Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 15 - Evidence
OTTAWA, Monday, May 5, 2003
The Standing Senate Committee on Foreign Affairs met this day at 4:36 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: Honourable senators, we will be hearing today from the Secretary of Foreign Affairs for the Government of Mexico.
Minister Derbez, as the Chair of the Standing Senate Committee on Foreign Affairs, let me say that we are honoured and delighted to have you appear before us.
This committee has been charged with exploring Canada's trade relations with both Mexico and the United States, considering that the NAFTA and the FTA are celebrating their tenth and fifteenth anniversaries respectively, the timing of your visit to us is most appropriate.
We have just returned from a very successful four-day trip to Washington. There, we were briefed by the staff of the Canadian embassy as well as by representatives of trade, commerce and homeland security. We also had the opportunity to meet with ranking senators and members of the House of Representatives. We feel that we came away with a sense that our relations with our neighbour remains secure, that with some exceptions, our trade relations are working as they should and that the cooperation on boarder security is unprecedented.
Our challenge is to find a less litigious and less expensive way of settling our current trade disputes, which seem to be focused on softwood lumber and wheat.
As a point of information, our witnesses have told us that the softwood lumber dispute has cost $800 million in legal fees. The softwood challenge at the WTO in Geneva has cost $200 million U.S.
We are most interested in hearing about trade relations with you, the Southern neighbour. We invite your comments. I am sure that members of the committee will have questions.
We would be delighted what you have to say, please proceed.
The Honourable Luis Ernesto Derbez Bautista, Secretary of Foreign Affairs, Government of Mexico: Honourable senators, I wish to thank you for the opportunity to be here with you. It is quite important to Mexico to start putting together a stronger relationship with Canada.
In the past 10 years, as a result of the Free Trade Agreement between our three nations there has been a tremendous growth both in terms of trade and investment between our two nations. This is something that we welcome. One of the major issues in foreign policy today for Mexico is to strengthen our relationship with Canada.
Our two nations have been friends for the past 60 years, but have not done enough to strengthen the ties, not only from the standpoint of trade and investment, but also our cultural and political ties. It is because of that that I am very happy to be here with you.
Mexico sees Canada as a strategic partner in terms of three things. First, obviously, there is a need to work together as three nations under NAFTA.
Working with Canada, we believe that we can change the nature of the relationship that NAFTA represents today. We would like to go into what President Fox has called NAFTA Plus, that is, a deepening of the relationship that has brought our two nations the strongest commercial and investment ties of the past 60 years. We will continue to work toward that goal.
In terms of NAFTA Plus, President Fox has in mind not only looking at the possibilities of the coming 10 years, but also looking at the grand vision of the next 25 to 30 years. He wants to see how Mexico, Canada and the United States can work to put together a free trade agreement for the Americas as well as how to work together in other areas of political dialogue.
The second important thing for us is to work with Canada in our common and shared view of multilateralism. We need to have multilateral institutions that will rule in terms of the other older elements at the political level. That is a key element of the relationship that we see with Canada. We share many common views at this time, not only with regard to trade but also, with the concept of the political use of multilateral institutions.
Finally and obviously, we must look at the possibility of working in two very important shared aspects. We must look at what we can do together to enhance human rights situations all over the world. The second is the environment. What can Mexico and Canada do to preserve the environment as part of the development of the world?
These are the views that we have in terms of our relationship with Canada. These are things that I hope will be shared by Canadian authorities so that we can work over the next two to three years to strengthen our relationship and to strengthen the cooperation between our two nations.
The Chairman: As you have been made aware, Mr. Derbez, our committee was planning to visit Mexico City now but it was not appropriate because you are having elections and Congress has been very busy with legislation prior to the election. Therefore, we are putting that trip on the back burner, although it is very much in our program to do this after the elections.
We are not as knowledgeable as we should be. We understand some things, but we continue to hear about problems. We heard about your problems while we were in Washington.
You have a trucking issue with the U.S. There seem to have been some problems of which I do not think many of us were aware. I wish to emphasize that the differences between the U.S. and Mexico are not our area of concern, but the trucking issue is of interest because goods coming from Mexico to Canada obviously must come through the U.S.
Could you enlighten us on this subject?
Mr. Derbez: Mexico and the United States do $300 billion in trade annually, or roughly $1 billion of trade per day. In such a relationship it is quite impressive that the trade disputes we have are so limited. We have a major difference in terms of the trucking issue, and we also have a dispute regarding sugar and fructose.
In terms of the trucking issue, we perceive that the rules that were approved by the United States Congress and issued by the U.S. Department of Transportation regarding Mexican trucks crossing the border into United States territory are discriminatory against Mexicans. We say that for two specific reasons. First, some of the rules are imposed in terms of the verification of our trucking fleet as well as the verification of the capacity of Mexican drivers to read and do several other things that are not imposed on either Canadian truckers or Canadian trucks or on United States truckers or trucks. One of the big provisos we had when we signed the Free Trade Agreement was that there would be no discrimination between parties.
We have been discussing for approximately the past two years of the Fox administration what the specifics of this relationship should be. We are currently demanding from the United States equality of treatment. If we do not receive equality, we will consider the agreement reached on the trucking issue under NAFTA not fulfilled. If it is unfulfilled, we believe that we cannot implement the measures that the United States is demanding from our truckers, as we consider them discriminatory. Second, because NAFTA is not fulfilled, we are not allowing American trucks into Mexican territory.
As a result there will obviously be an impact on our trade relationship with Canada through the effect of increased transportation costs. At this time, trucks reaching the Mexican-United States border, either coming from Canada or the United States, or going through the United States to Canada, will have to be changed. Therefore, there is an increased cost.
We are hoping that the discussions we are having with the United States authorities will conclude that the requirements should be removed because they are discriminatory. If not, we will have to proceed to a panel of the WTO.
The same situation exists with regards to sugar. We have been discussing the conditions under which NAFTA will be fulfilled. We have not yet made the progress we would like. We are always very close to a final settlement but, unfortunately, have not gone the step beyond that to a final agreement. We will continue to work with the American authorities in order to settle this issue on fructose and sugar.
As you know, as a result of this situation, our Congress imposed a tax on fructose consumption in Mexico. In many ways, that is non-discriminatory because it taxes fructose both from the United States and Canada and Mexico. Nevertheless, we believe that in order to facilitate trade we must reach an agreement on that issue also.
We do not have an estimate of the cost of these disputes. Unfortunately, it is clear that if we continue this way there will be not only the cost of legal fees but also damage to the economy and consumers in our country. We are working diligently with the American authorities in that regard.
As I said at the beginning of my remarks, considering the size of our trade relationship, the fact that you can count the disputes that we have on the fingers of one hand implies that NAFTA has been very successful. When you look at it in terms of our relationship with Canada, it has been even more successful because we have even less disputes; we may have one or two. The increase in trade and investment between Mexico and Canada has been of such a nature that one must qualify NAFTA as a complete success.
Senator Austin: When we heard you were available to speak to us this afternoon, we were very keen. As you may know, the Senate is not in session today, which accounts for the absence of some of our colleagues.
I also remember how important Cinco de Mayo is in Mexico. That happens to be today. Thank you for being here on a major Mexican holiday.
I am pleased to hear your remarks on NAFTA. The issue that I would like to explore is the suggestion of President Fox, NAFTA Plus, which has lost a significant amount of momentum. That does not mean it is not a good idea. I welcomed it and thought it was progressive in the development of a North American community.
We have seen that the NAFTA agreement is working effectively with problems, but those were to be expected. In the broader attempt to develop a new momentum in North America, your bilateral relationship with the United States is significant, as is ours.
This committee was in Washington last week. My impression is that the North American relationship is not high on the United States agenda at this particular moment. Nevertheless, we must build a more effective relationship, bilaterally and trilaterally.
What initiatives are available to Mexico and to Canada, either/or, in this area? For example, is there the possibility of taking small steps in labour mobility instead of the large step that was proposed by President Fox?
There is some sense that on the United States' side there might be some receptivity to sectoral or regional steps rather than larger steps. Could you comment on that broad statement?
Mr. Derbez: Let me tell you something of what President Fox has in mind. As honourable senators will know, from the beginning of his administration just over two years ago, he mentioned immediately that he would like to talk about the possibility of what he called and still calls NAFTA Plus. There are two or three steps that we can look at as part of that process. First, we have an agreement with the European Union that is an enlarged trade agreement. It goes beyond what we have with Canada and the United States. By that, we mean that when you look at the agreement we have with the European Union, there are aspects in terms of cooperation, cultural cooperation and political dialogue that we do not have in terms of the agreement that we signed in NAFTA. Those aspects, which are already working with our European counterparts, are things that we believe could be explored very quickly.
There is obviously a precedent with the European Union. In many ways, some of these agreements that are being signed today go beyond the pure trade and commercial aspects and try to look at the other aspects of society as part of the agreements. That would be one possible initial step that we could take. That does not mean that we want to go on to become a political union. That is not the point. As honourable senators can imagine, that is not what we have with the European Union.
What we have with the European Union is the concept of the political dialogue, the cooperation on political issues of international interest to both sides and of course technical cooperation. Those are things that we can start looking at as part of this stepped approach that you mention.
The second aspect is that September 11 demonstrated to all of us that terrorism is something that we must fight together. We have brought this discussion up, as I am sure Canada has done. The United States, Mexico and Canada have determined that the number priority is the fight against terrorism. That is an aspect that we can look at and make what will be called a "security frontier," if you want to call it that, on our borders along the NAFTA region. That is an important issue. That is an issue that we can work with. That is an issue that we can put together and look at as a possibility.
Labour viability was mentioned. It is a fact of life that our societies are integrating themselves. In terms of the relationship between Mexico and the United States, this subject would directly affect roughly 20 million people of either Mexican or some Latin American extraction. This indicates that we are moving slowly, but clearly into a more social integration in that concept.
When we began the administration, we thought and believed that an overall agreement between federal governments would be something that would make sense. We are looking at that as a workable option. More importantly, we must look at the steps that will make the life of our migrants better every single day.
The worker agreement that we have with Canada is an excellent example of how we can better the lives of our migrant workers. That agreement can be used as an example of how we can proceed in small steps to create a difference in our labour relationship.
The labour relations issue must be on the agenda for Canada, the United States and Mexico. The problems concerning labour will not be solved within two or three years and we must be prepared to enter into talks for the next 25-30 years. Clearly, we must start taking steps in that direction so that over the course of a lifetime we can reach better integration in all aspects, including these migration aspects.
Senator Austin: I agree entirely with your approach, Secretary. I believe that more progress will be made below the political horizon than above it.
It has been noted in this country that Mexico has more than three times the consulates in the United States than we have. Could you tell us whether this is because you have a superior strategy in reaching the American political system or for some other reason?
There is a sense in Canada that we have not paid enough attention to the regions of the United States. If you feel you are smarter than we are, you probably are entitled to it.
Mr. Derbez: Actually, we feel we are as smart as you.
This brings me back to where I started. One of the concerns that we have today in the Fox administration is that we have not yet reached a point where the relationship between Canada and Mexico has been brought forward as a priority for both governments. I say this for both governments, not only for the Mexican government.
We have been doing a series of analysis of how can we strengthen this relationship between our two countries. It is important to us to bring our relationship to the forefront and to define what this priority should be, both politically speaking in the and in working together with international institutions in this multilateral approach. We are looking for more trade and a different trade relationship between our two nations.
As honourable senators are aware, we will be celebrating 60 years of relations between Canada and Mexico soon. One concern that we have is that we should take advantage of that point and stress to our people how important this relationship is and why that relationship should be made a priority.
That may bring us to definitions of what kind of consulates may be needed in Canada so that we can increase the scope of our activities if the Government of Canada agrees with this approach that we will take. Hopefully the same will go our way, so that the Canadian government will also look at how they might increase the level and the definition of political and diplomatic structures so that we can bring this relationship to the level that we should have. We will be working on that.
I have a final point in regard to the aspect of things that we can do. We have been discussing the role of the three governments in regard to the possibility of starting a movement toward specific industries where things are pretty much the same in the three countries. This system has the potential to enhance our relationships. One area that quickly comes to mind is steel.
Steel is an area where the private sector in our nations agreed pretty much on what must be done. Therefore, if the governments can agree, and we can put together a proper structure, we may have a more integrated steel industry in North America rather than having steel industries in Canada, the United States and Mexico.
We are talking to the steel industry private sector, and looking at what our governments can do to support this type of program. An integrated steel industry for North America was what we were looking for in terms of the NAFTA agreement.
Within the NAFTA agreement was the idea that our countries would specialize in different areas of manufacturing and production and so on in specific geographical areas. The idea was that following this approach the industry itself would be strengthened.
Strangely enough, we are finding, just as the Europeans did, that steel might be the initial point where we can look at this idea because of the conditions of the steel industry itself.
Senator Corbin: Mr. Minister, among the area of priorities that you outlined at the outset of your remarks you mentioned human rights and the environment. I would like to take you back to the period when this Parliament was studying the NAFTA treaty. There were stories of doom and gloom, of Canadian plants closing up operations to go to Mexico where environmental or pollution standards were not up to par with Canada's, and other horror stories of that nature. We do not hear about those things any more. I do not believe we have heard any since the treaty was put in place.
Would you care to comment on that issue and perhaps candidly tell us if in fact Canadians investors are indeed drawn to Mexico because of lower standards or other considerations of that nature? What in fact is the situation today, if you please?
Mr. Derbez: I will take advantage of the fact that I was the Secretary of the Economy up until a couple of months ago before coming Secretary of Foreign Affairs. That gives me a good background to answer your question honestly and with accurate information.
We made a study of why we were losing competitiveness vis-à-vis China in terms of attracting foreign direct investment into Mexico. The reason I am using China as an example is because it will give you an answer on your concern. The fact is that most companies coming from Canada, the United States, or from any other part of the world are not looking to evade human rights in terms of child labour, or the environmental restrictions you have in Canada or other countries. The fact is that people come to Mexico looking for high quality labour that will bring a reduction in costs, while obeying international human rights and environmental restrictions.
Our study indicated that it was not a question of environmental rules or of human rights. The legislation in Mexico is becoming modernized and implemented. One of the problems we had before is that we were not implementing the legislation.
In fact, our Ministry of Environment recently made a statement concerning the environmental safety of certain Mexican beaches. That gives you an idea that our government has taken a serious look at the environmental issues and have created and implemented legislation to solve the problems. Our government believes that we must protect our environment.
We have discovered that even though we have implemented some very strict rules to avoid the degradation of the environment it has not hurt our ability to attract investors. In fact, if you have the proper, correct environment as well as rules and regulations, it helps to attract investment because people then know with certainty what they will be required to do as part of their investment.
Foreign investment is not the problem. The problem is competitiveness, as we understand it. We have to eliminate a large amount of red tape because the cost is passed on to the investor. We must simplify our fiscal rules to make it easier to start a business in Mexico. We must continue to provide investors with a good labour force that can perform to high productivity standards.
I can tell you, with all honesty, that we are implementing rules and regulations that will match what you have in Canada in terms of the environment, and in terms of human and labour rights in the work place.
Senator Graham: When your very able ambassador appeared before our committee, mention was made of the sixtieth anniversary of relations between our two countries. I had mentioned to the committee at the time that Indonesia had celebrated it is fiftieth anniversary of relations with Canada this year, and some very useful events were held to mark that particular occasion, including the visit of some high-ranking Indonesian officials to Canada. I know that a special book is being published to mark that anniversary and I look forward to special events both in our country and in yours next year, when the sixtieth anniversary will be observed.
As well, I congratulate you on your appointment, because your record as a secretary and minister has preceded you. We have noted some marked improvement in relations since January.
We have often spoken about investment, and I wonder what progress you might expect in the opening of your country's energy sector to foreign investment and with specific reference to Canadian investment?
Mr. Derbez: I am glad you asked that question because today I was read an article in a Mexican paper that said that the government of Mr. Fox is now slowly privatizing the energy sector and, in particular, the business of Pemex. The article was a little critical of what we are doing, and indicated that we are allowing the private sector to get into a field that was only for the public sector. The article indicated that the rules that Pemex has imposed on private sector investment, be it foreign or national, create a condition where we will have the largest level of investment into the energy sector in Mexico in the past 15 years. Meaning that because we have created this new set of rules, the participation of the private sector will allow the largest investment in the energy sector in many years.
These are the first things we are doing. We are finding ways through the use of the current legislation to have more and larger participation of private sector investors come into the field of exploration of development. That should open the doors for Canadian companies, which are some of the best in this field and therefore some of companies that we are really looking forward to bringing into Mexico.
In order to really open the sector to the investment that we know we will be able to attract we are working with our Congress to see whether the electricity bill that has been under review can be approved in the next congressional session in September.
Of course, the outcome will depend on Congress, which will analyze, evaluate and make whatever modifications they see fit. The Fox administration will continue to attract more foreign direct investment and national private investment into the energy field. We are not only thinking about foreign direct investment but also about private sector investment in general.
Senator Graham: Have you any suggestions as to what assistance Canada might provide in the financing of infrastructure that would be required for the economic development of Mexico's disadvantaged regions?
Mr. Derbez: There are two areas where this is possible. One is President Fox's approach to a relationship that includes not only Central American but also the southern part of Mexico, through what we call the PPP plan, the Program of Puebla Panama.
We would welcome the participation of Canada in infrastructure development and technical cooperation in these regions, as well as in social and educational aspects. An institution like CIDA could help us in putting together a program that will in the long- run make better the lives of many people in the Meso-American region.
The second area in which Canadian investment can participate will be the building of an infrastructure. The ministry of public works and transportation in Mexico is now trying to develop instruments that will allow private sector participation and investment in highways, ports and airports to enable us to continue our economic development.
The Chairman: On behalf of my colleagues, Minister Derbez, I thank you for taking the time out of your undoubtedly busy schedule to visit the committee. This is particularly timely for us. We will certainly follow up our study of trade relations between Canada and Mexico.
Mr. Derbez: We thank you for the excellent study that you are conducting. It will be the basis for many things that we can do in the future. If at any time before the July 6 election in Mexico you would like to come to Mexico, please let us know. We will be happy to organize a program for you. You may not necessarily meet with Congress, but we could certainly make arrangements for you to meet people. I hope that your participation will not be delayed because we want Mexico and Canada to quickly develop a stronger relationship. If it is possible for you to visit, we will be happy to prepare that for you in Mexico.
The committee adjourned.