Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 15 - Evidence
OTTAWA, Tuesday, October 6, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 5:30 p.m. to study the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
[English]
The Chair: Honourable senators, I welcome you to the 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 from Foreign Affairs and International Trade are Robert Hage, Director General, Europe; Leigh Sarty, Director, Europe and Central Asia Relations; and James Hill, Director, Europe and Central Asia Commercial Relations.
Also appearing before the committee later this evening from the Institute for Democracy and Cooperation will be Andranik Migranyan, Director. We will give him a proper introduction when he is scheduled to appear.
Robert Hage, Director General, Europe, Foreign Affairs and International Trade Canada: Good evening, honourable senators. I appreciate the opportunity to be here with my colleagues. I will make some opening remarks and we will be happy to respond to any questions you may have. I see from your program that it is a very rich one, including a visit to one of the wealthiest northern regions of Russia.
It has been a challenging year regarding our bilateral relations. If you go back a year, the report on Georgia had just been published and indicated that both sides — Russia and Georgia — had responsibility for the difficulties encountered in the war between Russia and Georgia. Obviously, Canada was concerned about the invasion at that time and Russia's occupation of parts of Georgia and the question of resolving the ongoing dispute. The gas dispute with Ukraine has also been an issue for Canada. On the other side, Russia feels its vital national interests have been ignored by the West on issues such as NATO enlargement and the recognition of Kosovo. Nevertheless, Russia remains an important player on issues of concern to Canada, including counter-terrorism, nuclear proliferation, Iran, Afghanistan and the Middle East. Also important is the growing trade and investment potential between our two northern resource-based economies. Balancing our commitment to deeper engagement with Russia in such areas, however, is the importance of delivering clear messages on democracy, human rights and regional issues — that is, how Russia gets along with its neighbours, which is spotty.
Our allies and partners are also interested in a more constructive relationship with Russia. We all know that the United States has now hit the infamous "reset button" and is looking to strengthen cooperation with Russia on a full range of issues. The EU is also re-engaging with Russia after talks on the new EU-Russia agreement were stalled last year.
Mr. Medvedev, the Russian President, has also proposed a new European security architecture that they hope will be a legally binding instrument, although most Western allies are looking for something that is not legally binding. Canada is engaging on broad ranging dialogue on security, including President Medvedev's proposal in the context of the OSCE, Organization for Security and Co-operation in Europe.
We have had an increasing number of high level bilateral contacts between Canada and Russia. Then-Prime Minister Zubkov came to Ottawa for talks with Prime Minister Harper in 2007. Russian Deputy Prime Minister Dmitry Kozak led a delegation to Vancouver in February 2009. Minister Cannon has met with Russian Foreign Minister Lavrov three times this year — the last meeting was two weeks ago in New York. Agriculture minister Gerry Ritz will soon make his second visit to Russia while the Minister for International Trade Stockwell Day had a successful trip there last June. He led a trade mission focused on infrastructure projects for the Sochi Winter Olympics in 2014 and co-chaired a meeting in Moscow of the Canada-Russia Intergovernmental Economic Commission, IEC, under the rubric of the 2009 Canada-Russia Business Summit. A wide range of Canadian and Russian business representatives joined Minister Day.
We are all very pleased in Foreign Affairs that this high-level senatorial visit is taking place that will serve to advance deeper and more sustained dialogue with Russia. At the same time as your visit, Minister Gerry Ritz and Newfoundland Premier Danny Williams will be in Russia on a business program. We are making plans with the Province of Quebec for a visit by Premier Jean Charest.
Enhanced engagement with Russia will reap dividends in terms of enhanced security and increased prosperity for Canadians. There are at least 11 federal government departments and agencies already active in dealings with Russia. Senior officials consult regularly on a range of issues. We are poised to do more as we negotiate agreements and MOUs in areas such as customs, science and technology and Arctic search and rescue. The G8 Global Partnership Program also figures prominently in our bilateral relations. Canada has spent over $526 million since 2002 implementing projects to prevent the spread of weapons of mass destruction.
As you are all aware, the Arctic represents an increasingly important aspect of our bilateral relations. The Arctic Council and the Canada-Russia Intergovernmental Economic Commission's Arctic and North Working Group serve as key mechanisms for cooperation on issues such as the prevention and control of marine pollution, indigenous peoples issues, trade strategies for northern goods and services and business-to-business transportation initiatives such as the Arctic bridge between Murmansk and Churchill.
Indian and Northern Affairs Canada agreed recently to strengthen cooperation on Northern and Aboriginal issues with its Russian counterpart, the ministry of regional development. Russia's Arctic policy, released last March, is similar to our Arctic policy: It prioritizes people, sovereignty, resource development and the environment. Both Canada and Russia are committed to international law for the delimitation of their respective continental shelves.
Canada also has considerable commercial engagement in Russia's Arctic. Kinross Gold Corporation of Toronto has its Kupol project in the far north region of Chukotka. It represents Canada's largest private investment in Russia at $760 million as well as the largest foreign investment ever made in Russia's mining sector. Over the past nine years, the Chukotka government has purchased more than $200 million in Canadian cold climate construction technologies.
I have been at Foreign Affairs for a number of years. We talk about foreign investment and the importance of foreign investment. That foreign investment often does not lead to enhanced trade simply because the investors are there, have put in money and maybe buy locally or regionally. This is a good example of this foreign investment by Kinross that has lead to sales of $200 million worth of Canadian cold climate construction technologies, which is significant.
Canada and Russia are also developing important linkages in areas related to overcoming harsh environments in the Arctic offshore oil and gas sector involving stakeholders from Newfoundland and Labrador. Despite our common interests and generally positive collaboration in the Arctic, certain challenges persist in how we each perceive our key interests. This only strengthens the argument for building mechanisms for greater northern dialogue and information sharing.
On trade and investment, the trend is very good. Trade is growing again after a deep dive last year. Canadian exports to Russia stood at approximately $260 million in 2002 and reached the $1.5 billion mark in 2008. This makes Russia Canada's eighteenth most important export market. Canada's merchandise imports from Russia also grew to $2.1 billion in 2008, which is an almost 40 per cent increase over the previous year.
The global economic downturn has had its impact on the volume of bilateral trade since late 2008. Statistics indicate that trade with Russia is growing again significantly. You will have seen the headline announcing Magna International and Sberbank of Russia's agreement to purchase a majority interest in GM's European subsidiary Opel. Mr. Stronach was with Mr. Day and spoke at the economic commission meeting in June on that purchase. This deal illustrates Russia's growing involvement in international business partnerships and constitutes a significant expansion of economic cooperation between Canada and Russia.
In the agricultural sector, we are facing a number of challenges in what is proving to be an important expanding market for Canada. In 2008, Russia imported $34 billion in agri-food and seafood products. That is a very large amount of imports in only this one area. About $500 million came from Canada. Canada has been Russia's primary source of live bovine animals, its third most important source of pork, its second most important source of crustaceans and third most important source of soil-related agricultural machinery.
However, since the economic downturn in 2008, a number of our exports have been limited due to Russia's market access barriers. These are not based on internationally-accepted scientific principles and are inconsistent with the principles advocated by the World Trade Organization. I should mention that Russia is not yet a member of WTO. It negotiated for a number of years and suddenly announced that it will form a customs union with Kazakhstan and Belarus. They will put in a joint application in the new year.
In February 2009, Russia imposed a new tariff of 15 per cent on combine harvesters and threshers, which had an effect on Canada. That measure is supposed to be removed in mid-November, but there are concerns it will stay. Minister Day made a representation concerning this tariff measure during his June visit in Moscow, as well as a number of measures that were quite successful in getting the Russians to remove their ban on Canadian pork as a result of the H1N1 virus. Another measure gained access to the Russian market for boneless beef. Again, when looking at a market of $38 billion, Canada has an important role to play in getting a share.
Minister Ritz will make further representation on the issue of the Russian tariff measures when he goes on his visit while you are also in Russia. He will also inform the Russian authorities of Canada's concerns about market access barriers on Canadian pork which relate to Russian regulations requiring an inspection of all Canadian exporting plants by Russian authorities at the expense of our exporters. Export certificates for unspecified plants will be cancelled once their current expiry date arises.
Before I wrap up, I would like to mention a sensitive issue with respect to our bilateral relations, namely, visas. You may be aware that in recent years, Canada and Russia have experienced difficulties and have had misunderstandings on visa matters. Canada's embassy in Moscow endeavours to provide the highest possible service to applicants, and we are committed to strengthening our cooperation with Russia in this area. Since the last round of bilateral consultations on visas we have had with Russia, CIC has taken considerable steps to address Russia's concerns.
Summing up, I would like to wish you a fruitful visit to Russia. Your engagement will increase the profile and the importance of Canada in the market where personal relationships are paramount. I would be happy to take your questions and your requests for any further information, which we would be more than pleased to provide you before you depart.
The Chair: Thank you, Mr. Hage. We have a number of colleagues who wish to ask questions. During the question and answer period, you may wish to expand or invite one of your colleagues to deal with some of the issues in a wider manner, particularly as it relates to enhancing the relationship that Canada has been growing with Russia. Any specific suggestions you might have will be appreciated.
Senator Grafstein: Mr. Hage, this is a very important and cogent report. Let me deal with the framework issue as opposed to some of the problems that you have raised with market access. I want to focus on trade because, frankly, I think our relationship with the BRIC countries, Brazil, Russia, India and China, will be one of the key elements in our study.
The federal government has a number of steps to take before we enter into a freer trade agreement with a partner. Usually, there is a framework agreement. I look at the EU-Canada relationship which we have been tracking for the better part of 15 years. We are getting closer, but we are sill at the framework level.
Has the department or the minister given consideration to moving swiftly to a trade and enhancement framework agreement so that rather than deal with these issues of market access one at a time, you can deal with it in a framework of a general overall negotiation? You have started that, I assume, with the Canada-Russia Intergovernmental Economic Commission. Have you given some consideration to starting a discussion with respect to an overall framework agreement for investment and trade? One of the breakthroughs is the agreement reached by Mr. Stronach with respect to the Sberbank in Russia. I know it took support at the highest levels in Germany, Canada, the United States and Russia to get that agreement to take place. At that level, that agreement moved ahead very swiftly because of the time frames. I am just wondering whether we put a framework agreement on the same fast track.
Mr. Hage: You are quite right that the joint economic commission is the instrument we use in our dealings with Russia, and it has proven fairly effective. It was initiated during Mr. Mulroney's visit in 1993, so it has been going on for a number of years, and so far so good. We have not thought of going beyond that. We had a framework agreement with the European Union in 1976. It has taken 30 years, and now we will be doing free trade with them.
While our trade has been growing, it has been relatively limited for the size of the two markets, as well as the investment relationship. I mentioned Kinross' investment in Russia. There are not many other examples. There are other important Canadian industries, for example, SNC-Lavalin and Bombardier, who are interested in the Russian market. While we were in Sochi, SNC-Lavalin signed an agreement with Russian Railways for infrastructure development in Sochi for the Olympic Games.
We are not to a framework yet, but, as I said, the joint commission seems to be working well. We have not had much incentive to change it, in that sense.
Senator Grafstein: You have made my point: It took us 30 years to go from whatever our discussions were with the EU to wherever we are today, and we are still nowhere close to finalizing some of the sticky problems. Time is of the essence now. We are living in a virtual reality.
Is there any way we can speed up the process? Frankly, you have indicated that we should be more involved in bilateral trade than we are because of the size of our relative markets, and now there is the new wealthy environment in Russia, which we did not have 10 years ago. Why are we not accelerating that process as opposed to taking it at a step at a time?
Mr. Hage: I listed the visits we have had, which are substantial. During the visits while you are there, there will be a premier from Newfoundland and another premier expected soon. The engagement of ministers is now fairly frequent.
The committee is obviously open to make recommendations once you have been there and as part of your report as to how you think the relationship can be improved. The Russians have not suggested to us that we change the system in any way, and they seem content with the joint economic commission.
We are open minded, and if you have suggestions, once you have been there and talked to the Russians, as to what you think the relationship should be or how it should be strengthened, that would be a benefit to us as well.
The Chair: We may be a little proactive on that issue while we are there.
Senator Smith: I want to get a feel for the bigger picture on foreign affairs as more of an east-west thing and not just Canada per se but Canada as part of NATO and the desirability of avoiding the machinations during the Cold War years. My first time there was 1969, and it cold. I was there a few times in the 1980s. There are all these games, manoeuvres, machinations or poker games about them putting missiles in Poland and then Czechoslovakia, and then the response with Azerbaijan.
Regarding the recent de-escalation and understanding, my sense is that the Obama administration is trying to lower the temperature there. My impression is that to the extent there was a little arm wrestling, the result was pretty good. What is your reaction?
Mr. Hage: I think that is absolutely true. I think there is a change in atmosphere. President Obama has taken a number of initiatives with Russia. He has spoken to both President Medvedev and Prime Minister Putin. He has made a change in this policy of putting missiles in Poland and radar in the Czech Republic.
The Russians have welcomed that. The "proof of the pudding" is when we see how well it is being eaten. I think the West is looking for signals from Russia that they want to be more cooperative in this area, as well. Iran comes to mind as far as issues are concerned. They have already put forward some suggestions that they would engage in enrichment of uranium in Russia, so that the enrichment process would be controlled in Russia. The Iranians seem interested in that proposal now.
The Russians have made proposals in the past and we are waiting to see what their answer will be on this and a range of issues. They have to resolve their issue with Georgia, South Ossetia and Abkhazia and its future. Its relationship with Ukraine is another issue. Therefore, there are a number of factors where Russia can display its own response to the initiatives that Mr. Obama has undertaken, as well as other Western states.
Senator Smith: I think that last one was an interesting barometer on the will to try to lower the temperature.
On a lighter note, I noticed that we are up to $2.1 billion in terms of imports. Do you know how much of that is vodka?
Mr. Hage: You will probably find out when you go.
Senator Smith: I guess they do not let us export our Newfoundland vodka, which comes from glaciers. That is 10,000-year-old water.
Mr. Hage: I think the market is open. If you can sell vodka to the Russians, you can sell anything.
Senator Smith: I think we should get a few bottles of it and take it over to them.
The Chair: We are sending a case of it to your office. Please bring it with you.
Senator Stewart Olsen: Thank you very much for your presentation. I have one point I would like to make. I am heartened by what I see in the statistics and in my briefing notes. I feel that we are moving forward. Incrementally, I see a lot of things happening. In the context of individual agreements and trade moving forward in terms of private companies, rather than a big government overreaching agreement that you sign and nothing gets done.
Overall, it looks good, but these kinds of initiatives serve the country better. I am quite proud of the efforts that have gone with Minister Day and Minister Cannon and the upcoming visit with Minister Ritz.
My question is in the context of some advice for the people travelling on this very important trip so that people do not make a misstep but can emphasize the way the direction of the country is taking and what would be in the best interest of the country. I note that you spoke about Minister Ritz's upcoming visit and what he will try to achieve. Any kind of advice from you on what every third sentence should contain from the travelling group would be most welcome.
Mr. Hage: Senator, you reminded me of a business organization called CERBA, the Canada Eurasia Russia Business Association. It also covers Ukraine and they have established a Ukraine committee. When Minister Day was in Kiev recently, there was a CERBA representative with them. When he went to Kazakhstan, there was also a CERBA representative there, as well. They have a representative in Moscow, as well as in Calgary, Montreal and Toronto. We benefit, as well, on the business side of things from having an active business association.
Regarding what to say, I think it depends on the audience. When you are talking to people on the trade side, I think it is worth reminding them of the importance of developing Canadian and Russian trade relations, but also to note some of the concerns we have over restrictions that have been put in. I think they reflect the downturn and Russia's concern about its own markets. The fact they are not a WTO member limits what we can do, except lobby them. They have been responsive on some of our entreaties, but I think it is fair to emphasize the importance of an open and transparent trading relationship.
On the basis of political contacts, I mentioned in my remarks about having a clear message to Russia. We do not need to beat them over the head with it, but there are things that concern us in Russia about the way governance is being done and the limitations that are being placed on opposition parties and the way the election process unfolds with two major parties competing for power.
Mr. Putin said Mr. Medvedev and I will sit down and figure out who will be the new president of Russia in 2012. The former head of Russia was communist at the time and Mr. Gorbachev took issue with that. I guess he can. He said he hoped the people would be involved in this choice and not just two individuals.
Russia has a European or trans-Atlantic background in many ways. I heard a speech recently on that point. The new EU ambassador made some remarks to us yesterday at a function. He reminded us of the European element of Russia. He reminded us that Russia has shed a number of its territories in central Asia and that has made it a more European-oriented country. That is a factor to keep in mind in your dealings.
If you have not been to Moscow recently, it is an amazing city. It is lively, bright and busy, as well as expensive.
The Chair: The last comment means we should bring more money. I am sure Senator Smith will agree we will do our share to help the economy with vodka.
I would like to piggy-back on Senator Stewart Olsen's comment. I also encourage you and your colleagues to let us know if we can be of assistance on a private basis with some issues in that we may add value to negotiations or discussions. We would certainly be able to undertake some of that, as well. We have done this in the past. I encourage our colleagues to have one-on-one conversations with different ministries, ministers or even corporations that may be useful to the cause of our country.
Senator Mahovlich: Who are Canada's main competitors for commercial partnerships with Russian enterprises?
James Hill, Director, Europe and Central Asia Commercial Relations, Foreign Affairs and International Trade Canada: It is no surprise that the greatest competition is from the closest geographic competition. The European Union leads the way in terms of competition with Canadian economies and Canadian investors in the Russian market. That has been a long-standing position, even before Russia became an entity on its own.
There is increased competition from Japan and Korea. The individual BRIC countries have been playing a greater role as trading partners. Canada has not lost territory, but it has consistent and emerging competition.
Senator Mahovlich: Canada is known for its mines. Do they also look for oil companies to partner with them? Do they know that Canada is very competitive in the oil fields?
Mr. Hill: They certainly do, but Russia has a proprietary interest in any of their extracted industries, oil especially. Canadian companies do not play a major role on an exploration and development basis. I would say they are playing a more diminished role. Petro-Canada, for example, has closed their office in Moscow, principally because they could not get the foothold and the type of investment and return that they wanted.
Senator Mahovlich: As far as gold is concerned, does Russia have a large amount of gold in reserve?
Mr. Hill: I do not have the statistic on that, but if we have invested $700 million in one particular gold company, Kinross, the potential is enormous. It is not just Kinross that has been active in the extractive mining part of the sector. We have had a number of junior companies active as well. It is an incredibly large and mineral-rich country, and it looks not only to Canada but to Australia and other leaders within the extractive industries sector to help exploit those reserves.
Mr. Hage: I have been told that one of the challenges for small- and medium-sized businesses is to do business in Russia. That might be a message as well. I will have to provide some more information for your briefings about the challenges for small- and medium-sized businesses to start a commercial relationship with Russia. It tends to be now in Canada the larger companies. That is where the relationship can really take off, if it is not just the multinationals that are engaged but some of the smaller companies as well. I will see if we can get a briefing note for you on that subject.
The Chair: I thank you for that, and also for the other briefing notes you have provided to us already. In the next day or so, before we leave, if there is any additional information you can provide, it would be appreciated.
Senator Andreychuk: In our previous study of Russia we identified a number of impediments, which included the lack of structures that one could rely on, the dispute resolutions and court structures, the lack of institutions and reliability on a fairness scheme that one could work on. It was not different than what we were saying about China at that time. The other great impediment was the governance structures, the governors themselves. You can talk all you want about Moscow and Russia, but really it was the governors who controlled the regions, so you had to learn how to do business within the regions. Mr. Putin himself started to address that issue of having some control and uniformity. We did have companies come to us and say that was a great problem, that they did not have that consistency or that understanding from various regions. Has that situation been ameliorated?
Leigh Sarty, Director, Europe and Central Asia Relations, Foreign Affairs and International Trade: I think it is a good adage that any company has to know the region it is dealing in and appreciate the specifics of doing business in a given place.
In terms of what Mr. Putin has tried to do, and now Mr. Medvedev afterwards, you are probably aware from your earlier study that they went from a system where governors were elected to now being appointed. That was seeking to address a perception that the country was not as stable as its leaders would have liked it to be.
In terms of how that has played out in business terms, I would not have a comment to make beyond the need to know the market and to ensure that the contacts are good within a region, as well as in Moscow.
Senator Andreychuk: Just another follow-up. Some of the advice is that because of our distance, the small- and medium-sized businesses do have a disadvantage. It is very difficult to go over there unless you have a particular niche market that is identifiable and not competitive with someone else. Some of our strengths should be looking to Eastern Europe as a region and partnering with other Western Europeans or newly emerging countries, whether it is the Czechs, the Poles, the Hungarians or whomever. That is a better way to work into Russia, rather than trying to do it one on one in Russia.
Mr. Hage: One of my own experiences in Hungary is that we still do not have these multinationals in that part of the world that would offer those partnering opportunities. To do business in Russia, you usually have to have a Russian partner of some description. You need to look to European or American partners that you could have. A number of our multinationals have identified companies they can work with.
SNC-Lavalin, for instance, has just bought a 48 per cent share in a Russian engineering firm of about 800 engineers. They could not go beyond the 48 per cent because of the rules that Mr. Hill mentioned, restricting investment in areas involved in natural resources. This engineering firm is involved in the oil and gas and chemical industry, and I think their feeling is that through their partnership with this company, or the partial ownership, that they can expand into the Russian market and also internationally through this company.
It is one of those situations where if you get a large Canadian company like Magna or Bombardier or SNC-Lavalin involved in the business, then the hope is that other smaller Canadian companies might follow and that they might create opportunities, in the same way that Kinross has created opportunities through its investment for the sale of cold weather technologies. It is just a question of time.
An organization such as CERBA, which is expanding its membership, is a very effective way of doing that because it identifies business opportunities and it has an open membership. When new trade commissioners go to Moscow, CERBA arranges something in Toronto or Vancouver. When there is a new trade commissioner from Russia here, CERBA has arranged for meetings in Toronto for this individual so that he can talk to the business community in that city. It is an effective way of trying to build our business relationship.
The bilateral trade between Holland and Russia is something like $30 billion. I could be wrong, but that figure sticks in my mind. A lot of is oil because of Royal Dutch Shell. This shows the potential of a relatively small country, with petroleum interests, obviously, and what you can do in this market.
It takes time, and there is obviously a concern. You mentioned the legal process, which is an issue. In Russia, there is no question that we believe that the court system and the rule of law need some work. Some Canadian companies have experienced the wrong side of that.
On the other hand, back to Kinross, the president, Tye Burt, wrote an op-ed in The Globe and Mail in June of this year on the advantages of investing in Russia. He made a solid case for it to try to encourage other Canadian companies to follow the lead of Kinross.
I have one further comment. It is not related to Mr. Burt's article, but it occurred to me as well that President Medvedev made some interesting statements to a liberal Russian magazine within the last month. Mr. Medvedev spoke about the need for Russia to change, about the need for the rule of law, the need to end corruption, the need to meet this demographic deficit that they have, where I think 800,000 people die every year. I think the life expectancy now for males in Russia is lower than it was during the Soviet period.
President Medvedev has recognized these challenges and has simply put them out as something that they have to deal with. Whether they are able or he is able do it is another question. We will send you a copy of his remarks as well.
The Chair: Thank you, Mr. Hage. We have the article by Kinross. The other article would be useful. I agree with you; it was a very enlightening piece to read. I thought for a moment that he was getting paid by the Russian government, but obviously not.
Senator Dawson: Could you confirm the numbers between Holland and Russia?
Mr. Hage: Yes, I will do that.
Senator Dawson: It is a good example for us to use when we have our discussions.
At the same time, we have great transparency during our proceedings, as we are televised and listened to. To that end, you may not want to discuss some issues in such a transparent forum.
We would certainly appreciate through the chair and through the clerk that you could give us any information, understanding that these committees are bipartisan and try to defend Canada's interests. Those messages can either be positive or so-called "hot buttons" that we should avoid in our discussions.
We try to keep our distance from the government, and those on this side of the committee even more, but we certainly believe in the interests of Canada. Any key messages can be either positive or to be avoided that you think should not necessarily be televised, we would appreciate knowing.
Mr. Hage: There is nothing I have said now or will say in the future that is not public. Our position on Russia is an open position. There are no other messages to give you.
Senator Stewart Olsen: Are helping to advance Russia's interest in the WTO?
Mr. Hage: The WTO incident caught everyone by surprise. The negotiations were proceeding and we had had bilateral negotiations with them to iron out some of our own bilateral issues. It had taken some time, but we were more or less satisfied by the end of the process. Other countries, the European Union and the Americans, had done the same. I think the European Union had largely resolved its issues; the Americans had not entirely done so. Then, out of the blue comes this announcement by Prime Minister Putin that they will form a customs union and make a joint application, which is I think is the first time that has ever been done in the WTO. That was viewed as maybe a setback for the process because I think it is better to have Russia as a member of the WTO than not a member. It is certainly worth asking them. We raised it as well on the recent visit I attended with Minister Day in Kazakhstan, and they seem intent on doing it. Initially, we thought this was something that just might pass, but now they are talking about having this customs union up and running by January 1. I think it is a reasonable question to ask them if they do not think that this is setting back their application. They were getting frustrated, they said, by the length of time it was taking to get into the WTO. China is a member and has been for a number of years. They were well on the road, and I think our negotiators could not figure out why they took this move.
Mr. Hill: The WTO negotiations operate on two different levels, so, on a bilateral level we have concluded negotiations with Russia and did so some four years ago. What has been remaining to negotiate is their accession on the multilateral level where the stumbling blocks have been on agricultural subsidies. Russia's perception has been that the type of subsidy they are offering is WTO-consistent and should be cut out of the negotiation, or the requirement that not only Canada but the U.S., Australia and a number of other countries have pointed out are inconsistent for their application to be blessed on the multilateral level. That is the key stumbling block. On a bilateral level, as I mentioned earlier, those negotiations have already been concluded with Russia.
The Chair: I have some comments on the recently launched Global Commerce Strategy, particularly what generally you expect from it. Are there sufficient resources being allocated to it? I would also like to know if some of those resources are being directed to helping the small- and medium-sized enterprises.
Mr. Hage: I will ask Mr. Hill for comments as well on the question of the SMEs, but the monies that have been given have been preserved and, yes, it is going ahead. I think it has been a quite successful strategy. It was blessed by cabinet and announced and it is proceeding as planned. Russia certainly is part of that strategy, as are the other BRIC countries. I think we are starting to see some success in the Russian side of things, where our trade is obviously very much on the increase. We are working on trade barriers and these seem to have arisen mainly because of the economic downturn. We are hoping that as Russia starts getting back on its feet that these will also start to dissipate. On that score, I think it is working well. You can encourage the Russians to look at Canada as a positive trading partner.
Russian investment in Canada, however, has not been as high as Canadian investment in Russia. Again, the Canadian market is open for investment. They have bought a number of Canadian companies. Viceroy homes is one. There is a tractor company in Winnipeg that they have also bought. It is an interesting range of investment, but nothing terribly high over time.
Mr. Hill: The Global Commerce Strategy, and then the Russian strategy that is one of the 13 sub-parts that flows from that, focuses on it as a key market and a market to develop. It does not have a specific SME bent to it. However, the whole network and support mechanism of the Canadian Trade Commissioner Service and the services that are applied or offered to Canadian businesses has a SME focus. The mechanisms to support SME entry into markets such as Russia or into any of the BRIC countries are there. It is not part and parcel of a specific global commerce strategy.
The Chair: Thank you, Mr. Hage, Mr. Hill and Mr. Sarty. Mr. Hill, it was a pleasure travelling with you some months back. Hopefully, we made some contribution.
We look forward to seeing you again. We should reconvene after we come back and compare notes. Thank you for your valuable insight, and we look forward to seeing you when we come back.
Mr. Hage: We would welcome that. Thank you.
The Chair: As I indicated earlier, appearing before the committee today is Mr. Migranyan. I hope I do your name justice. Mr. Andranik Migranyan is Director of the Institute for Democracy and Cooperation, based in New York. Thank you for coming here from New York.
Founded in 2007, the institute is a new non-governmental think tank dedicated to analyzing, defining and promoting mutual understanding and cooperation between Russia and the U.S. The institute endeavours to promote strong relationships across all sectors — governmental, financial, economic and cultural.
Andranik Migranyan, Director, Institute for Democracy and Cooperation: Mr. Chair, honourable senators, it is a great honour for me to be here today to share my views about Russian domestic and foreign policy. It is very hard for every professor to be limited to 10 minutes but I will try to be as short as possible. I would like to give you some insight on three blocks of problems on which I would like to focus my attention and your attention.
At this moment in the economy of Russia, during the last couple of weeks, we had two investment forums in Russia in Sochi and in Moscow. All Russian leaders, including Mr. Putin, Mr. Kudrin and the chairman and deputy chairman of the central banks considered that the decline is over for Russia.
Also, the decline of the economy turned out to be not as deep as they expected. The expectation was about 8.5 per cent or more, but they said that, by the end of the year, it will be 8 per cent or even less. Inflation will be less than they expected, and they said that there are even some signs of a little growth, which means that at this moment, the Russian economy is in a process of stabilization, growth and recovery. As Deputy Prime Minister and Minister of Finance Kudrin mentioned, it will take three to four years before the Russian economy has fully recovered.
What measures were taken during the crisis? In this case, the Russian government was not original; they did the same as the other governments. They spent a lot of money rescuing the banks, different industries and companies, especially companies in cities which were one-company cities, where all the population worked for the company and they needed to be rescued. Had they not, the rate of unemployment could have been enormously high.
During this severe crisis and very deep decline, the Russian government succeeded in keeping practically all social expenditures on the same level as they promised. This could not have happened if the Russian government could not mobilize enormous hard currency reserves during previous years because of high prices on oil, gas and other raw materials. As a result, the Russian government spent more than $200 billion on all these measures. This was one of the serious measures taken by the government, which practically prevented the population from rebellion or action against the government, which happened in many Baltic republics, the Balkans and other places. However, in some places in Russia, there were some actions against the local authorities because of closure of the factories and job losses.
Unemployment is still very high; it is about 10 per cent, which is about equal to the United States where they have 9.8 per cent unemployment.
However, there is a problem. Due to the crisis, there is a decline of new immigrants from former Soviet republics and other countries coming to Russia to get jobs. The Russian economy needed these newcomers, but now we have between 5 million and 10 million illegal immigrants. Experts consider it is 5 million but official statistics say 10 million. They are in Russia and are in the process of adaptation and integration into the society. If the economy increases, because of the serious problems in the demography in Russia, these unemployed will be easily consumed in a couple of years because there is no new workforce that can come to the market because of the demographic situation.
Another important thing concerning the Russian economy is that the Russian prime minister emphasized several times that we need a new strategy for growth. The crisis showed how the Russian economy is dependent on oil and energy supply prices, which means there is a need for very fast modernization and diversification of the economy. That is why Russia needs new quality of growth.
This is something that goes back to Mr. Putin's strategic program 2020, which he submitted to the Russian Parliament and Russian political and social groups in the Kremlin before he left office. As a member of the Valdai Discussion Club, when we met him a couple of weeks ago, he said that the 2020 strategy is still the strategy for government, and we will make breakthroughs in areas of high-technology, knowledge and nanotechnologies and informational technologies. He also said Russia needs to change its economic structure.
To finalize this part of my presentation, I would like to say that Mr. Putin had a conference at Salekhard, the site of the largest gas reserves. I do not know whether Canadians participated or not, but major European and American oil and gas companies were there. He said now the Russian economy is open. We need investments and foreign companies to come, not only with their money, but also with their technology.
Russia, with great enthusiasm, has perceived the idea of the deal between Sberbank and Magna about buying Opel, the Germany company. This is not just a joint investment in Germany. Canadian and Western technology is coming to Russia. Together with gas companies and factories, they intend to build new Russian cars based on new technologies, which is a very positive and new thing in the Russian economy.
What is the situation in the political sphere? In Russia, we are in a process of forming new political systems. In Russia, the ruling elite and political parties are openly against any values or institutional system based on liberal democracy and its values.
Everyone is in favour of multi-party rights, liberties, civil rights and political rights. Of course, we know that Russia has very limited experience with this democratic experiment and implementation of democracy as an institutional framework and as a value system in the country, makes this a hard process.
At this moment, I would emphasize one aspect of the problem — the party system building. In the 1990s, we had only one party, the Communist Party. The other parties were inside the Moscow Garden Ring, not outside and not covering the country as a whole. In the late 1990s and 2000s, we have a dominant party in our political system and several other parties are represented in Parliament. As political theorists could say, this is a system that reminds us of other well known systems in European and world history which characterized countries and economies in transition, such as Italy after the Second World War, Japan, Mexico and others. That is why some political scientists consider Russia's party system is something like one and a half parties. Although we have tens or hundreds of parties, it is one and a half because, for the time being, one party is dominant and the others are in opposition, but there is competition because another party in just Russia is also backed by government and presidential administration. There is an understanding that, if you do not have conflict, you cannot dynamize the system. You have stagnation, and we know what that means. We had one-party domination and there was complete stagnation under Mr. Brezhnev and further on.
Even more than that, the politicians and leaders of this party decided internally in a faction of United Russia, which is the dominant party, to create three clubs that compete with each other, and they represent three different spectres of Russian political forces. One club is the Liberal Democratic Party, where we have liberals, free market supporters. Another is the social conservative party, the people who represent the interests of trade unions, working people, middle and lower classes. Another club is the Patriotic Group. If democracy is something that practically all theorists of democracy consider, horizontal negotiations, compromises and concessions, this is the way of teaching these people about the culture of horizontal negotiations, concessions and compromises. In Russian political culture, which was always hierarchical, the zero sum game and the culture of zero sum game dominated.
I want to mention two things very briefly. I would like to make one small correction to the presentation of the Director General from Foreign Affairs. Two things happened that are very important to the Russian political system, and then I will make my small correction.
In 2008, President Putin had every chance to amend the Constitution, have the dominant party in Parliament and regional Parliaments and to run for a third term, but he did not do that. Not doing so showed that Russia is not following the part of Central Asia or some Asian dictatorships. Russia is trying to be more advanced in the sense of European standards.
Further, two of the most important positions in executive power — presidential and prime ministerial — were not party positions, which was abnormal according to normal political systems in Europe or other civilized countries. Mr. Putin became the head of the party. The new president, Mr. Medvedev, ran and was nominated by the party, which is a step forward in the development of the party system.
The last point, which is important, is that the president no longer appoints the governors. The winning party nominates its candidate and the president must appoint the candidate from the winning party, which is a kind of parliamentary system at the local level. My correction is that I was member of the Valdai group when President Putin was asked if he would run and if there would be a competition between him and Mr. Medvedev. He did not say we would decide who among us will be the president. He said the group will decide who will run on behalf of the party who is in power and then let people decide who will be the president. This is a correction which means that no one will ignore the will of the people and there will be an election and these two gentlemen have not yet decided who will run.
It is interesting in that it seems to be commonplace in Western media to speak about the confrontation between prime minister or president, the competition between them and the potential conflicts. I do not think that is the reality, at this moment at least. Of course there are members of these two teams who are very much interested in their fate and future and are actively involved in these kinds of things. I do not think it is positive to try to play one against another, which is sometimes done and not very successfully. Last week, being in Washington and having meetings with the members of the Obama administration, I told them, and I do not think they are very happy. They advised Obama to make his remarks before visiting Moscow. He had to indirectly apologize before Mr. Putin because he said he was not a man of modern vision but a man from the past. He had to speak many compliments which he otherwise would not have needed to.
Very briefly, I will discuss the foreign policy priorities of modern Russia. The number one foreign policy priority is post-Soviet space, and Russia would like to have a stable neighbourhood and good relations between all its neighbours.
The second priority is the integration of at least part of the Soviet's space. In this sense, there is a process going on with Belarus and with the other member countries of the Eurasian Economic Community, including Kazakhstan, Belarus, Russia, Tajikistan, Uzbekistan and Kyrgyzstan.
Another priority is to prevent further enlargement of NATO to the east, with the inclusion of countries like Ukraine and Georgia into NATO. Another priority President Medvedev proposed recently is the new architecture of Euro- Atlantic security. According to Russian officials, the existing institutions are not relevant to modern international relations.
Another priority is support of the forces of NATO in Afghanistan. In that sense, not only President Obama made a decision to cancel the deployment of this third position area in the Czech Republic and Poland. Russia, during the summit in Moscow, signed an agreement that lets Americans supply military goods, armaments and military supplies to Afghanistan through Russian territory, which means it is reciprocity.
Of course, Russia's priority is non-proliferation of nuclear weapons and weapons of mass destruction. Here, Russia is very supportive of the world community in trying to prevent North Korea and Iran from obtaining nuclear weapons.
Several other things were mentioned by President Medvedev when he was in North America, namely, the reform of the Security Council. The last one was longstanding during the year, and President Medvedev is always mentioning this, namely, the necessity of creating new international structures that would handle more efficiently the financial and economic crisis that happened last year and with which the world community still struggles.
I am ready to answer your questions.
The Chair: Mr. Migranyan, I was pleased that you reminded us that Russia as a country is still a very young country and is going through some of the growth challenges that young and new countries experience.
Senator Wallin: I appreciate your presentation. Just to figure out what your group is and who you represent, you were an adviser to Mr. Yeltsin at one point. Is that right?
Mr. Migranyan: Yes.
Senator Wallin: Is the organization that you have in New York privately funded or publicly funded?
Mr. Migranyan: It is a non-governmental organization, established by 15 different organizations, members of public chambers in Russia. I am in my second term in the public chamber. We established offices in Paris and New York. There was a longstanding idea that there was a place needed to discuss what democracy is. What is the aim of Russia vis-à-vis the United States or Europe? What are their reasons for dissatisfaction or controversies? That is why, being in New York for more than a year, I regularly organize different kinds of conferences, seminars and meetings.
Senator Wallin: In some interviews that you have given, you describe your mandate as studying Western democracy, not Russian democracy.
Mr. Migranyan: That is true, but what is important is that I put together a team. When I said that to Mr. McFaul at the White House last week, he said that he is very envious — he is the special assistant to President Obama on Russia — and if he has time, he will come to participate in the seminar. I put together the best theorists and political scientists on democracy, like Adam Przeworski from NYU, Stephen Holmes from NYU, Ian Shapiro and John Dunn from Cambridge, Great Britain. Once we do that kind of seminar, I bring Russian participants, and we discuss democracy in general. One of the books coming out very soon is entitled the Limits of Democracy. We are interested in what democracy is in the West. We must learn and find out, if we follow these patterns, how the patterns or the model is working.
Senator Wallin: Would you describe yourself — as I read in an article — as part of the modern Russian soft power machine? There are public relations companies being hired, and we have heard from people mediating between Russian businesses and Canadian businesses. There is a more aggressive approach on the part of Russia. Would you describe yourself that way, and would you do so with pride?
Mr. Migranyan: If I could describe myself, I would be very proud to be a soft power. It is much better than being a hard power.
The problem is that I have a background. I worked in the U.S. in the late 1980s and early 1990s. I was a student on American affairs, on social democracy, democracy and then on Western political science, which means I speak the same language. I share the same beliefs and the same ideas. That is why it is easier to communicate with my friends here.
Senator Wallin: I do not know whether it conflicts with some of the things you said, but your earlier statements seem to suggest that you believe that Barack Obama could somehow make the end of the Cold War real, that the peace dividend was finally going to be delivered, and I do not mean financially. Is that your belief?
Mr. Migranyan: I wrote that a week before the election, thinking that Obama would win. Unfortunately, the Cold War is not over yet because Russia is not part of a universal security system, which includes the United States, Canada and the European countries. Russia is alienated. Russia is thinking that NATO is a threat for Russia. Unless this is over, the Cold War continues. That is not only my position. Very prominent theoreticians like Mike Mandelbaum and others condemn Bill Clinton for this one-sided NATO expansion, which alienated and cost our lives in Russia in the 1980s and, in some senses, humiliated as well.
Senator Dawson: In the wonderful world of Google, we went to the same site and Senator Wallin stole my question. I did the same thing; I went to look at the institute and saw the same remarks. Your answers shed a little bit of light on your role, whether it is soft power or soft sell.
First, do not get me wrong; I would be more than happy if you opened an office in Canada. We would be happy to have you. The more we exchange and give information, the better off everyone will be. It is important for us. We have to know whom we are speaking to because you are on television and the Internet. Knowing on behalf of whom and who you are being paid by is important to the people listening.
You talked about immigration of 5 million and 10 million. Where are they going in Russia? Are they aiming for the big cities or the wide frontiers of natural resources? Where are they establishing themselves? Although they are illegal, we try to follow them
Mr. Migranyan: Many of them are in the construction business because people come and are hired at lower prices. They live in terrible places, not having legal rights and are limited in their possibilities. That is why they are used in these places. It is mostly in big metropolis areas and rich places where construction is underway.
Aside from that, many people are coming to be babysitters in the houses of the new middle class and upper class. For example, in Moscow, you can not find Muscovites wanting to work in these kinds of jobs. In my family, we had a small child and we had our sixth or seventh nanny. They are from Moldova, Ukraine and different places. These are the kinds of people coming.
However, it is another problem for the eastern regions. The chairman of the public chamber on the national strategy of development noted problems simply finding workers in places like Irkutsk, Chita and Vladivostok. These places lack human resources and China is nearby with large human resources. We have not yet worked on legislation as to who we can bring, what quota there must be and the political consequences.
My next seminar and conference with the Americans will be on October 21 in Washington with the Woodrow Wilson International Centre for Scholars. Over the next two days, Russians will participate in an American conference because Mr. Obama's next priority is legislation about immigration for the United States.
Senator Dawson: Your definition of illegal immigrants looks a lot like the United States or ours. They are all looking for the same thing.
Senator Andreychuk: I want to pick up on NATO. A lot of talk is that it was not that Russia felt humiliated on NATO, although that was one piece. After the disintegration of the Soviet Union, the effort that should have been made by the West was not in a larger sense. It was not only NATO.
If we look at NATO alone; it is a fact. NATO will continue to be there. NATO wants to have a relationship with Russia, but it will not dictated by Russia as to NATO's internal workings.
What would be a good approach from NATO to Russia to restart the relationship given the onset of the Georgian issue, the economic crisis, et cetera? A moment exists to revisit this relationship. What would you recommend we do?
Mr. Migranyan: The problem is that twice the West had good opportunities to solve this problem. The first time was after the collapse of the Soviet Union when Russia was ready to be part of NATO. Russians did not think they were defeated; Russians defeated communism themselves. No one came or used force to overthrow the Communist Party. Russians did so by themselves. That is why the Russians were unhappy that they were treated like a defeated nation. Doing what they did, they deserved to be part of the civilized world. They wanted to be there to share the same responsibilities.
Unfortunately, our partners at that time decided that the West could simply ignore them because they were weak, in disarray and a state of chaos. I remember the early 1990s. I was in the Kremlin at that time and in the White House as a senior advisor to the committee on foreign relations with the Russian parliament. We tried to convince our partners that it was the wrong thing to do.
The second opportunity was when Russia became very supportive to NATO forces in Afghanistan. The question was raised that Russia could be part of a universal security structure like NATO.
I recently read something that encouraged me. A fellow who no one could suspect as a Russia sympathizer wrote it. Zbigniew Brzezinski wrote in the most recent issue of Foreign Affairs that there may be a need for NATO to sign a treaty with OCST and then with the Shanghai Cooperation Organisation to create a universal security structure.
In a meeting with a famous French intellectual and a couple of others in Moscow, I suggested that if one is proposing the idea that Congress of Vienna was the best place where some countries decided the fate of the world, what is NATO? In a security and military strength sense, it is the United States. What is OCST? It is Russia. What is the Shanghai Cooperation Organisation? It is Russia and China. These three countries should come together and decide what kind of new security architecture they would like and invite countries like Canada and others to participate in shaping this new system.
The need for a new system is ripe. There is a need for new vision. The new American administration is showing some signs that they will move. However, how far they will go is hard to say. This health care problem will make it very hard for the Obama administration to go forward in other directions.
Senator Mahovlich: Who are Russia's most important partners — political and economic?
Mr. Migranyan: Of course, it is the European Union. The share of the European Union's trade turnover is between 50 per cent and 60 per cent. Within the European Union, Germany is the principal partner, especially with this new construction project.
China and India in the East are very important as well as Turkey. You may not believe it, but almost $40 billion worth of trade exists between Russia and Turkey.
Senator Mahovlich: Where does Canada fit?
Mr. Migranyan: I want to use this opportunity to answer the question raised about whether Canada should work through Eastern Europe or directly with Russia. I agree with the director general that it is better to act directly. I have heard that Canada is now developing its western regions. It is easy to communicate through Western Canada with our far eastern and northern areas. They are very rich and need technology and investments.
In this sense, Canada has a good future. I will be organizing seminars with centres here in Canada, perhaps Ottawa, about federalism. I may bring people from the far eastern and northern parts of Russia to discuss these problems.
The Chair: Thank you. We once again extend our apologies for our tardiness. We do not control what happens in the chamber. As you saw, our colleague, Senator Nolin, just arrived. The Senate only recessed about 20 minutes ago. I am pleased we received permission to sit while the Senate was in session.
Mr. Migranyan: I worked in the Russian Supreme Soviet and Duma. I know how they work. They do sometimes much worse.
The Chair: Thank you, Mr. Migranyan. We appreciate your words of wisdom. We will keep some of your advice in mind as we go forth in our research.
Honourable senators, I need you for one moment, but we must go in camera. I need you for two quick issues.
We have a motion to allow staff to remain in the room while we are in camera. All in favour?
Hon. Senators: Agreed.
(The committee continued in camera.)