15 member states, regarding a certain issue related to what some of us still eat on Friday. That is why we were late in signing.
We are doing quite well. Let me give you an example. The Conformity Assessment Agreement, when it is all in place -- and more work is needed, but when it is all in place -- will allow for Canadian companies on Canadian soil and European companies over there to have their goods assessed in such a way that they will meet required specs prior to leaving their territories.
Canadian companies have been asking us to actively pursue this because they had heard that some of their American competitors were on the eve of acquiring privileges under an agreement signed by the U.S. on the 18th. Well, we signed on the 14th and, as such, will benefit from the same advantages as the U.S.
The Chairman: Would you please elaborate on what a conformity assessment agreement is all about?
Mr. Duval: It is a bilateral agreement that will enable designated European bodies -- or Canadian, in our case -- to certify that European products intended for export are in compliance with the regulatory requirements of the end country.
Conclusion of the Canada-EU agreement on conformity assessment will reduce costs and facilitate market access in Europe for Canadian producers of telecommunications equipment, electrical safety and electromagnetic compatibility, medical devices, pharmaceutical goods manufacturing practices and recreational boats. These agreements are a fantastic trade facilitation tool for companies on both sides. This is one example of a bilateral agreement.
With respect to the joint trade study -- which is not yet finished -- if officials are able to successfully bring it to a conclusion and negotiate agreements to eliminate barriers to trade, we will surpass the U.S., whose joint trade study has been completed but which is stalled because of differences of opinions on each side. We hope the same thing will not happen with ours. We are not there yet.
Senator Bolduc: What is the justification for the Europeans seeming to prefer dealing with Mexico than with us? I have read articles to that effect in The Globe and Mail recently.
Mr. Duval: Since Mexico joined NAFTA, the EU's market share with Mexico dropped from 11 per cent to 6 per cent. Thus, the EU wants to do something to gain back that market share.
Slightly more than 20 per cent of Mexican exports to the EU are petroleum products. After that, you get into very insignificant percentages. For example, agricultural products represent 9 per cent of Mexico's exports to the EU. However, of that 9 per cent, 45 per cent will be put on a sensitive products list. So if you do the multiplication, you get below 5 per cent, which, as per the WTO agreement, allows you take this away from the free trade discussions.
So sensitive agricultural products, depending on the outcome of these discussions, will probably be excluded from that agreement. If agriculture is left out of any free trade discussion with the EU, it tends to make the discussion a lot easier vis-à-vis sensitivities that we are all familiar with within the union.
Will that have an impact on Canada-Mexico trade? I am not an expert, I have not studied this, but if I had to give you an answer tonight I would say yes. Will the impact be a major one? I would tend to say no, but I could can be proven wrong.
Senator Bolduc: To continue the discussion on agricultural products, Poland has a large agricultural labour force -- 24 per cent of their labour force, I understand -- which means that the Common Agricultural Policy will have to be changed. If that is done, will it eventually help us, or hinder us?
Mr. Duval: I wish I had the answer to that. As part of the enlargement discussions, the European Commission developed what is known as Agenda 2000 -- a program of reforms intended to assist the current 15 members better absorb the next wave of six entrants, even if they do not come at the same time, at the beginning of the next century.
Senator Bolduc: But Poland is the main case.
Mr. Duval: In terms of agriculture, you are right, Poland is a very serious issue for the community. The European Community will have to reform its Common Agricultural Policy. Between now and the end of September, everybody will tell you that nobody will touch this file, because of the German elections and the importance of the Common Agricultural Policy in Germany.
The EU's export subsidies program is causing problems for a lot of people. Recently, newspapers have reported on what is happening with the export of Finnish barley to California. We do not like the EU export subsidy program, so if they were to lower or change -- as a result of Poland, because of fiscal pressure -- their export subsidies program and thus be "less competitive on the world markets," we can only benefit from that.
Senator Bolduc: I may be wrong, but the way I see it, you cannot talk about changes in agriculture with Poland or with the U.S. or with Canada -- speaking from the EU point of view -- because of the German election, because of the French protectionism, so I do not see Poland in the community for maybe five years.
Mr. Duval: Around that time, yes.
Senator Bolduc: It is quite possible.
Mr. Duval: Yes. Right now, an amount of 1.27 per cent of the value-added tax is transferred from member states to the commission. There have been a lot of discussions about increasing that ceiling because some of the countries in the South -- for example, the average per capital income in Portugal's is $10,000, roughly speaking, per year.
The Portuguese are benefiting, like other Mediterranean countries, from regional funding. If regional funding is decreased -- I was in Lisbon in January, and this is not something they contemplate with a lot of enthusiasm. Countries like Germany and The Netherlands, who are net contributors, do not want to increase the ceiling. They insist on reform before the budget is increased.
Senator Bolduc: Canada had problems with the EU regarding the way we handled the fishing problem with Spain. I now understand that we are taking the French to court on asbestos. Do you think it will help us to discuss this with the EU?
Mr. Duval: You mean that we are going to court with Spain?
Senator Bolduc: No, with the French.
Mr. Duval: Oh, with French.
Senator Bolduc: On an asbestos issue.
Mr. Duval: We have had plenty of discussions with the French on the matter of asbestos. If you look at the press release that was issued earlier last week -- and we have copy of it -- there is a chronology at the end of it of the various steps that have been taken to try to address that problem, not only with the French, but also with other member states, including the commission. We have been working with the French since January 1997 on that matter.
The Canadian government was under certain pressure from the industry, and has been for a certain time, to move and challenge that decision at WTO. We hope that a report that is being prepared by Professor Got, the receipt of which we expect shortly, will help the French authorities understand that, from a purely scientific point of view, the argument that we have been making since the beginning is a solid one.
If we fail to reach an agreement during consultation, we will have to move to the panel. Those irritants -- if I can use that word -- are normal, when you are involved in a $40-billion bilateral trade relationship. One file at WTO is not a big deal. The EU took us to the WTO on pharmaceuticals; we might take them to the WTO on another issue. Those mechanisms are available, if you cannot reach an agreement.
Senator Bolduc: It will not, in your opinion, have the same political impact as the fiasco with Spain.
Mr. Duval: No, not at all.
[Translation]
Senator De Bané: With respect to asbestos, when you say that this will not have the same impact, we are the ones who are the victims here.
Senator Bolduc: Here we are removing asbestos from the walls of the Parliament Buildings because we are told that it poses a health hazard, whereas in Europe, people are being told that it safe.
Senator De Bané: No, that is not what our scientific experts are saying. In any event, in the two areas of interest to Quebec, namely books and films, and asbestos, France is not very sensitive to concrete issues.
Mr. Duval, could you tell me what the difference is between the WEU, the Western European Union and the EEA, the European Economic Area? The same countries seem to belong to these two organizations.
Mr. Duval: The EEA is an economic organization whereas the WEU is a security organization. The latter is primarily concerned about foreign policy. You are correct, however, in saying that the same countries belong to the two organizations.
Senator De Bané: For example, with respect to foreign policy, can one member country recognize another country, or must this be a collective decision? Consider this question carefully, because our Quebec friends are interested in this subject.
Mr. Duval: I understand the gist of your question. Being neither a legal expert or an expert on State recognition, I think there would be no opposition, whether in the case of Quebec or other countries. I do not believe that the community would be required to take a stand on this issue. Joint foreign policy is not as advanced as trade policy is. For example, I am thinking here about a common policy within the UN community. France and the United Kingdom sit on the Security Council. They do not necessarily represent a community policy, but rather a national policy.
Senator De Bané: I agree with you that countries are not as unified on the issue of foreign policy as they are on economic policy, but when it comes to recognizing foreign countries -- and the example of Yugoslavia comes to mind -- recognition was the result of a joint decision.
Mr. Duval: I am very happy to hear you say that, Senator De Bané.
Senator De Bané: And you will also be happy to hear that Mr. Juppé said that given what happened, there were deep regrets expressed about having recognized Croatia far too hastily.
Is one of the reasons for the problems that you are having in your negotiations with Europe the fact that Europe thinks of Canada as the Trojan horse of the United States? They are not convinced that we are sufficiently independent to conduct business in partnership with them, and that ultimately we are torn between them and our loyalty to the United States and that the United States will win out? Apparently that is one reason why they are making life difficult for us.
Mr. Duval: I have held this position since September and I would have to answer no to your question. When it comes to foreign policy and trade policies issues on the international stage, we often take a stand that more closely reflects one position rather than another and sometimes this does not please the other party
If you go to Washington and ask them -- I do not wish to debate this matter because I am not an expert -- if they appreciate our position on cultural issues, sometimes they will say that our position is too close to that of certain European Union members.
However, if you go to Washington or to Brussels and discuss other issues, you might hear people argue that our policy is too similar to that of Washington. I do not think that we can generalize. On some matters, our position is very close to that of Europe, regardless of the sector involved. To use your expression, it has never been my impression that we were viewed as the Trojan horse of Washington in Belgium.
Senator De Bané: European politicians and diplomats, when they look at North America, see Canada and the United States as one entity. They generally feel that Canada will support the U.S. on issues. In my view, this is what goes through their minds.
Mr. Duval: Sometimes people wrongly believe that there exists a North American fortress and a European fortress, but the two sides do work together very closely. Often, serious disputes can arise.
That is inevitable and to be expected. The European Union conducts 65 per cent of its trade abroad. Our bilateral trade with the United States represents $1 billion per day; 82 per cent of our export trade is with United States. We would be unwise to risk this 82 per cent for a seven per cent share of the European market. We are quite willing to negotiate and to make an effort, but if we lose a share of this 82 per cent to gain a 7-per-cent share, then it is not worth it.
The same holds for foreign policy. Consider the talks now underway within the EU on the new Security Council members. Some maintain that European cooperation is a factor, some say nothing, while others say something entirely different. Sometimes solidarity comes into play, but it truly depends on the issues on the table. What you are saying is true, namely that some European spokespersons assume, even before negotiations have begun, that our position will be more North American than European, and yes, that comes as no surprise.
[English]
Senator De Bané: If you could look 20 to 25 years into the future, do you see our trade with Europe increasing at the same rate as that of our trade with the Asia-Pacific region?
Mr. Duval: Could I ask for a crystal ball, please?
Senator De Bané: I will give you my opinion; it is only a hunch. I think our trade with Europe will be very minimal. In my opinion, those 45 or so countries -- there are over 45 on your map -- will concentrate their efforts on trade relationships among themselves. Once the Asian crisis is resolved, Canada's will increase its level of trade with the Asia-Pacific region.
The Chairman: This is getting to be very highly speculative. I do not know whether it is being properly covered by the advisors to the mutual funds.
Senator Di Nino: If you had limited resources available to you and had to make a choice over the next five to ten years as to where the opportunities for Canada lie -- either in Europe or Asia -- where would you direct the larger portion of those resources?
The Chairman: I wonder if that is a fair question.
Mr. Duval: It is very difficult. If you want a personal opinion, I can give you one. If you want a professional opinion, I do not have a crystal ball. I can tell you what has happened in the past; as to the future, it is extremely difficult. Since the early 1990s, mid-1985, say, there has been a shift of resources to Latin America and Asia. We have put more resources there than in any other region in the world.
That is the past. As to what will happen in the next 25 years, that is anyone's guess. Who could have predicted Black Monday, October 1989? Who could have predicted the current situation in Asia? Who could have known, 10 years ago, where Latin America would be today?
Senator Di Nino: There is an organization called the Canada Europe Association. Do you work closely with that organization, or is that an independent body that may not have much to do with your work?
Mr. Duval: Are you referring to the parliamentary associations?
Senator Di Nino: Yes.
Mr. Duval: Yes, we are working with the Canada European parliamentary associations, as well as with the various Canada bilateral associations. Every time we can work with parliamentarians on a multilateral or bilateral basis, we are more than happy to do so. Again, it is a question of greater awareness, of using the good offices of members of Parliament or of the Senate, either here or when they are abroad, to pursue our bilateral objectives. Yes, we are working with this association.
Senator Di Nino: Has there been any discussion with the Canada-Europe Parliamentary Association as regards the conference that you are suggesting may happen in the next twelve months or so, on economic issues, bilateral economic issues?
Mr. Duval: The answer is no. The mechanisms that we have in place vis-à-vis our bilateral relationship with the EU is that twice a year the Prime Minister meets with the President of the EU. Mr. Axworthy attends meetings with his foreign minister counterparts. There are meetings of political directors. There are also meetings of officials.
Senator Stollery: Can you tell me what our exports would be to the U.S. if we took away the Auto Pact?
The Chairman: While Mr. Duval gets that answer for you, perhaps you would ask your other question first.
Senator Stollery: Mr. Delors told this committee, a couple of years ago, I think it was before the Turin round, that the European community, from the Maastricht Treaty, had not been able to deal with the common security and justice issue, had not been able to deal with the common foreign policy, and he was quite critical of that in a famous article that I am sure you read in Le Monde.
Presently, there are issues such as the German election campaign, which does not sound like it is going too well for Christian democrats, the controversial Euro issue, with the problem of the presidency of the European Central Bank, and the fact that there is obviously an important policy difference between the Germans and the French.
My question is: Will it not be even more difficult to gets decisions from the counsel of ministers and from the commission? How can their decision-making process work efficiently in an atmosphere of what I see as an awful lot of policy log jams?
Mr. Duval: I will first answer what is now your easiest question, the one related to automobiles. I have some figures here. Our total automotive exports in 1997 amounted to $302 billion; that is worldwide. The country that imports most of those automotive products is the U.S., for a total of 23.2 per cent. Therefore, the U.S. imports, roughly, $75 billion worth of automotive products from us, leaving $230 billion worth to be spread around other countries.
The decision-making process at the commission will have to be addressed. One can only imagine what the process might be when there are 21 countries around the table. As it stands things are not easy, with 15 at the table, some votes being unanimous, others being qualified -- and I know you have all of this in the report.
Institutional reform is a key part of Agenda 2000, which is a blueprint for the reform of the economic management of the EU and for its enlargement at the turn of the century. Decisions will have to be made on issues such as when do we vote on consensus, when do we vote on qualifying majority or when do we vote hold a unanimous vote.
I do not have a solution, but they will have to address the issue of institutional reform. Will they be successful? I hope so, because if they are not it is going to make dealing with the EU even more complicated.
Right now, when you seek a decision at the commission, 14 other people have to be consulted, before any change you propose come into effect. An incredible amount of time is spent on small details. Hence, when something major comes along, it is extremely time consuming and slow.
Senator Stollery: It will be more than slow. In terms of where you would put your energies -- in the Far East or in Europe -- to me the answer is very clear: You put them in both places because they are both very important. The first is a group of first world countries, in Europe, that have money; the second, apart from Japan, at 17 per cent of the world's economy, is third world countries that do not have any money. So you have to put your efforts in both places. To me, for Canada, it is obvious.
What troubles me about Europe is I see a -- I am trying to think of an expression for when you cannot make decisions. Everything is on hold because of the upcoming German election, the possible change of government. There is an increasing distance between the European community and the European population, which is manifested in every election, in every referendum, in every poll that we see, so it is interesting to speculate as to just where this is all going.
Mr. Duval: As you know, senator, this is one of the points that has been identified in Amsterdam, in what is called the democratic deficit. The issue is how to best address it, because the population has been telling them, the politicians, either at the national or EU level, that they need a change.
A brief comment, if I may, on the bank. If you look at the success, apart from the bank, that Europe has been able to achieve over the last 20 years -- I happened to be fortunate enough to spend some time at the College of Europe. In the mid-1970s, when they were talking about a common passport, I though they would never get one. Well, here we are today. When the Werner Report was published in the early 1970s, there was talk about a common currency, and people said that that would never happen. Here we are, and on January 1, it is going to happen; and in 2002, all of those national currencies will go.
Yes, there were some rather difficult negotiations, to use diplomatic language here, vis-à-vis the chairmanship of the bank. The way I see it, the way I have been following it, it is a difference of opinion between one member state and the rest of the club, in terms of the approach of both individuals to monetary policy.
Both of them, I am told -- and again I am not a monetary policy specialist -- are people who come with roughly the same approach to managing monetary policy. Hence, the debate is not whether or not the bank would be pursuing a given policy, which the Germans say should resemble as close as possible the Bundesbank, but mostly a question of which country's representative, because the bank is in Frankfurt, should sit in the chair, and for how long.
The Chairman: I am looking at the report from Statistics Canada on Canadian trade with the EU. Am I correct in reading the table that again and again Canadian imports to the union are higher than our exports to the union? Let us look at the period after 1993. It would appear that Canadian imports went up very considerably. Then in 1995, our exports were high but began to taper down. Is there any explanation for that divergence, which sets in, let us say, in 1995, and then continues in 1996 and 1997?
Mr. Duval: Your interpretation is correct, Mr. Chairman, but I do not have an explanation about why specific exports might have gone up or down. I do not have the breakdown with me, over the three years to the 15 member states. The Conference Board of Canada did a study, and one of our colleagues looked at that study in an effort to explain the nature of our exports and imports -- and our imports to the EU have always been larger than our exports.
One of the major factors is the increasing importance of the United States. The other is that Europe experienced a economic slow down in the early 1990s. A third factor -- and I cannot quantify the importance of each one for you. If you wish, I will be more than happy to put this in writing for the benefit of the members of the committee. The third factor was the exchange rate fluctuation between the Canadian dollar and European currencies.
Senator Bolduc: The going price of commodities, I guess, has been influential also.
The Chairman: That prepares the ground for my important question: Do we anticipate that the inauguration of the Euro will have an effect upon the currencies, the relative value of the currencies; and if so, how will that flow through to the trade relationship?
Mr. Duval: I think, Mr. Chairman, you have met somebody by the name of John Murray, who is a lot more qualified than I am to explain the pros and cons of a single currency. We would be more than happy to make available a study that was done on this topic.
As to the benefits and disadvantages of the introduction of the Euro, not being a economist, I quickly skip to the conclusion, which reads roughly as follows:
That everything being considered, the introduction of the Euro should not have a major impact on Canadian exports to Europe. The pros of the introduction of the Euros, as Mr. Murray explained to you, lowered cost for converting currency, so on and so forth. Hopefully, the EU economy will benefit and will be growing at a faster rate, being more competitive. Being more competitive, it will compete more aggressively against our exports, not only in the EU, but in other markets.
Having a booming economy at a pace which is faster than would not have been without the Euro, they should be importing more, therefore we should benefit. Even if our trade represents only 2 per cent of their external procurement, we should benefit from a booming European economy.
The Chairman: I think we would all agree that we have had a very productive session. Mr. Duval has been an eloquent witness. We are most appreciative.
Mr. Duval:. Mr. Chairman, we would be delighted to meet with you again.
The committee adjourned.