Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue 24 - Evidence
OTTAWA, Thursday, November 22, 2001
The Standing Senate Committee on Banking, Trade and Commerce met this day at 11:05 a.m. to examine the present state of the domestic and international financial system; and to examine Bill C-31, to amend the Export Development Act and to make consequential amendments to other acts.
Senator E. Leo Kolber (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, the first item on our agenda is clause-by-clause consideration of Bill C-31.
We are circulating a document to each senator. There was some discussion yesterday about proposed section 24.2 of the Export Development Act concerning the use of the name and the penalties consequent to it. You may or may not agree with the circulated document, but it will be put into the record. This document was sent to us by the Export Development Corporation and points out that a similar clause can be found in other pieces legislation, the Business Development Bank of Canada Act, the Bank Act and the Insurance Companies Act. You can dispute that. It will be made part of the record, for whatever it is worth.
Is it agreed that we proceed to clause-by-clause consideration of Bill C-31?
Senator Tkachuk: Mr. Chairman, I have some questions. Perhaps if the officials are here they can help. I am asking for your guidance. I can wait until we get to the relevant clause or ask the questions now. I believe there will be a couple of amendments.
The Chairman: What do your questions pertain to?
Senator Tkachuk: They pertain to certain clauses in the bill, to the term "environment" and to clarifying the Statutory Instrument Act. I also wanted some clarification on clause 12, on the very issue that they have brought into the record on the business of naming.
The Chairman: You have four questions?
Senator Tkachuk: Yes. I only have a couple of pages here on clauses 3, 9 and 12, but it will not take a long time to answer.
The Chairman: Ask your first question and the officials can decide who should come to the table.
Senator Tkachuk: It is their bill.
The Chairman: Martin Jensen is here from DFAIT and David Harris is here from the Department of Justice.
Senator Tkachuk: Other senators may have questions.
We can go to clause 3, which deals with definitions. In the Senate there was some discussion yesterday on environmental issues, yet nowhere in this bill is the word "environment" defined. That issue was also discussed at some length in the House of Commons. The opposition in the other place attempted to move an amendment to define the term "environment" but it was shot down. What was wrong with the definition they had proposed?
Mr. Martin H. Jensen, Export Finance Officer, Export Financing Division, Department of Foreign Affairs and International Trade: There was nothing substantively wrong with the definition. It was drawn from the Canadian Environmental Assessment Act. That definition is not exactly the same but is quite similar to the definition found in EDC's current environmental review framework. This is not a question of substance but of the form of the legal framework being established here. The framework is something that the corporation will create or has already created.
Senator Tkachuk: They will define it?
Mr. Jensen: It is defined in the framework at present and it may be redefined in the revised framework.
Senator Tkachuk: That process will be used to define the term, but what is to stop you from setting out a definition that includes land and water but not the atmosphere? Should legislators not define "environment"?
Mr. Jensen: From a technical point of view, such a limited definition would be stopped by its unreasonableness. If the definition is not reasonable and up to date and in keeping with technical practices in the environmental assessment field, then it would not serve well. It would be subject to criticism by the public, by the Auditor General, by Parliament.
Senator Tkachuk: The definition proposed by the House of Commons was unreasonable?
Mr. Jensen: No, it was not unreasonable. It is a reasonable definition, but the intention of the legal framework being offered here, as in the American system, is to provide a general mandate for the corporation but to leave the specifics of the policies to the corporation to determine. It is as if a regulation were being created where the definitions were in the regulation.
Senator Tkachuk: I think that was the concern of the legislators in the House. You were doing your own definitions. They were concerned about that.
Mr. Jensen: That is correct.
Senator Tkachuk: We will be proposing an amendment to clause 9, which sets out a non-binding environmental assessment process for EDC to follow. The environment is a major concern based on EDC's past hearings here and in the House. There has been a history of these questions coming up. It seems to us - and that is why I am asking the question - that there is no real accountability for the conducting of reviews. Clause 9(3) states that the environmental directives of the board will not be statutory instruments for the purpose of the Statutory Instruments Act. A directive that is a statutory instrument would be permanently referred to a parliamentary committee.
That clause, in effect, prevents board directives from being referred to a parliamentary committee. What is the policy rationale for not allowing Parliament to review environmental directives issued by the board?
Mr. Jensen: That is a complex question with three points. I would, with respect, argue that this is not a non-binding process. Given the mandate that the act would establish once a directive is in place and an environmental review framework is in place, that becomes a binding legal obligation of the corporation, actionable at law. That would be subject to judicial review -
Senator Tkachuk: I understand that, but you are not a private corporation. You are a public corporation. Your shareholder is the Government of Canada. What would be wrong with applying the Statutory Instrument Act?
Mr. Jensen: I will come to that. I first wanted to take issue with the description of the process as non-binding. Legally speaking, I do not believe that is correct. I think it is binding. It has the force of the law.
Senator Tkachuk: That is just your opinion? You do not know for sure? You did not state it definitively.
Mr. Jensen: Legal questions are often a matter of opinion. I do not mean to be facetious. That is a sound and defensible legal opinion. This is a binding instrument. This is actionable at law. You said there was no accountability. There are different forms of accountability for this. There is accountability, in a sense, on a transaction-by-transaction basis for highly sensitive projects, because there will be disclosure of those projects pursuant to EDC's disclosure policy.
There is also accountability that will follow from the very stringent review of EDC's policy design and implementation. That review will be given by the Auditor General on a recurrent basis. Someone has remarked that to be audited is a fate worse than death. The oversight of the Auditor General will provide a very powerful disciplining influence.
On the question of the Statutory Instruments Act, this is a complex one. There has been controversy around it. I want to refer to my notes.
The Statutory Instruments Act has two general purposes. It provides for technical legal review by government experts, including the Privy Council Office and Justice Department lawyers, to ensure the formal perfection and constitutional validity of a regulation. It also provides for pre-publication of many regulations so that Canadians have an opportunity to comment and make suggestions for the improvement of the regulation, or object if it affects their interests.
The great majority of Canadian regulations do follow this regime. There are certain exemptions from the Statutory Instruments Act. I do not have a list of them, but some regulations are exempted from the Statutory Instruments Act and its requirements.
The decision to exempt EDC's environmental directive from the act was based on a number of considerations. The formal character of the instrument will not be like that of a Canadian regulation. It will probably provide for more flexibility - the flexibility necessary to operate in a competitive and legally and technically very complex and very international environment. EDC does business in over 150 countries. In applying this regulation, it will be dealing with technical and legal circumstances that vary greatly from country to country where it does business.
There is a real concern about the extra-territorial application of Canadian law. Our criminal law in some cases and our tax law do follow Canadians when they go abroad. This is a different kind of law. This provides for the review of an industrial process, perhaps, that is under the sovereign control of another state, and there was a real concern about applying a Canadian regulation, a complex one, extraterritorially.
From a competitive point of view, through work in the OECD and so forth, we are seeing many of the developed countries in the OECD establishing similar frameworks. None of them do so by the use of a domestic regulation. Of the 30 countries, none of them do so. They all employ something similar. In fact, only two, perhaps three, have a statutory mandate for their frameworks, and in those cases, the other very important one is the United States. They employ a similar legislative framework where you have a statutory mandate but do not put the actual operational policy into regulatory form. There is a competitive aspect at work here too.
Finally, if you use the Statutory Instruments Act, you subject any change that you may wish to make to that instrument to the regulatory process, which is quite time-consuming. We want the Export Development Corporation, like our competitors in other OECD countries, to be in a position to amend its framework quickly.
That being said, it will not lack disclosure and public comment. In fact, EDC has institutionalized the process of public consultation on revising its framework.
Given all those considerations, there was controversy and a great deal of discussion on this. This was presented to the Department of Justice and they agreed that this could be exempted.
Senator Tkachuk: I do not mean to be facetious here, but what you said is that it is just more convenient. What is wrong with having it referred to Parliament? Our job is to ensure parliamentary oversight, not to spring a corporation out into the world without any parliamentary oversight. I am trying to argue that Parliament is an important place and that what you do is important to us. The fact that it would be more convenient and more efficient has nothing to do with it. That is why we have private business. They can do what they want, and they have laws to follow, but I think you should have laws to follow as well.
Mr. Jensen: Bear in mind that while the Export Development Corporation is an act of the government its clients by and large are not. This is not simply a matter of convenience but of effectiveness and symmetry with the practices of our competitors.
The committee in Parliament, pursuant to the Statutory Instruments Act, that would normally review regulations reviews them for compliance with a very limited set of formal and constitutional criteria. It certainly would not go to the merits of the policy as an environmental instrument. It would not be looking at that.
I would also say that nothing in the exemption from the Statutory Instruments Act prevents any committee of Parliament from calling the Export Development Corporation to explain what they are doing, from calling the Auditor General to seek her views on the validity and the operation of the framework, and to propose changes. Parliament's authority is not ousted by this.
Senator Tkachuk: I understand that. I am not satisfied with your answer, but we have our information, and I will go on.
One clause here makes it a criminal offence to use the name of this corporation. We had some interesting testimony yesterday respecting this clause from a Mr. Owens, and that caused you to bring forth this new explanation. I want to follow up and ask you a few questions before we go to clause-by-clause consideration.
If the intent is to prevent fraud, which is what you state, then why is this clause not phrased in terms of preventing fraud? Why is it so broad?
Mr. Jensen: I cannot speak as a legal drafter. I will say one thing and then perhaps defer to either EDC or the Justice Department. You could look at the other sections from the Bank Act and the Insurance Companies Act. The intention here was not to make an argument but simply to lay these disputed sections before you. We said there was precedent, and Mr. Owens, a credible witness, said these were not precedents. None of those sections mentions fraud either. I think they clearly target fraud, but they do not mention fraud specifically. I would again defer to Justice or EDC.
Mr. Gilles Ross, Senior Vice-President, Legal Services, and Secretary, Export Development Corporation: As was said yesterday before this committee, the intent is to prevent the fraudulent use of the name of EDC in the sense of the unauthorized use, and it does build in that concept of the possibility for the corporation to authorize the use of the name.
Senator Angus: The wording says "or for any other business purpose." If it said "for any other unlawful business purpose," that would be different. It is just one word. This thing is so open. You were here. The man was fairly concise with what he said.
Mr. Ross: I think the concept of "without the written consent" applies all the way through the sentence and applies as well to any other business purpose.
Senator Tkachuk: I am not a lawyer. If a company with a particular name is selling widgets and another company using the same name is selling widgets, there are laws on the books now that prevent that from happening. Why would you need this extra protection and in such a broad way? I think Mr. Owens' testimony was compelling.
Mr. Ross: Yes, indeed, there are civil remedies available to any business where its trademark is being used without authorization. Those civil remedies are by way of injunctive relief or even damages in some cases. As financial institutions, which have access to an offence, the corporation, which is not subject to those other statutes, is looking for the same protection as other financial institutions in Canada that have this extra level of protection. Like a bank, the Export Development Corporation does have what I would call the reputation of a financial institution or an insurance company. I think that is what Mr. Owens was saying yesterday.
In the case of the banks, it is understandable that they have such protection, given the aura around banks, and the corporation operates in a similar fashion to a financial institution. It lends money or ensures credits. Accordingly, we see it as logical to extend to the corporation, as has been the case already, in the case of another crown financial institution, the same level of protection.
Senator Angus: We are just curious, because its seems to go further than these other institutions and because it could so easily be clarified by putting the word "improperly" or "fraudulently" or any other milder word. We feel it is our duty to probe to see if there is another reason you are doing it. It would be so easy to fix; yet this thing is wide open. You could use it for any business purpose. That is our concern.
Senator Tkachuk: If you go to the regulations under the Bank Act, which you distributed here, it starts off:
Except to the extent permitted by the regulations, every person who uses the name of a bank in a prospectus, offering memorandum, takeover bid circular advertisement for a transaction related to securities or in any other document in connection with a transaction related to securities is guilty of an offence.
It is a narrow definition. It does make sense. You do not say that. You say the following:
Except with the written consent of the Corporation, no person shall in any prospectus or advertisement, or for any other business purpose, use the following names and initials: "Export Development Canada"..."Export Development Corporation"..."EDC"...
Going to the phone book, we might find the Essence Development Corporation of Surrey, British Columbia, which is listed as EDC; EDC Facilities Management Consulting of Windsor; Electronics Delivery Consultants of Toronto, or the EDC Telecommunications Group of Toronto.
Senator Angus: You might find the Edmonton Denture Clinic.
Senator Tkachuk: Why is it so broad? This, from what I can tell, would include these people.
Mr. Jensen: If I may speak to this again, first, this provision is modelled exactly on the words of the provision in the Business Development Bank of Canada Act. The only difference is that one can substitute word for word "EDC" and "Business Development Bank," et cetera, the initials and the name. Otherwise, it is precisely the same provision. It has been on the books for six years, since 1995. Certainly Mr. Owens, who is a careful lawyer, would have brought any indications of abuse of this to our attention. He did not.
Senator Tkachuk: It is okay if it is bad law, even if it is not used. Is that what you are saying?
Mr. Jensen: I am not sure it is bad law.
As a second point, Mr. Owens did not say something I think he would agree with, that any statutory provision has to be read in the context of the purpose of the act. It has to be given a reasonable interpretation in light of the clear purpose for which it was intended.
Senator Tkachuk: It would be so easy to eliminate our concerns. That is what I do not understand. It is always the argument that it was used before and it is exactly the same as the Business Development Bank of Canada Act. That does not explain the concern we have. All it says is that maybe now I have a concern with the Business Development Bank of Canada Act regulation as well.
Senator Angus is good at this. We could narrow this down so that it makes some sense to you, to us and to the Canadian people without having it on the books. You insist that you have it in even though you promise you will never use it. That is not the way to make law. Trust us.
Mr. Jensen: The power to make the law lies with you. I am trying to explain what I understand to be the purpose of this clause. I think it is relatively benign.
Beyond the point that such a clause has to be interpreted in light of the purpose of the proposed act, this is, however, a criminal provision. Mr. Ross could not base a legal action on this. It would be for the Attorney General of Canada to do so. In bringing a charge, if this intends to target fraud, then there are two elements to a criminal offence. One is the act and the other is the criminal intent. I do not believe this would even come into court because I cannot imagine the Attorney General and the authorities responsible for the enforcement of the criminal law would consider an abuse of use of this section. I think the protections are written into the nature of the provision as it exists.
The Chairman: Senator Tkachuk, I know you will bring an amendment and I suggest you do that.
Senator Tkachuk: Those are the two areas that I wanted to cover. I think we have got our testimony. I think we should move to the next item in the agenda.
The Chairman: It is agreed that we go clause-by-clause consideration of Bill C-31.
Senator Tkachuk: If the amendment is defeated, do we get a letter clarifying your use of that clause, that your sole intent is to prevent fraudulent use of your name?
The Chairman: If they agree to send a letter, then we have to delay reporting back to the Senate on this bill.
Senator Tkachuk: We promised to have it ready on Monday. We would like to have time. If the amendments do not succeed, we would like to present a minority opinion. We promise to have it ready by Monday. We must have it in both official languages, which means reporting would be Tuesday.
We never knew this was a hasty bill. We thought this was an important bill, but we are moving at a tremendous rate. It just got referred.
The Chairman: You can also bring your amendments in on third reading. You can present your minority opinion then.
Senator Tkachuk: We would like to state our case.
This got referred to us Tuesday, sir. We started on Wednesday. We are being cooperative. We have some concerns. I know we have a majority. If we pass the amendments, there is no problem. We can get this done today. If you do not, we would like to have time to state our opinion.
Senator Furey: I missed the response to your last question.
Senator Angus: I do not think there was a response yet.
Mr. Jensen: Would that letter come from the corporation, from my department - my minister sponsored the bill - or from the interpreters of the federal statute book?
The Chairman: Everything that you want in that letter is already on the record. They have said it.
Senator Tkachuk: I know. It is still a problem. I do not think anybody disagrees that it is a bit over the top, and the only precedent you have is the Business Development Bank. If what you say is true in testimony, why would not you send a letter? Why would not the minister send a letter? If it is only for fraudulent use, why not have the letter so it is on the record.
Mr. Jensen: Speaking for my minister, I do not have the authority to offer a letter.
Senator Angus: I would like to make one other point for the record. I certainly respect your decision; I think it is a fair one.
I wanted to note, however, that when we were here trying to do our job with respect to the Proceeds of Crime (Money Laundering) Act, proposing amendments - and in the democratic process we were unsuccessful - it was pointed out by experts that they thought that the law was unconstitutional in some respects.
We proposed an amendment that the government side would not countenance. This week, the British Columbia Supreme Court has indeed stated that in their opinion the act infringes on lawyers' confidentiality and privileged communications with their clients. The law appears to be unconstitutional. They have issued an injunction and have exempted all lawyers in Canada from complying with the act.
We have become a little more sensitized to what our duties here are in terms of making sure that these things are considered in the Senate, in the house of sober second thought. When people like Mr. Owens take time out from the university to point out anomalies, or perhaps weaknesses in legislation, we should listen. This is an area in which we can make a contribution.
I would like to give you a copy of that decision, not necessarily as a record of this committee hearing. These witnesses are not just attending here in a frivolous way. I have certainly been taken aback by some of the stuff that is getting on the books.
I would hope that you understand what Senator Tkachuk and I discussed carefully this morning. We are not here other than to do our duties in a serious way.
Senator Kroft: There is much merit in what Senator Angus says about our role. For the record, we should point out that we suggested four amendments for the money-laundering bill. Three of them went through. There was a letter forwarded, and the bill was subsequently amended.
I do not want the record to suggest that we, on that bill or any other, are totally ignoring the amendment process. We did not agree on one of a group of amendments, but the committee did succeed in bringing about some significant changes.
Senator Angus: Senator Kroft, you are right. In the present environment of insecurity and an unsettled situation, perhaps we need to be more vigilant than ever in terms of some of these laws. We have spent 140 years trying to have a free and open democratic society.
These fines for the use of "EDC" boggle my mind. That is the reason for this discussion this morning.
The Chairman: Is it the intention of any honourable senator to propose an amendment?
Senator Tkachuk: Yes, I will.
Senator Angus: The proposed amendments do not require a seconder, correct?
The Chairman: They do not.
Shall the title stand postponed?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clauses 1 to 8 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clause 9 carry?
Senator Tkachuk: Honourable senators, my motion in amendment is as follows:
That Bill C-31 be amended in clause 9, on page 3, by replacing line 31 with the following:
(3) The directive is a statutory instru-
That effectively solves our problem. The bill would follow the Statutory Instrument Act rather than not following it.
You have copies in front of you in both official languages. I want to thank the legal people for preparing these so quickly. I appreciate it.
The Chairman: All in favour? Contrary?
The motion in amendment is defeated.
Shall clause 9 carry?
Some Hon. Senators: Yes.
Some Hon. Senators: No.
The Chairman: Carried, on division.
Shall clauses 10 and 11 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall clause 12 carry?
Senator Angus: I should like to propose an amendment with respect to clause 12 on page 5. My amendment is with respect to proposed section 24.2 of the Export Development Act. Proposed section 24.2 is under the margin heading "Use of Corporation's name or initials." Proposed section 24.2 has two paragraphs.
My motion in amendment is as follows:
That Bill C-31 be amended in clause 12, on page 5, by deleting lines 9 to 22.
The Chairman: That is the entire clause. That is proposed section 24.2, subsections (1) and (2); correct?
Senator Angus: That is correct.
The Chairman: All those in favour of the motion in amendment?
Some Hon. Senators: Yes.
The Chairman: All those opposed to the motion in amendment?
Some Hon. Senators: No.
The Chairman: The motion in amendment defeated.
Shall clause 12 carry?
Some Hon. Senators: Yes.
Some Hon. Senators: No.
The Chairman: Carried, on division.
Shall clauses 13 to 22 carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall the title carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall the bill carry?
Hon. Senators: Agreed.
The Chairman: Carried.
Shall I report the bill?
Hon. Senators: Agreed.
The Chairman: Thank you very much.
Senators, because we are under a time constraint, I suggest that the witnesses from the Conference Board of Canada make their presentation, followed by the Canadian Manufacturers and Exporters, the Honourable Perrin Beatty and Mr. Mark Boudreau. Questions will follow those presentations.
Mr. Gilles Rhéaume, Vice-President, Conference Board of Canada: Thank you for the invitation to attend before your committee today. My colleague, Mr. Barrett, and I have been working on this report, together with our researcher, Mr. Shea, who was responsible for the analysis.
Let me say a few words about our organization, to position ourselves in terms of the issues that we will be talking about. I shall then give you some background to the report that we published in October. Following that, Mr. Shea will summarize our results, in terms of the policy scenarios that we have presented.
The Conference Board of Canada is an independent, non-for-profit membership-based organization. Its mission is to build leadership capacity for a better Canada by creating and sharing knowledge on economic trends, organizational performance and public policy issues.
Our membership is primarily from business and government, but we also have members from associations, labour unions, hospitals, universities and school boards. We are not a lobby group. Our goal is to provide a balanced perspective on issues that are critical to Canadian leaders.
The purpose of our paper, "Border Choices: Balancing the Need for Security and Trade," is to provide insights on policy choices related to security and trade following the September 11 tragic events. At the time of writing, a number of ideas were tossed about, such as harmonization, perimeter security and giving up sovereignty, without any real consideration of what these terms meant. The Conference Board of Canada thought it was necessary to add some clarity to the debate by writing this paper.
The virtual lock-down at the border following September 11 showed that security concerns continue to impinge on Canada's ability to trade. If these are not addressed properly, they will lower the attractiveness of Canada as a location for industries that serve the North American market. Hence, it would deeply affect our economy. It is as much an economic issue as it is a security issue.
Trade irritants at the Canada-U.S. border are not new. In fact, there have been issues for many years, in spite of NAFTA, but the trade irritants became more acute following the events of September 11. We have come to better understand that there is a strong link between national security and trade. Therefore, the policy option chosen must recognize that link. It must ensure that security is not addressed at the expense of trade but that policies and practices to address security improve our trade flows.
We have framed the debate by examining three broad policy scenarios that are designed to achieve speedy border crossings while achieving an acceptable level of security for both countries. Mr. Shea will walk you through the paper in terms of the three scenarios that we have developed.
Mr. Andrew Shea, Policy Analyst, Conference Board of Canada: The first scenario we have established is entitled "enhanced border efficiencies." It relates to intelligent methods for processing border examinations. This scenario is not new. The process was already established well before September 11, but since that date and the resulting slowdowns we have seen more movement towards enhancing these efficiencies. This has been especially evidenced by the meeting between Secretary O'Neil and Minister Martin last week.
It is generally recognized that Canada tends to be ahead of the U.S. for these efficiencies, and the rail industry is well ahead of the trucking industry. We have outlined some of these points in our report. The onus is on the government and on the transportation and logistics companies to work to improve efficiencies. Governments need to ensure the existence of adequate staffing and information systems at the border. Companies need to provide adequate information about the contents, origin and destination of the goods being moved.
That said, the border officers will still make random spot-checks. If there are heightened security concerns, the border can be virtually shut down, as we saw following the tragedy on September 11.
In our next scenario, we are advocating that more has to be done away from the border so that officials are better able to assess the risk at the border to prevent problems in the first place. We label this scenario "moving from the imagined line to defence in depth."
For companies, this means asking what kinds of security and accountability are embedded in the various transportation networks. Are there systems for tracking goods and maintaining oversight and control in the network? For governments, it means sharing information between customs and other enforcement agencies, both domestic and foreign.
Yet, in his April 2000 report, the Auditor General said that CCRA must improve communication with other departments. The question is whether CCRA has taken steps since the Auditor General made these observations.
Assessing risks away from the border, we believe, will lead to better confidence building on both sides. It will likely go far towards accomplishing the twin goals of enhancing trade and efficiency at the border, while improving security.
However, if the two scenarios that I outlined are not enough to ensure trade and security, we may need to take the route of closer compatibility with the U.S. or even harmonization on customs and perhaps on immigration. If we take that route, hopefully it can be done in partnership with the U.S. as opposed to letting the U.S. dictate the terms.
We should also recognize that there are not only common inbound security threats to both countries, but there are also outbound security threats from Canada to the U.S. The U.S. likes to cite us as a sort of safe haven for terrorists, and that may be real or perceived. At the same time, there are threats that come from the U.S. to Canada, such as guns. We outline some other threats in our paper.
Achieving close compatibility or harmonization will be an arduous process. Harmonization of immigration rules, for example, will be difficult for both political and legal reasons. Politically, each country has a different view of immigration. Canada tends to promote it. The U.S. has ongoing debates on whether or not to restrict it. On the legal side, the U.S. gives no constitutional rights to persons seeking entry whereas Canada does.
If Canada and the U.S. are to overcome some of the challenges that I just outlined and reach some type of harmonized policy, a range of options could be considered. For instance, there could be no inspections at the border whatsoever. This would be similar to what we have at provincial boundaries. This means further development towards a customs union and a common policy for immigration.
We have documented some of the difficulties for customs and immigration in the report.
The Chairman: Excuse me for interrupting, but I must point out to our witnesses that the main thrust of our hearings is not immigration but trade. We want to know and try to quantify what harm is being done to the Canadian economy. I do not believe that immigration policy fits into this, but please carry on.
Mr. Shea: A variation on having customs and immigration inspections at the border could be having an agricultural inspection station, such as Arizona and California have with other states.
If there is no harmonization on immigration, then there can still be immigration inspections at the border with no customs inspections. On the flip side, if there is no customs agreement or customs union established with the U.S., but there is a harmonized immigration policy, there could be customs inspections at the border but no immigration inspections. Those are the two inspections that occur at the border.
I have outlined the three scenarios. They are more difficult as we have progressed through each of them and are more challenging to pursue.
Mr. Rhéaume: You asked about issues respecting trade impacts. I am sure that you have heard numbers being bandied around. Every day, $1.3 billion of goods flow from Canada to the U.S. Two-way trade flow is about $2 billion per day.
Although it is difficult to be precise, estimates of the added cost of delays at the border range from 5 to 15 per cent on top of the costs of producing and shipping those products. That means it is more costly to do trade and therefore more costly for Canadian business to operate in the North American context. Further border delays will aggravate the issue. Therefore, it is important to address the issue as quickly as possible.
Scenario one deals with the efficiency side. It looks at investments in infrastructure, technology and personnel at the border and before the border. Pre-clearance would go a long way towards dealing with that issue.
In scenario two, we go further and say that there needs to be greater coordination between agencies on both sides of the border. Sharing of information will expedite the process further.
Scenario three could not be accomplished in the short term. It is not a feasible option at this time. It may not be an option for political reasons.
The Chairman: Mr. Beatty, please proceed.
Mr. Perrin Beatty, President and CEO, Canadian Manufacturers and Exporters: Honourable senators, it is my pleasure to address you this morning on behalf of Canadian Manufacturers and Exporters on the topic of Canada-U.S. border issues. This is an issue of urgent concern, not only to CME members who produce some 75 per cent of Canada's industrial output and account for some 90 per cent of its exports, but to all Canadians.
Canadian prosperity depends on our trading relationship with the United States and, in turn, that relationship depends on the efficient flow of goods and people across the Canada-U.S. border.
[Translation]
Last year, exports accounted for nearly half of Canada's GDP. Overall, 86 per cent of Canadian exports were destined for the United States, our largest market. In fact, we sell more Canadian-made goods to the U.S. than we consume domestically. In fact, 65 per cent of all goods manufactured in Canada are sold to the United States.
[English]
The border is more than a just line on the map. It is the point where the sovereign and economic interests of two leading, outward-looking nations meet and intersect. We must make sure that it does not, instead, become an access of collision. In the world of just-in-time production, Canadian companies rely on the problem-free movement of planes, trains and trucks, as well as the mobility of people to service the goods sold on both sides of the border. $1 million in trade takes places between our two countries every minute, and 200 million people cross our common border every year. In fact, the U.S. does more two-way trade across the Ambassador Bridge between Windsor and Detroit than it does with any other country. Over the whole of the border, a truck crosses about every two and a half seconds.
Some have argued that the terrorist attacks made just-in-time deliveries a thing of the past, but nothing could be further from the truth. Our American customers will continue to expect just-in-time delivery and they will choose suppliers who can provide it. Whether those suppliers will be Canadian or not will depend on whether we can resolve the issues surrounding the border. Literally, tens of thousands of jobs hang in the balance.
[Translation]
Delays at the border hinder productivity and increase the cost of doing business in Canada. Delays can undermine our exports and compromise thousands of jobs in Canada.
[English]
If the border becomes a barrier to the movement of goods and people, it will not only choke off our exports but also stem the flow of foreign direct investment into Canada. Without easy access to the U.S. market, companies will be reluctant to establish operations here in Canada.
At one border crossing alone in Fort Erie, Ontario, it was estimated that transportation delays were costing shippers $2.5 million per a day. At a more micro level, one senior auto executive commented that every minute of border delay cost his company $30,000, which could easily translate into jobs. The full impact of September 11 on the Canadian and U.S. economies is not yet known, but September economic statistics announced this week provide a glimpse.
[Translation]
The Canadian manufacturing sector was already in a recession before the tragic events of September 11. CME was predicting that the sector would begin to recover during the second half of 2001, with a slow, but steady improvement continuing during the year 2002.
[English]
In its most recent outlook, CME Chief Economist Jason Meyers predicts that the sharp decline in consumer and investor confidence will lead to a continued downward trend through 2002 with a recovery sometime in 2003. Looking to the end of 2001, Dr. Meyers projects manufacturing shipments will be down 5.5 per cent, production down 7 per cent, and employment in the sector down 4 per cent. That is attributable not only to the events of September 11 but also to a general slowdown in the manufacturing sector.
This outlook is supported by the September statistics. Those statistics show manufacturing shipments down 2.5 per cent in the month, with declines in 19 of 21 industries representing 94 per cent of total shipments. Similarly, merchandise exports fell 1.7 per cent in September to their lowest level in 19 months, and imports declined at almost three times that pace.
A recovery in the Canadian economy will depend on improved U.S. market conditions and, more importantly, the continued efficient flow of legitimate goods and travellers across the 49th parallel.
[Translation]
Action is needed now to ensure both the physical safety as well as the economic security of Canadians.
[English]
To quote the American philosopher Arnold Glasow:
One of the true tests of leadership is the ability to recognize a problem before it becomes an emergency.Problems at the Canadian-U.S. border existed prior to September 11, and CME had been acting through its standing committee on customs and market access on a number of fronts, including playing a key role in the development of the customs self-assessment program called CANPASS.
According to statistics from the Canada Customs and Revenue Agency, import transactions declined markedly shortly after September 11, but by month's end they had reassumed to near normal levels, with periodic spikes in the length of delays. Most evidence shows that the delays at the border today are substantially shorter, thanks largely to increased staffing and considerably lower volumes of goods and people crossing.
This certainly, Mr. Chairman does not mean we can become complacent. September 11 gave us a taste of what the impact would be should this real problem become an emergency, as it will if we do not take action now.
Canadians and Canadian industry need leadership on the part of our government. Much of what it is doing is headed in the right direction. The recent announcement by Treasury Secretary O'Neill and Ministers Cauchon and Martin on the establishment of a joint steering committee that will take action in a matter of weeks rather than months to improve efficiency at the borders was a welcome message to the industry.
[Translation]
From an outsider's perspective, it would seem that the government is proceeding one step at a time, with the minister tabling legislation and making recommendations which may or may not be part of an overall solution targeting all issues.
[English]
What we need is a comprehensive and integrated strategy that addresses issues of security and border management in a way that will provide a level of confidence to Canadians and will ensure that Canada gets out in front of this issue with our American neighbours. I believe firmly that the Canadian proposal must be presented at the very highest possible level, Prime Minister to president, and it needs to have the full support of the private sector. Individual agencies must be told that their job is to make it work. Without this clear direction from the top, the sweeping changes needed risk being lost to the thousands of interjurisdictional jealousies.
Government must be the leader, but industry also has an important role to play, and it is prepared to play it.
For our part, Canadian Manufacturers and Exporters has taken a three-pronged approach. We formed a task force of CME members to guide our policies and strategy on border issues. We have established a joint working group on key border issues with our sister organization in the United States, the National Association of Manufacturers. We have brought together senior representatives of business associations and businesses to form a broad coalition to address these issues.
I would like to devote the next few minutes of my presentation to the activities of the Coalition for Secure and Trade-Efficient Borders.
[Translation]
The Coalition is comprised of about 45 major Canadian associations and businesses. Its aim is to work with the government by representing industry concerns on border issues to ensure that these are dealt with efficiently.
[English]
The coalition believes that increased security will lead to better trade facilitation if there is trust and confidence in the measures taken on both sides of the border. The objective should be to ease the movement of legitimate goods and travellers while focussing resources on illegal activity.
The goal, and I would stress this, Mr. Chairman, is not to return to border conditions as they were at 8:30 a.m. on September 11, but to resolve issues that were already threatening our trade then and which have become urgent since.
[Translation]
The Coalition's activities are headed by a steering committee composed of the leaders of four major associations and the chairs of three working groups in charge of studying customs, security, immigration and transportation questions. On November 1, the Coalition released its report Rethinking our Borders. I believe you have all received a copy of this report.
[English]
This report outlines a set of principles, central to which is the need for an integrated and coordinated approach that will ease Canada-U.S. border crossings by increasing Canada's ability to guarantee security at other points of entry. Such a solution must be developed in close collaboration with the United States.
The report also outlines industry's recommended approach to border issues. It proposes a risk-based border management system that enables low-risk people and goods to move efficiently while focussing security resources on high-risk travellers and cargo.
[Translation]
The report calls for three lines of security: offshore interception, first point of entry and the Canada-U.S. border.
[English]
By increasing our intelligence capacity, Canada can help to prevent terrorists from getting here in the first place. Travellers arriving in Canada, including those passing through on their way to the United States, as well as all cargo from abroad, would be properly assessed and dealt with to ensure that they pose no threat. Meanwhile, the Canada-U.S. border could be made smarter by moving low-risk identification processsing away from the 49th parallel. This would ease congestion, allowing border authorities to concentrate on high-risk movements.
Whether you call it a perimeter approach or a zone of confidence or a forward strategy, we are not talking about erasing the Canada-U.S. border, nor do we mean that Canada must simply adopt American policies. Collaboration between Canada and the United States is essential, of course. We need to develop shared goals and objectives on protecting physical and economic security, but we do not have to achieve them in exactly the same way.
[Translation]
The Coalition and CME will work with the government to develop solutions that recognize that Canadian security and trade-efficient borders are linked.
[English]
Coalition members feel strongly that, as a sovereign nation, Canada must take the initiative in resolving border issues and not be caught reacting to external developments. By acting boldly and with determination, Canada can demonstrate that we are part of the solution and not part of the problem in making our citizens both safer and more successful.
The coalition is currently putting the final touches on a detailed report that will include specific recommendations related to border management, security and immigration, and transportation infrastructure.
While I cannot address the specifics of the report, if I can put my CME hat back on, I should like to share with you briefly some of the specific priorities of our members related to customs.
Some of the specific priorities of our members related to customs that can and should be implemented now include common security standards at the perimeter around Canada and the United States; immediate implementation of CSA, NEXUS, CANPASS and other pre-clearance programs that take as much processing as possible away from the border; the provision of dedicated lanes for shippers whose paperwork is in order or who have been pre-approved for Customs clearance; increased integration of Customs inspections and facilities between Canada and the United States; greater investments in resources and infrastructure at the border, including staffing and training; closer cooperation between Customs agencies and exporters, importers, brokers and shippers to simplify and clarify rules and information requirements; and a strengthened Canadian and American commitment to a shared border agreement.
[Translation]
Since Canada-US trade contributes a little more each year to the prosperity of Canadians, the need for a simpler, quicker, homogenous and less costly customs regime will become even more pressing.
[English]
Honourable senators, the physical security and the economic security of our two countries are inextricably linked. Simply put, we will not have one without the other. Our goal must be to ensure that terrorists cannot defeat us on either front. If we have the wisdom to act, our citizens can be both more secure and more prosperous. The system was not functioning well prior to September 11, but what was a chronic problem then has since become urgent, and the time for action is now.
Senator Tkachuk: Those were good presentations.
Mr. Beatty, you said that there were problems before September 11 and they have become exacerbated since September 11. My guess would be that right after the incident it would have been a little tough at the border. Has it eased off a little since? Was there a dramatic change on September 12? We assume there was, but perhaps you can help us on that and also tell us what it has done to us.
Mr. Beatty: No one can fully quantify the costs. There is no doubt that, since September 11, delays at the border and the general slowdown in the economy in the United states, which has spilled over into Canada, have taken a very high toll on the Canadian economy.
We saw significant delays immediately following September 11, with lines of tractor-trailers in some cases going for 15 kilometers on the way into Windsor. Those delays have shortened considerably now, for two reasons. First, the Americans have added resources on the American side of the border, at least on a short-term basis. Second, the volume of crossings by people and goods has fallen.
There is no reason whatsoever for us to believe that the problems will not get more serious as volumes increase. As well, if there is a second incident in the United States, there is no reason not to expect that the Americans will turn further in terms of security and make it more difficult for Canadian products to get into the United States. That is why it is urgent for us to act now.
Senator Tkachuk: There is always the question of everything seeming to be linked. In other words, the American customs officer sitting on his side watching a truck coming in is not only worried about the goods in the truck but also the driver of the truck. Therefore, refugee and immigration policy is all tied into that box of wine, in the case of Senator Fitzpatrick, that is moving across the border to California.
How do we resolve this issue so that it makes sense to all of us? As you mentioned earlier, there are political and legal questions as to how we treat refugees and immigrants coming into our countries. Where do you put that on the scale of importance?
Mr. Rhéaume: We dealt with immigration policy, refugee policy and trade because there are linkages between those. We need not necessarily change those policies. We can use modern technology to do pre-clearance and screening so that the smugglers will not get into the trucks that then will cross the border. The Americans need to feel comfortable that that technology is applicable and is being used.
This is not only a Canadian issue; it is a Canada-U.S. issue. Therefore, the dialogue and the agreements have to be made on both sides of the border. Acting unilaterally will not resolve the issue. Ongoing dialogue and action are required.
The last course one would need to take would be to tinker with refugee and immigration policy.
Senator Tkachuk: What exactly is the new technology?
Mr. Rhéaume: I am not an engineer or a technologist, but I know that there is technology that can be used to close and seal a loaded truck. If that seal is not broken by the time the truck arrives at the border, you know it has been inspected before arriving at the border. That eases the process of follow-through.
Senator Tkachuk: Who puts the seal on the truck? Is there a pre-clearance?
Mr. Rhéaume: It is at a pre-clearance site. This is why we need the type of activity that is expected by the Americans and the Canadians. You would have to have inspectors at those loading docks to carry out that activity.
Senator Tkachuk: Would it be like the American inspectors at the airports or would it be some form of sharing of resources?
Mr. Rhéaume: It would be the same thing with overseas freight coming in on ships, for example. We already have a system in place with regard to trains.
Mr. Beatty: All of these issues are inextricably linked. Simply put, we will fail if we attempt to deal with them as a series of one-offs, customs to customs, security to security, immigration to immigration. We need to redesign the whole system and to go with a Canadian proposal to the United States; to put a proposal in front of them that will make our citizens more secure physically and economically.
It is eminently doable. It means shifting resources offshore so that when we try to stop terrorists coming internationally into North America, we intercept them before they get on the plane, or have the opportunity to do a full check while they are en route. It means expediting legitimate goods and legitimate people so that we shrink the size of the haystack in which we look for that needle. We know that 98 or 99 per cent of the goods and people crossing the border are legitimate. All the resources that we waste on legitimate goods and people are resources that are not being used for those that are illegitimate.
At the border itself, you flip when inspections are done, similar to flying to New York or Washington from Ottawa, where you would be cleared into the United States before you got on the aircraft in Ottawa. We need to do the same things with customs inspections: do the inspection before the vehicle leaves the country so that we are not choking a border point in the process. That would then expedite transport across the bridge.
From a security point of view, I mentioned earlier that the Ambassador Bridge between Detroit and Windsor carries more commerce from the United States than they have with any other country in the world. What an inviting target those key border points are for somebody trying to damage our economic security. Does it not make much more sense to do the inspection before the truck enters the tunnel or goes on to the bridge than to wait until it gets to the other side?
If we were to design a system that is totally dysfunctional, we would design the one we have today. We have a giant road system - a giant funnel - converging into a couple of lanes across a bridge with a blockage on the far side where each vehicle is individually inspected.
We can be imaginative in terms of how we redesign this by using new technologies that allow us to inspect what is in the vehicle much more readily. We can use systems such as the customs self-assessment system that Canada has in place. There is no comparable system in the U.S. today. Other new technology involves passes for frequent travellers where an individual would be able to apply, if he or she crosses the border several times a week, for example, for a secure pass with biometrics on it. A police check would be done to ensure that the person is not a known terrorist. These legitimate travellers would be expedited so that the resources could focus on the areas of highest risk. That is our best way of increasing both our physical and economic security at the same time.
Mr. Shea: The senator made an excellent point. My colleagues here talked about the customs part. We could have a truck sealed to the border, but if the INS is suspicious about the truck driver, we will still have the same problem, a border delay. Therefore, two issues need to be addressed. One is pre-clearance for the truck driver. This has already been put in place for rail crews. That, however, is easier because there are few rail crews while there are thousands of truck drivers. A lot of work needs to be done to figure out who these truck drivers are and to make sure they are allowed into the U.S.
There is a second problem that the INS inspectors must deal with, quite apart from any suspicion that a driver is a terrorist or a criminal. Let's say that a driver takes a load from Montreal to Florida and that he wants to take a load back to Montreal from Florida, but he cannot find a full load for all of the journey back. He may have to drive from Florida to Virginia and then from Virginia to Montreal. The driver is not allowed to take that load from Florida to Virginia. If an INS inspector suspects that the driver is taking a load part way through the U.S, he may not let him go through. There are two areas of concern to the INS: whether a driver is a potential criminal; and whether the driver will be taking a load part way.
Senator Furey: My question builds from the comment of Senator Tkachuk. Mr. Beatty, how does the southern flow of goods compare to the northern flow of goods, bearing in mind that there is almost twice the value of goods going south as there is going north?
Mr. Beatty: Are you talking about volumes, delays and value?
Senator Furey: I think we know about the value. What about volumes and delays?
Mr. Beatty: There has been a reduction of volume going south which is, in part, attributable to the slowdown in the economy. In terms of delays, we are approaching where we were on September 11, although there are still periodic delays, particularly at key boarder points. However, the key factor is that the Americans have added staff in the short term and, because volumes are down, there is less processing being done.
Senator Furey: Is the northern flow more efficient now than the southern flow?
Mr. Beatty: It always has been. Canada Customs has been more progressive in terms of speeding up northbound traffic going through customs. The customs self-assessment program that they put in place is a model in that they recognize that high volume shippers are unlikely to cheat and will assess themselves. Customs will do audits and ensure that shippers are playing legitimately.
Proportionally, we have staffed the border to a higher level than the Americans. The American staffing levels had not changed since 1980, despite the fact that, in the last few years, trade between our two countries has been increasing at 10 per cent per annum. In recent years, at least half of the lanes going down to the United States have been closed because of lack of staffing.
Senator Furey: Would some form of pre-clearance rectify that?
Mr. Beatty: It would substantially rectify it.
Senator Furey: It would require the cooperation of our neighbours to the south.
Mr. Beatty: Absolutely.
Senator Furey:Is there a sense that that cooperation with be forthcoming?
Mr. Beatty: If we get there quickly. Certainly Secretary O'Neil's comments last Friday were very encouraging. Not surprisingly, the Americans are still focussed on security. They are at war, and they are of the opinion that the battleground is at home. They have given less attention to the economic aspects than to the security aspect.
If we approach them now with a comprehensive proposal, this will give us an opportunity to set the agenda and come forward with something that is dramatically different from what was in place prior to September 11. It could resolve many of these longstanding problems.
Senator Gustafson: Our witnesses from the Conference Board of Canada mentioned trade, security and economic sovereignty. Have you researched what is happening in Canada? I know that, because of the low value of our dollar, three or four American companies are buying up the grain industry in Western Canada. My concern is that that will impact sovereignty. It has already happened in the oil industry. Gulf Oil has sold out.
Of course, exports of manufactured goods have increased as a result of the low value of our dollar. Wine and grain producers have also experienced an increase in exports.
Today, in U.S. dollars, our prairie farms are worth half of what they were worth before our dollar became so devalued. The same applies to commercial properties. According to Conrad Black, funds in savings accounts are worth 40 per cent of what they were worth five or six years ago.
Have you looked at this from the standpoint of how it is affecting sovereignty, control of the country?
Mr. Rhéaume: We did not address that in this paper. We did, however, deal with the issue of trade security and sovereignty. There is no doubt that, since the 1990s, there has been North American economic integration. More than ever before, the flow of goods north-south is more important than the flow of goods east-west.
We feel that the depreciation of the dollar is an important issue that we must address. However, the issue is so complex that it is difficult to define the precise problem. It does lead to cheap assets, and that is the reason for the takeovers. That has some long-term implications that must be addressed. For example, we have to consider the location of head offices. It is a complex, multi-pointed issue.
Several items need to be addressed. One has to do with foreign investor perception. Ours is seen as a resource-based economy and resource prices have been falling for a long time. That perception, with commodities being cheap, does not help our currency. The fact, however, is that only a small percentage of our economy is driven by resources. More and more, our economy relies on manufacturing and our service sector is growing.
It is critical that the international community re-educate itself as to who we are as a county. When we make statements to the effect that we are a resource-based economy, that does not help us.
We also need to focus on our competitiveness. Our productivity gap is high compared to that of the Americans. With our weak dollar, we can trade with the Americans. We can sell our goods. We can also sell them abroad. However, that does not encourage us to take some action to narrow our productivity gap. That does not do anything to increase our competitiveness.
Being more productive and more innovative would go a long way towards creating an economic situation that would improve our currency. We have prepared reports on that.
Senator Gustafson: It is a big subject.
The Chairman: Those are important issues, but we have limited time, and our study is related to border crossings.
Senator Angus: I have circulated an article that appeared in The Globe and Mail to my colleagues on the subject that Mr. Rhéaume raised. In yesterday's newspaper there is an article about your third annual innovation report that basically states that Canadians are neither as bold risk takers nor as innovative as other nations in the OECD. We are about ninth.
Do you have the innovation report with you? Could you have copies made available to all members of the committee?
Mr. Rhéaume: Yes, I could make copies available to you. Our third annual innovation report was released officially at our conference on Tuesday. The theme for this year was "Investing in Innovation."
Senator Angus: The economic effects of the border crossings and the security issues are interrelated. Have you made the point that Canada has been lagging behind in terms of the environment? Is that issue raised in your report?
Mr. Rhéaume: It is a clear factor. Ann Golden, President and CEO of the board, wrote an op-ed piece in The Globe and Mail in October about a link between security and innovation. There are some links, when, for example, we talk about innovative ways of dealing with border issues. However, there is more to it than just security.
Senator Angus: To complete the circle on that, I believe that Bill S-23, amendments to the Customs Act, received Royal Assent in June, 2001. It included some innovative methods, such as the quick-pass item that was referred to today, as well as a whole range of measures to expedite and facilitate border crossings for people and goods. That bill was not referred to this committee; it went to the Finance Committee. There were days and days of hearings about these same issues. Did the conference board, or the CME, make representations? Were all of you involved in those discussions?
Mr. Rhéaume: The Conference Board of Canada was not invited.
Mr. Beatty: We were involved in that we worked with the government in the design of the system that was included in the bill. We made it clear, at the time of our convention, that we were hopeful that Parliament would pass the bill rapidly, because passage of the bill would improve the status quo.
We do not see it as an end point. Rather, we see it as an important step forward. There must be a commitment to move well beyond where that bill takes us.
Senator Fitzpatrick: First, I compliment you on your presentations. I am certain that we all agree on the importance of dealing with the issue.
The conference board representatives gave us a strong indication that they believe that some of these border issues can be dealt with by process, procedure, people and infrastructure. That is where you probably have to start. However, I see several problems in the course of trying to make that effective, and I would like to hear comments from both groups on this.
First, I am concerned about the rhetoric that we hear about harmonization and a continental perimeter, which puts other ideas in the minds of Canadians. I believe that it should be, initially, about trade and about getting products across the border.
My second concern relates to the link to immigration. How do we fit that very complicated question into the equation?
My third concern is whether there is a "trade-fortress-America" attitude in the United States. I come from a province that exports 50 per cent of the softwood lumber to the United States. As all of you know, we are having a struggle with countervailing duties and anti-dumping provisions. That is a U.S. economic problem that may not stop at softwood lumber.
Could you comment on those three concerns?
Mr. Rhéaume: Harmonization and a North American secure perimeter mean different things to different people. That is a problem that arises from using these technical terms. It could be as simple as just improved coordination between agencies. We would consider that to be a harmonization of the information flow. Full-blown harmonization would involve policies and practices.
The same applies to the North American secure perimeter issue. It could lead to harmonization of immigration policies and refugee policies, as well as a customs union. That would be a full-blown aspect of harmonization. I would not suggest that that is the way to go, and I do not think the Americans would be interested in that.
I talked about the issue of trade irritants. If we had a customs union, they would not be able to deal with those trade irritants. There would not be the lumber problem that we have. There is a group in the U.S. that perceives the need to protect those kinds of interests. That would not necessarily be in the American best interests, or in the Canadian best interests.
You are proposing a full-blown type of option. We are looking at something much simpler and easier to deal with these border issues.
As well, when someone uses the term "clarity of concept" it is important to ask what he or she means by it.
Mr. Beatty: My response to that is that you should use whatever terminology pleases the individual, but get on with it. It is important to understand the underlying principles. What elements are we looking for in terms of a redesign of border management in collaboration with the United States?
The other thing that is absolutely key, is that we have an integrated approach, and that we not do a series of one-offs. We did not make more progress in the past because we attempted to deal Canada Customs to U.S. Customs, or Canada Immigration to U.S. Immigration, or RCMP to FBI, et cetera. Recognizing the fact that all of these elements are inextricably linked, in any redesign in terms of how we manage the border, we need a comprehensive proposal that should be a Canadian proposal. What will we call it? I am not fussy about that. I like "The Canadian Proposal." It must be one that is designed to make us more economically and physically secure. The key is the urgency to get on with it.
The final point you raised was about softwood lumber and protectionism by the U.S. The position that the U.S. has taken on softwood is indefensible. From time to time, protectionism crops up in the United States. What is encouraging, in general, about the approach of this administration, is that, even at a time when the U.S. was finding itself under siege from abroad and where there might have been a temptation to cocoon, to pull back on itself, it did not do that. I was in Washington three weeks ago with the National Association of Manufacturers. I was with President Bush, Secretary O'Neil and several cabinet officers, including Secretary of State Powell, who addressed us. In each of the cases, they said it was essential that the U.S. look for ways to break down barriers to trade rather than allow them to exist. They were promoting the WTO negotiations at Doha and they were promoting fast-tracking or trade promotion authority on the part of the administration. That was encouraging. I consider their behaviour on softwood to be aberrant and inconsistent with the philosophy that the President outlined.
Our goal in Canada should be very simple: knock down barriers to trade, period. That applies to physical barriers to trade at the borders and legal barriers to trade in international trade law. Open up the borders to commerce and allow economic growth to take place.
Senator Fitzpatrick: I would agree with that.
On the question of process or procedure, it seems to me that we need to deal with it on a function-by-function basis to begin with. I am not sure how we can take a composite approach.
How do we get trucks across more efficiently? We have pre-border clearing for trains. How do we clear certain kinds of goods? How do we share infrastructure at borders? There are those things, which I might call mechanical or infrastructure, that we have to resolve.
Then we have the bigger issue of dealing with perception and what people's attitudes are to what it is we are accomplishing.
Mr. Beatty will agree with me, I am sure, that a previous government had some difficulty getting across what the Free Trade Agreement was all about. We have the same kind of situation here.
This is a comment and not a question, but I think all of us, the government and associations such as yours, have to explain what these things mean so that we do not get a wall of suspicion or concern on both sides of the country.
Mr. Beatty: I certainly agree that all of us, including industry, must explain clearly what it is that we are advocating.
Should we do it in a series of small, digestible bites? That was the approach taken by the government prior to September 11, and one that was not giving us the success that we needed to move this dossier along.
Even on issues such as shared customs facilities straddling the border, this exercise founders on the fact that we have different building codes in the two countries.
American customs officers can wear their guns in washrooms on their side of the border. On the Canadian side of the border, the issue becomes: Do the Americans customs officers have to take off their guns before going to the washroom?
From the point of view of Canadian industry, their response is, "Don't tell us about the problems; fix them." It will not be fixed unless it comes from the top.
In terms of a concept of how we should manage the border, you cited the issue of free trade. It is relevant in another aspect. If we had been negotiating free trade piecemeal, it would never have taken place. At the end of the day, it happened with negotiations between the President, the Prime Minister and their chiefs of staff agreeing that it was right for both countries. The instructions to their officials were, "Make it happen."
The major redesign that must take place because the issues of security, immigration, customs and transportation are all inextricably linked - you cannot flip border inspection without dealing with security issues at the same time as you are dealing with customs issues. Hence, because they are inextricably linked, it will require direction from the top to each of these dozens of agencies on both sides of the border to make it happen. "Do not tell us why it cannot happen; make it happen."
The Chairman: I find this fascinating. I am at a loss at this moment as to what kind of report we will make, because our major thrust is to find out what this is costing Canada. To what extent are we being hurt? Obviously we are being hurt, but we are not getting at that. Perhaps, the report should be in two parts. The first report could focus on how to cure the trouble at the border; the focus of the second could be why it needs to be cured.
Senator Angus: Gentlemen, I agree with Senator Fitzpatrick about the excellence of your presentations. Mr. Beatty, it is a pleasure to see you here. I know you have had much experience before Senate committees, especially when you were a minister of the Crown. It is obvious from your remarks that it is our privilege to have the benefit of your expertise in these areas.
I should like to determine whether I have the right handle on what these hearings are about. I had understood them to be about whether we can benefit, as bizarre as it might seem, from the unfortunate events of September 11, because those events have brought into focus, the best focus we have had for a long time, the problems that we have at the border in terms of our trade.
Would you gentlemen agree that this has given us a unique opportunity to fix a problem, because everyone is looking at it?
Mr. Beatty: Yes. Our best response to the terrorists is to create something better than September 11.
Senator Angus: If that is the case, I understand from your testimony - and particularly your last response to Senator Fitzpatrick in terms of doing it piecemeal. Is it not a fact that there has been impediment to trade and the free and efficient movement of goods in either direction because different agencies have been dealing with the different elements of an overall issue? Customs people, immigration people, police and security folk are all involved in border issues. Am I correct?
Mr. Beatty: Yes.
Senator Angus: If that is so, what do you think of the idea put forward the other day in Parliament by Mr. Clark? A press release was issued. Mr. Clark said the following.
To protect the $1.7-billion in trade that crosses the Canada- US border every day, the Coalition is offering the govern ment a three-point plan that would provide the requisite security enhancements and streamline the movement of low-risk individuals and goods.
The Coalition's plan would:Create a new Ministry of Public Protection and Border Management to take responsibility for Canada's customs, immigration, law enforcement and intelligence agencies;
In other words, there would be a grouping of all the things together.
Create a bi-national (tri-national) border management agency, that would jointly monitor the entry of goods and people into and out of the North American continent and across the Canada-US border, while pre-clearing low-risk individuals and goods for expedited transit; and
Create a new Parliamentary Committee to provide oversight of this new Ministry and other anti-terrorist measures contained in Bill C-36.
Is that something that makes sense? Would that address the points that you are making?
Mr. Beatty: I will defer to Mr. Rhéaume.
Mr. Rhéaume: We have not analyzed the proposal. I would not be able to comment on that specifically.
There is one thing that I think is important, and Mr. Beatty addressed it earlier. In the 1990s, the increasing flow of goods and people occurred exponentially. Unfortunately, the infrastructure at the border did not compensate for that. We have problems with that.
In addition, there were issues in terms of the lack of inspectors and technology. That has become more acute. Would another body of government or another department solve that issue?
The issues are more in terms of what types of investments will occur in addressing the issue? What types of agreements will we have with the U.S. to address the issues?
Those are things that are more pressing; they are on the table. The means already exist to be able to undertake those types of things without adding more layers. We just have to get on with the job.
Senator Angus: Does anyone else wish to make a comment on the proposal, in terms of making an innovative solution?
Mr. Beatty: Let me say that anything that integrates is a step ahead of where we are now. The appointment of John Manley as chair of the Cabinet Committee on Security is encouraging. For the first time, there is coherence to what the government is doing, as opposed to a series of Challenger flights to Washington by individual ministers or agency heads.
The appointment of Robert Fonberg to the Privy Council Office to serve as coordinator is a positive step. Whether the Prime Minister wants to redesign his cabinet structure, or the machinery of government, I will leave that to them. In principle, however, it is essential that we integrate, because there is not a parallelism in terms of the agencies on both sides of the border. The functions of Canada Customs are different from those of the U.S. Customs Service.
Nevertheless, U.S. Customs has more than its fair share of problems in coordination, as do we. We need to integrate much more effectively.
Senator Angus: In talking about border matters, is it fair to conclude, in terms of your parallelism, that you were referring to road issues, as well as airports, seaports, et cetera?
Mr. Beatty: We have to look at all of those. In some areas, we are more advanced. In the case of pre-clearance at airports, we are more advanced than at land crossings.
Our strategy in respect of seaports and incoming cargo to Canada that is being transhipped to the U.S. is that it should be possible for a vessel to dock in Halifax, to clear both Canada and U.S. customs as it docks, and for it to not be stopped again at the border. With an integrated solution, we can substantially increase our trade while we improve security.
Senator Kroft: I would like to follow up on Senator Angus' line of questions, because I share his viewpoint. He said the word "bizarre," but it is realistic for us to look at this as an opportunity to accomplish things that may not have been possible before. In terms of how governments work, that means the intelligent devotion of greater resources than would have been directed under ordinary circumstances. The demands of the circumstances make that politically possible and administratively necessary.
Without getting political, I would like to probe a bit further. We talked about Mr. Clark's suggestion, about the existence of the Manley committee, and about other such matters. I should like to know whether, in your day-to-day dealings on these matters, you feel the government process - politically and administratively - is effectively coming to grips with this issue. Are there attitudinal obstacles, mental, definitional or philosophic blocks?
Ultimately, we have to determine the costs of this and find solutions. However, in the short term, should this committee be aware of hurdles that you are facing? Is there anything we should be aware of, to raise the focus? Is there something that is hindering the process of finding a solution?
Mr. Beatty: It is considerably better than it was immediately following September 11. The concern for the members of the coalition following September 11 was that a series of disconnected measures were being taken. There was not even a Government of Canada Web site, such that if they were talking to their American counterparts they could lay out what Canada had done. It is more integrated than it was before.
Our coalition met with Minister Manley on Monday, and we have a sense that both government and the private sector are comfortable with the principles in terms of how we want to proceed. My concern is two-fold. The first is urgency. I cannot overstate how urgent it is for us to act. We have a window, now, where I think there is openness on the part of Americans to look at new ideas. We have to anticipate that there may be more terrorist acts in the United States. That window could slam shut quickly, if we saw another terrorist incident. It is important for Canada to be there as demander with the Canadian proposal, and to do so today, not several months from now.
The second is that it must be at the highest possible level. I am convinced that without agreement between the Prime Minster and the President bureaucratic inertia will set in, particularly if the war in Afghanistan goes well - people's interest will die. It will only happen if there is the political will to drive it forward.
Senator Kroft: My next concern arises out of a comment in your report about the need to be bilateral in nature. There are different problems, advantages and issues with respect to the Mexican border. Is our work being complicated by the fact that the United States has to deal with another border? Are we effectively working in a bilateral way?
Mr. Beatty: Yes, it is complicated by that. In Congress, there is a feeling that there needs to be symmetry on the northern and southern borders.
It is important for us to make the case effectively that the relationship between Canada and the United States is unique. This is the world's largest trading relationship. It is important for us to side on the management of the 49th parallel and set standards. If the Mexicans can accede to those standards, then by all means, we can do something that is trilateral. However, we should not have to wait for the resolution of U.S-Mexican issues to move ahead.
Senator Kroft: Do you think we have a problem with that now?
Mr. Beatty: So far, the American administration seems to differentiate between the two and seems to recognize that 25 per cent of the U.S. exports come to Canada and that Canada is the largest trading partner for 38 of the 52 states. We have to maintain the momentum; we must avoid being caught in a place where the pace is determined by the slowest elements.
Senator Setlakwe: The recent amendments to the Customs Act - Bill S-23 was the vehicle - have just come into effect. Are the measures that were introduced sufficient, following the events of September 11? Is there more that can be done by further amendments to the act?
The amendments came at an opportune time. Can more be done?
Mr. Beatty: From our perspective, the amendments were necessary but not sufficient. We called upon Parliament to move quickly to put them in place, with the understanding that although they would improve the status quo as it was then they were not an end point, that we had to make improvements beyond that, improvements that would flow out of the redesign of border management that we are talking about.
Hence, the amendments were a step forward, but they are not the final destination.
Senator Setlakwe: Are the improvements to the act a result of September 11, or are they the result of a failure to consider the matter in a broader perspective?
Mr. Beatty: The amendments that were introduced in Bill S-23 went as far as the government could go at that time.
We now have an opportunity, coming back to the point made by several of your colleagues, to resolve long-standing issues that have plagued our two countries for years. For us to do that, further amendments will be required, to redesign the whole system.
September 11, by any standard, was a tragedy. The real issue for us is whether it will be an unmitigated tragedy, with no good coming out. The issue is whether we can use the tragedy as a catalyst to be bold, to redesign the system, to have something better than it was prior to September 11. Our strong counsel would be to redesign the system, to make it better for both of our countries than what we had before the terrorist attacks.
Senator Mahovlich: Your idea of a pass or an identification card to cross the border or to get on a plane is a great idea. Confidence and trust are involved here. I would feel comfortable if Senators Gustafson and Fitzpatrick, for example, could board a plane without having to wait or without being treated like a terrorist.
In the last month or so, I have had to wait in line, have felt like I was being treated like a terrorist. This is just a statement.
My question is related to the transportation of goods. There are so many trucks on our highways. Is there anything the government can do to encourage more companies to transport their goods by train? This would help to eliminate the high number of trucks on our highways.
Mr. Shea: This summer, the Canada Transportation Act review committee issued its report after a year of looking at these types of issues. They recommended a number of changes, including possibly pricing and infrastructure costs for the use of trucks, which, if done properly, would perhaps drive up the cost of trucking, which would then make trucking less competitive versus rail. Using market forces, shippers could then decide which way to move goods. Nevertheless, trucks provide delivery on a much more time sensitive basis than rail ever could.
With respect to the CTA review, Transport Canada is establishing a panel to look at the blueprint they are laying out. Perhaps they will address the rail versus road issue at that time.
I also noticed that next week a representative from the Railway Association of Canada is making a presentation. I am sure that he will have a number of interesting ideas about how to get more goods on to rail.
The Chairman: Thank you, gentlemen. We appreciate you attending here.
I wish to make a request of the Conference Board of Canada. Do you have any research that would help us to quantify the effect of these delays on Canada's economy?
If any of you can suggest a Canadian expert on this subject who could help us with the numbers, we would appreciate it.
Our study is many-pronged. We are not overlooking what you have just told us about border problems and how to fix them. What you have told us is interesting, and we appreciate it, and it will be in our report. However, the highlight of the report must be the economic backlash, in my opinion. If there is anything you can do to guide us as to get at that, we would appreciate it.
Thank you for being with us today. We appreciate your expertise.
The committee adjourned.