Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 10 - Evidence
OTTAWA, Wednesday, May 27, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:08 p.m. to study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
[English]
Denis Robert, Clerk of the Committee: In the absence of the chair, we need to elect a new chair for this meeting. Do I hear motions to that effect?
Senator Andreychuk: I move that Senator Dawson be chair.
Mr. Robert: It is moved by Senator Andreychuk that Senator Dawson take the chair for this meeting. Are there any other nominations?
Senator Andreychuk: No.
Mr. Robert: I consider Senator Dawson elected. Thank you.
Senator Dennis Dawson (Acting Chair) in the chair.
The Acting Chair: Welcome to the televised meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The committee is continuing its special study on the rise of China, India and Russia in the global economy and the implications for Canadian policy. Appearing before the committee today is Mr. Justin Brown, High Commissioner for Australia to Canada; and Dr. David Tawei Lee, Taiwan's representative in Canada.
Prior to his appointment as High Commissioner to Canada, Mr. Brown was head of the secretariat to the Review of Export Policies and Programs. In 2006-07, he was a member of the secretariat to the Prime Ministerial Task Group on Emissions Trading and was subsequently involved in Asia-Pacific Economic Cooperation, APEC, work on climate change. Mr. Brown has also served as Consul General in Los Angeles in 2006, Deputy Head of Mission to the European Union in Brussels from 1999 to 2001 and First Secretary in Copenhagen from 1988 to 1991.
Mr. Lee, prior to his appointment to Canada, was Taiwan's representative in the United States from 2004 to 2007. He was also representative in Belgium. During his time, he was also responsible for the European Union and Luxembourg.
[Translation]
Welcome to the Senate, Ambassadors. We will begin with Mr. Brown's presentation, to be followed by Mr. Lee's.
[English]
Justin Brown, High Commissioner, High Commission for Australia to Canada: Thank you very much. It is my pleasure to appear before you this afternoon and make a contribution to your work in this very important area. My comments today will be focused on China, rather than the other aspects of your study, and they are aimed primarily at giving information on Australia's perspectives and relationship with that country.
I will divide my remarks into three parts. First, I will make some brief contextual comments; second, I will talk a bit about Australia's views on China's emergence as an economic power; and third, I will make some comments about the mechanisms that Australia has in place to engage with China. I am, of course, very happy to clarify and answer any questions afterwards.
By way of context, I would like to highlight the very effective cooperation that exists between Australia and Canada in the Asia-Pacific region. We cooperate closely not only bilaterally but also in the context of the Asia-Pacific Economic Cooperation forum and in many other forums, such as the ASEAN Regional Forum.
We view Canada as an important and significant player in the region. For us, maintaining and reinforcing the trans- Pacific linkages between East Asia and North America is, in our view, critical for the ongoing prosperity and security of the region.
I would draw your attention to a proposal that the Australian Prime Minister, Mr. Rudd, made last June that the countries of the region discuss the idea of an Asia-Pacific community by 2020, essentially to remake the architecture of the region so that it is more capable of addressing of the geostrategic, economic and other challenges of the region; and Australia and Canada are obviously in ongoing dialogue along with the rest of the countries in the region on this proposal.
Those are my contextual remarks.
On the question of China's emergence as an economic power in Australian views, in a nutshell, Australia welcomes China's emergence as an economic power. We see this emergence bringing with it a number of specific benefits. For most countries, and Australia is not an exception, China has become not only a source of low-cost manufactures, but it is also a key and growing market for goods and a growing range of services.
China is increasingly becoming an engine of global economic growth, and this has become an even more critical role in the current economic recession. Australia, along with a number of other countries, is looking to China and encouraging China to take a leadership role in promoting global economic recovery. While China has experienced an economic slowdown in recent times, there are signs that a tentative recovery is beginning to take hold in the country. You will all be aware of the stimulus package the Chinese government announced late last year. Principally, it is an $800-billion infrastructure development program. That has led to a tremendous acceleration of domestic economic activity, and we are hopeful, from the Australian side, that this will flow through and benefit all the countries in the Asia-Pacific region.
In any event, looking to the medium and longer term, we believe the fundamental drivers of China's economic growth, urbanization and industrialization are enduring features of China's economy and that over time China will return to a long-term growth trajectory that replicates that which it has recently come from, and that will translate into growth for imports, particularly in areas such as mining and energy.
The Australian trade and investment relationship with China has grown as China's global role has expanded. There are many complementary areas between the two economies. To give you some quick factoids, China is currently our second-largest, two-way merchandise trading partner. Two-way trade amounts to about AUS $68 billion. China accounts for 15 per cent of Australia's total exports. Services exports have been growing particularly strongly. They now total about AUS $4.5 billion per year. Approximately 127,000 Chinese students study in Australia annually, and China is also a major source of tourists today; the Chinese visitor arrivals last year were more than 350,000. China is also a major investor in Australia, particularly in the mining and energy sector.
The global financial crisis and the downturn in global equity markets has also provided an opportunity for China to utilize some of its vast foreign exchange holdings to make investments overseas, and Australia has been the destination for some of that Chinese investment activity. We believe, from the Australian perspective, that that has been a helpful diversification of China's overseas investment portfolio which, to this point, has been extremely narrowly focused in bonds.
As China has taken on a growing trade and investment role, it has also substantially increased its participation in multilateral forums that deal with economic and related issues. From the Australian perspective, we believe China has played an overall constructive role in the efforts of the International Monetary Fund, IMF, and G20 to take forward action to respond to the economic recession.
You are well aware, I am sure, of the G20 leaders' decisions to modernize the international financial institutions. Australia believes that in order to promote greater involvement and leadership by China, it is important that we look to modernize and reform these institutions so that countries such as China see them as more representative.
Australia and Canada, of course, are both strong opponents of protectionism, and China, we believe, particularly in the G20 context, has made some helpful remarks, also expressing its opposition to protectionism. That is to be expected, given China's reliance on exports and its profile as a major trading nation.
The third part of my presentation is about Australia's mechanisms for engagement with China. I have mentioned some of the multilateral and regional forums, such as APEC. We also maintain a wide range of bilateral mechanisms. In the time available, I do not have sufficient scope to mention them all, but they cover trade and economic issues, resources and energy, development assistance, defence, regional security, disarmament, human rights, climate change and consular matters.
I will highlight a couple, but before I do, I would like to acknowledge that Australia and China do have differences. Part of the underlying factor driving the range of mechanisms is to manage those differences in ways that enable the relationship to continue to grow and expand.
Human rights is one particular area where Australia and China have significant differences. The human rights dialogue that exists between Australia and China meets approximately once a year. It has been a useful vehicle for frank exchanges and for identifying practical action to improve the human rights record of China. The last round was held earlier this year, and from the Australian side, we raised issues such as freedom of expression, freedom of religion, Tibet, the death penalty and Falun Gong. Australia also has an extensive human rights technical assistance program with China, which is aimed at enhancing the capacity of the Chinese legal system to advance human rights on a practical level.
I will mention briefly some of the mechanisms we have in other areas.
We have a biannual Joint Ministerial Economic Commission that is held between Australia's Minister for Trade and China's Commerce Minister. It has been the principal forum for advancing our trade and economic agenda with China and has been in place for over 20 years.
We have an annual High-level Cooperation Dialogue. Again, the Minister for Trade is the representative of the Australian Government, and on the Chinese side, it is the Chair of the National Development and Reform Commission. It also addresses bilateral and trade issues, particularly with respect to resources.
I would like to mention that the two countries signed an extensive trade and economic framework arrangement in 2003, and that led to the completion of a feasibility study for a bilateral free trade agreement. Soon after that study was completed in 2005, the two countries launched negotiations for a bilateral free trade agreement, and those negotiations are continuing.
Bilateral cooperation on climate change is also an increasingly important part of the bilateral agenda. According to many sources, China is now the world's largest source of greenhouse gas emissions. To deliver a global solution, we believe it is important to engage China in practical action. Australia has launched a ministerial dialogue on climate change with China, and the first meeting was held late last year.
At the foreign minister level, we have a strategic dialogue with China; it was also established in 2008. It is an opportunity to engage the many different levels of Chinese leadership on regional and global issues and to ensure there is a full exchange of views and perspectives on regional developments.
Finally, there is, obviously, a tremendously intense range of visits between the two countries. For example, Prime Minister Rudd visited China twice in 2008, including the Beijing Olympics; the foreign minister visited China most recently in March; the trade minister has visited China five times in the last 18 months; and the treasurer also has been there several times in the last 18 months. President Hu Jintao visited Australia in 2007, and a number of senior Chinese party leaders have visited Australia on a regular basis.
With those comments, Mr. Chair, I propose to stop talking at this point, and I will clarify any issues or take questions.
The Acting Chair: We will now hear from Mr. Lee, Taiwan's representative in Canada.
David Tawei Lee, Taiwan's Representative in Canada, Taipei Economic and Cultural Office: Mr. Chair, honourable senators, it is a great privilege to be invited to appear before this distinguished standing committee. I would like to take this opportunity to share with you Taiwan's perspective on the rise of China in the global economy and to suggest to you some implications for Canadian policy.
On April 30, Minister of Foreign Affairs Lawrence Cannon issued a statement in which he spoke approvingly of the warming relations between Taiwan and China and Taiwan's historic participation in this month's World Health Assembly, WHA. On May 17, Canadian Minister of Health Leona Aglukkaq met with Taiwan's Health Minister Yeh in Geneva on the eve of the WHA meeting. The two ministers exchanged views on future cooperation between our two countries on health-related issues.
The foreign affairs minister's statement and the health minister's meeting can be seen as normal bilateral relations between diplomatic allies, but keen observers know that these developments did not come easily between Taiwan and Canada. They were made possible by three key factors: President Ma's courageous decision to pursue détente with China; China's goodwill response; and, Canada feeling encouraged by the rapprochement and acting accordingly.
Honourable senators, since his inauguration one year ago, President Ma Ying-jeou of the Republic of China sought to minimize conflicts with the People's Republic of China and has pursued a truce on the diplomatic front. President Ma's policy toward China can be summarized as the ``three no's'' — no unification, no independence and no use of force.
Improved cross-strait relations have made possible a series of high level dialogues leading to nine groundbreaking agreements signed between Taiwan and China in the past year. In addition to agreements on direct air links, sea links, postal links and food safety, three more were recently added to increase regular direct air flights, financial cooperation and mutual judicial assistance. A clearing mechanism for the two currencies will be established and a free trade-type of agreement is now under consideration.
Let us take the case of direct air links. Previously, it took seven hours to travel from Taipei to Shanghai via Hong Kong. Now it takes only an hour and half. A year ago, there were only 36 flights across the strait each week. The figure is 270 today. That has made it much easier for business travellers and tourists. Last year, there were 300,000 Chinese tourists visiting Taiwan. This year, that number is expected to double.
There have been many other breakthroughs: The first case of China's direct investment was recently announced at the end of April. China Mobile has agreed to invest U.S. $525 million in one of Taiwan's leading telecom service providers, Far EasTone Telecommunications Ltd.
Most recently, China also announced it would send several procurement missions to Taiwan. In view of the impact of a global recession, these missions and direct investments will certainly bring positive stimulus to Taiwan's economy.
Honourable senators, I believe that President Ma's far reaching policies and the latest cross-strait developments contribute greatly toward regional peace and stability. This is also consistent with Canadian policy and interest in the region.
Despite the political differences, Taiwan and China have developed close economic ties over the past two decades. This is the result of the comparative advantages that each side has in the global supply chain. China has replaced the United States as Taiwan's number one export market since 2000. Taiwan is the fifth largest source of direct investment in China, following Hong Kong, the Virgin Islands, Japan and the United States. According to the most recent statistics, among the 2008 top 10 Chinese exporters, six are Taiwanese companies. Taiwan continues to use the ``orders received by Taiwan, products processed in China'' model to expand into the Chinese market.
On the other hand, honourable senators, both Taiwan and Canada are developed, free-market economies with the services sector contributing 70 per cent to each country's GDP. The bilateral economic relations are also clearly on a firm footing. For Canada, Taiwan is the fourth and thirteenth largest trading partner in Asia and the world respectively. According to the World Economic Forum, WEF, Taiwan and Canada are both among the top 15 countries in overall competitiveness and innovation in 2008.
With such economic compatibility and the technological capability to compliment each other, Canada and Taiwan should join hands together to form a partnership to pursue business ventures in the Greater China and Southeast Asia markets. Furthermore, there are approximately 150,000 Canadians with Taiwanese background who may provide valuable human resources for Canadian business.
Honourable senators, just like many multinationals that made Canada their gateway to North America at the birth of NAFTA, Canadians should also seize the opportunity to make Taiwan your gateway to the Greater China and Southeast Asia markets. With more liberalized trade, investment, transportation and travel across the strait, Taiwan is well equipped to be a regional headquarters for logistics, marketing, finance, transportation and management. The advantages of speaking the same language, sharing a common heritage, having a deep understanding of the nuances of the complex Chinese business culture and, above all, accumulating two decades of experience all constitutes Taiwan's winning advantages behind the success stories.
Allow me to site three good examples. In the IT manufacturing industry, Taiwan's Quanta Computer Inc. is the world's number one notebook manufacturer and is recognized by the Fortune Global 500. However, the integration of on-the-ground managerial information in China with the headquarters in Taiwan created some challenges, affecting the global supply of notebook computers. With the efficient Soleus Transit platform developed by Intrinsyc Software International Inc., a Vancouver-based software solutions provider, Quanta can now enjoy a faster and more cost- effective time-to-market business model. This model is a win-win-win example of Canadian know-how, Taiwanese logistics and China's assembly.
A similar story can also be found in the acquisition by Taiwan's TSMC — Taiwan Semiconductor Manufacturing Company Limited, the world's largest semiconductor foundry — of Emerging Memory Technologies Inc., a Kanata- based integrated circuit, IC, design company. EMT's collaboration with TSMC provides opportunities well beyond national borders. This model provides again a win-win-win example of Canadian design, Taiwanese management and Chinese manufacturing in the global supply chain.
In digital media-related industries, Ottawa-based Corel Corporation acquired Taiwanese Ulead Systems in 2006, turning its office in Taiwan into an research and development and marketing hub for its Greater China operations. Again, it is another win-win-win formula of Canadian planning, Taiwanese marketing and Chinese retailing.
In April, International Trade Minister Stockwell Day announced the opening of trade offices in Chengdu and Shenzhen, with an additional four offices on the way by end of the 2009. We welcome this development and believe it will enhance the Canada-China business relationship.
Last but not least, I do not think it is too much to say to Canadians that the shortest way to China is via Taiwan. With limited time, I shall conclude my remarks as follows: The rise of China in the global economy is an undisputable reality, and this presents both a challenge and an opportunity. With the détente across the strait, this is a golden opportunity for Canada, Taiwan and China to work together to create a win-win-win model for mutual prosperity in the Greater China and Southeast Asian markets.
Honourable senators, thank you very much for inviting me and, by all means, please give your comments, suggestions and questions. Thank you.
The Acting Chair: Thank you, gentlemen, for two excellent presentations. We will begin our questions with Senator Andreychuk.
Senator Andreychuk: I certainly echo the chair's comments. Both presentations are extremely helpful to our dialogue on the countries that we are studying. I appreciate we will be talking about, in the main, China and your relationship.
I have a question to the High Commissioner for Australia. You pointed out that you have a human rights dialogue, and I was interested that you would take that up. Do you talk about human rights issues within your two countries, or are you focusing on international standards and conventions and rights? What focus do you believe has been helpful to your dialogue with China on these issues where you disagree?
Mr. Brown: Thank you, senator. The human rights dialogue does focus on an exchange on international standards of human rights and encouraging increased capacity and understanding in China of those standards and what norms of behaviour are consistent with those standards. As I indicated, we also discuss specific human rights cases at a bilateral level, so both countries bring to the table a range of human rights issues relevant to the Australia-China relationship and discuss those.
I think of the human rights exchanges in three parts: There is a discussion of international norms, a discussion of specific bilateral human rights cases and a technical program where Australia provides legal assistance to China at the private and public sector level, designed to try to enhance the capacity of the system to deal with human rights problems at a practical level.
To answer your question, it is certainly more extensive than a simple discussion on international norms. There is quite an extensive exchange on a whole range of bilateral human rights problems.
Senator Andreychuk: I believe that your country, approximately 20 years ago, made a strategic decision across party lines to focus your emphasis, your trade and your relationships in Asia and the South Pacific, and strategically you now seem to be well positioned into China and are gaining a foothold there. Often we, in Canada, are told we should do the same and that you have been strategically successful. Do you believe it is your placement in the area that gives you the advantage and Canada has concentrated on North America, or do you believe it is the complexity of the relationships you have with all the countries in the region that gives you the toe-hold into China? What advice would you give to Canada if it were to intensify its relationship? We have been told that the United States and Australia are there competitively, and we are often there with the same types of goods, such as wheat sales, et cetera. Where do you see Canada fitting in, after you perhaps identify how you have succeeded in moving into that position?
Mr. Brown: That is a complex question. When the U.K. joined the European Common Market, as it was then in the early 1970s, Australia was forced economically to look to new markets to diversify.
That prompted a massive rethink of Australia's political foreign policy orientation as well that coincided with the rapid growth in the East Asian region at that time. It is fair to say that Australia's engagement with the region has happened in several specific phases. The first phase was economic, a trade and investment phase where we sought to maximize the returns from our commodity exports to the region. Australia has traditionally been a strong commodity producer and exporter, as has Canada. As those countries industrialized and urbanized, Australia was a natural supplier, being in the same time zone and having products that were in high demand.
From the 1980s onwards, the depth of engagement has broadened and deepened into other areas. For example, I mentioned the number of Chinese students now studying in Australia. That is replicated across many Asian markets where Australia is now a preferred destination for Chinese students. The number of Asian languages spoken in Australia in schools from primary level through to university is now dominated by Japanese and Mandarin. Our prime minister speaks Mandarin. He is a walking, breathing example of the way the system is delivering greater Asian relevant skills. Many of China's companies are now big investors and traders in the region.
The difference between Canada and Australia is that we do not have the advantage of living on the doorstep of the world's major economic and political superpower. From the 1970s onwards, we were forced to adjust to our geographical reality, and we did that by embracing the region.
That has been a long process. It is still by no means complete. I think the progression from a straightforward trade relationship to one of a more extensive political embrace of the region is now very well advanced. I mentioned in my opening remarks Prime Minister Rudd's proposal for an Asia-Pacific community. Of course, it is misleading to talk about Asia as a region. It is a series of sub-regions and countries. It is a very complex region. It is wrong, for example, to say that Indonesia is somehow part of the same region as the Republic of Korea. The diversity within the region needs to be reflected.
Looking at the region-wide cooperation and the architecture of the region, we also have many active bilateral relationships in the region, and we focus on developing those.
You asked me about how Canada might fit in. I do not want to reflect on Canadian government policy. My view is that as the global economic recession is accelerating, there is a shift of economic influence from Europe and the northern hemisphere to East Asia. I suspect that process will continue for some time.
The middle class in countries such as China is growing rapidly. Over time, we expect the region to become a significant economic engine for the world.
My hope is that Canada also participates in the development and evolution of regional structures and regional relationships. I mentioned that Australia is negotiating a free trade agreement with China. It is not for us to say that Canada should be doing the same, but the architecture of the region in a trade and investment sense, economically and politically, is evolving rapidly. It is important that countries that share values and an interest in security, prosperity and open markets are part of that conversation.
My modest, humble advice to Canada would be that engagement with the region is a good long-term investment in the future and would be very much welcomed by the countries of the region, including Australia.
The Acting Chairman: Mr. Lee and Mr. Brown, if a question is asked of either one of you and you feel that you can complete the answer because a subject was brought up, feel comfortable to intervene.
Senator Downe: Dr. Lee, in your presentation you indicated that for the first time you had a direct investment in Taiwan from a Chinese mainland company. Do you have any restrictions on state-owned corporations and what they can purchase in Taiwan?
Mr. Lee: We do, for good reasons. We need to build up our defence mechanism. Some of the military-related industries and some strategic, high-tech industries such as semiconductors; TFT LCD, the flat screens; and also the construction business, steel business, public utility, machine tools and others, are the areas where we do not allow the Chinese investors to get into our market.
Senator Downe: I understand all the examples with the exception of construction. What is your concern there?
Mr. Lee: It is because there are relatively lower labour costs. That is why we have still not opened the construction market to the Chinese investors.
Senator Downe: I would ask the same question to Mr. Brown. You know the difference between a private corporation, which is to enhance value to the stakeholders, and a state-owned corporation, which has a national objective. What restrictions do you have in your country?
Mr. Brown: Australia has a foreign investment screening regime not unlike Canada's. For investments beyond a certain threshold — I cannot give you the number, but it is comparatively high — they must secure the approval of our treasurer, our finance minister. The treasurer's approval is given on the basis of whether the investment would be in the national interest — not national security but national interest. It is quite a broad test. The national interest is not defined in a legislative sense.
That is the screening process that applies to all investments. Early last year, the treasurer also announced some specific criteria to apply to future investments by state-owned enterprises and sovereign wealth funds, and there are a number of them, which I am happy to provide to you. Essentially, it was a clarification on the way the national interest test would be applied in cases where state-owned enterprises and sovereign wealth funds, which, as you say, are not operating necessarily on the basis of market principles, make applications to acquire Australian assets.
The biggest real test case in Australia recently has been the attempt by a Chinese company to acquire Australian energy companies. As I have mentioned, Australia is a major source of iron ore and coal to China. Some interest has been shown from Chinese state-owned enterprises in acquiring Australian iron ore assets to secure reliability of supply from the mine through to the foundry. That has been a difficult policy change for Australia. That is the regulatory regime that is in place.
Senator Downe: I am curious about your screening process. I appreciate that you are not an expert in this area, but is it your sense that a high percentage of applicants are turned down, or are most of them approved through that national interest screening?
Mr. Brown: More than 97 per cent are approved. Australia, similar to Canada, has traditionally been a recipient of foreign investment. We welcome foreign investment. The national interest test is by no means designed to deter foreign investment; it is purely to ensure that in certain sectors the overall national interest is preserved.
The regime was put in place primarily because of Japanese investment in our real estate sector, which had the effect of bidding up prices and affecting middle-class Australians. Since then, with the tremendous interest from state-owned enterprises in some key assets, the system has been more focused in that area than in the area of domestic real estate.
Overall, the number of applications that are not approved in any year often are no more than one, sometimes two, they are very unusual.
The regime in place for the national interest test is essentially a mechanism for the treasurer and government to enter into a discussion with applicants who put forward proposals on how they can maximize the national interest returns from those proposals and deal with any sensitivities.
[Translation]
Senator Fortin-Duplessis: Welcome. I apologize for being late; I was at another meeting and could not be here on time. My question is for Dr. Lee.
During the forum on Taiwan-China relations held in Xiamen from May 16 to 22, the director of the Taiwan Affairs Office of the State Council made the surprising announcement that Beijing was now prepared to sign a framework agreement on economic relations. This unexpected move by China comes as controversy mounts in Taiwan over a closer economic relationship with the other side of the strait. On May 17, tens of thousands of protesters demonstrated against the policy of economic openness with China because they believe the flurry of recent agreements puts the island on the slippery slope towards an irreversible political rapprochement with Beijing.
What do you say to those who think that the China policy adopted by Taiwanese President Ma Ying-jeou puts the fate of Taiwan's inhabitants in China's hands?
[English]
Mr. Lee: Thank you, senator. You have asked an in-depth question. A free trade-type agreement is currently under consideration by my government together with their Chinese counterparts. Yesterday, when President Hu Jintao met with Kuomintang Chairman Wu Poh-hsiung in Beijing, President Hu told Chairman Wu that China is willing to start free trade negotiations in the second part of the year. He expects that the agreement will be finished by next year.
To my government, this is an important step and policy because, as you know well, Taiwan has been isolated on the international scene. We are unable to participate in any kind of regional economic integration. We have seen other ASEAN countries participate with China, Japan and Korea, but Taiwan is not included. After the finishing of that regional economic integration, Taiwan's goods and services will face unfair competition. Therefore, it is very important for us to reach some sort of agreement with China first. The opportunity may open for us to discuss with the ASEAN and other countries. This is for the benefit of Taiwan's economy.
Certainly, as you know, we are a pluralistic democracy. It is safe to say that in Taiwan probably 30 per cent to 40 per cent of the population are sovereignists, if I may borrow the Canadian term. They would like to see more separation away from the middle. Certainly, they are very much against President Ma's policy on rapprochement with China in pursuit of a free trade-type agreement. On May 17, street demonstrations took place in the city of Taipei to express their dissatisfaction. President Ma assured the people that free trade negotiations with China have nothing to do with politics and will never touch upon the sovereignty of Taiwan. My government will not compromise on those critical issues. We hope that the 30-plus per cent of people who are sovereignists can understand the intent of President Ma's policy.
Senator Zimmer: Your Excellency, I am pleased that you are here. Thank you for your presentation. I will ask both of you the same question. What reasons explain that, among the three countries being studied, Australia's and Taiwan's relations with Russia are the least developed? To what extent is the reason found in Russia? In what ways has Russia's absence from the World Trade Organization affected the further development of Australia's and Taiwan's commercial relations with Russia?
Mr. Brown: You are correct; of the three countries under study by the committee, Australia's relations with Russia are the most underdeveloped. I would highlight that Russia is a member of APEC. That has been a useful forum in which we have been able to engage in cooperation with Russia across a range of economic issues.
Your specific question about the impact of Russia's non-membership at the WTO has been a significant issue. The negotiations with the Russians have been ongoing for many years. Australia's primary interest in the Russian market is agricultural exports. Of late, Russia, notwithstanding its signature on some G20 commitments in relation to protectionism, has put in place a number of quite protectionist, regressive measures. There has been a pattern of practice by Russia for some time now of imposing quite high barriers to imports of agricultural products. They are traditional barriers in the form of quotas and tariffs and barriers in the form of unpredictable regulations in the area of food safety and quarantine. To the extent that membership of the WTO would compel Russia to comply with international standards that promote free trade and investment, we think that would provide a huge stimulus to two- way trade and investment.
I was reading some messages from our WTO mission earlier this week, and we have been encouraged by some new energy injected into those negotiations, in particular by the United States, and Russia has reciprocated with some encouraging signs of new flexibility in the area of agriculture. We are hopeful that the conclusion of these negotiations is not too far away.
Mr. Lee: On China's relations with Russia, I must confess that our relationship is much more limited in comparison to our relations with Canada. Historically, we know that Russia is extremely close with China. Over the past 60 years, and especially for the first 25 years, Russia was China's main ally. Given the previous tense relationship between Taiwan and China, Russia has been quite cautious about working with us. Certainly, times have changed, and we now have a better relationship with China.
We hope that in the future Russia will see a different perspective in the management of closer relations with Taiwan.
Senator Wallin: I, too, came a little late; I apologize.
I want to put the question first to Ambassador Brown, but we can here from Mr. Lee as well?
I am considering the comparisons that people like to make between Australia and Canada. You may have touched on this in your remarks earlier, but we are sort of in the same boat. We live beside these great, huge economic engines. They are the oxygen for our economies; but as we can attest, free trade is no guarantee for easy trade or does not provide any protection against protectionism, as we are seeing rise in the United States now in part because of the new government and its beliefs and in part, of course, because of the economic circumstances.
Are you experiencing that same feelings? What circumstance and what does that say to you about the free trade agreement you might pursue with China? Perhaps we can hear your perspective.
Mr. Brown: Thank you for the question. Australia has bilateral free trade agreements with two countries in the region: Singapore and Thailand. We also have a framework free trade agreement with all the countries of ASEAN. We are currently negotiating with China, Japan, and we have just launched with the Republic of Korea and bilaterally with Malaysia.
Senator Wallin: The others are bilaterals as well?
Mr. Brown: That is correct. We have agreements with the United States and New Zealand, but in East Asia, they are the ones that are on the books.
The agreements are quite different to NAFTA in the sense that they probably are not as far-reaching in their regulatory impact. They eliminate all tariffs and visible barriers to trade and eliminate many discriminatory measures in the area of services, trade and investment and promote a more predictable environment. They are not as sophisticated or as far-reaching in terms of their impact on economic integration as NAFTA. The reason for that is straightforward.
Most developing countries in East Asia have extremely high barriers to trade. I was Australia's lead negotiator in the free trade agreement negotiations we did with Thailand. We started those negotiations with Thailand having 250 per cent, 300 per cent tariffs in a number of areas. It is quite a difficult challenge in these negotiations to bring these countries to accept that these barriers need to be eliminated.
We face a slightly different perspective or challenge than does Canada. In your case, you have such a huge dependence on the U.S. market that even small shifts in their government procurement sector can have a major impact on Canada's interests.
In the case of Australia, most of our trade with the region is in commodities and services. Although services are heavily protected, and there are some agricultural problems of course, in many commodities the trade is relatively open, and free trade agreements are beneficial in locking in those low levels of protection and creating a road map to bring down protection over time and prevent any backsliding.
Our ambitions for these agreements are relatively modest. We see them as a way of guarding against backsliding. Of course, there are no guarantees; they are not perfect. They do not prevent politicians from occasionally doing things that are against the spirit of the agreements, but we think they are an important part of pushing the region toward acceptance of open markets as the best way of securing the future prosperity of the region.
Senator Wallin: China is your largest trading partner; is that correct?
Mr. Brown: If you are talking merchandise trade, yes.
However, if you look at total trade and investment, the overall economic relationship, the U.S. and EU are still very important. China, the U.S. and the EU27 taken together are very similar if you look at all flows — merchandise trade, services trade and investment flows.
Mr. Lee: We all know that Taiwan is an island country. Exporting and importing is tremendously important to our country. As a matter of fact, the export and import figures together account for about 130 per cent of our GDP. Therefore, a regional economic integration is very important to us, to our economy, to the country's future.
We now see the ASEAN plus one, and ASEAN plus three will materialize by next year. If Taiwan is excluded, you can imagine the negativity that will bring to the country. That is why President Ma is so keen on trying to work out the free trade-type agreement with China. Otherwise, I cannot imagine how much negative impact will be brought to Taiwan without free trade. As we all know, there are delicate international relations.
Too much of the countries' main concern is maintaining a close relationship because they worry about offending China. If we can work out better relations, even a free trade-type agreement with China, many major trading countries will feel much more at ease working out some sort of arrangement with us. I think that is the case, and we are pursuing this agreement with much enthusiasm.
Senator Andreychuk: What advantage is it to Canada to do, as you put it, a win-win-win strategy incorporating China and Taiwan? You have explained how it would be successful with the free trade agreement but that is the future. At the moment, your success has been in the fact that, with China's large labour component and therefore assembly capability, your expertise, your knowledge put together has been an advantage in certain R&D and technologies.
Beyond what we have been able to accomplish now, what fields and sectors do you think we could improve upon awaiting the free trade agreement?
Mr. Lee: I still feel that the high-tech field is something both of us may pursue even further. Basically, in the field of IT and ICT, the international standing of both countries is close to each other. That is why we can find a lot of compatibility, and we can also complement each other.
Over the years, Canada and Taiwan will have so many exchanges on the science and technology view, especially with IT and in the ICT field. If I may, Dr. Pierre Coulombe, the president of the National Research Council Canada, told me, and repeated it in public, that the most successful exchanges for NRC are with Taiwan. We need to pursue it even further, not only to let the research organizations work together closely but also to have the high-tech communities of the two countries work closer. I think that would bring many benefits to our bilateral relations and also the mutual benefits for us to develop the Greater China market.
Senator Andreychuk: That answers the question that I was concerned about. You are saying that we should build on what we have. However, what other areas should we explore, perhaps in view of a free trade agreement with China — yours and perhaps ours — in the future? What other areas do you see where Canada has some capabilities that would be complemented with Taiwan and would be value added for us strategically to start building into China?
Mr. Lee: At this stage, I would say that high tech is still the most competitive because Canada is rich in natural resources and energy, while we have nothing. In this area, there is not that much Taiwan can contribute to your advantage. Also, in some of the commodities because of the distance of travelling, they may not be competitive in the Chinese market. I would still think the managerial information and also the kinds of knowledge-based know-how are the niches we should pursue.
[Translation]
Senator Fortin-Duplessis: My question is for His Excellency Mr. Brown. The Australian government recently welcomed China's decisive response to the global recession, that is, the introduction of a $656 billion stimulus package. Your Excellency, which sector of Australia's economy do you think will be the first to benefit from this Chinese initiative?
[English]
Mr. Brown: I would identify the benefits for Australia in two ways. First, the greatest emphasis in the Chinese stimulus package is in infrastructure development, and that has been a trend in China for some years. That has meant a growing market for Australian exports of commodities, particularly iron ore, and we would expect, with the continuing focus on infrastructure development, that Australian commodity exports would benefit.
In addition to those direct bilateral economic benefits, as I mentioned in my presentation, we believe that the Chinese economic stimulus is also important for the overall region. China has free trade agreements with the ASEAN countries. As Dr Lee said, there is also growing cooperation between the ASEAN countries, China, Korea and Japan. To the extent that the region is becoming more economically integrated, Chinese economic stimulus can benefit all of the countries in the region, and because they account for approximately two thirds to three quarters of Australian exports, we believe our exports to the region overall will benefit in terms of softening some of the harsher impacts of the recession in the last six to twelve months.
Senator Zimmer: My question is directed to His Excellency Brown and is really a supplementary to Senator Wallin's question. You indicated that your highest economic trading partners were China and the United States. Where does Canada fit in there?
Mr. Brown: I will perhaps give a bit of context before I answer the question. Australia's external economic relations can be seen this way: Our exports and relations with East Asia are largely commodity driven. We export commodities and other merchandize exports to the region. We are a supplier of natural resources, effectively. Our relations with Europe are primarily driven by investment, and our relations with North America are primarily manufactured goods, services and investment. Each accounts for approximately one third of our external economic engagement, if I can put it that way.
Frankly, Canada is a small trading partner for Australia. Most of our Australian exports are accounted for by tourism and wine, of course. In the other direction, Canada's exports to Australia are in aerospace and pork. Compared with your exports and economic relationship with the United States, it is a midget. The reasons for that are perhaps not all that surprising. We have rather similar economies, so the natural complementarities that you see between, for example, Australia and China or Australia and Japan do not exist.
The big growth area in the relationship in recent times has been in investment and in areas such as mining and viticulture. A significant growth in investment has taken place in both directions. My personal opinion is that that is where the future lies. We have similar regulatory systems, so the movement of personnel and capital backwards and forwards between the two countries makes sense, and that is something that will drive our economic relationship in the future.
Senator Zimmer: Thank you. I do have to add that you do have good wine.
Senator Di Nino: Senator Zimmer, I hope you have been to Australia to enjoy not only the good wines but also the hospitality that comes with it. It is unique. I urge you to do that. I will not charge the high commissioner for that.
Thank you for coming. In the last several weeks, I read a report that some Chinese manufacturers are no longer prepared to produce their product under a brand name. I am trying to think of some of the names of the products that they produce, all consumer products. They are saying that from now on, if we want to buy, we have to buy their brand. Is this something you have come across? Mr. Lee, perhaps you could comment on that.
Mr. Lee: The global recession hit all of us, so China also received much impact. In order to stimulate the economy, one of the policies that the government adopted was trying to allow those hinterland people to have better access to consumer goods. That is the reason for the introduction of cellphones and the flat screen televisions. For their purchasing powers, those big international names are probably beyond their capability, so they have their special type of lower-quality products available for those people in the hinterland. They call that the Mountainside brand. As a matter of fact, Taiwan has benefited so much from that strategy. One of our IC design houses has been the main collaborator to help them to design those cellphones, in China, in the countryside. Once again, that illustrates the agility and rapid adaptability of Taiwanese business in Chinese markets.
Senator Di Nino: Are you saying that they are producing both products, export market of the brand names of the North American and European companies and then the same product under their own brand for domestic sale?
Mr. Lee: As I understand it, most of those products are for domestic sales, and not even in the big cities. It is mostly in the rural areas or those types of economic backwater areas.
Mr. Brown: We have certainly noticed a trend. China has been the factory of the world for a long time, and it has benefited from considerable outsourcing from industrialized countries. Manufacturing under licence has been a feature of the Chinese economy.
We have noticed that Chinese manufacturers are seeking to move up the value-added chain, and relying on cheap, low-labour-cost sectors is not necessarily consistent with sustainable growth. Many Chinese manufacturers are seeking to move into a more aggressive phase of developing their own brand awareness and their own products that have a high value added, and that is consistent with a typical corporate model.
From the Australian perspective, we think that is a natural evolution. Some sectors will move into that phase more aggressively; others will focus more or less on the low-cost end of the spectrum for the foreseeable future.
Senator Di Nino: I have another quick question particularly to you, high commissioner. This question may have been asked previously, and I apologize if it has. With foreign direct investment, FDI, has China been an active participant in that as it relates to Australia?
Mr. Brown: It has not been so much. The last figures I looked at, China ranks about fifteenth or sixteenth as a source of FDI in Australia, so it is relatively small. It is certainly surpassed by Canada and many other countries.
I was saying earlier, in response to a question from Senator Zimmer, that although it has been relatively small, it has been somewhat problematic in some sectors, particularly in the resources sector where China has made a number of bids for Australian resources assets. That has raised concerns about whether foreign control of those assets would be consistent with Australia's national interests. There has been a policy issue in that particular resources energy sector in recent times.
Senator Di Nino: Lastly, to you, high commissioner — and if it has been asked I apologize — what is Australia's position on sovereign funds from not only China but other countries?
Mr. Brown: In a nutshell, I tried to explain our foreign investment regime earlier. We have a similar system to Canada's. We have a screening regime that requires investments beyond a certain threshold to meet a national interest test. Those requirements have been supplemented recently with a number of criteria that apply specifically to investments by sovereign wealth funds and state-owned enterprises. The intention is to ensure that those investments are being made in a way that is commercially credible, if I can put it that way. I should add that it is not directed at China. It applies equally to sovereign wealth funds from the Middle East, for example. The pattern of sovereign wealth fund engagement in Australia in recent times has been largely portfolio investment, but many are becoming more active in FDI. These additional criteria are designed to address the policy challenge of large sums of money floating around the world looking for assets.
Senator Corbin: Mr. High Commissioner, do you have fish farming in Australia?
Mr. Brown: Yes.
Senator Corbin: You do. Do you export any significant quantity of fish produce to China, Japan and India?
Mr. Brown: Yes.
Senator Corbin: Can you give me an idea of the volume?
Mr. Brown: I might have to come back to you with specific numbers.
Senator Corbin: I do not mean to be embarrassing.
Mr. Brown: Do not apologize. We have a small aquaculture industry. It is largely in areas such as molluscs, shellfish and salmon. We have quite a specialized seafood industry that is directed exclusively at the North Asia markets, particularly for abalone, for example, and sea urchins, premium products. We have industries that have sprung up to service particularly the Japanese, Korean, Chinese and Taiwanese markets. I would be happy to give you a more comprehensive answer in writing.
Senator Corbin: I am glad you mentioned salmon. Some years ago, I was part of a Commonwealth parliamentary delegation to Australia. The delegation raised a problem that we had with respect to Canadian salmon imports. The allegation by the Australians was to the effect that our salmon was diseased or was parasitic. I wondered if that matter has been resolved over the years.
Mr. Brown: I am happy to report it has been resolved. It took many years to resolve it. Canadian salmon is now widely available in Australia.
Senator Corbin: I also, on that same trip, visited Tasmania. I was surprised to learn that most of the lumber was exported. I think China was the biggest market for your raw lumber. Is that still the case?
Mr. Brown: Again, it is not something I know off the top of my head. We do have quite a large export of wood chips for paper production that goes primarily to Japan, and Tasmania is a large source of wood chips exports. Certainly, a lot of lumber is exported from Australia to East Asia. The construction industry in particular in East Asia — and I mentioned the infrastructure boom in East Asia — is fuelling much of that demand. It is not a significant trade compared with Canada's lumber industry. Our industry is very small. A very active environmental debate has taken place in Australia for many years about how we ensure a sustainable industry. In parts of Tasmania there are valuable old growth forests, and balancing the need to protect those resources with the economic interests of particular lumber communities is reminiscent of the situation in parts of British Columbia.
It is a small industry but largely domestically focused with some specific export interests, mostly in East Asia.
Mr. Lee: A year and a half ago I visited your province, New Brunswick, under the invitation of your colleague Senator Ringuette. I also had the opportunity to meet your Minister of Fisheries and Oceans and found out that New Brunswick did export a large amount of fishery products to Taiwan. As you know, we are an island country and our people especially favour seafood. As I understand, frozen lobster tail and shellfish are the main exports from your province to Taiwan. Your fishery ministry people attend seafood festivals and seafood shows each year in Taiwan. We have some sizable trade with your province on the fisheries products.
Senator Corbin: You would have a great opportunity to buy all the lobster you can get your hands on this year because the fishers are not getting much money for their catches.
The Acting Chair: We will leave that to the Fisheries and Oceans Committee, if you do not mind, Senator Corbin.
Senator Corbin: It is all about trade.
The Acting Chair: Senator Downe has a point of order he wants to bring up.
I would like to thank Mr. Lee and Mr. Brown for your enlightening and interesting presentations. We appreciate your presence.
Senator Downe: My point of order relates back to the testimony of the president of Export Development Canada, EDC, Mr. Siegel, when he appeared before the committee. My question to him was whether he was financing companies that are doing business in Burma or with the Burmese government. Mr. Siegel said that he would respond to the committee in writing. We have received two separate letters. The clerk of the committee was kind enough to pursue it with EDC, and we received a second letter to the Chair of the Foreign Affairs Committee, Senator Di Nino, that outlines their policy and so on. Unfortunately, there is no answer to the question.
To provide some context, when I asked the officials at Canada Pension Plan, CPP, similar questions at other meetings, they forwarded material, answered the question and arranged a briefing for senators who were interested in it. I know that we will consider the report of the committee next week, so I would ask the clerk to email EDC to ask them to answer my question with a yes or a no. In my original question, I indicated that I do not want to know the names of companies.
The question to EDC is the following: Are you financing companies that are doing business in Burma or with the Burmese government? The answer is either yes or no, and we do not have that in the pages of the response that we received.
The Acting Chair: The clerk has indicated that he will do that with pleasure.
Senator Andreychuk: For clarification, have the letters been circulated to committee members? I have not looked through them. Are they hesitating to say yes or no because there might be financing activity through an indirect route? They might be financing a company that works through another company. If that is the case, I would like to know. Therefore, the response would include to the best of their knowledge and belief, et cetera.
Senator Downe: They have indicated that they are following government policy, which is clear and outlined. However, if they are doing it indirectly, that would be a yes. I could then pursue that through Access to Information or other avenues. I will not tie up any more time of the committee, but I would like to know. The CPP officials were clear and proactive in their response. Senator Nancy Ruth came to the meeting when the CPP officials discussed this matter. EDC seems to be going in another direction with their uninformative response.
Senator Di Nino: Mr. Chair, I agree with Senator Downe. Whether it is a Crown corporation or a department, when we ask a question, we want an answer. I have asked my staff to become involved and work with the clerk because I do not have anything other than total agreement with Senator Downe's request.
The Acting Chair: The clerk will follow up and report at the earliest convenient time.
(The committee adjourned.)