Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 2 - Evidence, February 3, 2003
OTTAWA, Monday, February 3, 2003
The Standing Senate Committee on Foreign Affairs met this day at 12:50 p.m. to examine and report on the Canada-United States of America trade relationship and on the Canada-Mexico trade relationship.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: I would like to welcome our three guests. Kathleen Macmillan is president of International Trade Policy Consultants Inc, which provides consulting advice to companies and governments on trade disputes and trade policy matters. She has been a member and, subsequently, vice-chair of the Canadian International Trade Tribunal from 1989 to 1994. She is on the roster of panellists for WTO and NAFTA, Chapter 19, Dispute Settlement Review.
Professor Donald McRae is Hyman Soloway Professor in Business and Trade Law at the University of Ottawa. Professor McRae has sat on dispute settlement panels under the Canada-U.S. Free Trade Agreement, the U.S.-Israel Free Trade Agreement and NAFTA. He has also advised both the Canadian and New Zealand governments on international trade law matters and appeared as counsel before WTO panels, the WTO Appellate Body and NAFTA chapter 11 tribunals.
Mr. Peter Clark is a former civil servant who worked primarily on a wide range of trade policy issues. He was posted as counsellor at the Canadian Permanent Mission to the United Nations, Geneva, where he was Canadian liaison to the GATT, chairman of the GATT Standing Committee on Budget, Finance and Administration and a founding member of the Textile Surveillance Body. He is active in NAFTA and WTO dispute settlement, both as counsellor and arbitrator.
I would like to read our term of reference onto the record, because as everyone knows, the record is very important. This is our first meeting on this very important subject.
The Standing Senate Committee on Foreign Affairs will begin hearings Monday, today, as part of its examination of Canada's trade relationships with the United States and Mexico.
The committee will pay particular attention to (a) the Free Trade Agreement of 1988; (b) the North American Free Trade Agreement of 1992; (c) secure access for Canadian goods and services to the United States and to Mexico; and (d) the development of effective dispute settlement mechanisms. These issues will be dealt with in the context of Canada's economic links with the countries of the Americas and the Doha round of World Trade Organization trade negotiations.
I would like to thank you for coming. As you know, the Senate has given this order of reference to us. Welcome Ms. MacMillan.
Ms. Kathleen Macmillan, President, International Trade Policy Consultants: It would be a pleasure to start. I appreciate the opportunity to participate in your proceedings. You have been given a challenging and daunting task in your terms of reference. At no time in Canada's recent history has it faced graver threats to its trading relationship with the outside world, and particularly to the United States. Your examination is extremely timely and very important.
My remarks will primarily focus on item (c) of your terms of reference — that being securing stable a trading relationship with the United States.
I will not waste the committee's time analyzing the Free Trade Agreement of 1998 or the 1992 NAFTA, although I was involved in the lead-up and implementation of both. However, it is safe to say that it is virtually universally agreed within Canada that those have been highly successful trade arrangements for this country. I think this is borne out by the opinion polls that seem to suggest that this is a consensus of ordinary Canadians and not just the supposed ``economic political elites.''
Had you been given the same terms of reference two years ago, we witnesses would have spent a great deal of time pontificating on ways to change, to deepen and to broaden the NAFTA agreement. We would have looked at things like sectors to add, ways to improve the institutions. This would be with a view to keeping that engine of exports primed and keeping generating economic benefits for Canada.
Now, however, we are faced with a much greater challenge, and that is to find a way of averting the world-trading scene entering into a period of profound malaise or stagnation. We have a situation of economic recession in the United States, which has dampened demand for imports from the rest of the world. We have the grave security concerns arising from the September 2001 terrorist attack. It is hard to see good news on the trade horizon. The WTO talks have seemed to stalled. The FTAA negotiations are showing little promise of any kind of meaningful outcome. There is very little appetite, I would say, around the world for meaningful trade liberalization.
This is hard for a country like Canada that generates 43 per cent of its GDP from exporting.
The U.S. is our overwhelming priority. It accounts for over 80 per cent of our exports and about 70 per cent of our imports. People have talked over the years about diversifying our trading patterns, but while the talk is going on — and there have been honest efforts at achieving this — our dependence on the U.S. economy grows and grows. There is a good reason for the natural trade affinity that exists between Canada and the United States. They are easy to trade with. They are geographically close. They speak the same language. We share many common institutions, and we understand each other's market. We have also found them to be excellent trading partners, notwithstanding the acrimony over things such as softwood lumber. We resolve our disputes in a harmonious fashion.
The United States is obviously overwhelmed at present with matters of national security, and they unfairly — I think most Canadians believe — perceive Canada as part of the problem and not part of the solution.
Their preoccupation with security is rapidly becoming our problem. Years of patient work that aimed at creating a seamless border with things such as pre-shipment clearance have evaporated quickly. Concerns about pre-approval of manifests is an alarming possibility for just-in-time producers, and issues such as business people being detained at airports and missing important meetings has put a great chill on our trade relationship.
The business community in Canada has been sounding alarm bells, and we ought to listen. Wendy Dobson, in a C.D. Howe Institute commentary, talked about a big idea that would involve a strategic bargain with the United States and Canada to propose initiatives on things like border measures, on immigration, on defence, on energy security. The Canadian Council of Chief Executives has proposed something similar with a lot of common elements.
The big worry about big ideas is that we will end up capitulating in areas where we pay a price in terms of our policy sovereignty only to find out that, down the road, the U.S. remains unsatisfied. That will be a concern always. The difficulty is that we have little alternative. We must generate some ideas, come up with some pragmatic solutions to keep the trade flows going and sell them to the United States.
In doing so, it is imperative that we consult with our business community. These are people that understand the nature of their business and can work with their U.S. counterparts to come up with a technology and the institutions that can solve the logjams and keep the respective governments happy.
We also need to work with the U.S. on bigger issues that we know are of concern to them, such as defence and energy security. By engaging them on these important issues, I think we resist their impulse to dissolve into unilateral or isolationist approaches for dealing with these problems. It is about time we addressed issues such as defence and energy in any event and we might find there are outcomes in our best national interest as well.
Big ideas attract a lot of criticism. We have learned from past history that the Canadian business community has been very successful by going below the U.S. radar and finding solutions with U.S. businesses on how to enhance our commercial relationship and achieve objectives that are in the best interests of both our economies.
We need to look towards enhancing our relationship with the U.S. outside of Washington D.C. and I would urge you to have a look, for example, at the resource cut backs that have happened, that have whittled away our manpower in regional centres outside Washington and the U.S. We should look at ways to enhance our eyes and ears on the ground to assist businesses in developing relationships and keeping our trade flows going.
The last area you have been asked to examine is dispute settlement. I think the professor here will have good ideas to propose in that respect. For my own part, I do not think big ideas will work much in improving our dispute settlement system. They have not worked with a great deal of success since the implementation of the FTA in 1988.
I am very encouraged at the possibility that the steel industry in Canada and the U.S. might be contemplating ways of disarming in a trade remedy sense with respect to bilateral trade. Steel is a big user of the trade remedy system on both sides of the border and if they can come to a meeting of minds, then there is great potential to apply any solution they achieve to other sectors of the economy. This is an example of a practical, tailor-made private sector initiative that might pay off down the road.
The next frontier in terms of dispute settlement is agriculture. That will mean a painstaking set of negotiations to try on a sector-by-sector basis to come up with harmonized rules to avert the possibility of trade actions. That is something that we should look towards in the future.
I would be happy to assist you with questions down the road.
Professor Donald McRae, Business and Trade Law, University of Ottawa: It is a pleasure to appear before the committee on a very important question.
I will focus on item (d) of your terms reference, namely, dispute settlement mechanisms. I will look at the dispute settlement under NAFTA. I have some comments on the Doha negotiations in my written brief, but I may leave that in terms of oral presentation today.
In terms of NAFTA, I would like to look at the three different dispute settlement processes and provide some kind of assessment of them. Obviously, the three are chapter 19, which deals with review of anti-dumping and countervailing duty measures; chapter 20, which deals with government-to-government dispute settlement; and chapter 11, which deals with claims by investors of a NAFTA party against one of the NAFTA governments. I will make comments on each of these processes but I will focus more on chapter 20 and chapter 11.
First, I have a couple of words about chapter 19. The judicial review of determinations of agencies of binational panel is a novel procedure. It was an important achievement in the Canada-U.S. Free Trade Agreement and an equally important achievement to continue it in the NAFTA. The process had some initial success in making determinations by United States agencies become reasoned. By and large, binational review has become routine — although I think it is less frequent under the NAFTA than it was under the Canada-U.S. Free Trade Agreement.
I think it unlikely that the United States would want to extend that process to all the Latin American countries, so I thought one important thing was to ensure we do not lose chapter 19 under the FTAA. However, we should be aware of the limitations of chapter 19. It was only designed to ensure that a NAFTA party properly applies its own law without setting standards of its own. It simply provides judicial review in accordance with the legal standards of the parties whose agencies decisions are being challenged. It is not surprising that, although chapter 19 was included in part in response to the softwood lumber issue, it has not been successful. Softwood lumber is not about the correct application of the U.S. law since it is a disagreement over what the rules should be. Chapter 19 cannot be held responsible for not solving that dispute.
Let me turn to chapter 20 of the NAFTA, the government-to-government dispute settlement process, which has been little used. There has been one case between Canada and the U.S., the supply management case, compared with five cases under the equivalent provisions of the Canada-U.S. Free Trade Agreement. There have been two decided cases between the United States and Mexico.
Why has chapter 20 been so little used? It is in part because it has been supplanted by the WTO dispute settlement. Since, NAFTA incorporates many WTO obligations, cases that concern these obligations can be brought under either NAFTA or the WTO. The NAFTA parties seem to be opting for WTO dispute settlement. The reality is that WTO dispute settlement has some distinct advantages.
The WTO panels are composed of three individuals, none of whom is normally a national of the disputing parties. NAFTA panels are composed of five panellists, four of whom are nationals of either party in dispute. In selecting WTO panels, it is simpler. The secretariat of the WTO produces names and if the parties cannot agree on those names, ultimately the Director General of the WTO can make the appointments. In NAFTA, there is a fallback on appointments through the drawing of lots, but the since the parties have yet to finally approve the roster of names, this process would not be able to work. An uncooperative party can stall the process under NAFTA for establishing a panel.
A WTO panel receives significant assistance from the secretariat, whereas NAFTA panels receive only administrative assistance from the NAFTA secretariat. WTO settlement is surrounded by an institutional basis that does not exist under NAFTA. The opportunity to appeal panel decisions exists under the WTO but not under NAFTA. The appellate process has added a degree of systemic importance and predictability to WTO law so that, by comparison, NAFTA dispute settlement ends up being akin to ad hoc arbitration.
Once more, the legal status of a WTO decision is clear — it is binding. Under NAFTA, it is left to the two parties to adopt the decision, which they can change or modify if they wish. Moreover, the WTO has a system for implementation ultimately leading to retaliation. NAFTA provides for retaliation, but no system that surrounds it.
In the light of all that, it is not surprising that when disputes between NAFTA parties can be taken to the WTO, they are. The cases that have been decided under NAFTA chapter 20 so far are all cases involving issues that could not have been taken to the WTO.
Does this mean that NAFTA chapter 20 should be changed? I do not think any changes would make it more attractive to the parties. If it has to be used, the parties will agree and use it. Changes could be made so that the process is more efficient, particularly in the appointment of panellists. However, I do not believe that it will be possible in the context of separate national secretariats, as currently exists under NAFTA, to replicate the institutional support that panels receive under the WTO.
Should there be a government-to-government settlement dispute process under a FTAA? I think there ought to be. Obviously, disputes that cannot be taken to the WTO still have to be dealt with and, therefore, the FTAA parties would need that kind of process when they could not agree. The FTAA dispute settlement draft seems to be modeled on the WTO process. That has some distinct advantages over the NAFTA process. If there is an FTAA and there are disputes between FTAA partners that can be taken to the WTO, they will all end up in the WTO.
Chapter 11 was a sleeper in the NAFTA. The provisions go further than the investment provisions of the Canada- U.S. Free Trade Agreement. There was not any anticipation of the controversy that would arise around chapter 11. In part, that may have resulted from the misunderstanding of the potential scope of its provisions by the negotiators. However, there are other factors that have to be considered, including some public misconception over the nature and effect of NAFTA chapter 11.
Is it as bad as the critics suggest? I do not believe that it is as bad. Much of the criticism of NAFTA, chapter 11, fails to recognize that the rights it sets out for foreign investors to bring a claim against the country in which it has invested is embodied in numerous bilateral investment treaties. The International Centre for Settlement of Investment Disputes, ICSID, provides a process for such claims, of which there is an increasing number. These have to be seen in this broader context of that kind of dispute between investors and countries being brought to a dispute settlement more frequently.
The obligations in chapter 11 that the parties have towards foreign investors — provision of a minimum standard of treatment, limitations on expropriation and performance requirements — are mirrored in many bilateral investment agreements. Chapter 11 also includes the free trade obligations of MFN and national treatment. The devil is always in the details and these obligations have to be interpreted. That could lead to debate and to disagreement. Moreover, the fact that this process is taking place through a process of ad hoc arbitration that involves the investor, rather than through arbitration between governments or through some more institutionally based court exacerbates the difficulty.
The alleged impact of chapter 11 on environmental protection has been a particular source of concern. Will governments be reluctant to enact appropriate environmental legislation for fear of having a claim brought against them by an investor of another NAFTA party claiming compensation for expropriation of some kind of interest? There is no doubt that the possibility of being liable to suit will cause governments to think more carefully before they act; and that not necessarily a bad thing. The cases to date, many of which have an environmental component, do not support the thesis that government freedom of action has been inappropriately restricted.
Arbitrary and discriminatory action by governments, or their officials, can lead to liability. That is true of the Ethyl case that Canada settled concerning the banning of a gasoline additive; the Metalclad case, in which Mexico was held liable; and the SD Myers case, in which Canada was held liable. The last two cases involved hazardous waste. One may disagree with the reasoning in those cases, or with the results of the decisions, but it is not plausible to say that they imposed unreasonable limitations on a government in enacting environmental legislation. Requiring a government not to act arbitrarily or discriminatorily seems to be a reasonable restriction.
However, there are two potential problem areas in the NAFTA chapter 11 in relation to the substance of the obligations that the states have undertaken. The first relates to the scope of the notion of expropriation and the second relates to the content of the International Minimum Standard in NAFTA chapter 11 — a standard that each NAFTA party has to provide to the other NAFTA party investors. With respect to the International Minimum Standard, the NAFTA parties have clarified some of the misunderstandings of its interpretation through an interpretation issued by the governments.
With respect to expropriation, the wording of that provision seems wide in that it covers ``measures tantamount to appropriation'' as well as expropriation. The question that arises is whether NAFTA governments would have to pay compensation to investors of other NAFTA parties where they are affected by actions or governmental measures taken in the public interest. The possibility of this — that governments taking measures in the public interest will be liable to pay compensation — has caused anxiety. The fact that domestic investors would not be entitled to compensation because they do not have the same rights as foreign investors under the NAFTA has heightened the sense of unfairness. The decisions of the chapter 11 tribunal, thus far, do not bear out claims that unreasonable limitations have been imposed on governments. The power of the NAFTA parties to issue interpretations of the agreement, which are binding on chapter 11 tribunals, means that they are able to clarify the provisions where uncertainty exists. That would nullify the effects of particular interpretations.
Nevertheless, having put that somewhat optimistically, there are areas where improvements could be made. First, the process could be more transparent. The pleading of the parties in any NAFTA chapter 11 case should be made public, and the hearing should be open to the public. Much of the apprehension over the chapter 11 process arises simply from its secrecy. This has led to requests to file amicus briefs to provide an opportunity for some to present their own views before the tribunal, but it would not provide openness and transparency. If a domestic investor were to sue the Government of Canada, the matter would be heard in open court. If the investor of a NAFTA party were to sue the Government of Canada under chapter 11, why should this not be held in open court as well?
The argument that you have to keep the proceedings private to protect confidential business information is not a compelling reason. NAFTA chapter 19 hearings, which involve anti-dumping, countervailing duty issues that involve confidential information, are held in public. I do not think that the need to protect business confidential information is incompatible with openness and transparency. The NAFTA parties have encouraged more transparency in the process. They should go one step further and make the chapter 11 process similar to our domestic courts — open to the public.
The other point I wish to make relates to the complex mix that chapter 11 has of commercial arbitration, international trade law, and investment law. There are few individuals with that level of competence or substantive expertise to make them appropriate for sitting on chapter 11 tribunals. This makes appointing tribunals exceedingly difficult. Private commercial arbitration is different from arbitration involving governments.
Chapter 11 is in a treaty created by the NAFTA parties; it is not just a private contract. Dispute settlement in this context has some unique characteristics. The other NAFTA parties are entitled to sit on a case between an investor and a NAFTA party and to make submissions to the tribunal. The parties are entitled to change or to modify the treaty and to amend the investor's rights. The rights of an investor of one of the NAFTA parties are no more and no less than those given to them by the NAFTA parties. The parties have reserved themselves the right to interpret the provisions of NAFTA and have those interpretations bind chapter 11 tribunals.
This uniqueness of the Chapter 11 process makes a process of ad hoc arbitration — which is what NAFTA tribunals are — somewhat questionable. If you constitute tribunals under Chapter 11 with individuals who have little knowledge of several of the areas of law that Chapter 11 embodies, I think the results are likely to be unpredictable and, at worst, incoherent. Ad hoc arbitration can lead to ad hoc results. I contrast the NAFTA chapter 11 approach with that of the European Union and the WTO. In the European Union, you have a court of justice composed of full-time members who can provide continuity and get substantial administrative support. In the WTO, you have a system of ad hoc panels, but you compliment that with a standing appellate body, which has been able to ensure consistency in interpretation and application of the law.
Rather than watering the NAFTA Chapter 11 dispute settlement process down, as some have advocated, I suggest that what it lacks is an institutional base. It is involved in interpreting and applying provisions that have important implications for the regulatory powers of governments — issues far too critical to be left to ad hoc arbitration. It is true that there is a possibility of judicial review. I think that was done successfully in the Metalclad case, but judicial review is ad hoc. Under Chapter 11, it depends upon the country and the court where the review is brought.
If Canada and Mexico were both parties to ICSID, then this would be part of a solution. ICSID provides a form of ad hoc arbitration, but it has an institutional base and a review mechanism. Better still would be for the NAFTA parties to combine the ad hoc arbitration of Chapter 11 with a form of appellate process — perhaps modeled on the WTO — that would allow errors of tribunals to be corrected and would ensure consistency and predictability in the interpretation and application of Chapter 11.
The Chairman: Thank you very much. That was very interesting. Mr. Clark, would you like to continue?
Mr. Peter Clark, Partner, Grey, Clark, Shih and Associates, Limited: I would like address the question of how we develop the type of secure and comprehensive access to the United States market for goods and services that really completes the NAFTA or what it was intended to do.
I may be looking to push the envelope a little bit further than many people in my business are prepared to do, but when Senator Van Roggen's report came out in 1978 and focused on tariff-free trade, my reaction was that it was not enough, we must go further. We have and we still must go further if we are going to get the type of access we need to the United States market, which will put us on an equal footing to trade and to attract investment.
However, it will not be easy. I thought I would raise with you a number of the questions that come to mind. The situation we are in today — with the exception of the focus of officials at the borders on security and anti-terrorism — is actually very much like the situation we had before we negotiated the Canada-United States Free Trade Agreement. We had problems with softwood lumber. We had problems at that time with the automotive industry. A number of problems had arisen. We did sit down and eventually worked out most of them and further improved on them in the context of the NAFTA.
The free flow of commercial traffic and businesspersons across the border is a very serious problem. Eventually, we should be able to cope with it, but it will take much work and there could be considerable disruption unless we have cooler heads and people who are focused on keeping product moving back and forth across the border dealing with these issues.
Unfortunately, that is not the focus on the other side of the border. The focus on the other side of the border is keeping problems, which they consider to originate in Canada, out. On this issue, the debate so far has been focused in Canada. It is focused on Canadian desires and wants. There is really no debate about expanding trade between Canada and the United States further, or further liberalizing the current markets in the United States. To the best of my knowledge, there is not the same pressure from Mexico in terms of expanding their mutual obligations and access under NAFTA. Their focus relates to some of the things that we are concerned about as well, but right now, their big problems seem to be the impact of the U.S. Farm Bill on their economy and other agricultural problems, and not getting what they expected they would get.
From the United States perspective, there are still some people that agree with Ross Perot when they look at the increase in trade with Mexico and the shifting of jobs out of Mexico. Perhaps we might do something with Canada, but why do we have to go further with Mexico? The problem is coming back.
What will be the price to Canadians in terms of our ability to manage our country and to maintain our differences? Will we be able to maintain cultural diversity if we are more integrated? How far will Canada need to go in terms of further integration to make this work? Really, the problem we get coming back at us from Americans when we talk about having a single market is that they view Canada as the back door to their market. How do we make sure the back door is secure? How do we know things cannot come in from other markets?
We have to make the United States comfortable. That neighbour, unfortunately, is becoming more inward-looking. It is becoming more isolated. We will have to build up that kind of comfort level if we intend to get there. Minister Manley was quoted in the press recently about looking at more of a gradual approach to the United States, rather than a ``big bang'' approach of just integrating the markets overnight. He is reflecting some political concerns. He also said nobody in the United States is really interested in a big bang integration of the markets.
However, to get out from under U.S. trade remedy law, we would need to move to a customs union, which provides perimeter control on trade. That might satisfy U.S. critics on the ``back door'' argument, but what does a customs union involve? A customs union involves a common external tariff, which permits trade entering the customs union to flow freely once it is entered and duty paid. You also have a common external trade policy. That means trade laws, such as anti-dumping and countervailing duties, would apply at the perimeter. If you had safeguards for anti-dumping measures imposed in the United States then, according to the European system, they would apply throughout Canada. From the perspective of the Canadian steel industry, which has been discussed by the committee and Minister Manley, and mentioned in the press by Minister Pettigrew on Saturday, Canadian industry is interested because it gives them ``Fortress North America.'' They would love to have U.S. protections in the Canadian steel industry. Where would the policies be established?
Would we be able, in Canada and Mexico, to have the same type of European Commission-type operations they have in Brussels? It is not likely. That is an organization that operates with many parties, who are of different sizes and differing degrees of influences, but there are equal balances. There is not that type of an equal balance between Canada and the United States.
For example, we have seen in the committee report from the House, in Minister Manley's statements and in Mr. Pettigrew's, that perhaps we should have some kind of free market on steel. What does that mean? Does it mean we will not use anti-dumping and countervailing duty laws? The industries have essentially agreed to that already, in the context of the American Iron and Steel Institute. The American mills have never agreed that this is the case, but that has been the practice. The American mills, of course, are somewhat more sensitive to anti-trust than our steel mills seem to be to competition policy here.
You cannot create a WTO consistent customs union on a single product. You have to cover substantially all the trade, which means at least 85 per cent. You have to have a plan and schedule to bring the rest of the products under that free trade area. It is not impossible to reach some kind of agreement or a cease-fire on not applying trade measures against each other. You cannot do it contractually because you would run afoul of the WTO.
We have seen various working groups that were established under NAFTA that have done nothing, either through protection of turf on either side of the border or through basic bureaucratic inertia. The United States will not accept easily the adoption of our systems. We would have to move to their systems.
When we were discussing the Van Roggen report on free trade in the late 1970s, we asked my chairman, Rodney Grey, who was the Canadian ambassador in Geneva to the Tokyo round of negotiations, whether he thought that free trade with Canada and the United States was a good idea. He first wanted to know how many senators we can send to Washington. That was a good observation then, and it is a good observation now.
We are going to abrogate control, and we are going to abrogate sovereignty. It may be necessary at some stage to do that, but it is a game of big and little. It is not a game of right and wrong. We have seen that on a number of issues with the United States. It is a game that which is not being played between equal partners.
I have heard all the anecdotes from my friends at Foreign Affairs about Canada punching above its weight in these international agreements, and that is true. We do carry more weight than people might expect that we have. However, when are you dealing with the United States, pummelling away at their kneecaps will not win the fights. You have to persuade them, and they are not persuaded.
If we have to move to a more complete NAFTA, which is the springboard, means that Mexico would have to want it too, and they have not shown much interest in it.
Take a look at a few of the problems that we are facing. Ms. Macmillan mentioned agriculture where there will be more in terms of dispute settlement. It will become evident in the next two months or so when the farmers who lost the challenge on Canadian exports of milk bring back their own challenges against the United States and New Zealand on the basis that everyone should play by the rules.
The United States is not likely to abandon their very generous support to farmers. That support permits United States farmers to plant and sell without any regard for costs or prices. In the process, this contributes to depression for agricultural product and commodity prices around the world. It affects Canada most seriously because there is virtually no transportation into the Canadian market. The U.S. considers this financial assistance as income support to offset the support that the European Union gives to its farmers, which they consider skews world markets. The European Union gears up its support to offset what the American farm bill is doing.
What can Canada do? Can we offer the same benefits? Not likely. It is pretty expensive.
State controls in agriculture are foreign to the United States — at least, they claim they are. The highest profile target is the Canadian Wheat Board. It would not survive in a common agriculture policy where Washington writes the rules.
Perhaps U.S. farmers would be attracted to our supply-managed agricultural systems, which provide benefits and are attractive to the farmers in Canada who benefit from them. However, what would be the result of lobbying in the United States to import these rules into the United States? These rules would, in effect, fix the prices that processors would pay for raw agricultural products or the prices consumers pay. There is already some of that in the United States — the sugar program — and it is attacked bitterly. Extending it to a number of other areas already dominated by corporate agriculture in the United States is unlikely.
At the same time, how long would we be able to maintain our insulation from the United States market on supply- managed products? There is a major commercial cultural difference between Canada and the United States relating to government involvement in trade and business. That is a reality that would, if not totally sacrificed, be seriously eroded by expanding the relationship.
I am not passing judgment on whether we should or should not do those things. These are issues that you will probably hear about, and that you will need to consider when making your report. This is the key as well to our continuing problems on the softwood lumber front.
What is the answer to the United States? Get rid of provincial stumpage pricing and create an auction environment, one in which the U.S. processors could also compete for Canadian resources. We would be exporting logs to the United States and bringing back lumber. This seems to be the bottom line. Peter Morton focused on this issue from Washington in this morning's National Post.
There are other problems. United States, at the state level, offers very generous locational assistance to attract plants to locate. This is in addition to having a friendlier climate in a number of these areas. U.S. states can benefit from these locational assistance grants without any real concern for the risk of being hit with trade actions by Canada or Mexico, because 90 per cent or 95 per cent of their production stays in the United States. However, if Canada, on the other hand, provides regional assistance to a plant that is operating in the North American market and exports 50 per cent to 80 per cent of its production into the United States, we may well find that the monies that government is putting into the plant location are just funnelled back into the U.S. treasury. We found this to be the case with Michelin in the 1970s. Unless we are insulated against that, it will always be a factor favouring investment in the United States.
Government procurement in the United States is not as open as it is in Canada. It is tied to ``Buy America'' laws, small business, minorities and other set-asides.
We have our own set-asides, as well. However, the small businesses component in the United States is bigger than it is in Canada. Getting into that net will be very important for Canadians.
The Canadian government, in dispute settlement, has been much more willing — there is not much choice when you are dealing with the United States — to bring provincial practices into conformity with international rules than the U.S. has been willing to address actions at the sub-national level. Their reaction to their states, generally, is that WTO obligations are not really binding. NAFTA obligations are not really binding. If you are doing something that is ruled to be inconsistent, then we will pay compensation and can you keep on doing what you are doing.
There are problems. There are issues that have to be addressed.
From a trade and investment perspective, Canada needs to be in a single market with the United States. It is not important to me whether you call it a customs union or a common market. Customs union has the connotation that there is less harmonization of internal regulations than there might be in a common market. However, if it is to work effectively you have to get into harmonization. The same rules have to apply to everyone. That is the economic perspective. Yours is the political perspective, which might be considerably less attractive.
The Chairman: Thank you very much. That was very interesting.
Senator Graham: Mr. Clark, in reference to Ross Perot's many comments about free trade, I thought I heard you use the words ``shifting jobs out of Mexico.'' Did you mean out of the United States to Mexico?
Mr. Clark: If I said ``out of Mexico,'' I misspoke. It is ``into Mexico.''
Senator Graham: Thank you. That was just for the record.
On the question of the guaranteed access to the United States market, you used the phrase ``how to complete the secure access to the U.S. market.'' Some people were not enthusiastic about the Free Trade Agreement back in 1988. We remember all the debates that were held at that time. If my memory serves me correctly, there were two basic arguments used by those opposed to the Free Trade Agreement as it was constituted at that time. One was the lack of guaranteed access to the United States market. The other referred to the lack of a binding dispute settlement mechanism. Would you care to comment on that?
Mr. Clark: Professor McRae has referred to the lack of a truly binding dispute settlement mechanism. He is correct on this. The broader disputes, other than anti-dumping and countervailing duties, really have no effective dispute settlement mechanism. I trace that lack in part to the selection process established by the negotiators, a process perhaps far better for people pondering how to settlement disputes in law schools with no real practical application as among governments. It really is not binding. I made another comment about the United States being able to buy its way out of adverse decisions.
The access is more or less guaranteed, except that we have not been able to cope with the United States changing rules, as they did with very adverse effects on sugar manufacturing in Windsor. They changed a tariff classification that virtually put that company out of business.
On anti-dumping and countervailing duties, the United States offered — and we did not accept — to eliminate anti- dumping as between the two markets. However, the continuing existence of anti-dumping and countervailing duty tools that can be used against Canada is a difficult problem. We are probably talking about much less than 5 per cent of our total trade. The rest is expanding very, very nicely.
We always tend to get caught up in large-volume, very successful areas. Hence, until we get out from under those trade-remedy rules and someone who is selling steel from Hamilton is treated the same as someone selling steel from Chicago, we really do not have a totally full and free market.
Senator Di Nino: Mr. Clark, the record will show that the dispute settlement mechanism in place has not been necessarily negative towards Canada on balance. Would you agree that that is the case?
Mr. Clark: During the early days of chapter 19 dispute settlement, we did pretty well with it. It is not doing an awful lot these days under chapter 19 on anti-dumping and countervailing duties. Canada had a major win on supply- managed products under the only chapter 20 case that was heard under NAFTA, as opposed to the Canada-United States Free Trade Agreement.
Canada has done fairly well. If you look at WTO dispute settlement, in most cases where we lost, we had deeply entrenched GATT/WTO-inconsistent measures in place. To a certain extent it may have been easier for the government to address those having been condemned internationally than without the condemnation.
Senator Di Nino: You commented on single market and I stress that you specifically said with the U.S. as opposed to NAFTA. I think you referred to it as harmonization of the markets. On that issue, you did not mention single currency. Would you care to comment on that?
Mr. Clark: One of the problems that we will face is the existence of a weaker currency in Canada. With or without the type of integration or single market that I am talking about, pressures will increase upon us to adopt the United States dollar or to go to a single currency — which would be the United States dollar — will increase. Ms. Macmillan is much more on top of those issues than I am.
Senator Di Nino: Mr. Clark, you spoke about the abrogation of sovereignty. We also talked about the enlargement of NAFTA. You indicated that Mexico was probably not as positive about that as Canada may want to be. Do you feel the issue of sovereignty would be better protected if the trade agreement were to include more than the three countries we have currently? Would that be something we should be looking for?
Mr. Clark: I do not think we will get a Free Trade Agreement of the Americas unless it is a deal between NAFTA and the other countries in the hemisphere.
In that context, there will be more diversity. You could operate in a structure more like the European Commission structure. We will be looking at getting a free trade agreement initially. It would be tougher to do a customs union in the hemisphere — there are not as many shared borders and there are long distances. It is not impossible, but it would take longer.
The Chairman: Of this group, I was the only senator who went with Senator MacEachen to Washington in 1988 on the FTA. I was also a member of the committee when George Van Roggen was chairman. I recall a terrific argument — I believe with Congressman Sam Gibbons — over whether the dispute settlement mechanism was going to work or not. At that time, we had an amazing series of meetings with Mr. Gibbons' committee. We met with a grandson of the secretary in Grant's government that broke the free trade agreement with Canada when George Brown went to negotiate it in 1868 or 1869. It is one of those names that we all know, ``somebody somebody the third.'' At the time, none of the Canadians recognized the historical significance of this man, who was a congressman in the Hudson Valley. I did not recognize the name, nor did any of the Canadians recognize the historical significance of this man's ancestry. He was a Congressman in the Hudson Valley. I am sorry I cannot remember his name.
Senator McEachen said that the dispute settlement mechanism was not binding and it was not. There was a very interesting discussion that ensued. It gets very complicated because, as we have just heard, there are really three chapters that affect dispute settlement mechanisms: chapters 11, 19 and 20. We have to absorb that as members of the committee.
Why are Canada and Mexico not members of ICSID?
Mr. McRae: It is my understanding that, because it involves issues under provincial jurisdiction, this will require consent of all the provinces and not all provinces have signed on to the idea of becoming a party to it, yet.
The Chairman: Who are the members of ICSID? Are there only a couple of countries led by the United States or is it a broadly enrolled, legitimate organization.
Mr. McRae: It is a legitimately large organization with a number of countries parties to it. The headquarters of ICSID is in Washington. The problem was that Canada and Mexico were not parties to ICSID and that led to the various forms of dispute settlement mechanisms set up for chapter 11 — three different alternatives that could be available.
My understanding is that there is no objection in principle from Canada becoming party to it; it is a matter of the process of getting the provinces to sign on.
The Chairman: I thought the description of the NAFTA panel and the WTO panel was interesting. I am thinking of that in the context of this terrific argument with Congressman Gibbons in Washington. We did not think of the WTO panels at that time, although other people may have done so.
Which is the most expensive process for a company or an industry to go through: the NAFTA panel or the WTO panel?
Mr. McRae: Both are expensive. If we are talking about chapter 20 of NAFTA, both are government-to- government dispute settlements. In principle, it is the government that absorbs the cost of the dispute both in NAFTA chapter 20 and in the WTO, obviously as far as companies are involved. The representation is purely on behalf of the government. In the case of chapter 11, the company itself is bringing the case and therefore, it absorbs its own costs.
The WTO process is only government-to-government and therefore, the governments are absorbing the costs.
The Chairman: In Geneva, I listened to an interesting discussion about this. I heard that in the softwood lumber dispute, $200 million had been spent to date on legal fees. It was amazing. I do not know who picks up those legal fees but would you like to comment?
Mr. Clark: The legal fees were incurred by both sides litigating within the United States under the anti-dumping and countervailing duty laws. With respect to private party costs in dispute settlement, they probably tend to be somewhat higher on the WTO side than they have been on the NAFTA side because we have not been doing much under the NAFTA process.
Private parties who work with governments do incur costs. It is my recollection that the costs involved in working with the dairy industry on the NAFTA challenge in 1995 were substantially less than those in the WTO challenge on export subsidies. However, the WTO case was longer running.
In the WTO process, there are numerous other options. There is a challenge to the appellate body and there are compliance reviews and other reviews that deal with the amount of compensation that has to be paid for non- compliance. The WTO process is more highly structured and the government has limited resources. It relies on the businesses that are involved. If Bombardier were to appear before the committee, they could give you a good idea of how much it cost their company in time, effort, legal and other costs in the aircraft disputes. The chairman of the Brazilian aircraft company told me that it cost him an airplane. That is a great deal of money.
The Chairman: The figures are high: $200 million on the softwood lumber issue. What was the cost of the dairy issue?
Mr. Clark: It was probably about $5 million over four years — maybe a bit more.
Senator Corbin: The three presentations we have heard today have provided an excellent launch for our study. My first question is for Mr. Clark, who made reference to ``a game of big and little.'' You also mentioned that you have to pursue U.S. senators — you cannot kick them on the kneecap or on the shin. Would you expand that thought? Please, do not mince your words.
Mr. Clark: You will not persuade the United States to open their market or their border unless you give them an adequate comfort level. It has been my experience in dealing with Americans that they will want to dictate the terms of access. It is a question of whether you can negotiate with dogged determination and get everything you want. You may get what you want but you may not like the terms and conditions. We study the Americans to understand them. They do not have to understand us because they operate on the basis of minimal information, half-truths, speculation and fears. That is what we have to deal with. To make them comfortable, we may have to buy into some controls and some restrictions on our ability to act, which we will find to be infringements on our independence and on our sovereignty.
The comment I made about ``punching above their weight'' was a reference to a term they use for our negotiators from Foreign Affairs. They say that Canada is ``punching above its weight'' — being a fly-weight in a middle-weight fight. Canada performs better than expected based on our size and influence. That is true. We have good people and so we are able to do that. That will not solve our problems when the problem is not dealing with logic, but rather concerns and fears that may not be based in reality or in fact. That will not work.
Senator Graham: You also mentioned, in the same context, about ``kicking in the shins and sending more senators to Washington.'' Did you mean to send Canadian senators to Washington?
Mr. Clark: Essentially, what I was saying was, how many senators could Canadians elect and send to the U.S. Senate? With a nice critical mass of 24 or 25 of them, we could probably influence decisions there. You can negotiate anything you want with the administration, but if you do not have the Senate in particular on side, as that is where the institutional memory and the dealmakers are, you will be fighting an uphill battle all the time.
Senator Graham: That is what I thought you meant. Thank you.
Ms. Macmillan, you said it was easy to trade with the United States. However, the United States sees Canada as part of the problem, not part of the solution. Is that a general conception that is widely shared in the United States?
Ms. Macmillan: What I meant by ``easy to trade with the United States'' was that it is easier to trade with the United States than with Europe or Japan, for example. I think Canada is one of only two or three nations that are not part of a free trade pact with Europe. The Japanese economy is experiencing a great deal of difficulties these days. We have a natural trade relationship with the United States.
As far as being part of the problem as opposed to part of the solution, there was a widespread concern in the United States over security issues and a somewhat misguided perception that Canada played some part in some of the issues they have had with respect to terrorism over the last little while. The facts do not bear that out but we have an issue of marketing down there in trying to change people's minds and this is a concern that is held at the level of people who ought to know better and they still feel this way. I totally agree with Mr. Clark on this. It is an issue of giving people some comfort — both symbolic comfort and meaningful substantive comfort. If we dedicate ourselves to doing that, then that is not something that compromises our sovereignty, but shows that we are willing to take the steps we need to ensure we continue to work on what is a good business relationship with the U.S.
Senator Graham: You also said that Canada should engage the United States more. You used two specific examples; you referred to defence and energy. We have certainly heard a lot about defence in the last several weeks, indeed, from the United States Ambassador to Canada, who spoke publicly about Canada beefing up its defence capabilities. Whether or not he should have done that in public or within the corridors of diplomacy is a question upon which anyone could speculate.
Maybe you could comment with respect to defence, but more specifically with respect to the energy problems. Could you be more specific in that area?
Ms. Macmillan: Even though the concern of this particular committee is trade, we have a very multi-faceted relationship with the United States that encompasses a range of economic, political and institutional issues. Defence and energy security are two large preoccupations in the United States now. There is the possibility that we can help each other in that respect and use those discussions to perhaps advance our interests in the trading area.
Senator Graham: Professor McRae, in talking about chapter 11, you talked about the necessity of the process being more transparent, that the pleadings of parties in any chapter 11 case should be made public and any hearing should be open to the public. Does the panel agree that there is a necessity for greater transparency? If your opinion is unanimous, what can we do to help advance that transparency?
Mr. McRae: In terms of NAFTA chapter 11, it is quite simple. The NAFTA parties themselves can simply agree that the proceedings are open to the public. The United States seems to support greater transparency. Canada seems to support it. I am not sure whether Mexico will support opening the proceedings. In that respect, it is simple for the parties themselves to do that.
Senator Graham: Canada is supportive of greater transparency.
Mr. McRae: I believe so.
Senator Di Nino: Ms. Macmillan, to follow up on a question I asked Mr. Clark, in which we talked about the single market type of system. He used the word harmonization and suggested you may have part of the answer as to whether that meant a single currency and whether you would have a comment to make on that.
Ms. Macmillan: Yes, I believe you asked specifically about the idea of adopting the U.S. dollar. That notion has been a hotly contested debate among economists. Tom Courchesne from Queen's University and Richard Harris of Simon Fraser University have been the largest protagonists. The general consensus — although there are strong arguments on both sides — is that the time is not ripe at this juncture for adoption of the U.S. dollar. I think the issue is one of transaction costs. Canadian businesses are incurring extra costs because they do de facto operate in a U.S. dollar world by and large. I am thinking in particular of Mr. Clark speaking of the sugar business. Certainly, many of the agricultural producers operate with the U.S. dollar as a denomination, so they incur costs in having to hedge.
There is a real concern about the loss of sovereignty. He spoke about sending Canadian senators down to Washington. We would really lose all ability to control monetary policy in this country. I do not think that is something that the general Canadian citizen is willing to accept at this time. I think the costs of operating with the Canadian dollar are probably not worth the cost that we would incur if we were to adopt the U.S. currency right now.
Senator Di Nino: I believe you also said that we should try to enhance the relationship outside of Washington. If my statistical memory is correct, more than half of the U.S. states, as individual states, count Canada as their largest customer. Is this something you had in mind? Should we develop better relationships with the states and the leaders — both political and otherwise — in those states where Canada is more of an important component trade-wise than it would be as a whole in the U.S.?
Ms. Macmillan: That is exactly what I meant. We have to operate on two quite different levels. We have to have the big ideas. We have to have initiatives aimed at improving our dispute settlement system. We have to talk about areas where we can harmonize our commercial policy and tariffs. At the same time, we have always been effective in dealing with the United States by taking things down to the level of the business people where ideas are identified. Problem- solving take place on a much more micro level, on a sector-by-sector level, in terms of the auto pact, steel, et cetera. Much of what happens for businesses is merely an issue of identifying commercial opportunities at a regional level. I am not talking necessarily about policy initiatives as much as just straight business opportunities and business intelligence. We need that kind of thing to reinstate some of the resources that we have lost in the larger cities in the U.S, for example. We need to gather intelligence and foster commercial policy at that level along with these bigger, more grandiose schemes between Washington and Ottawa.
Senator Di Nino: I put this question to anyone on the panel who cares to comment. Looking at the issue of trade with the U.S. through the lens of September 11, obviously, there have been some changes. We have talked about some, such as border issues and immigration issues, et cetera.
Is it your impression that the U.S. may be misusing this newfound reason to challenge some of the trade issues between Canada and their nation, or do you believe that it is truly an issue of security and safety of the American people?
Mr. Clark: I travel back and forth to the United States fairly frequently. The new measures being introduced to control people flows and other issues are based on real concerns, whether or not those concerns are, in fact, real.
People are concerned; they feel threatened and they expect their government to do things for them that will make them feel less so. There are not any ulterior motives that I have seen relating to insulating the market in the United States. I believe that the issues are security and comfort of the citizenry — not protectionism.
Ms. Macmillan: I agree with that as well. I have no sense whatsoever that it is not a legitimate concern.
The Chairman: Thank you very much. We will have to end this part of our program, because our next witnesses have arrived. We could have gone on much longer, Mr. Clark, Professor McRae and Ms. Macmillan, thank you for coming.
I remind everyone that Minister Pettigrew is coming at 3:30.
We will hear now from Mr. William Dymond, executive director of the Centre for Trade Policy and Law, which is jointly supported by Carleton University and the University of Ottawa. He was formerly the director general of the Policy Planning Secretariat of the Department of Foreign Affairs and International Trade. He also served as senior adviser in trade negotiations for the Canada-U.S. Free Trade Agreement. His assignments include deputy head and minister councillor, Embassy of Canada, to the United States in Washington.
We also have Gilbert Gagné, professor of political science of Bishop`s University. He also obtained his doctorate in international relations from the University of Oxford. His research and teaching interests include North American integration, Canadian foreign policy and Canadian-American relations. Mr. Gagné's current research concerns the dispute over Canadian exports of softwood lumber to the United States.
Please proceed.
Mr. William A. Dymond, Executive Director, Centre for Trade Policy and Law: Thank you, honourable senators, for this opportunity to speak to you on the Canada-U.S. trade relationship.
Canadians have been debating their relationship with the United States for more than two centuries and for very good reason. It is only with the United States that Canada has a comprehensive foreign policy relationship. Canadians, moreover, measure themselves and their country against American benchmarks. This is as true for issues such as health care and gun control as it is for economic performance and job creation.
The centre has submitted for the committee's consideration a study we concluded last year called ``Common Borders and Shared Destinies.'' I will be speaking in part to that study.
In a few short years, the Canadian economy has undergone a profound transformation. The agent of this transformation was, in the first instance, the Canada-U.S. Free Trade Agreement and, in the second, the North American Free Trade Agreement. The result is a Canadian economy increasingly integrated on a North American basis. It is worth recalling that, although both agreements pre-date the World Trade Organization, in many respects they go far beyond the WTO agreements as they are now and as they may become as a result of the current round of multilateral trade negotiations.
We should also note that we have a free trade agreement and not a customs union. The major significant difference between our arrangements and those in Europe is the absence of an institutional framework for managing those relations. However, as a matter of practice, the degree of commonality — in many cases, harmonization of policy and practice — matches or exceeds that of the European Union. As much as it may be claimed that the European Union is a single market, the same claim applies to Canada and the United States.
Both agreements for Canada were the product of failure — failure of a 100-year effort to develop an economy that defied economic geography. We now understand that economic geography in North America is structured on a north- south axis. We tried to develop an economy on an east-west basis by protecting a small and fragmented manufacturing sector and paying an economic cost through the export of unprocessed resources.
In the 1970s, Canada threw up barriers to foreign investment. We paid out large industrial and regional development subsidies in the misguided belief that the east-west economy could be strengthened by a massive dose of government intervention.
In the middle 1980s, this dreamland was shattered by a severe recession. Protection had not worked. Canadian manufacturers were too weak to exploit export markets and too weak to prevent significant incursions of imports into the domestic market. New competitors in global resource markets combined with the exhaustion of easily exploitable resources in Canada meant that the resource endowment could no longer bear the cost of supporting an inefficient manufacturing economy.
Barriers to foreign investment meant the Canadian economic development had become increasingly dependent on inadequate pools of domestic savings. State intervention had created large bureaucracies —of which I was part, I must admit — and unsustainable budgetary deficits and little economic development. The decision to enter into these agreements meant that rather than resisting the forces of geography, Canada would henceforth try and harness those forces.
Results have surpassed the expectations of government and business. I will not bore you with the details of the numbers. You will be familiar with them. Suffice to note that we now trade at a rate of $1 million every minute. Trade between Canada and the United States is almost as great as between United States and the 15 countries of the Economic Union.
Of greater significance than the volume of trade are the characteristics of this trade. A good part of this trade is intra-firm trade. By some estimates, as much as two-thirds of cross-border trade is trade within the same firm. Whole industrial sectors in Canada have been restructured on a north-south basis. The old model of international trade and investment, autonomous firms engaged in arm's-length transactions against national borders has been replaced by integrated networks of business crossing and re-crossing the border as if it did not exist.
We hear little of the strident criticism of those agreements, which dominated the debates of 10 years ago. ``How can a small country like Canada have free trade with the United States and not lose its identity or independence?'' Ten years of public opinion polling show that Canadians do not equate poor economic prospects with stronger identity or prosperity with diminished identity. ``How can a country like Canada with strong environmental employment laws avoid a race to the bottom in order to remain competitive?'' It has not happened.
Just as the NAFTA was the product of failure, we face a new set of problems that are the product of success. Some of those problems originate in the unfinished NAFTA agenda. A more important part originates in the need to move beyond the NAFTA, which was a product of its time, and capture the dynamics of an integrated North American economy.
The unfinished agenda is a collection of relics of old-fashioned trade and industrial policy: well-fortified pockets of protection and agriculture in both countries; an addiction to trade remedy law by industries on both sides, by old- economy industries in both countries; cumbersome rules-of-origin procedures that lead firms to buy their inputs on an uncompetitive basis in an effort to convey a preference; and government procurement remains encased in trade- restricting rules.
That list, senators, is impressively long. The cumulative economic impact has been diminishing over time. You need only to look at the statistics on trade remedy law and find that we are basically talking about resource pricing. These are relatively minor matters except, of course, for those who are involved in the dispute.
The new North American agenda is more complex and challenging. Fresh thinking is needed based on some fundamental realities. First, Canadians are engaged in a process of silent integration with the United States that is deepening across virtually every area where the two societies connect. The question for governments is whether to help or hinder that integration.
Second, Canadians are comfortable with deepening integration. They are perfectly capable of distinguishing between the relationship with the U.S. and their own identity. As the deputy minister of mine once said, ``Canadians like the border; they just do not want it to get in their way.''
Third, the debate whether Canada should have a defence or other kind of perimeter with the United States is detached from reality. We already have a perimeter that is defined by geography, demography, economics, largely shared political and societal values and preferences, and common security arrangements and challenges. The issue is whether the perimeter is strong or weak.
Fourth, there is a broad convergence between Canada and the United States across a wide range of public policy areas. The difference lies in administration and not in fundamental concept.
Fifth, current cross-border arrangements for the management of this relationship are inadequate to the commands placed upon them. We now require a new design.
Some fresh thinking is evident in the efforts of Minister Manley and Secretary Ridge and the ``Smart Border Accord.'' Press reports indicate quietly that, perhaps, bolder steps are under consideration. Some interesting questions are being asked: Do we need a customs union, such as the European Union, to provide total free goods and services, complete capital and labour mobility, and a host of institutions to manage them? Perhaps a NAFTA plus arrangement should be looked at. Packaging the old agenda items with some bold new steps and new agenda items such as investment, competition policy, product harmonization and equivalence.
In my view, these approaches miss the point because they are a means to an end when we have yet to decide in this country what the end should be. Before we embrace solutions and before we propose a course of action, we need to ask ourselves some hard questions on the following issues: What role should the border play in managing cross-border flows of trade and investment? How many of the functions provided by customs, immigration, agriculture and other agents of government can be best met behind the border? What is the impact of regulatory differences upon the Canadian economy? Are those costs worth the differences? Do we need new institutions with the United States? Traditionally, in our relationships with the United States not only in trade but everywhere where we connect and we reach agreements, the institutional burden has been light. Instead, we have relied upon the negotiation of fixed rules backed by dispute settlement procedures, both of which are time-consuming and, often, politically charged.
We should have a look at whether the International Joint Commission, which has a splendid record over 100 years of existence, could provide a model and be adapted to serve a larger relationship. Does our almost-religious aversion to linkage make sense? Both countries have traditionally managed this vast relationship pragmatically by dividing the issues where cooperation is required into neat compartments and by isolating those issues from other issues. This compartmentalization of the relationship has served us well but it may no longer work; a new approach may be necessary.
Finally, to date, this is a Canadian debate and for good reason. In the history of Canada-U.S. relations, the ideas originate north of the border, not because our American cousins have no ideas but because, typically, Americans have big ideas and Canadians prefer small ideas. The art of Canadian American negotiations is to package a proposal in a small enough way to reassure Canadians and in a big enough way to capture the American imagination.
Some commentators conclude that Americans will never be sufficiently interested in pursuing innovative visionary approaches and they draw the conclusion that time spent on those problems is time wasted. Drawing that conclusion would be a mistake that would cost Canadians dearly. Canadians and Americans working together have succeeded in managing this relationship in the past and can do so again but not if they begin by accepting the conventional wisdom that tough issues of the moment mimic the agenda. To this discussion, the committee can make a valuable contribution.
The Chairman: Thank you, Professor Dymond. Mr. Gagné, please proceed.
Professor Gilbert Gagné, Department of Political Studies, Bishop's University: I prepared a brief that I will highlight, after which I will answer your questions. I will focus on what I know best because, as you know, the issues of the Canada-U.S. trade relations and Canada's trade agenda within the World Trade Organization are incredibly vast. I will, therefore, limit my comments. I will use the languages of both Molière and Shakespeare.
[Translation]
I would like to comment on three themes: the order of reference, which means secure access to the American market, and Canada's agenda and priorities in the Doha Round of multilateral trade negotiations.
I refer to Chapter 19 of NAFTA on the dispute settlement mechanism regarding anti-dumping and countervailing duties, in which reference is made to negotiations of the Free Trade Area of the Americas.
I would also like to discuss the WTO's dispute settlement mechanism and the Doha Round of multilateral trade negotiations, then focus on the multilateral negotiations and provisions relating to subsidies and trade remedies.
It may be noted that I equate the goal of secure access for Canadian products and services to the North American markets to the development of effective trade dispute settlement mechanisms and also to more specific and restrictive provisions concerning the notions of subsidies, dumping and the application of trade remedies.
I attach to my brief an article that I wrote more than three years ago. I won't address those themes here, but will concentrate instead on the points I have already raised.
We know that Chapter 19 of NAFTA on the dispute settlement mechanism has some serious limitations, but it is nevertheless a major achievement for Canada. The Untied States does not want this mechanism to expand to include all the countries of the Americas, but for Canada it is a minimum requirement. Canada must therefore endeavour to have a similar mechanism apply in the FTAA. The question of the enforceable nature of panel decisions is of course a problem for our American partners. Canada should ensure that the provisions of Chapter 19 must continue to apply among the North American partners, if ever the FTAA were to become a reality. It is clear to me that this must be a sine qua non condition.
Chapter 19 on dispute settlement already has deficiencies. If we obtain less than what is provided for in Chapter 19, we'll find ourselves in an even worse situation, in regard of course to the fundamental objective of secure access to the American market.
As for improvements to existing international provisions — again respecting Canada's access to the North American market — and the settlement of trade disputes, these efforts must continue in a multilateral context. Once again, Canada is the only country that might move the United States on this point. As regards the WTO's dispute settlement mechanism and the current negotiations, we're talking about the multilateral framework.
One of the main weaknesses of the WTO's dispute settlement mechanism lies at the end. We saw this in two of our major disputes with the Untied States, that is those concerning the protection of Canadian periodicals and softwood lumber. In the Canada-U.S. dispute over periodicals, American views prevailed. However, it was not the policy goals or measures that were objected to, but the methods used to attain them.
And yet, the reports of the WTO panels and the appellate body give very little indication as to the amount of leeway a country has to pursue the goals of invalidated programs. In the periodicals' case, what was at stake was the preservation of Canada's cultural identity. The result was that the alternative measures that Parliament proposed to adopt were seen by the Americans as aimed at circumventing the spirit and letter of the WTO reports.
The problems are therefore at the end of the dispute settlement process. We know that Canada has submitted proposals to address this. Unless the problem is solved, American tendencies toward unilateralism will only increase. The credibility of the international trade system is at stake. Canada, in cooperation with a number of other trade partners, must therefore focus its efforts in this area.
The rest of my presentation will focus on the mechanisms and provisions concerning subsidies and trade agreements. It think this is critical for secure access to the American market. On this point, the Canada-U.S. dispute over softwood lumber comes to mind. It revolves mainly around the notions of subsidy and dumping under Chapter 19.
[English]
With regard to the multilateral agreement on subsidies and countervailing measures — the WTO Subsidies Agreement — Canada should concentrate its efforts on clarifying existing provisions regarding the definitions of subsidy and dumping, as well as the conditions for imposing trade remedies. I know it is much more easily said than done, but the priorities are there.
We have heard a great deal about the definition of subsidy because of softwood lumber. The WTO Subsidies Agreement defines a subsidy as a ``financial contribution'' — which may take different forms —that confers a ``benefit.'' In its September 2002 report, a WTO panel on softwood lumber, established at Canada's request, found that stumpage rights — the fees charged by provincial governments to firms to harvest timber on Crown land — were a financial contribution. This, of course, pleased U.S. authorities, whose views have prevailed on this issue. However, the panel also found that the U.S. had failed to establish both the existence and the amount of benefit.
How do we define a subsidy? A subsidy must be specific, that is, limited to certain enterprises or industries. We must determine whether in a certain case a subsidy is in fact ``specific.'' There are four factors to determine the specificity of a subsidy program; however, the U.S. trade legislation — that is, the Uruguay Round Agreements Act, URAA — stipulates that only one factor is sufficient to determine the specific character of a subsidy. It is known as the ``single- factor approach.'' Within the past few years, the notion of specificity in U.S. trade legislation has been expanded to include an ever-wider spectrum of public measures, such as stumpage rights. A particular effort should be made by Canada to keep and strengthen alliances with many countries where policies such as stumpage rights exist, to lessen the scope for U.S. trade retaliation. We all know that in Congress, they are moving in the other direction but, as far as Canada is concerned, we know that the priorities are there. Limiting the scope for U.S. retaliation would serve to ensure Canada's access to North American markets, while maintaining Canadian autonomy in public policy-making as much as possible.
If there is a subsidy, normally there should be an effect within the market. U.S. trade law specifies that the effect of the subsidy — whether it causes market distortion — need not be considered to find a subsidy countervailable. Here, even though the WTO Subsidies Agreement mentions as a second condition for a subsidy finding that a benefit must conferred, U.S. authorities tend to simply assume that the benefit exists once they have concluded on a financial contribution. This is particularly important in subsidy cases involving natural resources such as softwood lumber. Here, the September 2002 WTO panel's report on softwood lumber gave reason to Canada. When you read the U.S. view, the WTO gave reason to the U.S.; stumpage rights and Canadian forest practices are a financial contribution. The rest is simply a question for the U.S. to prove, using a certain methodology, that Canadian softwood lumber exports are subsidized. Whereas, for Canada and other members of the WTO, the condition that a benefit must be present was meant to eliminate cases where subsidies may exist on the basis of a financial contribution without necessarily giving any specific enterprise an advantage over others.
This is a key issue with regard, it seems to the Doha Round of negotiations, because otherwise a whole series of public policy measures in Canada may be jeopardized by possible trade remedy investigations. I remind honourable senators that the so-called single factor approach and the ``non-consideration of the effects of a subsidy in U.S. trade laws and regulations were meant to overturn the rulings of the FTA and NAFTA subsidy panel in the softwood lumber dispute. To what extent did such U.S. provisions bring Canadian authorities to conclude, in 1996, the Softwood Lumber Agreement that involved export restraint? It is essential for Canada to further clarify these provisions in the Doha Round negotiations to reduce the scope for unilateral interpretation and retaliation.
There ought to be some evidence before launching a trade investigation in the U.S. In this regard, Canada should keep insisting that multilateral provisions require sufficient and stronger evidence for the launching of trade remedy investigations. Despite the results of successive trade negotiations, the notions of subsidy and dumping, as well as conditions for the imposition of anti-dumping and countervailing duties, remain sufficiently elusive or vague to allow U.S. authorities considerable leeway to apply retaliatory measures. In fact, the U.S. can currently launch trade remedy investigations in the absence of strong evidence of subsidization, dumping or injury. Worse, Canadian exports to the U.S. have often been subject to harassment, as such investigations can be repeated even without any new evidence, forcing bilateral so-called ``compromises'' to avoid further costly litigation and secure reasonable terms of trade access.
This is precisely the dilemma in which the Canadian government is with regard to the U.S. and the WTO: whether we should put an end to litigation and strike a deal with the U.S. right now.
The real test for NAFTA may come because we know that U.S. economic situation is deteriorating. Of course, protectionist trends tend to become more pronounced. Even though we have not seen many trade remedy cases apart from softwood lumber and steel, the real test may be now.
That is a dilemma as far as Canada is concerned. Certain proposals to move beyond free trade may be interesting, but what about policy autonomy. The original idea behind free trade was for Canada to maintain more autonomy in terms of its public policy options. We should keep our autonomy to the extent that Canadian collective preferences can be reflected and not simply for the sake of being distinct from the U.S.
Another key issue that is raised when we talk about moving beyond free trade is that the customs union involves, as you know, common external tariffs and trade policies. What about Canada's position as a member of the quad within the WTO if its external trade policy is dependent essentially on its relations with the U.S.? Thus far, we have a balance. Most of our Canadian foreign economic policy is within our relationship with the United States because 80 per cent of our exports go there. What about multilateralism in Canadian foreign economic policy? What is left of multilateralism, and what could be left of it if we move beyond free trade?
The merits of moving beyond free trade should not be underestimated, but we should question seriously whether our place within the WTO could not become insignificant as a result of this.
The Chairman: I read the paper that you provided before Christmas and learned that we had lost one part of the softwood lumber case, in that the Americans had won the case that stumpage was of a financial benefit to the companies. They had not been able to show that there was a subsidy. I recall that subsidies have never been properly defined. It is one of those things that go on forever.
What I did not understand when I read this, was the basis on which stumpage can be of financial benefit. I have known about stumpage for 50 and or 60 year. It is an old story in Ontario. There is a natural advantage if you have forests. I always thought that the idea in economics was to promote natural advantages. Why is stumpage a financial benefit? We have a natural advantage because we have these extensive forests. I did not follow that.
Mr. Gagné: To provide you with a short answer, the panel found that it is a financial contribution to the extent that the only exception to the notion of financial contribution is the provision of general infrastructure. Here we do not have general infrastructure. Wood is made available to private firms. This is the provision of a good.
Of course, what you mentioned raises key issues. How can this be equated with a financial contribution? Canada has always maintained that stumpage rights represent a general public policy measure that is in no way related to trade and subsidization.
Subsidy is constantly clarified as a concept, as a result of the Uruguay Round of negotiations or after the decision of a panel. There is another decision on final U.S. countervailing duties coming. Someone from British Columbia mentioned that if stumpage rights is a financial contribution, what about fishing licenses awarded by the federal government to private entrepreneurs? To the U.S, this is a subsidy. This is probably the reasoning of the WTO as well because they would be below market value as they are not based on the price that you would normally have in the market. That is the key issue.
Canada has always maintained, as have most of WTO members, that we should not only look at government intervention. We should inquire whether government intervention provokes or brings distortions in the market. This is the benefit aspect of the present multilateral definition of subsidy and is the reason that Canada should be careful to avoid a further expansion of the definition, otherwise much more than stumpage rights will be in jeopardy — for example fishing licenses and many other public measures.
Senator Graham: I want to ask one question specifically since Mr. Clark is still in the room. While he may not be able to come back to testify, he could nod his head in response.
Mr. Dymond asked whether we need a customs union. Mr. Clark, if I remember correctly, without text, was more definitive and said that we do need a customs union. If you said that Mr. Clark could you nod?
He nodded his head.
The Chairman: Mr. Clark is in favour of a customs union.
Senator Graham: Thank you. That leads me to seek comment from both Mr. Dymond, since he asked the question of whether we need a customs union, and Professor Gagné.
Mr. Dymond: Would you permit me a comment on the issue of softwood lumber, as well?
Do we need a customs union? Senator, we have a customs union. Any economist would look at this and say that we have a customs union. There are rules that prevent its full functioning. However, economists look at customs union not as a set of rules about subsidies and institutions but as a functioning single market. We have that.
We have more of a practically functioning customs union than do the Europeans in every way you look at it, including capital mobility. One major exception is labour mobility, but that not a big issue. To date, it has not been a big issue in the European Union.
Let us look at what a customs union does and the circumstance in which it is operated in Europe and see whether it works here. I think you reach the conclusion that the circumstances are wholly different.
We have a need to manage the border. We need to manage the border better in order to make the customs union work more efficiently. Some of these things we can do unilaterally. For example, we can harmonize our external tariffs with those of the United States. We would not need rules of origin any more.
Our approach typically to problems with the United States is exemplified by Professor Gagné's presentation on subsidy issues. We say there is a problem and a new rule is required. Let us negotiate a rule. In the United States, they ask Congress whether they can negotiate that rule. In Canada, officials ask the government when the can negotiate that rule. They then take the rule to Parliament. By that time, the rule is out of date by definition. We need something to manage issues on a day-to-day basis and to solve problems as they occur. Can a customs union do that?
One of the most interesting aspects in the European Union is the myriad committees that operate on a constant basis to solve day-to-day problems without invoking a need for revision of the treaties. I am not convinced that that model will work here, but I am convinced that, in that sense of the relationship, the Europeans are further ahead than we are.
Do we need a customs union? It is too early in my view to concentrate on solutions. Let us concentrate on problems. The ``problématique'' goes to the heart of the relationship we envisage with the United States and how we want it managed.
If I can borrow from the previous question on softwood lumber, I went through ``Softwood III'' and got deeply into this. We need to be clear about differences between the rules and the reality. Stumpage is an administered price, not a market price. An administered price creates a presumption of subsidy. An administered price can be higher or lower than market price, but it creates a presumption of subsidy.
How do we know that? In each softwood lumber investigation, the Maritime provinces of Canada have been excluded because virtually all their lumber is harvested off private lands and is sold at market prices. That is what we have to deal with.
Second, I do not wholly share Professor Gagné's view on American unilateralism. Who invented anti-dumping? Canada did. It was one of the inventions of Finance Minister Fielding in the government of Sir Wilfrid Laurier. We invented it; we make extensive use of anti-dumping. We abuse it.
We now have a countervail law. We use those laws to define the terms and conditions under which foreigners may participate in our market. We are every bit as unilateral as the United States, so sing no songs of praise on our side.
These are important issues. Having been through a softwood case myself, I am fully aware of that, but let us see the larger picture. These cases are no longer very important. Look at the roster. Look at existing orders out there in the anti-dumping and countervailing duty field. They are very small. Look at what is on the agenda. We talk about softwood lumber and we talk about those people in North Dakota and the Wheat Board.
When I was involved in the preparations for the FTA in the 1980s and, subsequently, in the embassy in Washington, we were overwhelmed with issues: unemployment insurance payments to fishermen; the services of trade commissioners rendered into exports; technology grants; resource-pricing issues. We are now down to just one: a resource-pricing issue in an industry that is not integrated. In the industries that now dominate the industrial make-up of Canada and which account for much of its wealth: aerospace, machinery, auto parts, automobiles, and energy. Where are the countervailing duty cases? Where are the safeguard cases? Steel is an example in which Mr. Clark has been involved and he can speak more eloquently than I. These are integrated industries across the border. Companies will not sue themselves. Governments will not react if they do. That is the future.
As important as this softwood lumber issue is and as pertinent as Professor Gagné's analysis is, let us not be distracted from the kinds of issues that we need to address in this country about our relationship with the United States.
Mr. Gagné: I agree entirely with Mr. Dymond that we should not lose perspective of the main problems. Some issues are evolving. However, I stick to my guns in the sense that softwood lumber, fishing licences and so on, relate to a certain role for the government in the economy. In Canada we have had a certain model of society that they do not have in the U.S. Our best guarantee for preserving certain collective choices for which Canadians care is to have partners within the World Trade Organization so that we can have rules. Even though the rules are outdated by the time they get in place, this is fundamental.
With regard to whether a customs union is warranted, despite the merits of customs unions, we must first have a debate within Canada. Are we ready to make all the concessions in terms of policy and in terms of our ability to make our own alliances within the WTO? The question is there.
We know in Canada that there are so-called ``continental-ists'' and ``multilateral-ists.'' I am in the middle but I think there may be too much enthusiasm for a customs union at this stage.
The Chairman: We were very successful as a member of the Cairns Group in the last round.
Senator De Bané: Mr. Dymond, in your text, you say some people argue we should have a custom union, a monetary union, or a common market. You say that before going further, we must realize that those are means to an end. Then you raise a series of questions that you say we must answer first. Then we will decide on the means to achieve those ends.
I was surprised by your answer to my colleague Senator Graham. You said that we already have a customs union. In your text, though, you say we should first make clear what we want to achieve, and then we can devise the best mechanism by which to achieve it.
From your answer, I had the impression that it is already set in your mind that we should pursue integration even further, even if it means, over time, a gradual reduction in our political choices.
Mr. Dymond: When I said we already had a customs union, I meant that we have a single market for all intents and purposes. We do not have the mechanisms of a customs union. When people ask whether we should have a customs union, they mean precisely that — a treaty, a commission, a parliament and all that goes with it.
I ask a different question on that. Suppose we could take all the functions that are now performed at the border. There are enormous numbers — I have not done the research, but someone told me that no fewer than 186 statutes are administered at the border. When we cross the border, we see someone from Canada Customs. We know there is a range of officials there. We know that Canada Customs officers administer all kinds of other acts in addition to the Customs Act.
What would happen if, at the border points, all those functions now performed by customs officers disappeared from the border and were performed behind the border? Agriculture inspection is one example; standards inspection; immigration inspection; or safety inspection.
When a truck crosses the border now with a commercial shipment, at least three questions arise: First, is the load permitted to enter either country? If so, are there any duties or taxes to be paid? Is the vehicle — the train, the truck — carrying the load permitted to cross? If so, which safety regulations apply? Those regulations are provincially administered in Canada and state-administered in the United States. There could be 62 or 63 jurisdictions involved in the administration of truck regulations. Finally, is the driver of the vehicle permitted to enter?
All those questions apply. In my view, we do not ask whether those inspections are appropriate. They probably are. We ask where should they be performed and how many can be performed behind the border?
How can we take advantage of the advances in information technology that were not available to us when we negotiated the FTA — when Parliament debated the arrangements to make that happen? Suppose we would come to that arrangement with the Americans. Would you want to call that a customs union? You might want to but I would hope that we would not worry about what we called it. However, we should worry about whether we could make that system work while ensuring the proper performance of those functions that are now performed behind the border because there are important public policy issues involved. I do not know the answer to that question but it needs to be examined.
In answer to the second part of your question, I do not know what policy choices we are talking about that have to do with a better functioning at the border or even a customs union. Are we talking about policy choices where there are fundamental differences of view or differences of administration?
Let me give an example of policy autonomy, which seems to celebrate a difference without a real reason. It has to do with aircraft certification. If a U.S. airline flies a particular kind of aircraft into Canada, then Transport Canada will accept that airplane as airworthy if it has certification from the U.S. authorities — the Federal Aviation Administration, FAA. The aircraft only requires the appropriate paperwork of certification by the U.S. and it can land wherever it wants to land in Canada.
However, if you or I set up an airline and buy that same aircraft, we have to go through the whole process of certification with Transport Canada. Why is that? Our suspicion, in the centre where we are spending much time examining this issue, is that a great range of those kinds of policy differences are differences of administration rather than differences of fundamental concept. If there is a belief that we need to retain the policy autonomy to perform our own certifications of aircraft owned by Canadian companies, then we will have to face the cost of that. I do not know what public purpose is served by that kind of action.
The Chairman: Thank you, Mr. Dymond.
Senator Di Nino: While you were making your comments, Mr. Dymond, you said that we are in the process of silent integration with the U.S. I believe that you also said that Canadians are comfortable with that.
Those comments could have broad meaning. Could you clarify those comments? I am particularly concerned if you were talking about more than just economic or trade integration and you were referring to other components of society such as culture, et cetera.
Mr. Dymond: By silent integration, I mean that when faced with a choice, Canadians choose American — they do not choose Japanese, Chinese, European or African; they choose American. Through billions of discrete decisions each day that Canadians make about what to buy, what books to read, what movies to see or what music to listen to, they overwhelmingly choose American over a product from another nation. How many Canadians are resident for part of the year in the United States? Our consul in Miami told me that at the height of the season, there were 2.5 million Canadians in Florida, some permanent residents, some six-month snowbirds and some temporary residents. At that time, that totalled 8 per cent of the population, without talking about the Canadians in Western Canada who descend in great numbers on the southwest U.S.
It is a process that is not encouraged by government, except in the sense that government has been, over the last 50 years, steadily withdrawing from taking economic and cultural decisions for their citizens. It is measurable through any number of indicators.
Senator Di Nino: Do you hold the opinion that the issue of sovereignty is not top-of-mind to a large number of Canadians?
Mr. Dymond: You seldom run into a debate that is accompanied with more cant and shallow analysis. We trade our sovereignty for something better. We are the pre-eminent country in international rule-making, in international institutions and in international treaties. Each time we do that, we give up part of our sovereignty. Why do we do that? We get something better in return. The range for national decision-making over the past 100 years has been steadily narrowing. Who has been the leader in that? Canada has been the leader in that process. We are the greatest Rotarians in the world.
If you want an example of how far any government is prepared to go, just look at the annual speeches and at what the Prime Minister said at the Summit. Look at summit communiqués. I was particularly struck by the speech made to the general assembly by the then Minister of Foreign Affairs, John Manley. He laid out the Canadian agenda. This is taking international rule-making into areas of domestic policy-making to an extent that we never thought about in the past. Why do we do this? We do it because we are not hung up on the issue of preserving this autonomous decision- making when there is something better out there.
One of the great achievements of Lloyd Axworthy, in his view, was the land mines treaty. We gave up the sovereign power to produce, trade and deploy land mines. Why did we do that? We served the much larger purpose of taking this weapon ``off the streets.'' However, we gave up our sovereignty in the process.
The Chairman: As a person who spent many years as a retail merchant, I must say I cannot but take exception to the question of what we buy. Our business did the biggest per-square-foot business in the world for many years and we only sold one item that was manufactured in the United States; nearly everything was imported from abroad. I remember the only item that we sold that was manufactured in the United States was cotton socks. Canadians do not wear cotton socks and, in England, no one wore them, so we had to get them from somebody in North Carolina. We had a few dozen pairs of such socks. I must say, as a professional merchant of three generations, our choice is becoming incredibly limited. That has been my observation and, I think, everyone in my business would say the same.
Thank you, it has been interesting.
We are delighted to have the Minister for International Trade, the Honourable Pierre Pettigrew, with us until about 4:30. Minister, is a great pleasure for the committee to have you back. If you would like to make your presentation, we would be delighted.
Mr. Pierre Pettigrew, P.C., Minister for International Trade: Mr. Chairman, thank you for inviting me to come to see you today. I had to sneak out of the other House where I am on duty this afternoon, but I did find a replacement so that I could meet with honourable senators.
[Translation]
You all know that Canada's trade and economic interests span the globe, so the cornerstone of our trade policy continues to be the multilateral trading system.
However, as you also know, by any criteria — movement of goods, investment, people, ideas — North America, and in particular the United States, is by far our most important market. So securing and improving access to this market has to be our number one trade policy priority.
The study that this committee is currently conducting is therefore extremely timely and provides an excellent opportunity to seek the views of Canadians on priorities for future work, which will enable us to build on the successes we have had in the U.S. market through the Canada-U.S. Free Trade Agreement, and subsequently in the U.S. and Mexican markets through the North American Free Trade Agreement (NAFTA).
[English]
The NAFTA has been a tremendous success in making North America one of the most efficient, integrated and competitive regions in the world. By strengthening the rules and procedures that govern trade and investment on this continent, it has allowed trade and investment flows to skyrocket. From 1993 to 2001, Canada's merchandise exports to NAFTA partners increased by almost 95 per cent. Our total merchandise trade with the United States and Mexico reached $584 billion in 2001.
Through NAFTA, Canada has consolidated its position as the largest trading partner of the United States. We buy as many goods from the United States as do all the European Union countries combined — almost 19 per cent of American export. Thirty-eight American states have Canada as their largest market. This represents roughly $1.9 billion in trade every day of the year.
Mexico is now Canada's sixth-largest export destination and fourth source of imports worldwide, with the two-way bilateral merchandise trade in 2001 reaching $14.9 billion. Canadian direct investment in Mexico continues to grow. The cumulative value of Canadian direct investment in Mexico surpassed $4 billion in 2001.
However, NAFTA has been more than a scorecard for trade. The re-orientation of Canada's industrial structure was encouraged by the new opportunities and competitive pressures created by the Canada-U.S. Free Trade Agreement, FTA and its successor, the NAFTA.
[Translation]
As we approach the tenth anniversary of NAFTA, which entered into force on January 1, 1994, Canada's view is that the NAFTA framework is the best tool for further enhancing our trade and economic relations with the United States and Mexico.
NAFTA, with its ongoing working groups and implementation commitments, is in many ways a living document, and it holds much scope for achieving market access improvements. All countries are committed to its full implementation.
On January 1, 2003, for example, the final tariff reduction in the Canada-Mexico phase-out schedule was done. The Mexican administration showed its commitment to NAFTA by proceeding with the tariff cuts in the face of significant political opposition from certain sectors — my NAFTA counterparts share my view.
There are prospects for additional trilateral work in certain areas that could stimulate trilateral trade and allow the realization of a more integrated and efficient North American economy.
On the investment side, for example, the NAFTA Commission directed experts to continue their work examining the implementation and operation of Chapter 11, including developing recommendations as appropriate.
Experts are currently identifying shared priorities concerning the operation of this chapter. The three NAFTA parties will continue to identify existing impediments to trade and investment and conduct the necessary work to eliminate them through NAFTA.
We consider that our priorities within this context must be those activities that can have an important positive effect on business. The proposed study by this committee also presents an opportunity to seek the views of Canadians and their parliamentarians on Canadian priorities for additional trilateral work. I would welcome such valuable input into the process.
[English]
With as much as 87 per cent of our merchandise exports going to the United States, the trade relationship with our southern neighbour is, of course, paramount. Both this relationship and the North American integration issues are increasingly the subject of discussion and analysis. Moreover, there seems to be a growing awareness by the public of the need to examine the way forward.
Recent polls suggest that Canadians want even closer economic ties to the United States to increase their standard of living and are increasingly confident they can compete on an equal footing with American industry. Many interest groups in the economy, such as Canadian Manufacturers and Exporters and the Coalition for Secure and Trade Efficient Borders have come forward with ideas on how Canada should proceed. Some have even called for a strategic or a grand bargain with the United States; others have called for a common market or a customs union.
Clearly, according to poll results published last week in The Globe and Mail, more than four out of five, or 81 per cent of Canadian executives, do not think Canada and the United States should form a union. I agree with their view.
However, that does not mean inaction. Indeed, much can be done to build on existing achievements by advancing resolutely, and with determination, step-by-step, with a clear eye on Canadian interests.
In my view, there are six goals for Canada in this context. The first goal is to increase Canada's share of the United States import market. Canada typically supplies about 19 per cent of U.S. imports, a trade weight well above our economic weight in the world. Canada should aim to increase our share on a yearly basis.
The second goal is to increase the flow of two-way investment on which trade increasingly depends. Investment in Canada will bring technology, research and development functions that will help Canada achieve the innovation goals that were set out in the Speech from the Throne.
The third goal is to advance an agenda of smart regulation. The Speech from the Throne committed the government to move forward with a strategy for accelerated regulatory reform with a view to promoting health, encouraging innovation and economic growth and reducing the burden on business.
In this regard, Canada must look at how our regulatory approaches fit into the North American economic space. We made great strides in this respect in NAFTA. We now need to make further advances. There is scope for broadening and deepening regulatory cooperation between our countries by further cutting red tape and the regulatory hurdles to doing business with each other.
The fourth goal is to form a commitment to making a serious effort to bring trade remedy practice more in line with a growing integration of our shared North American economic space. For example, given the level of integration of the North American steel market, the use of trade remedies is counterproductive. The United States recognized this in March when it did not include Canada in safeguard action on steel.
Similarly, on the energy front, Canada and the United States have built a robust mutually beneficial energy relationship, founded upon our joint commitment to a market-based energy policy. Perhaps there is scope to address these trade issues in ways that acknowledge our economic integration. We must work to ensure that the United States administration and Congress recognize this reality.
The fifth goal is to eliminate the border as an impediment to trade, investment and business development and move the border away from the border. Governments need to keep pace with the demands and expectations of businesses on both sides of the border that rely on just-in-time delivery and easy access to markets. Governments need to further reduce transaction costs to make it easier for companies to do business and benefit from our integrated economies and to further facilitate the travel of business professionals across the border.
We have had many successes through the Smart Border Declaration and its 30-point action plan signed by Governor Tom Ridge and Deputy Prime Minister John Manley last December. For example, Canadian and U.S. customs pre-screen containers arriving in each other's key ports. The NEXUS program permits quick passage at the border for cardholders. The FAST program allows low-risk trucks and drivers to have their manifests to be sent by transponders to the customs agent at the border before the trucks arrive. New border infrastructure will be built in the Detroit-Windsor area.
The sixth goal is that we need to expand our advocacy program in the United States. Growing economic integration also means that the number and range of U.S. federal, state and municipal issues and actions have an increasingly direct and powerful impact on Canada. The department is working to improve its capacity to engage Americans at the local, regional and state levels, where the interests that drive congressional and administration policies are being developed and articulated.
We have been working hard on the advocacy front — something we plan to continue. In this regard, I am heading to Washington tomorrow with an all-party delegation of MPs and senators to promote Canadian trade interests as well as address a few areas of dispute, such as the softwood lumber and the wheat board.
[Translation]
Working toward these goals would, in my view, be beneficial to Canada in the North American context. While strengthening North America's economic space — and, more specifically, Canada-U.S. relations — is our top priority, by building on our successes in these areas, we have been encouraged to broaden trade liberalization through the WTO and through economic integration within the FTAA.
In addition to liberalizing trade in goods, the FTAA holds the potential to secure improved market access commitments in the area of services and to establish stronger investment protection throughout the hemisphere. Implementation will make the FTAA the world's largest free trade area.
The new round of WTO negotiations launched in Doha last year will aim to strengthen rules that meet the needs of our modern economies and further liberalization by January 2005.
Our participation in both the FTAA and WTO ensures that Canada is fully engaged in pursuing new market opportunities while protecting our interests under a rules-based system.
In summary, we know that the Canada-U.S. Free Trade Agreement and NAFTA have served us exceedingly well, but we must not rest on our laurels. We must continue to forge ahead.
Trade in North America, especially with the United States, is vital to our economic health. We must do our part to continually broaden our thinking on ways to improve access in these highly dynamic and evolving markets.
[English]
I look forward to hearing your views and answering your questions, Mr. Chair.
The Chairman: Thank you very much, minister.
Senator Graham: Welcome, minister. We have had a series of interesting testimonies this afternoon. I want to go to one specific item — the question of the customs union. We had one witness who asked whether we needed a customs union and another who said that we should move towards a customs union. Therefore, it is ``a customs union if necessary, but not necessarily a customs union.''
In practice, is it not true that we operate in many or most instances as if there were a union?
Mr. Pettigrew: Obviously, a customs union does not reflect a degree of integration as importantly as a common market, but it reflects a degree of integration deeper than a free trade agreement. That is what is taught at school in the area of economic integration.
The Canada-U.S. economy is, de facto, very integrated. We have two very integrated economies in North America. However, institutionally, for all sorts of reasons, we have preferred the course of the free trade arrangement. I do not feel pressures to change the institutions or to change the way we would operate. We want to ensure that our system remains dynamic and that is what I like about NAFTA. There are 28 permanent working groups that continue to bring life into this trade agreement.
We could venture, for instance, into the steel industry. That would be an interesting experiment and a good file to start with, without using our trade remedies or some of our national arsenals in dispute settlement. In the steel sector, the economy is very much integrated. My view is that we must continue to work on what we have, to ensure that it is dynamic, and to work on the border without necessarily changing the institutional framework in which we operate.
Senator Di Nino: Minister, one of our witnesses talked about the need for Canada to enhance relationships outside Washington. You state in your presentation, ``We need to expand our advocacy program in the United States, including to improve its capacity to engage Americans at the local, regional and state levels.'' As you stated, some 38 states count Canada as a number one market. Obviously, you agree with that. Could you elaborate a little more? Are we talking about additional consulate offices, trade offices, et cetera?
Mr. Pettigrew: Indeed, that is exactly what your witness was asking for — my sixth goal with the United States. That gives me an opportunity to pitch for the budget.
In the last Speech from the Throne, our government made a commitment to increase our presence in the United States and to increase our advocacy efforts. We realize that more and more of these decisions take their origin from one state or one community to the other. Canada is so close to the United States and our relationship is so vital that we need to go beyond Washington to places where the first influence originates that pushes American policy, whether it is in their church basement, in their community, or in their social clubs.
Canada needs to improve on that front. I hope that the budget will help my department to increase our presence in the United States. This is a priority that our government expressed in the Speech from the Throne. It would be very useful for us to have a deeper presence in the United States. Our embassy does a great job and is well equipped, but we need to go beyond Washington, into the states, the regions, the communities of influential people.
Senator Di Nino: When you are discussing issues with the different states and governors and business people, do you see a role for Canadian energy and water in the negotiations, in the discussions with the different stakeholders, to increase and maintain our trade relationship with them?
Mr. Pettigrew: As you know, water and energy are very different files, as you know. Water in its natural state is not considered a ``good'' and is not subjected to the same trade laws and trade approaches. Obviously, this is something dear to Canadians.
On the energy front, however, it is clear that the energy exchange relationship between Canada and the United States has been very constructive and productive for both countries. Clearly, it is a sector in which the trade has to be supported and enhanced in the whole sector of energy.
Senator Di Nino: One question that was asked of previous witnesses was in regard to a single currency in North America. Do you have any thoughts on that?
Mr. Pettigrew: I would not support a single currency. It is much talked about these days. It is clear that Europeans, with a very different history and a very different reality, chose that path a few years ago. I am glad it has been successful for them. In the European Union, they had 14 or 15 currencies. A company marketing throughout the continent had to deal in about 14 currencies, a very heavy and expensive demand to meet. Their reality called for a single currency.
Further, Europe has a common market which calls for institutions that are not only economical institutions but are political institutions as well, and we do not have them at all in North America. Let us be clear. A common currency would be the American dollar. It would be difficult to imagine that we could persuade the United States to drop the greenback.
I always find it awkward to use the nice vocabulary of ``common currency'' when really the question is, do you want to adopt the American dollar. I do not think we want that.
For 95 per cent of our exports, Canada needs only one currency change, and not 14 like the Europeans. Americans have their trade remedies and their international trade laws — and I am on the verge of going to Washington so I want to be nice. There is a constructive atmosphere in the field of softwood and I do not want to be too harsh. However, sooner or later, my thoughts on American trade laws will be expressed. I am glad we will have an opportunity to discuss this in the Doha Round of negotiations. The ambassador has accepted this topic for the consultation table at Doha.
As long as Americans have their national trade laws, which can be punitive at times, we should have our own currency to keep some elements of manoeuvre with that.
Historically, we normally follow six months behind the United States when they have a recession. The American recession began two years ago and we did not have one. However, that is a warning to the Canadian economy to take the time to adapt some of our policies and try to ensure that the shock is not too brutal. That is a further useful tool that we have in our hands.
The Chairman: Minister, my first concern is mutually accepted standards. I have been reading some of your comments on that topic. As we move west, I know we will run into those questions in the meat industry and in other areas, too. It seems to me we need not go to the U.S. standard but that we can agree to use our own standard, be it applicable to the quality of meat or in telecommunications.
Mr. Pettigrew: I met with Canadian and American business councils on October 16 in Toronto. I discussed the many reasons for the difficulties of moving forward through these discussions around harmonization. We have our way of doing things, which we prefer, and they have their way of doing things, which they prefer.
In North America, which is highly developed and where the standards are so high, we could at least examine the possibility of what I call ``mutual recognition'' of one another's standards. If it is good enough for Hawaii, it should be good enough for Ontario. We are on a level playing field in North America in terms of the quality of standards. I think it would be much less troublesome and much more respectful of what we want than the harmonization that we are talking about. We would have to conduct this examination sector by sector — for example, such as pharmaceuticals, food, et cetera. However, I did propose that we have a general orientation of those standards and I was pleased that the proposal was so well received.
The Chairman: My second question is more political in nature. It is the one that many people talk about in view of the fact that the Iraq situation has become so hot.
Have we become hostages to our $16-billion annual surplus with the United States? Have we become political hostages to that?
Mr. Pettigrew: I do not think so. Clearly, our livelihood depends a great deal on a healthy North America. However, we decided to ratify Kyoto and the United States did not; we, as a small country, promoted the international criminal court and the Americans did not like that because they opposed it. Canada's Madam Louise Arbour, Supreme Court Justice, made a great contribution to that. There is also the Ottawa Land Mines Treaty. I believe that Canada has its own identity and its own way of doing things that reflect who we are. Just recently, I said to some European friends that there is such a high level of anti-Americanism in Europe that it perturbs me. In North America, we have developed an original country with our own personality, however deeply integrated we are economically.
[Translation]
Senator De Bané: If we look at the past 50 years, there can be no doubt that there has been greater economic integration between our two countries. I remember the time when Prime Minister Diefenbaker conducted an election campaign on the theme of diversifying our trade relations. One of your predecessors, Mr. Jean-Luc Pepin, when he occupied the Department of Industry, Trade and Commerce, also wanted to diversify those relations.
Today, some 90 per cent of our foreign trade is carried on with one country, which represents nearly one-half of our economy. More and more, particularly in Europe, we tend to consider ourselves as part of the American fold. I wonder whether it is possible to do something to encourage diversification of our exports.
I know of no other countries in the world where 86 per cent of exports go to a single country. Every country of course has a greater relationship with its neighbours, but the United States is the planet's industrial giant. I remember what Mr. Pepin did when a recession occurred in the United States. He chartered airplanes and took Canadian business people to Asia. Those people filled their order books, but, on returning to Canada, some time later, when the recession was over in the United States, they forgot those order books filled in far off countries and said to themselves that, since trade law was the same in North America, and our ways of doing things were the same, let's forget those far away customers.
We say we want to diversify our relations, and yet one might say there is an inexorable march toward reducing our range of options. You have thought about that a great deal, and I would like to know what you think about it.
Mr. Pettigrew: Much of our effort is aimed at other markets. Team Canada, which Prime Minister Chrétien set up, is an extraordinary exercise. There will be another one next month. All the provincial premiers will join Prime Minister Chrétien and we will be going to Europe. We have gone to China.
In the trade missions I lead, which are more modest than those of the prime minister, we leave with 60, 75 or even 165 business people to go to India, Africa, Latin America or Australia. So we are making efforts in this area. You must understand that the economy has changed radically. Canada now exports 46 per cent of its GDP. All economies are increasingly integrated. I do not know how things were in the time of Mr. Pepin, for whom I have a great deal of esteem, but, 10 years ago, shortly before our government came to power, Canada was exporting only 25 per cent of GDP.
The figures relating to the United States, which show that we have become more dependent on the United States, indicate that our exports have increased from 25 per cent to 46 per cent of GDP. In addition, all the countries in the world export 80 per cent of their products thousands of miles from their borders. France is the exception, known for its high-end products, luxury items and so on. It so happens that, a thousand miles from our borders, there is the United States. There are also the Russians on the other side, but they do not consume as much as the Americans, particularly in the north.
However, it is our luck that we are the neighbour of the most dynamic, strongest and most creative economy on the planet. Of course, when a recession occurs, we try to correct for it, but it would not be any easier living beside Japan or Germany right now. We take considerable advantage of our geographical position.
But obviously, throughout all the negotiations, whether it be the WTO, through which we are trying to improve our access to other markets, the Free Trade Area of the Americas or the agreement that Pascal Lamy and I are responsible for establishing this year, that is a new generation trade and investment agreement for the twenty-first century, the objective is to strengthen our position around the world.
Senator Corbin: I congratulate you on your optimism. I also believe that you are utterly right as regards our trade relations with the United States.
As you are aware, the current President of the United States has on a number of occasions referred to his counterpart, Prime Minister Blair, of Great Britain, as being ``America's best friend.'' I heard that again last weekend. Let me make myself clear: I entirely sympathize with the Americans in all the misfortunes that have recently befallen them, and that is not the issue. But that leads me to ask you whether the foreign policy of the United States is not evolving, and I do not just mean on the war front. I am not talking about Afghanistan or Iraq; that is one thing and a challenge in itself. Nor am I referring, even if that may be a factor, to the action of the ``gang of 8'' in Europe last week.
Is Canada still ``America's best friend''? That troubles and concerns me a little. Although everything seems to be going well, and if everything moves forward with regard to the agreements we may develop with the Americans, it seems to me something is developing which could have an impact on the future ground rules in our relations with the Americans.
Mr. Pettigrew: I do not want to comment on Mr. Blair's foreign policy or on the immediate circumstances of the Iraq question. I have attended a number of meetings, the first between President Bush and Prime Minister Chrérien, and a number since February 5, when we dined at the White House.
I have always been struck by the cordial nature of our relations. We do not need to agree on everything. But I can tell you that, having attended a number of meetings, there is a cordiality and ease of dialogue between North Americans, between two men who tell each other things very directly, with a certain, quite remarkable sense of humour.
Like you, I often hear comments that our government does not get along with the Americans at all. It has been written, for example, that I was persona non grata in Washington. I do not know what they will be saying in that paper tomorrow when they see that I am spending two days there. I'm being received by Mr. Evans and Mr. Zellick, my two colleagues who are responsible for these matters.
Incidentally, it is quite funny because, when it was said that I was persona non grata in Washington, Ambassador Zellick came and spent two days at my home in Québec, my home city, for a little quality time to prepare for all the negotiations. I am thinking of the Prime Minister's relations with President Bush and those that Mr. Graham has established with Mr. Colin Powell, who is a man I very much admire. I am thinking of the relations developed with Ambassador Zellick, who came to visit me in my home city to discuss the future. I'm thinking of the relations that John Manley has developed with Governor Ridge, which I believe have been very useful. Friends do not always have to think the same way on everything, but they must be there for one another, understand each other. Being a friend also means saying things that the other person may not necessarily agree with. Friendship also requires openness and sincerity. I believe there is very real cooperation and partnership between our government and the American administration. And I could continue with a list of ministers.
Senator Corbin: I was referring to no one in particular. I am aware of what is going on, but not in the intimate detail you have just described. It seems to me, however, that the United States is starting to flex its muscles. I asked you whether that concerned you, having regard to the conduct of our affairs in the future. You were talking about the perception of the Europeans and the Americans. I believe Europeans detest Americans in particular, but Europeans fear a certain perception of a certain American imperialism.
It seems to me the United States still views us as minor leaguers, if I can express it that way. We Canadians perceive that we are very well served by our proximity to the United States, but are we still an international player? Are we a player that counts in the eyes of the present American administration? That is my concern.
Mr. Pettigrew: I believe we have a voice. I can tell you that, yes, they are very concerned to know what we think. They know very well that Canada's voice is a voice that is heard with a remarkable degree of attention around the world and that Canada's word is welcomed to a high degree when it is transmitted around the planet. I am always struck at how well Canada is perceived. The Americans know how far Canada, with which they share the continent, is a country whose credibility and reputation are remarkable and appreciated around the world. The Europeans often tell us to speak up. We are trying to speak up. I have just given you examples in foreign policy where we have taken other lines than the American line. But for the United States, that is very difficult when you are the dominant power, and the more dominant you are, the harder it is. Right now — what can I say — we are in a situation of monopolarity. To my knowledge, never in the history of humanity has there been such a dominant power as the United States. I do not just mean that of the American government, but also that of American society, its technology, culture, values and entertainment, which circulate around the planet.
There is the American power, but there is also the power of that society that is now entering living rooms around the world. That is why they have more power. It is not just through its soldiers; it is also through ``soft power.'' In other words, the Americans are entering the living rooms of people everywhere in the world. I believe that did a great deal to bring down the Berlin wall.
The United States may have become imperial by its power and simply by the amount of space it takes up on the planet. But to become imperialistic, there has to be a will but it is far from obvious that the United States has an imperialistic will. When the United States acts, it is accused of unilateralism, and when it does not act, it is criticized for being isolationist and for not caring about what goes on in the rest of the world. It is not easy being the number one power on the globe.
[English]
Senator Andreychuk: I am going to put three questions to you, parts of which you have already dealt with. I wish to approach them differently.
We know that when the department, in the last 10 years, changed many of its resources in the United States and reinforced with more consulates and trade offices, it has either maintained or accelerated our trade. I think there is a direct link. Equally, we did not expand elsewhere, in particular with any force in Europe.
You are now saying you will ask for increased resources for the U.S., which I think is a good argument. However, increasingly, I am hearing that around the world our presence is not being felt because we do not have the kinds of representation. Therefore, if your department makes a plea for more U.S. involvement, we will never diversify and globalize in the way that we say we will if we do put equal resources there. Many resources are being stretched; we are using locally engaged, which is fine. Surely, the way we could enter Europe with its complex systems is with more reinforcement there. I am wondering why we are not doing that as well.
You talked about NAFTA and its positives and negatives. Was the concept of side agreements worthy of continuing and accelerating in your opinion? Surely, environment has not had the intention that it should have.
Finally, this committee is looking broadly at issues of trade. You note that steel is one. What other areas do you think a parliamentary committee such as this would be helpful to you to study in depth, particularly within the ambit of NAFTA?
Mr. Pettigrew: Senator Andreychuk, you are right. It is a matter of resources. We underwent numerous cuts in the department in the 1990s.
However, I must say that the reform of our trade commissioners has paid dividends and has made them very effective around the world. I am proud of what we are doing. I agree with you that as resources become available we should both strengthen our presence in the United States and expand to other markets.
The side agreements have been helpful. They have demonstrated that trade people care about the other elements as well, but they do realize it is other people's responsibility to promote them. We have worked on labour and the environment with Chile, Costa Rica and Singapore. We are part of the Central America negotiations. I think that that is very worthwhile. I know that my colleagues, Minister Anderson and Minister Bradshaw, enjoy the work as well. Clearly, exchanges in labour and environment contribute to a better planet as much as international trade does.
As to which particular sectors beyond steel that this committee should examine, I will need to think about that. I will get back to you.
The Chairman: I want to remind members of the committee that we are focusing, not exclusively, on the chapters on dispute settlement mechanisms.
Senator Graham: I note specifically Minister Pettigrew's sixth point where he referred to the necessity of expanding our advocacy program in the United States. Have you considered more Team Canada visits to selected areas of the United States to achieve that goal?
Mr. Pettigrew: In the United States, we have conducted more regional visits. That is, western Canadians visited, with the Prime Minister and my department, Texas and California last year. We have had many Atlantic trade missions, as well, that have gone mostly to New York, Atlanta, and other centres on the east coast. We generally do it on a regional basis.
There are also a number of sectoral visits. In the United States, when they see business people with a politician, it does not necessarily open doors as it does in some other countries. We have to adopt a different strategy. The Americans do not like it when the government seems too close.
Our people organize sectoral initiatives that would be organized by our people. Visits would be more by sector or region.
Senator Graham: Such an initiative might be discouraged, or at least not encouraged, by the United States.
The Chairman: It seems to me that the committee is certainly charged, among other things, with looking at the softwood lumber dispute and looking at some of the disputes that have not gone as smoothly.
The Americans were attacked a couple of years ago and they are very sensitive to their border areas and security issues. I have the impression from you, minister, and from the previous witnesses, that in some minds — not everyone's — that there should be a continuation of the NAFTA. You have mentioned the FTAA. Given the situation in the United States, how realistic is that?
For example, I am Spanish speaking and I know those countries well. Are the Americans, in their current frame of mind, about to deal with agriculture issues in the Spanish-speaking countries, which are the overwhelming issues in most of those countries? Will the Americans do that, considering that they seem to be turning rather inward? Will they be easier to deal with on the three pertinent articles on dispute settlement mechanisms? Will they actually not be more difficult?
Mr. Pettigrew: It is a pertinent question. My view is that the Bush administration agreed to put these issues on the table in Doha because they have realized that if they continue to use their dumping laws and their national trade laws that way, it counterproductive because more and more countries were doing the same thing. Increasingly, countries have equipped themselves with these national trade laws and making dumping accusations. The Americans realize that if we do not find guidelines or principles for our national trade laws multilaterally, it could cause terrible damage to the international trade system. Other countries are developing these tools. America realizes that it is in its own interest to have multilateral principles or guidelines.
My view is that we will probably make some progress in that direction, but do not hold your breath and do not have your expectations too high.
The Chairman: Thank you very much on behalf of the committee.
The committee adjourned.