Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 8 - Evidence
OTTAWA, Tuesday, May 17, 2000
The Standing Senate Committee on Foreign Affairs met this day at 3:50 p.m. to examine and report on emerging political, social, economic and security developments in Russia and Ukraine, taking into account Canada's policy and interests in the region, and other related matters.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, today we will hear from officials from the Department of Foreign Affairs and International Trade.
Senator Bolduc: Mr. Chairman, since we have another commitment at 5:00, I would like to know if you intend to sit until 5:30.
The Chairman: I understand that Senator Corbin must leave, too. I am in the hands of the committee.
Senator Corbin: I would suggest that the committee continue if it so wishes.
The Chairman: Mr. Wright, please proceed.
Mr. James R. Wright, Director General, Central, East and South Europe Bureau, Department of Foreign Affairs and International Trade: Honourable senators, it is a delight to be back before your committee, especially at this important period of time in terms of developments and transition in Central and Eastern Europe.
Amid momentous changes wrought by the break-up of the Soviet Union and the discrediting of Communism as a political and economic force, Canada and Russia each entered the early 1990s with a strong sense of what it wanted out of relations with the other. On the whole, Moscow sought Canadian support for Russian efforts to join global institutions like the G-8 and to enter western markets, from fertilizer and aluminum to steel and oil. They were also looking for practical Canadian engagement within Russia on economic reform and institutional renewal.
Among Canada's vital aims were promoting democracy and economic reforms, accelerating disarmament and securing a prominent place in the new Russian economy for Canadian exports and investment.
The consensus pervaded President Yeltsin's four visits to Canada, twice in 1992 as a new head of state, once in 1993 for trilateral talks with our Prime Minister and U.S. President Clinton, and once in 1995 for the Halifax Summit which deepened the partnership between the G-7 and Russia.
These visits were also the backdrop for a decade of ambitious Canadian bilateral initiatives with Russia: our strong dialogue on foreign policy issues and regular strategic stability talks since 1993; an intergovernmental economic commission founded by Prime Ministers Chrétien and Chernomyrdin in 1995; Canada's extensive program of technical cooperation organizing professional exchanges for reform; a multi-pronged dialogue on federalism and on the Arctic and the North; and, finally, on engagement by companies, departments and citizens on a widening array of fronts.
What do we have to show for all of these activities today?
[Translation]
There is certainly much to be proud of in the record of the last decade. Since 1992, Russia has held three sets of parliamentary and two sets of presidential elections with strong Canadian support in many forms. Russia has discarded central planning, liberalized prices, created genuine markets and privatized the bulk of State assets. Finally, Russia has moved closer to its Western partners through membership in the G-8, structures for dialogue with NATO and collaboration on the ground in Bosnia, Kosovo and elsewhere. Canada and Russia are partners in a wide array of successful ventures, from fast food in Novosibirsk to heli-logging on Vancouver Island.
[English]
However, there have also been some disappointments. Our positive reinforcement on Russia's domestic transformation hit a roadblock in Chechnya. The Russian thinking that lies behind this war has challenged the notion that the new Russia shares our values. Our economic engagement as exporters of a growing range of goods and services, as well as investors in key sectors, has slowed since the August 1998 financial crisis and as a result of the ensuing retrogression in Russia's banking sector and deterioration in the investment climate. Finally, our collaboration in the foreign policy arena has stumbled over headlined issues such as Kosovo.
In the time available to us today, Mr. Chairman, my objective is to share with you our emerging vision of Russia's new leadership and the challenges it faces at home, on economic policy and abroad. I would also like to outline the current prospects for Canada's relations with Russia, as friends, as foreign policy players and as still under-performing economic partners and in special roles linking us as federations, leading resource producers and joint stewards of the Arctic and the North.
President Putin was sworn in on May 7 and is now forming his government. Only today, the state Duma overwhelmingly approved President Putin's nomination of Mikhail Kasyanov as prime minister. Despite the KGB background and at times sensational media profiles, President Putin's origins and orientation are fairly well-known to us. He was a key player in the St. Petersburg reform experiments of the early 1990s and, by loyalty and hard work in presidential structures in Moscow after 1996, he rose to become president Yeltsin's hand-picked candidate for the succession.
Prime Minister Kasyanov is a forthright professional economist who, among other things, handled grain and other credit arrangements with Canada in the early 1990s. He is well-known to us and to international financial institutions.
[Translation]
Chechnya has shown the degree to which Putin's priorities are domestic: he will resist outside interference when it impinges on Russia's interests. He is taking office with strong support from traditional constituencies at the centre -- the military, the security organs and the government bureaucracy -- support that may constrain his margin for future liberalization. Since last fall, he has also been making a convincing play for nationalist sentiment, promising a strong State in which Russians will once again be proud to be Russians.
[English]
Among the many plans and programs now being leaked and debated in Moscow, there are three fundamental challenges the new team under President Putin has defined for itself: Reining in the regions of Russia which have legislated often in contradictory ways over the past decade on key issues like taxes and property rights in the absence of federal statutes; re-energizing the economy with growth and investment-oriented reforms, public sector cuts, deregulation and pension reform to improve living standards and competitiveness; and, finally, attacking crime and corruption which continue to unhinge federal revenue collection efforts and to poison the business environment in key sectors, especially for small and medium-sized enterprises.
With respect to the economy, despite strong growth in industrial output last year and strengthening GDP performance overall, the next stage of Russian reform, the structural and micro-economic agenda, has effectively stalled. Russia remains heavily indebted to devaluation, import substitution and high oil and other commodity prices for its enhanced performance. Without early action to tackle tax, banking, property and sector-by-sector reforms, serious vulnerabilities will remain. The new government is so far placing debt and international financial issues ahead of this structural agenda.
Prime Minister Kasyanov is the skilled negotiator responsible for rescheduling Russia's Soviet era debt in 1995; issuing Russia's first Eurobonds, in 1997; and brokering the breakthrough January 2000 Accord with the London Club creditors that began to end Russia's post crisis isolation from global financial markets.
Now that he is confirmed, Mr. Kasyanov is expected to earnestly seek a Paris Club rescheduling and a renewed dialogue with the IMF and other international financial institutions. Our view is that Russia has the resources it needs to meet domestic and debt obligations. New financing should await real movement on the structural agenda.
[Translation]
In bilateral economic relations, Canadian exports to Russia -- like those of most Western partners -- are off more than 50 per cent from 1998 levels, while devaluation-fuelled Russian imports are at or above pre-crisis levels. Our major challenge in seeking to regain balanced trading relations with Russia has been slow recovery and very poor transparency in the Russian banking sector which have dramatically reduced the availability of trade finance for Russia.
[English]
As a government, we are investing substantial efforts to resolve investment disputes, where promising Canadian projects have fallen victim to uncompensated expropriation, regulatory ambiguity or outright criminal acts. Unfortunately, there is still relatively little progress to report, and several benchmark cases, especially in resource sectors, have only gotten more difficult since September 1999. Bilateral engagement on these issues remains heavy, with four Russian ministers visiting Canada in the first six months of this year, all with business and investment agendas. Moreover, in late June, Canada's Minister for International Trade Pierre Pettigrew is set to lead a major delegation to Moscow and St. Petersburg for the fourth meeting of the Canada-Russia Intergovernmental Economic Commission.
It is absolutely vital to signal at this point that investment remains a watershed challenge for the Russian economy. The current Russian business establishment, now known as the "oligarchs" and infamous for its near-monopoly levels of control and connections to organized crime, is deeply hostile both to structural change and to new investment. In bringing order to these difficult issues, we are certainly prepared to judge President Putin by his deeds and not just his words.
Although mindful of the gaps in thinking exposed by the Kosovo and Chechnya crisis, President Putin has begun to chart a path towards engagement with his G-8 counterparts that will culminate in the July Okinawa summit.
Given the German-speaking Putin's early exposure to Europe and the enormous stakes the European Union has in Russia's future, it is only natural that we should be detecting a European emphasis in President Putin's outlook.
The rapid ratification of the Comprehensive Test Ban and the START II treaties represent a real contribution to strategic stability and to the arms control and disarmament regime. We hope Russia will make this achievement a hat trick by ratifying the Open Skies Treaty which of course was negotiated in this fair city.
Beyond productive work with Moscow to prevent and resolve regional conflicts, our number one priority is engaging Russia in the management of Euro-Atlantic security. This includes major challenges related to, first, the preservation of the ABM Treaty in the face of uncertainties generated by U.S. plans for national missile defence; and, two, strengthening global non-proliferation regimes for nuclear and other weapons of mass destruction, where Russia has an enormous role to play.
Russian foreign policy is still underpinned by a desire for parity -- parity with the U.S. on arms control and global issues, and parity with NATO on European security issues. The Russian concept of multipolarity should be seen in this context. It has played off fears of growing U.S. influence and led Russia to pursue extensive and often expensive forms of engagement in Asia and elsewhere.
Under President Putin, mulipolarity may be yielding to a more interest-based approach. However, where Russian foreign policy pursues party or interests without regard for human rights and shared values, it stands to constrain prospects for our cooperation as full partners.
The absence of appropriate forms of civilian protection and political dialogue throughout Russia's military campaign in Chechnya are a very important case in point.
[Translation]
We remain alive to the challenges Russia faces as it seeks to ensure continuing relevance for the Commonwealth of Independent States and to strengthen relations with key neighbours. The Belarus model of governments -- with its authoritarian traits and regular contempt for fundamental rights and freedoms -- requires vigilance and containment, especially on the part of Russia. We are also watching closely Russia's evolving relationship with Ukraine, where major issues relating to debt and control of economic assets are still playing out.
Despite some clear disappointments and continuing uncertainties on the horizon, Canada and Russia continue to deepen cooperation in areas where our partnership has a special character, such as federalism and in the Arctic and North. Russia was a key participant in the Mont-Tremblant International Conference on Federalism. A new CIDA-funded project delivered by the AUCC is seeking to inject Canadian policy advice, principally on federalism-related issues, into central councils of the new Russian government. Finally, a new IEC working group on the Arctic and North, co-chaired by Minister Axworthy and the Russian Minister for Northern Development, is expanding work among regions and businesses on air and maritime transportation, as well as on the challenges of maintaining northern communities.
[English]
In the year 2000, Canada and Russia find themselves with a strong basis of knowledge and experience on which to build expanding bilateral relations to previously unseen levels. With our eye firmly focused on building a common vision of security for the 21st century and on unlocking sustainable growth in Russia for the long term, we look forward to pursuing these objectives with Russia's new government, together with its regions, companies and people.
This committee's decision to review Canada's relations with Russia and Ukraine strikes us as apt, very timely and extremely important. The new government regime is itself engaged in a major policy and program overhaul, and Russia's key partners from Brussels to Washington to Paris are likewise reassessing the ways we all support and engage with Moscow.
Some of the respects in which we see your review being particularly valuable in Canadian policy terms are: in taking stock of Canada-Russia foreign policy cooperation and new opportunities; identifying strategies for Canadian promotion of the rule of law within Russia; measuring the nature and impact of Russian organized crime and other security concerns; reviewing the impact of assistance from international financial institutions since 1992; assessing the long-term trend in Russia's human rights record, especially in Chechnya; reinforcing Canada-Russia initiatives and technical cooperation in the Arctic and the North and on federalism; and, finally, outlining key sectoral and structural issues requiring deeper cooperation.
I understand that, while today the focus of the discussion was more on Russia, there will be an opportunity on June 7 for a full discussion on Ukraine as well. We look forward to that discussion.
The Chairman: You have reminded me to inform the committee that the departmental officials who cover the Ukraine, and who are currently travelling, will be before the committee on June 7.
Senator Carney: I found your review most interesting. It is a long time since we heard a report on what the Department of Foreign Affairs is doing in Russia. I have three short questions. When you list the areas where our review would be useful, none of them involves business, trade or economic development, and I was wondering why.
We are running an imbalance of trade, I understand. Our exports are not growing and theirs have been devalued. My question is obvious. Why do your priorities not include business and investment and trade opportunities?
Mr. Wright: That is a very good question, senator. It was implicit in some of the conditions that we set out. Certainly, we talked about identifying strategies for Canadian promotion of rule of law within Russia. Obviously, an improved rule of law in Russia will improve access for Canadian companies and will improve investment by Canadian companies.
The issue of organized crime has been a bit of a problem for Canadian companies. Assistance from international financial institutions also relates to the business and economic environment in Russia.
All of this to say, and we take it as a given, that the committee would want to look at the trade and investment relationship between Canada and Russia. We welcome that. This is an extremely important period in time. That is one of the reasons Trade Minister Pettigrew will be travelling to Moscow and St. Petersburg in June of this year.
Senator Carney: Am I to understand that it would not hurt your feelings if we looked at some of those issues?
Mr. Wright: We would welcome that.
The Chairman: It is in our mandate.
Senator Carney: It is not in the priorities that were outlined. That is what I wanted to address.
My second question deals with the fact that Russia is so huge. It spans 11 time zones. Where are your consuls and posts situated in Russia? How do you get information on all 11 time zones? Pacific Russia is only five hours away from Vancouver but we never hear anything about it. How does that geography constrain your foreign policy advice?
Mr. Wright: Again, you ask an extremely important question. Up until now, we have been limited by resources to open offices elsewhere in Russia. At the present time, we have an embassy in Moscow and a consul general in St. Petersburg. We are looking at opening an honorary consulate in the Russian far east, possibly in Vladivostok. Our ambassador has been actively involved with that issue. We have been talking with the business community in Western Canada who have been pushing for this for a long time.
Senator Carney: That is why I asked. Why are you not considering a full consul general like the Americans have?
Mr. Wright: We are also dealing with some of the realities in Ottawa right now as to what is achievable given the resources that are available to the Department of Foreign Affairs and International Trade. We may start the process with an honorary consulate. We would hope to move fairly quickly towards getting a Canada-based trade officer into the Russian far east with a view to facilitating trade issues between the Russian far east and Western Canada. It is a priority and, in fact, it has been in my business plan for the past three years at the Department of Foreign Affairs and International Trade.
Senator Carney: In Western Canada, there is a realistic liaison potential between the resource-based industries of forestry, minerals and energy, and the export of education and talent. It seems sometimes to be left out of plans, but it is probably the easiest area to penetrate, if only because it is so far from Moscow that Moscow does not seem to know what it is doing sometimes. You mention that when you talk about the priority of Moscow is to reign in the regions because the regions are sometimes well ahead of Moscow.
I have one last question, and this is my usual rant: Why do you put the priority on Euro-Atlantic security? I am not an expert on Russia, but there is a lot of military establishment in what you call "eastern," and what we call "Pacific Russia." We see the recent concern of China with the rise of Shintoism and the military aspect of Japan, and the continuing dispute between Russia and Japan about the northern islands. What is so special about Atlantic security that is not mirrored in the Pacific?
Mr. Wright: At the present time, we have the issue of NATO enlargement and the problems in the Balkans. We have the importance of the relationship between the European Union and Russia, and between the United States and Canada and Russia. We also consider the personal orientation of the new president who has spent much of his career focused on this. As well, the international arms control disarmament architecture is coming in for a thorough review right now. These are some of the issues that we think will be priority foreign policy concerns for the new Russian government.
Having said that, you are absolutely right to point out that Russia has its own agenda and dialogue in the Pacific arena. There have been high level meetings between Japan and Russia, and between China and Russia. China also has interests in the subcontinent, as well, India and Pakistan.
For all of those reasons that you have identified, they, too, will remain a priority for Russia. In your review of Russian foreign policy, it would be important for you to assess where you think that foreign policy is taking Russia right now and what it means for Canada.
Senator Taylor: In your colour graph of exports to Russia, imports from Russia, I notice we have fallen from $379 million, in 1997, to only $174 million, in 1999. That is at page two of your statistics, on your bar graph, in colour. My question is: What did the Russians quit importing from us that dropped in half? Was it grain?
Mr. Chris Alexander, Deputy Director, Russia, Eastern Europe Bureau, Department of Foreign Affairs and International Trade: Senator, a wide range of products fell off of the graph, if you will, just prior to but especially subsequent to the August 17, 1998, financial crisis in Russia. That crisis involved two things: First, a drastic and uncontrolled devaluation of the Russian rouble; and, second, a default, both on a large part of Russia's domestic debt, the equivalent of their domestic bond market, and their foreign debt.
Starting in roughly mid-August of 1998, banks were no longer offering trade finance to deal with Russia.
Senator Taylor: Whose banks, theirs or ours?
Mr. Alexander: Both ours and theirs. European banks, for example, had been doing a lot of business with Russia up until that time. They went off cover with Russia. Russian buyers lost their buying power through this devaluation. Russia went from being Europe's largest -- and in some cases the world's largest -- importer of certain types of processed food, especially meat products but other kinds of serious value-added agri-food products, to being almost not an importer of some of these products.
Most of the loss on the Canadian side was in processed meat, other agri-food products, as well as some of the resource extraction equipment and telecommunications equipment that we had been selling to Russia in quite large volumes while the rouble was strong.
Senator Taylor: Does our Export Development Corporation fund exports to Russia, or is Russia considered a bad risk? Is the Export Development Corporation involved at all?
Mr. Wright: The EDC is involved with Russia. However, they are being fairly cautious right now. There is an existing line of credit that has been approved by the Export Development Corporation for financing agri-food exports. That also applies to the construction sector as well.
I know that, when Minister Pettigrew goes to Moscow and St. Petersburg at the end of June, the EDC will certainly have senior representation participating in that visit. Between now and then, the EDC will be engaged in a fairly thorough review of the Russian economy to ensure that its policies are as up to date as possible to facilitate Canadian exports to Russia.
Mr. Alexander: The EDC is interested in the Russian market. As Mr. Wright said, there is a $20 million revolving insurance facility in place for agri-food and construction exports. These were large traditional sectors for us before the financial crisis. However, we are having trouble convincing EDC that now is the time to do business in Russia, and in making transactions happen under that facility because, when EDC goes to Russia to set up a corresponding relationship with a Russian bank in order to allow these transactions to take place, the transparency is not there. No Russian bank at the moment has given EDC the sort of financial statement that they must have before proceeding with a transaction. That is the extent to which there has been a net loss in transparency and, indeed, in the levels of modernization in the Russian banking sector since the financial crisis.
Until Russia copes with that -- and the Russian Central Bank has an important role to play here -- it will have a very difficult time entering global financial markets. At the moment, they are essentially outside of global financial markets. They have no program with the IMF, no final signed, sealed and delivered agreements with the London Club or the Paris Club of creditors. Russia has no access to Euro-bond markets and so forth. In those sorts of conditions, even for EDC, even with government backing, it is very difficult to do business.
Senator Taylor: I have been to Moscow a couple times in the last year on business and have done business over the years. EDC is hiding under the bed, as is everyone else. Credit with Russia is very tough indeed.
What is beyond the concept of Canada and Russia, as governments, getting together to put some sort of an insurance plan together that does not necessarily guarantee people a profit but a certain amount of their investment back?
Right now, if you go into the streets of Toronto or Calgary to try to do a natural resource deal in Russia, their ears are shut before you even start. Part of that is our own fault. If we indeed feel that trade is one of the ways of funnelling culture back and forth, and we seem to think that with China and everywhere else, why do we not encourage that with Russia?
I do not think Russia's economy has advanced to the point where they have a free banking sector. Why would we not want to do something, government-to-government, that would guarantee or encourage Canadian investors to move into Russia? Canadian investors want to make the investment, but they feel absolutely naked when they get there, and they are naked.
Mr. Wright: Between Canada and Russia there is a foreign investment protection agreement which is there to try to reassure the business community in Canada that is looking to do business in Russia. There is a dispute settlement aspect to that.
The short answer to your question is that, until we see structural reform, especially in the banking sector, people will be extremely cautious. I do not think Canada's problems are unique in respect to Russia.
Mr. Alexander: To briefly add to the answer on the previous question, the Government of Canada is ready to do everything it can to support our exporters and investors in Russia.
We are probably doing more for them in Russia than we do in most foreign markets, including China. I am talking here about intervention and advocacy beyond the usual tools that are available, those of technical cooperation, the EDC and so forth.
We are running into, though, as Mr. Wright says, structural problems in the Russian economy that we as a government cannot address. If the will or the resolve is not there on the Russian side, change is very difficult.
You will know of cases similar to this example. A Canadian invests $50 million. At some point, the Russian partner tries, through breach of contract and various tactics, to exclude the Canadian partner from the joint venture. The Canadian partner wins a certain number of rulings in its favour in the Russian court system. Those rulings go unimplemented. They cannot get court decisions implemented by executive authorities, bailiffs, regional authorities, whatever the case may be. They then go to arbitration in Stockholm or wherever the contract stipulates as the site for international arbitration. Again, the Canadian may win the decision but, again, there is no implementation.
There are at least a half-dozen cases that follow this pattern. The Government of Canada intervenes at that point, starting at a low level and eventually going to a political level. The Russian government recognizes that their reputation is suffering as a result of cases like this. They take action. They issue the order, but still nothing happens.
Here one must refer to the hard issues which are blocking growth and investment in Russia. Some people have vested interests in the business community. They have benefited from privatization and they have such power and influence that they will not be moved by courts, governments or otherwise. They block the resolution of such disputes. In their behaviour, they are highly protectionist at the end of the day. Often there is an organized crime element. Definitely, as Mr. Wright says, there are structural problems and reforms which have not yet taken place, sector by sector.
Those are all priorities. Those are the areas where we think the committee could add value by examining the Russian situation as it directly relates to the experience of Canadian companies. The companies are interested. They are involved in Russia. There is no supply problem. The problem is on the Russian end in delivering results.
Senator Bolduc: Is Russia a member of the G-20 chaired by the Minister of Finance on the new financial architecture?
Mr. Alexander: Yes, they are.
Senator Bolduc: The problem then is that they do not control their own internal situation; is that right?
Mr. Wright: That is right.
Senator Bolduc: After the war, we used to have a kind of barter system with some countries because the rule of law was not established. The only way to move ahead was to exchange products. Is that what is happening now?
Mr. Alexander: In a sense, we have reverted to the old system but it is not barter in the sense that we exchange our optical equipment for their grain. We exchange our product for their cash. We ask for cash in advance and that is why volumes have gone down. There are only a certain number of transactions that can bear that sort of burden.
Mr. Wright: Barter still remains a very important tool for the Russian private sector in relation to other countries in the region. Between countries in Central and Eastern Europe, in Central Asia, the Caucasus, barter is, in fact, the normal way in which trade is done. Money does not often change hands.
Senator Andreychuk: To follow up on that, when we went in after the collapse of the Soviet Union, the strategy enunciated by the government was that we were going in to reform countries, rather than to develop countries. We were very conscious that the techniques, modalities and instruments used to aid the Third World were not acceptable in the former Soviet Union because of their history and their education base. We were accomplishing a reformation. We basically said we would give them the tools of democracy; we would teach them business and entrepreneurship, western-style, and that they had the wherewithal to go on.
We found out about the importance of attitude. The entrenchment in the old ways continues and has not been broken.
With Putin coming in, is there a total re-evaluation of how to approach Russia? We have not succeeded on our agenda, and all of our new techniques seem to have exacerbated the problem.
Mr. Wright: I am not sure I would agree that we have exacerbated the problem. When the Soviet Union collapsed and Russia emerged, a very small group of people ended up taking control of the major enterprises. These people have become enormously powerful and wealthy. They are significant brokers not just of economic power but of political power in Russia. That is a problem.
Having said that, we have seen some fairly significant changes in other aspects of society as a parliamentary democracy. Canada has played a leadership role in helping the Russian Duma to learn how to do business, how to write legislation, and how to organize parliamentary parties. We have been helpful in reaching out to the next generation of leaders in the public and private sectors by bringing people to Canada under the Yeltsin Fellows program.
We may not necessarily be able to change some of the older generations, but we can certainly teach best practices to young students coming out of law schools and business schools. We can bring them here and show them how to run a proper bank. We can show them proper banking laws and what transparency really means.
The kind of assistance that we have made available to Russia -- you are right -- is not the traditional CIDA assistance to the Third World. We call it technical assistance. We have tried to do that in the cases of Russia and Ukraine, to facilitate the political and economic reforms that are essential to transform society.
There are still elements in that society, though, which control enormous amounts of power. Political figures must come along. Time will tell how serious President Putin is about crime and corruption. He says he is committed to free media, but we are still seeing challenges to that in Russia, including from the Russian Minister of Information who questioned some of the broadcasts which have been coming out of Radio Free Europe.
Just this past week, we have seen the tax police going into one of the media organizations. The Russian government and the Russian president must demonstrate their commitment to rule of law, to democracy, to a proper judiciary, to sufficient transparency. With those things, the business communities in countries like Canada will take investment opportunities in Russia more seriously.
Many companies want to do business there, but not until they are reassured that they will not be edged out by joint venture partners as soon as the joint venture starts to make money. The Canadian partner does not want to be pushed aside and tied up in all sorts of bureaucratic red tape.
Senator Andreychuk: They may be physically tied up in some cases. We will have time over the next while to explore other questions. I want to cover the Chechnya situation and your travel to Moscow on behalf of the department.
To what extent is the Kosovo initiative still the best defence for the Russian initiative in Chechnya?
Mr. Wright: I do not think it is a defence at all. The circumstances are completely different. I would argue that, in the case of Kosovo, there was a very well-developed international peace process that the international community, Russia included, laboured on with Yugoslavia in an effort to try to reach a peaceful resolution. There was a text of a draft peace agreement that one party to the process signed and the other party did not. The international community only intervened when it was apparent that there was a humanitarian crisis in the offing.
In the case of Russia, there was no peace process. There was no international involvement at all. While the Russians may try to use Kosovo as an excuse for what they are doing in Chechnya, I do not think the international community has bought that at all, and that includes the OSCE, the UN, the Council of Europe, and the Parliamentary Assembly to the Council of Europe which has been highly critical of what the Russians have been doing. Russia faces possible exclusion from some of those international clubs that it values so much.
Our objection right from the outset was the indiscriminate use of force. Civilians were very clearly being put at risk, and many lost their lives. The war may have progressed to a different stage right now, but it is still very much a war that is going on in the hills of Chechnya.
We continue to push our Russian colleagues to show us what the political end game is. Where is the political process here? Who are they talking to in the Chechnyan community? From the very beginning of this conflict, our sense was that, while it may make good politics in Russia at this time, it will result in long-term animosity between the peoples of Chechnya and Russia, animosity that will not go away. The Russians will not win the war through a military campaign. It is as simple as that. It may go away for a period of time.
Senator Andreychuk: The issue surrounding Chechnya is not a new one. The animosities are probably as historic as those in the Balkans. The Russians intervened at a point, as we did, in a long, historically difficult situation.
The Chairman: This is an approach that we would all have questions about -- at least, I would have, myself -- in that I view Chechnya as an internal Russian affair. Every time a country has an internal problem, where does it take us? I will not put that question.
Senator Corbin: I have three or four questions on unrelated matters.
Do we still maintain a security restriction or barriers list with respect to Canadian exports to Russia such as electronics, for strategic or other reasons?
Mr. Alexander: Yes. I cannot cite the actual name of the statute, but it is still in place. It governs our exports and leads to the permitting of exports, in a wide range of sectors, to countries such as Russia and many others that are not exempt from that sort of scrutiny.
Senator Corbin: Would that have a significant impact on our total dollars' trade with Russia?
Mr. Alexander: No.
Senator Corbin: What is the situation with respect to interstellar space cooperation with Russia from the Canadian point of view? Are we very involved?
Mr. Alexander: There is an active program of cooperation between the Canadian Space Agency and the Russian space agency, which is currently being restructured. Canadian astronauts have taken part in training programs in Russia. We are, with them, part of the International Space Station Program. Everyone, including Canada, continues to recognize Russia's expertise in this field, though it continues to suffer from serious spending problems, so that is the constraint.
Senator Corbin: Is it an expanding field of activity?
Mr. Alexander: It is probably slightly expanding, given the timelines involved in the mounting of this large international project, the space station.
Senator Corbin: My final question is in regard to our common circumpolar heritage. Are Canadian experts involved at all in the denuclearizing of subs and tubs in Russia? I understand it is a major problem and a time bomb. Are we doing anything on that front?
Mr. Alexander: We have been very involved for decades now with the Russians, scientifically, in monitoring the northern environment. That includes the monitoring of radioactive and other toxic wastes.
Senator Corbin: That is not so much what I am talking about.
Mr. Alexander: I will come to the actual dismantling. We are involved in defining the extent of the immediate danger to northern environments and northern communities, but we are not at the moment, through technical cooperation or other initiatives, involved in, as you say, dealing with these reactors that are half-submerged in ports in the Kola Peninsula. There are several reasons for that.
First of all, the Russian government has not seen fit to grant access and to welcome international partnerships in order to help it deal with these problems on any large scale. There have been offers from Russia's other major western partners, but they have not been taken up.
Second, we have had to pick and choose where we put our emphasis on technical cooperation. We cannot do everything. Early on, we were involved in the nuclear field more in contributing to enhancing safety in Russian civilian nuclear reactors where Canadians have great expertise, rather than in the dismantling of the legacies of their military nuclear program.
Finally, we have been involved in making the link to the case of retired Navy Captain Aleksandr Nikitin in St. Petersburg, an NGO activist who was involved precisely in monitoring and trying to elicit action from the Russian government on these questions. He was locked up for his work for many years and has only recently been acquitted, in part because of Canadian support for his case. His case illustrates the difficulty of getting involved in these big, urgent issues in Russia. There are still incredible roadblocks on the Russian end.
Mr. Wright: Can I also say, on the issue of nuclear safety, Canada did have to pick and choose. The issue that Canada did choose to help out on, and significantly so, related to Chernobyl, where we spent tens of millions of dollars to help out. There was a limit as to how many of these projects we could take on. Chernobyl was identified by the Canadian government as a very high priority, and it continues to be so.
The Chairman: We understand that Captain Nikitin may be coming to Canada. The committee is certainly interested in hearing from him if he does.
Mr. Alexander: He is a retired naval captain.
The Chairman: He is a retired naval captain who was involved in a dispute over this whole question.
Senator Grafstein: I want to share the concerns articulated with whoever is responsible for policy within the department with respect to how you look at Russia.
Senator Carney and Senator Taylor touched on my concerns, and that is, that it may very well be that we are looking at Russia with a lack of imagination; we are thinking conventionally as opposed to considering the new realities that we have to deal with the situation. Russia is a very strange hybrid. It is unlike the strange hybrid of China which has a developing, a developed, and a highly developed economy all in the same economy. Russian basic research in some areas is the best in the world, yet they cannot, in some parts of Russia, till a field properly to produce a bushel of corn.
Let me propose something that may be helpful to our analysis. I believe that we must look at Russia through a more decentralized prism, as we do in the case of China now. There is more power in the provinces and in the regions than there is in Beijing. One need not go to Beijing to do business in China. It is the same in Russia. Russia is now highly decentralized. There are competing regions, and there is great talent and activity in certain regions but not in others. Where Mr. Nemtsov is a good example. He is a good thinker and economist.
Mr. Alexander: He is in Nizhny Novgorod.
Senator Grafstein: It would be helpful to us and useful for the department to have a regionalized analysis of the economic activities.
My understanding is that, for $1 million dollars, Russia could set up five honorary consuls in key areas all over the country. My analysis has been that there are rules within the department that limit its flexibility to redeploy its dollars effectively. I would rather have five honorary councils throughout Russia than spend $1 million for one large consul generalship in one region.
I have spoken to the Consul General in St. Petersburg and I know of her very difficult financial restraints. I understand the restraints of the department. However, I also know that $1 million dollars spent on five honorary consuls can go a long way to meeting the concerns of Senators Carney and Taylor because it would put people in the areas of activity.
Senator Carney: Apart from handing out free booze, what would an honorary consul do?
Senator Grafstein: We can have that debate amongst ourselves.
It would be useful if you could tell us why the Canadian government was not involved in the transPacific initiative involving China and Russia in Seattle. Why was Vancouver not involved in that particular initiative? It would be very useful for you to give us a precise update on where we are with respect to the northern corridor that the Russians have been very proactive in trying to articulate, along with Alaska.
It would be useful as well if we could have an analysis of where Russia is in these areas of infrastructure; where Canada can make some money and be protected from corruption; and so on. If we get involved in infrastructure projects we can deal government-to-government as opposed to private-government to private-government dealings.
For example, in the area of basic research, where do he we stand with respect to twinning our basic research institutes in Canada? Where do we stand with Canada's involvement in pipeline expertise and construction ability? A magnificent pipeline was being built from northern Russia into Europe and Canadians were nowhere to be seen because we were not involved in the building of the pipeline in southern Russia. Where are we with respect to telephony? We have one of the greatest exporters in the world. Where are we on their telephony infrastructure, which is in dire need of repair? Where are we with respect to the Internet? Where are we with respect to federal-provincial relations in terms of our relationships with the various regions? Who are the hitters and who are the losers?
My approach to this us would be for us to focus on the winners there, and there are a number of them, as opposed to spending a lot of time on the losers because, by the time we do this, all the members of this committee will be gone from the Senate.
Perhaps our witnesses can return on June 5 with a written submission along these lines. I would like the department's view as to why, despite all the problems in Russia, we have not had a relationship with a bank or set up our own bank. I would like the department's role as to why we have not allowed our banks, despite all the problems in Russia, to become involve there. I am well aware of what happened to the Deutschebank, and the losses they suffered. However, I would be interested in why big banking in this country is not doing big banking in Russia.
The Chairman: The committee is also looking into some of these matters, Senator Grafstein. Senator Carney's point about honorary consuls is an old story. It is something that has always been considered to be wrong. The appointment of honorary consuls was unheard of as government policy until St.-Pierre and Miquelon.
Mr. Wright, would you care to respond?
Mr. Wright: I am not sure if the figures the senator quoted as being the difference between the cost of a mission and an honorary consul are quite right, but I do acknowledge that there is a big difference.
The advantage of a mission is you have a representative of the country in place. The honorary consul is a local with, presumably, good contacts and skills. I do not think we give them any free liquor. Frankly, these are extremely low paying jobs. If you are lucky and you find the right person, your dollar will go a long way.
Having said that, some of the aspects of that program are very much resource-driven. There are limits to what the department can do each year, but we try to squeeze out as much as we can in terms of expanding our representation overseas.
As I indicated at the outset, we want to enhance our reputation in the Russian far east. If there is an opportunity to go further, we will certainly consider it. We have taken careful note of the issues the senator has asked questions about, and we will come back with some more detailed information on this for some discussion.
Mr. Alexander: As Mr. Wright has mentioned, we agree there is more to be done on consulates general. However, even large countries like the United States and Germany only have four missions in Russia. We have two, and we are a considerably smaller country.
We do have a specific agenda to address in the Russian far east, and we are trying to do that. We are also trying to find non-traditional ways of covering the regions where the action is, as some of you have noted. Sometimes this is through a Canada-Russia trade centre. There is one in Vladivostok. Sometimes it is through a Canadian company office where they act as a secretariat for us, if you like, when people from the embassy visit.
There is a sense of teamwork among Canadians in Russia, and it does work. When one looks at a region such as Magadan, which has just been named by President Putin as the new capital of this new super region that will be established in the Russian far east, including eight or nine of the current regions in the far east, Canada is by far the number one player in town. Numerous Canadian companies are selling into that market. There is no other game in town. Canada is there. In spite of the lack of an Air Canada flight, a Canadian consulate general, and a CIBC branch on the corner, they have made it work.
The subjects raised by Senator Grafstein are very important. We are trying to address specific Russian issues with imagination.
Our presentation perhaps emphasizes some of the bad news, the blockages, more than the good news. That is because we are impatient to see the results. We want these impediments out of the way.
There is a lot of good news. I have mentioned Magadan on the Pacific coast north of Vladivostok where Canada is playing a major role.
The Chairman: It is on the coast. I have been in the Russian far east and I am trying to place it.
Mr. Alexander: It is a city of about 200,000 people. It is the historical centre of the labour camps.
There is good news in research.
The Chairman: Is it on the Kamchatka Peninsula?
Mr. Alexander: It is just to the west of that.
Nortel funds research in Russia which must keep 500 to 1,000 Russian researchers busy throughout the year. All of the big Ottawa-based and other technology companies have big Russian operations.
Many of our companies are talking with Russian partners about this gas pipeline into western Europe. Next month, approximately 500 Russians from the oil and gas sector will be at the World Petroleum Congress in Calgary. They will not just be there to talk to the Saudis and the Americans; they will be talking to our people.
Mr. Wright: Our minister responsible for science and technology, Dr. Normand, is in Moscow right now. It is his second visit in the last six months to pursue the issues that the senators have raised with us today. I do not want to take up all the time of the committee going through this, but we can certainly give you a more detailed rendition of exactly where we are on some of these issues.
It would be a mistake to read into our presentation that the Canadian government is not approaching Russia with creativity and imagination. That is the only way we can make the kind of impact we are trying to make in that country.
Senator Carney: Just for the record, I do not mean to slur our honorary consuls abroad. I know many of them do excellent work, particularly in the circumstances that you outlined; and we need them. I was thinking more of some of our own Canadian citizens who serve as honorary consuls for other countries here in Canada and whose contribution to international relations seems to be confined to having duty-free booze, diplomatic licence plates and invitations to national days. They do very little to promote trade and diplomatic relations between Canada and the country they are allegedly representing. It was, if anything, a comment on our own Canadian citizens and not on our people abroad. If I had the choice, I would rather have a consul general than an honorary consul.
Senator Di Nino: As I was listening, I came to a conclusion. This is not, again, a reflection on Mr. Wright or Mr. Alexander, but there is not much new in what you have brought to our attention. Of course, the updates are very useful.
In relation to any information about Russia today, the new president and his background, if this meeting were in camera, would you be able to share information with us which you cannot share at an open meeting?
Mr. Wright: Our tradition in appearing before parliamentary committees is to be as open and candid as possible. There are probably limits on the security and intelligence side of the relationship but, beyond that, we try to be as forthcoming as possible in terms of putting in front of you our preliminary assessment of a new government. We set out some of the priority issues from our perspective, some of the areas which we think would be advantageous to you.
We came here expecting this to be a first go-round on this issue. You asked us to come here on extremely short notice. We did so. We put together a detailed presentation. We are happy to work with the committee to give you our perspectives on this, to steer you in the direction of a thoughtful review of Canada's approach to Russia and Ukraine, but we have not been working on this presentation for four months. We have been working on it for a week. Frankly, under the circumstances, I think we have given you a pretty darn good overview of our assessment of the new regime. It is an honest assessment of our level of engagement and specifically what we think this committee can do to try to help that process along.
Senator Di Nino: I am sorry if I gave you the wrong impression. I certainly did not want to demean your reputation. I thought your presentation was very good.
As I was listening, I wondered if some information cannot be made available in an open meeting. That is really the question.
Mr. Wright: In terms of getting into very specific problems suffered by Canadian companies or individuals in Russia, we might open up a bit more regarding the nature of the difficulties if we were sitting around having a beer and not sitting in this formal setting.
In terms of overall policy, where we see Russia now, where we would like to go in terms of our engagement with Russia, I would say the same thing to you here as I would say informally to you outside this chamber.
The Chairman: This has been an extremely interesting presentation and we recognize that you were given such short notice. I have certainly picked up a few things that I did not know. I did not know, for example, that President Putin spoke German, though I knew he had served in Dresden.
Senator Grafstein: I hope the witnesses did not take my comments out of context. We are trying to get a factual and effective base, as opposed to something that will not be read. We want something that will be useful tomorrow, as opposed to 10 years from today. I know the German experience in Russia very well.
Just to give you some flash points that might help you in your analysis, the German chamber of commerce has been proactive in establishing chambers of commerce and friendship organizations in Russia. We have done nothing. Our leader, the BCNI, has not done much in Russia, for reasons which Senator Taylor discussed. The Goethe Institute is active in Germany in terms of expanding their culture. They have a proactive city-twinning program. They are active in university exchanges. We are doing something, but we are nowhere close to doing what the Germans are doing.
The Germans have a direct and ongoing relationship at the bank level with the Deutschebank and Russian banks. Their friendship associations are plentiful. The Germans have targeted Russia. They are trying to save Russia. America and others have lost Russia because they have not spent the same time and attention to detail that is necessary.
Mr. Wright: The Germans also lost $700 million and are owed $30 billion.
Senator Grafstein: They lost $800 million and, if they had the chance, they would do it again. For them, it is not just trade, it is strategic matter.
By the way, they will not lose again. They have learned. They have paid for a very expensive postgraduate education, but they are still there and involved. They have to be.
Once you have read the transcript, you may want to come back and help us focus on the details we require. We understand that you came on very short notice. We appreciate this, but we want to intensively consider these issues. We want to see if we can come up with some innovative and helpful ideas to assist in the short run. The long run is another matter.
Mr. Wright: When we come back, we will also address Ukraine, which we have not discussed today. We will give some thought to your comments, senator.
I would also urge you, in terms of other witnesses that you will bring before this committee, to invite representatives of Canadian banks and BCNI because, frankly, although you may not necessarily see the kind of engagement on the part of these institutions, do not make the assumption that there have not been efforts on the part of the Canadian government and Department of Foreign Affairs and International Trade to get BCNI, to get CIBC, to get Royal and the others to have an active presence on the ground.
We do have helpful Canadian business associations on the ground, both in Moscow and in Toronto that are trying to drive the agenda forward. We will happily give you references so you can call representatives from those organizations.
Do not make the assumption that the Canadian government has been sitting back not trying to encourage these companies to be engaged.
The Chairman: Thank you very much. You will be hearing from us over the next few weeks as our dates become available to hear witnesses.
The committee adjourned.