Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 17 - Evidence, October 20, 2009
OTTAWA, Tuesday, October 20, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 6:19 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, we are continuing our study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
We are delighted this evening to welcome Mr. Michael Hart. He holds the Simon Reisman Chair in Trade Policy at the Norman Paterson School of InternatioÏnal Affairs. It is a position he has held since June 2008. Professor Hart is a distinguished fellow from the Centre for Trade Policy and Law and a research fellow of the C. D. Howe Institute. In 2004-05 Professor Hart was awarded the Fulbright-Woodrow Wilson International Center Visiting Research Chair in Canada-U.S. Relations and was concurrently a visiting research scholar at American University in Washington, D.C.
Before I welcome you, Professor Hart, I would like to thank you publicly for being so patient and waiting for the Senate to recess, which was about 45 minutes of waiting. That is truly appreciated. I want to thank you for that on the record and in the public domain through television.
As well, colleagues, allow me to welcome back our colleague who has been away for a while with some health problems. Welcome, Senator Fortin-Duplessis.
Senator Fortin-Duplessis: Thank you very much. It is a pleasure for me as well.
The Chair: Ladies and gentlemen, I invite Professor Hart to give us some comments, after which we will be asking some questions.
Michael Hart, Simon Reisman Chair in Trade Policy, Carleton University, as an individual: Thank you, Mr. Chairman. As you indicated, I teach at the Norman Paterson School at Carleton University, but I am also a former federal official, and in part I will be reflecting that background. I want to thank you and members of the committee for giving me an opportunity to participate in your work.
Before proceeding to some comments on the specific issue being studied by the committee, allow me to let the inner professor in me place the issues of foreign trade and investment into perspective.
Trade and investment are largely private sector activities driven by the demands and desires of millions of ordinary citizens and informed by the millions of decisions they make every day about what to eat, wear, drive, read and more. Private firms respond to these market signals and organize their activities in order to satisfy these demands and desires on a profitable basis. Firms participate in this complex market as suppliers to each other as well as to consumers. When it comes to foreign markets, firms can choose to serve them either as traders or as investors.
Governments provide the framework of domestic and international rules within which both firms and consumers interact with one another, regulating everything from private property to food.
Governments' ability to influence the international flow of goods and services and capital has steadily diminished over the years as they have entered into bilateral and multilateral agreements that can be characterized as economic disarmament agreements, as agreements committing governments not to make use of certain tools, to reduce the impact of others and to discipline the remainder. We are all better off as a result of this. Despite frequent claims to the contrary, governments do not create wealth or jobs; they redistribute them, usually at a net cost to the economy. Trade agreements are premised on the long-established economic proposition that discrimination and barriers to markets make us all poorer.
Increasingly, therefore, Canadian trade and investment patterns reflect the market judgment of Canadian consumers and investors. They also reflect the reality of a much more open economy and the organizational impact of modern communications and transportation technologies. Few products made today are wholly the product of one country or one firm. Increasingly, firms are highly specialized and participate in the market as parts of highly intricate networks or value chains. In the case of Canadian firms, many reorganized their activities following the Canada-United States Free Trade Agreement to become part of North American-based networks. As a result, the trade and investment statistics on which we used to make policy judgments no longer provide the kind of information we think they do. The Canada-U.S. trade numbers, for example, hide a significant amount of trade that takes place with Asia, Europe and other parts of the world but which conventional statistics cannot capture.
It is against this background that I want to consider the economic emergence of China, India and Russia. In the first place, this is a development that should make us all feel better as human beings. For years, the governments of these three giants denied their citizens the benefits of free choice — of exercising their own judgment about how to live their lives. In all three countries, central planning served largely as a mechanism to control the population. It is the gradual loosening of those controls and the opening of these countries to competitive market forces that is behind their emergence now as players in the global economy. Until 20 years ago, they practiced autarchy.
It is in Canada's interest to support and encourage this development, as we have done. Canada, for example, played a very constructive role in ensuring that China would become a full member of the World Trade Organization, accepting all of the agreements' obligations, and Canada should continue to insist that China live up to those obligations.
We have similarly been very supportive of Russia's desire to join the WTO. My colleagues at the Centre for Trade Policy and Law at Carleton have been working with officials in Russia for the past 15 years to this end. As with China, the process is slow because it takes a long time to remove the dead hand of central planning.
Canada has played less of a role in India's emergence, but we should welcome it as much. India was an original member of the GATT and then of the WTO but for years hid its economy behind the ill-conceived provisions of special and differential treatments. The benefits of the decision by Prime Minister Manmohan Singh to wean India away from dirigiste statism are increasingly on display.
That being said, we should be realistic about what has been achieved to date. All three countries remain poor. Behind the glitter evident in Shanghai and Beijing, for example, lies the reality that China is still very much a country of peasants. More than half of its population of 1.3 billion people lives on the land at the margins of poverty. China's growth on the basis of rapid industrialization and urbanization has been astounding, but a much more difficult phase lies ahead: addressing the needs of the rural population. China has benefited from foreign demand but now needs to work out the social problems that come with uneven domestic demand and greater freedom.
India similarly has a long way to go. It, too, remains a largely rural society, but I agree with Indian economist Surjit Bhalla who points out that the decision to reverse the statism of the past in India and China alone has lifted more people out of abject poverty than any other policy initiative over the past century.
The implications of these developments for Canadian trade and investment, however, remain modest and the scope for government policy initiatives even more so. Given the structure of these three economies compared to our own and their distance from Canada, the scope for engagement will always remain modest. The judgment of Canadian business that all three markets represent niche trade and investment opportunities is probably correct. More to the point, I find it hard to understand on what basis government officials and ministers are better placed to make these judgments than those people whose money is on the line.
In today's world, trade policy, trade promotion, and similar activities should no longer be viewed as contributing to the economic development of the country as a whole but as services to individual Canadians. Thus, a firm, active in India and interested in expanding its market share may well seek the assistance of Canadian officials, and the government should provide it, though on a cost-recovery basis, but we should not fool ourselves into thinking that such services are needed in order to diversify Canadian trade patterns or to stimulate economic growth. I see no need, therefore, for any changes in the Canadian trade and investment policy in response to the emergence of these three countries. Canadian government resources are scarce and would be better devoted to resolving problems that would actually make a difference to the lives of most Canadians.
The focus of the committee's study appears to be the economic implications of the emergence of these countries. Let me conclude, however, with some observations about its geopolitical significance. At that level, Russia has been a player for more than 70 years, most of them as a menace rather than as an asset of global peace and security. The fall of communism exposed the weak foundations upon which Russia's claim to great power status was built. Ever since, the Russian economy has been in decline. But for its storehouse of energy and other resources and its possession of nuclear weapons, we would not be speaking of Russia at all. Its roll as a player in the global economy, therefore, remains modest, of critical interest only to the Europeans who depend on its gas and oil. Its geopolitical roll, however, will remain important in part because of the legacy of the past and the influence gained as a result of energy and nuclear weapons. Mr. Putin is playing these cards skilfully if not always in the interests of Canada and its allies.
India has always reminded me of Bismarck's aphorism about Italy: its appetite is bigger than its teeth. India wants a role on the world stage but lacks the resources to make the kind of contribution that would be commensurate with its pretensions. Good relations with India, therefore, are desirable but not essential. It is hard to point, for example, to any costs to Canada from the chill that descended on bilateral relations after India's peaceful nuclear explosion several generations ago. Relations are much better today, but they remain marginal to Canadian interests.
China, on the other hand, given its size, will become an increasingly important factor in global politics, and Canadian policy should be sensitive to this. I do not mean to suggest that we need to pursue a policy of accomodationism; rather, Canadian policy should be informed by the reality that China is a major player and its views and interests will be increasingly pertinent to the full range of international relations. Engagement is, therefore, a very good strategy.
Let me stop there and respond to any questions senators may have.
The Chair: Thank you, professor. Before my colleagues ask you questions, I wonder whether you could give us some thoughts on your experience with Russia's WTO ascension. I believe you were part of the project for Russia's WTO ascension. Can you give us some thoughts on how that went, where you think it is at now, and whether it has any particular impact on our total discussion?
Mr. Hart: I first went to Russia in early 1996 to meet with officials to begin the process of preparing them for accession negotiations. They had by that time indicated a desire to become a member of the WTO but had not done much of the homework. It was an interesting experience because I learned just how people with a background in that kind of an economy think about these issues, rather than the kind of thinking I was used to working for the Canadian government.
I went back again in 1997 and had a series of meetings with more senior officials, which indicated they were taking the process a little more seriously. The Centre for Trade Policy and Law at Carleton University then, at the request of the Russians, set up in effect a branch plant in Moscow to provide them with a steady stream of the kind of assistance they would require in this process, because, as we had learned from the Chinese experience, a major economy with a central planning background needs to make major adjustments if it wants to become a member of the World Trade Organization, including major changes in domestic legislation and in the way it treats foreign trade and investment.
That process went on for nearly 10 years, and similar to the Chinese experience, rather technical, very detailed but necessary work was needed to help the Russians overcome the difficulties they faced in changing to a more open market economy. I think that technical work is largely done. Canadian officials were very constructive in their participation in the working party in the WTO, and I think most of them would agree that the technical work now has been done for about two years. It is now largely a political issue, basically dependent on how important the American president and Congress think it is that Russia join the WTO. Once the American administration gives the signal that it is ready to move, as it did in the case of China in 2001, we will see the process come to a successful conclusion.
The Chair: Thank you for those comments. I thought my colleagues would appreciate hearing those words from you, as they may add further to the discussion this evening.
Senator Dawson: We would qualify you as a free-trader, and less government is better government, but what we are seeing with these three countries, in particular Russia and China, is their desire to have high-profile political intervention or support from the Prime Minister, and the ministers of trade, industry, et cetera, to lend support to Canadian industries in Russia and China and to be sure that they pay attention to the needs of these companies in our country.
I am wondering how you can balance their wanting political intervention and your recommendation of having less government involvement.
Mr. Hart: First, I accept your characterization of me as a free-trader.
Senator Dawson: It is not an insult.
Mr. Hart: I accept it fully. It is the result of many years of experience as a government official, which gave me a rather jaundiced view of the efficacy of government intervention in markets. The business judgment of Canadian traders and investors about these markets in part reflects the fact that these are still very much markets where the government plays a heavy role, and because the government plays a heavy role there are better market opportunities elsewhere than there are in those three countries.
There are important niche markets available there, and Canadians participate in those, but in terms of major outlets for Canadian production and investment, they are rather limited in those countries, in part because the kind of stability that you would want for your investments is not as high, and therefore the premium is much higher.
Senator Dawson: Part of what we are hearing and seeing is the fact that we want to get into some of those markets earlier, before they are taken over by other countries, because these markets are growing, and if we do not get parts of the markets, someone else will. They will do business with another country. What they seem to be expecting from Canada is some government presence in supporting Canadian industries that want to develop relationships with them. I agree; I am a free-trader myself. The reality is that these countries are the clients. As a private enterpriser, our reaction is to try to serve the client, and the client believes that government presence on these negotiations is important.
Mr. Hart: I have three comments. Trade is not a zero-sum game. It is not that if someone else has a market presence there we are frozen out. In markets that are operating and open to competition, if you have a better product at a better price, it does not matter who was there before you. The fact that, for instance, the Australians have a bigger presence in China right now with some of their commodities is fine, because commodities are sold at world prices, and if the Australians are selling more to China, that means we can sell more to other people. That is not a big concern.
On the issue of government participation, if there are firms in Canada that think they would benefit from the government's providing some assistance, either diplomatic or some other form, fine, but as a taxpayer I have some qualms about the government's spending a lot of my money in order to help a private interest. If that private interest cannot do it without the help of government, then perhaps they are not ready to do it.
Senator Dawson: On global chains, one example that has been given here and that we have seen is containerization. All the containers are coming in through Prince Rupert and the West Coast and are going directly to the United States full, leaving and going back empty. An opportunity that we should profit from is to find ways to put exports on containers that are leaving empty so that we can profit from the flow from Asia to the markets in the U.S.
Mr. Hart: I would suggest to you that the container coming full from China contains a lot of North American value already, because the Chinese are contributing very often a relatively small amount of value to the product that is coming in. The real value comes out of the fertile minds of people in Canada, the United States, Europe and elsewhere. The Chinese have been assembling that, putting the final touches on a product, which is then in a box that takes up more space and comes here. A number of things we send to them can be done electronically or in smaller boxes than in the bigger boxes that come from China, so I am not surprised that there are more containers coming this way than going in the other direction. What we sell in bulk to the Chinese are such things as coal, again from Prince Rupert, and that does not go in containers.
You will never get a real balance in containers until the Chinese economy is at a much higher stage of development, where the kinds of higher-end products we make have a broad audience in China, and they do not as yet. Right now, much of our trade with China is in the components that are then brought up to a further stage for final consumption in China with a lot of North American value in them.
As I indicated in my opening remarks, we should not discount the amount of trade that takes place across the Pacific through the United States. That is through our participation in U.S.-based value chains.
Senator Smith: I might point out and you might comment on this trade instance and who the competitors are. When we were in Khanty-Mansiysk, Siberia, last week, what intrigued me was that the Netherlands is clobbering us in all the high-tech stuff at about eight times what we are doing, and it is a country with less than half our population. The Netherlands have just targeted it like mad and are cleaning up over there. We can compete with them, but we have to work harder at it.
Mr. Hart: I cannot comment on the particular experience you had in Siberia. When I visited Russia, I avoided that side trip. What we sell there is not so much goods as expertise, namely engineering, design and so on.
Senator Smith: That is what the Dutch are selling.
Mr. Hart: The Dutch are selling it, too. They are closer to it because they are participating in the gas pipeline, and that probably has given them some ins and outs. Our companies do well in other parts of the world selling exactly those kinds of services.
Senator Stewart Olsen: You made a comment in your remarks that good relations with India are desirable but not essential. Is that because of the distance? I am not sure what you meant by that.
Mr. Hart: What I mean is that we have a well-functioning high commission there; we do what is necessary to maintain good relations; we have an immigration program, an aid program, and a trade program. We already do quite a lot, and our relations with India right now are generally quite good. I see no reason why the Government of Canada would want to expend extra effort to expand that relationship because the benefits from that would be quite small. It is far, and much of the trade that we do with India is based on ethnic connections where I think the Government of Canada's role is a relatively minor one. Given the constraints on Canadian fiscal capacity and the kinds of benefits we get, I would not see a need to expand the Canadian presence in India.
Senator Stewart Olsen: I understand what you are saying about the emerging markets, and our niche markets for us are probably what we are going to get out of it, probably not government-sponsored, and that is the divergence of the two political views on that.
Do you think Canada would be better to concentrate on our own backyard with trade policies and work towards that rather than pushing forward with the emerging markets?
Mr. Hart: Yes, and let me enlarge a little bit on that. The kinds of problems that we have in our most important trade investment relationship, which require some serious investment of both political capital and policy capital, would get a much larger benefit out of that than we would out of spending the same kind of capital on relations with emerging markets. We have serious problems with the United States, and in my view that agenda has not received the attention it requires.
Senator Grafstein: First of all, I find your analysis refreshing and counterintuitive. This is not what we usually hear about trade, so it is a welcome and refreshing analysis.
Let me take up the issue Senator Stewart Olsen raised, the cost benefit of intensifying our relationship with the United States, which is our regional partner, as opposed to spending overseas. Let me give you two hypotheses.
The first hypothesis is already in place, but the federal government pays no attention to it. It is PNWER, the Pacific NorthWest Economic Region, which is a private-public partnership between Alberta, British Columbia, Saskatchewan, Manitoba and the northern states, and they are now integrating their economies in terms of tourism, education and so forth. The federal government has spent no time or attention looking at this. Are you familiar with that?
Mr. Hart: I am familiar with PNWER. That particular regional initiative is the best of the North American regional ones, the most active, and a lot of good stuff is coming out of it.
Senator Grafstein: Our group was instrumental in assisting this 10 years ago. Some of our senators have been following that phenomenon, and we are trying to bring is across the country, with limited success. You would agree that is a very good model to do what you say, which is regional integration of supply chains. You call them ``value chains,'' I call them ``supply chains,'' but we are talking about the same thing.
Mr. Hart: With respect to solving problems at the intergovernmental level, some good initiatives have come out of the work being done in that part of North America, which have then been applied on a broader basis.
Senator Grafstein: I hope the committee will look at that as an example of regional integration, because we have had difficulties in other committees even looking at this question.
Let me turn to the other side of the equation, and focus on China or India for the moment and your ideas about their being too far away, that we would have to invest a lot of money, it would be too difficult and we would get a greater rate of return if we invested in markets perhaps here or in Europe, for example.
Let me give you an example of what has affected our city dramatically. I have spent the better part of 10 years working on this file with limited success, and it is the clothing business. I will use the American experience. There was a wonderful documentary on HBO the other night about the rag trade in the United States. In 1978, 85 per cent of all the clothing in North America was manufactured in the United States and Canada. Now it is down this year to 5 per cent, and there has been a hollowing out of the clothing industry in New York and other places, certainly in Toronto, Montreal and Winnipeg, which were at one time key manufacturing centres for clothing.
A number of the owners of those businesses have fled. Some who have stayed have done exactly what you have said, which is to turn to China and India and design, to bring the value-added design components together. Let me give you an example I know very well: wedding dresses. They are designed in Toronto and New York in a partnership. Then they are manufactured in China and brought back cost-effectively, and there is a much better margin for the Canadian designers in North America now than when they were manufacturing their own stuff. That would be a positive thing, I would think, if the government decided they would support that kind of activity, which they do not presently do.
Mr. Hart: I agree.
Senator Grafstein: Would you not agree that there would be an immediate bang for our buck if the federal government, if it were going to spend money, would do such things as provide travel and help with marketing? I can give you six or seven other sectors, but I will use that sector.
For instance, in Toronto, 5,000 kids graduate every year from our design schools; they are terrific, but they cannot get jobs. The reason they cannot get jobs is that we have not established a means of developing supply chains with India or China, laying aside Russia for the moment. Is that not a failure of government?
Mr. Hart: I first went to China in 1979 to negotiate a textile and clothing restraint agreement. In other words, I was a government civil servant busy practising protectionism. That is how I learned free trade. We were quite successful. We negotiated the first successful restraint agreement with the Chinese and prevented Canadian consumers getting low-cost textiles in order to try to preserve the industry in Montreal, Toronto and other places.
Over time, that is like trying to change the ebb and flow of the ocean.
Senator Grafstein: You almost sank all of the high-fashion retailers across Canada with that policy.
Mr. Hart: Yes, we ended up creating a situation where Canadians would be providing the low end while the high end was being supplied by China, Korea and others. It was not a well-thought-out policy, but it was very popular.
Senator Grafstein: I remember it well.
Mr. Hart: I was with you until you said the Canadian government should be giving money to businesses to travel, et cetera. I say wait a minute; if a business needs money to travel in order to do well, perhaps they are not ready to do the job. By all means, the Canadian government should assist them when they get to China by having the local trade commissioner indicate what people they should meet, because of his or her knowledge of the local market. That person might go back to the embassy and say, ``I met with these fellows, are these people we should be dealing with?'' That is a service that the Government of Canada is well placed to provide.
I do not agree with the idea that the government of Canada should be there to pay for the travel, to set up things and so on. If that is the case, then I think the business is not ready. I would prefer that my tax load be less and that fewer of those kinds of ventures take place.
Senator Grafstein: I will not pursue this other than to say we should have case examples of how it has worked with minimum federal funding.
The Chair: We may look at that.
[Translation]
Senator Fortin-Duplessis: Welcome, Mr. Hart. In your remarks, you seemed to favour Canada-China trade agreements rather than Canada-India or Canada-Russia trade agreements. The rapid increase of trade between China and western countries gave rise to an increasing number of trade conflicts in many areas, from shoes to motor parts.
For example, on October 12 last, China asked the World Trade Organization to say whether antidumping measures taken by the European Union against Chinese bolts and screws imports were against the rules of the organization.
In January, the EU had slapped taxes from 26.5 per cent to 85 per cent on some iron or steel fasteners, based on some evidence that Chinese producers had benefited from artificially low prices on raw materials.
I have two questions to put to you. The first is this: In your view, how justified is this series of accusations from western countries regarding unfair trade on the part of Beijing? And my second question is this: Are we sheltered from unfair trade from China toward Canada if there were trade agreements covering more areas than is the case presently?
[English]
Mr. Hart: I am one of those difficult people who do not believe in the concept of unfair trade. If someone is prepared to sell you a product at a lower price than someone else, that is fine. It is also true that within the GATT, the WTO and domestic law in Canada, we have provision for competitors in Canada who feel they are harmed by someone else's pricing practice. You have relief through the anti-dumping rule. As long as those laws are on the books, Canadian firms have the right to exercise those rights, as they do in Europe and the United States. They do so quite frequently. China has learned a lot about pricing practices as a result of anti-dumping investigations.
When China first applied to the WTO in the 1990s and became active in this market, it was engaged in pricing practices that were simply plain dumb. The anti-dumping people were able to assess dumping duties of 400 per cent on the Chinese on products no one else was selling in any quantity. Therefore, the Chinese learned.
Given that there are such dumping rules, we will have dumping cases. They need to work their way through the system as long as they are there. The number one practitioner of anti-dumping in the world today is India. This terrible idea that we first came up with in 1904 has been discovered by the Indians. They are giving it back to us by using anti- dumping more than any other country. The Chinese also have an anti-dumping law and will begin to use it. Perhaps we will see a better balance in the way those mechanisms are used.
If I had the choice, I would get rid of it all together — no anti-dumping rules. Let markets decide who will have that market share. Most economists would be of the same view. Anti-dumping measures do much more harm than good.
The Chair: I cannot help but ask a quick supplementary on this issue.
Free market forces and free market economies work in free markets. There are other obstacles that I think create at least as large a problem as dumping. You cannot always control the other obstacles. Am I correct?
Mr. Hart: To a point, we can control them. The whole purpose of the international trade rules is that we have in place a set of disciplines for when a government is engaging in certain kinds of practices that harm other countries. You can seek relief either through dispute settlement or by invoking something like a countervailing duty or an anti- dumping duty to deal with abuses of the market.
For instance, Senator Fortin-Duplessis asked about trade agreements. People forget that we have a good trade agreement with India and China: it is called the WTO. We have a trade agreement with Russia. We have had a most- favoured-nation agreement with Russia since around 1982 when it was first negotiated. It was renegotiated in the 1990s before Russia applied to the WTO. They will soon be a member of the WTO.
Through the vehicles of those agreements, we can get relief if they are engaging in predatory practices not based on the rules of the game. Other than that, I prefer to let markets work rather than to multiply these kinds of instruments in order to harass what in effect is very good competition.
For example, if another government wants to subsidize its production, I welcome that as a consumer. I will be able to enjoy the fruits of other people's labour at a much lower price. That may be something that people who are in the business of producing things do not agree with, but they then have to sharpen their pencils in order to compete.
Senator Wallin: I wish the Americans were as generous about what they perceive to be government subsidies for some sectors. Maybe we would not be fighting about softwood as much.
I have two quick points to follow up on some of the things you raised. First, one part of the BRIC we have not focused on much is Brazil. That is my bias — that not only is North America our neighbourhood, but so is South America. I would like to hear from you on that in general — maybe Brazil specifically — and what potential is there.
Second, we have both worked for the Department of Foreign Affairs and International Trade. Do you think the money that we now spend, back on the Canada-U.S. issue, is wisely spent or there is enough of it? I understand your reticence and reluctance about involvement of government at all. Do you think the kinds of operations we have in the U.S. are functional? If so, do you think we need more, or is that not the best way or tool to work on that relationship?
Mr. Hart: Brazil is an interesting economy. The Brazilians have long been satisfied with who they are, where they are and what they are able to do. It is a very large economy and has 160 million plus people. They produce a tremendous amount of products and so on, but they are very internally focused. It is really only in the last few years that Brazil has begun to look beyond its frontier. Canada has been a fairly significant player in Brazil as an investor over the years. Brascan goes way back in that we had a presence there and we continue to have that. Again, the structure of the Brazilian and Canadian economies are not such that you see a tremendous amount of opportunity. They are a strong resource-based economy, as we are. Most of their exporters are competitors of ours rather than complementary. The manufacturing they do is very much geared towards a Brazilian economy rather than more widely, except for a few items such as leather products and so on. I think the scope for a much larger Canada-Brazil trade is still quite modest.
On the second point, on the United States, I think that our representation in the United States with the embassy and the consulates and so on is very good; they do an excellent job. I think there are policy issues that require much more attention than they have had over the last dozen years or so. When we negotiated the FTA, that opened up a set of opportunities, and business responded to that by changing the way they did their business and so on, but that opened up a new set of problems, the border being the most pressing one. Related to the impact of the border on us is the fact that we need to do much more on regulatory convergence, and we need a more robust institutional network for solving problems on a day-to-day, regular basis. I would like to see the Government of Canada pursue that much more aggressively than they have.
There have been a number of declarations that go back to the mid 1990s already. We had a Canada-U.S. border partnership and so on. The 2001 Manly-Ridge Smart Border Agreement and the Security and Prosperity Partnership of North America are good agendas, but the follow-up has been fairly anemic in terms of actually doing it.
A large part of that is that we have had to deal with some very hard-nosed people in the Department of Homeland Security, which is a pretty tough group to crack. We have availed ourselves of the other avenues, political and through other departments and so on, to the extent I think we could. I would like to see the Government of Canada adopt a much more aggressive strategy in resolving those kinds of problems.
Senator Wallin: Are you a ``NAFTA plus'' guy, or do you think rather we really have to solve these things politically?
Mr. Hart: I think we have to solve these on a bilateral basis more than on a trilateral basis. I looked at NAFTA as being a great success, but it is an agreement that served a particular set of circumstances at a particular point in time. We are now in a post-NAFTA era. Some of those issues can be resolved together with Mexico, but many of them at least initially on a bilateral basis.
Senator Downe: Two years ago, Mr. Hart, when you published Canadian Engagement in the Global Economy, you talked about free trade agreements with minor partners and how much of the political and financial resources they gobble up because they are restricted. Since then, of course, we have had free trade agreements with Peru, Colombia, Jordan and others. The government seems to be pursuing that. You still have the same view, I assume, but would you prefer that the resources be addressed to the United States or to the European Union? Where would you see them going, rather than these minor trading partners?
Mr. Hart: To the United States. I think these minor agreements could be characterized as retail trade policy. They respond to the interests of particular people. The most interesting example is the reason we negotiated an agreement with Colombia, which is that the Americans had successfully negotiated one, and the Canadian pulses and lentils industry was of the view that that disadvantaged them. They came to the government and said, ``We need something similar.'' We now have a free trade agreement with Colombia in order to solve the problem with the pulses and lentils industry. I am not against that, but why not solve the pulses and lentils problem rather than go through this whole charade of a full-dressed free trade agreement? It serves a political purpose, and so we should look upon these agreements as largely political statements rather than being economic agreements. They are a political statement about how we value the relationship with that country.
Senator Downe: Some would argue there is an opportunity to grow the economic relationship. For example, currently we do more trade in one hour with the United States than we do in five months with Jordan. I assume the argument would be advanced that, now that we have the agreement, we could greatly expand the trade, but you do not share that view?
Mr. Hart: I would have to be convinced that there are Canadian firms that have things to sell that the Jordanians want to buy. I do not know whether you want me to take the time to tell you why we have this agreement with Jordan. Why we have it is kind of telling. Would you like me to tell you?
Senator Downe: If you can do a short version.
The Chair: Professor, I think we would probably be well served by your wisdom. Please go ahead.
Mr. Hart: Just before I retired, the deputy minister asked me to meet with the Israeli ambassador. I have to start there. I asked, ``Why? What is wrong with the Middle East division or whatever?'' At that time I was director of economic planning. He said, ``Someone has to explain to them that we do not need or want a free trade agreement, and I think you can do it,'' so I did, and he got the message and went political. A year later, I was on a plane to Haifa and Tel Aviv to explain the wonders of the Canada-Israel free trade negotiations. As a civil servant, I was quite flexible on what I could do.
However, because we were doing that, the Middle Eastern division was worried that we were being uneven. Negotiating with Israel, we needed to have an Arab partner as well, and so the negotiator charged with that was sent to Jordan to investigate with the Jordanians if they would like a free trade agreement. They looked perplexed. ``Why would we want a free trade agreement with Canada?'' He came back with the answer saying, ``No, they are not interested.'' This went into a briefing book. A few months later, the King of Jordan was in Ottawa to meet with the Prime Minister, and in the briefing book was a brief that indicated that Jordan was not interested in a free trade agreement. This Prime Minister, who shall remain nameless, was not famous for reading all of his briefs, but he read that one. He asked the King, ``Why do you not want a free trade agreement?'' He did not have a brief so he did not know. They agreed that they had to have something coming out of the meeting, so they announced that we would be negotiating a free trade agreement. That is why we have a free trade agreement with Jordan. It does not have any economic or even political meaning other than the need for the Prime Minister and the King to make an announcement.
The Chair: Senator Downe, are you glad you asked the question?
Senator Downe: I appreciate the answer. It was very informative. We will have to revisit that at some other time.
I share one of your concerns. I note you occupy the Simon Reisman Chair in Trade Policy, which is significant because Mr. Reisman was well-known as a good negotiator. Some of the negotiations in the Canada-Peru trade deal were not particularly good, and one of the recommendations or observations of this committee was that a combination of public sector and private sector, in other words the best negotiators we had, be engaged in these agreements so that we could get more benefits for Canada. If we will sign as many agreements as we can with as many countries as we can, we should talk about the quality and not just the quantity of these agreements, and that is not being done at this point. Thank you.
The Chair: Professor, Senator Smith talked about being in Siberia. You may have gathered that part of the committee was in Russia last week. I believe I speak on behalf of all of my colleagues in saying that we were treated to an unusual experience in going to an agricultural fair, where we met seven or eight exhibiters and presenters at the fair of Canadian companies, all dealing with agricultural product, livestock and dairy. Some were in the pork industry, which, as you know, is having some difficulty, and some in genetics and so forth. All were very happy to be doing business in Russia. I was a bit surprised because I thought there had been some problems there.
Do you have any wisdom you can share with us? Is this an area, particularly in the three countries we are looking at, where our agricultural expertise and knowledge could be of benefit in trading with these nations, as it seems to be with Russia?
Mr. Hart: There is a very long history of that. One of Canada's first trade commissioners was Dana Wilgress, and his first assignment was in Omsk, Russia. His assignment was to sell agricultural equipment. At that time we had a major agricultural equipment industry in Canada — Massey Ferguson. That is what he was there to sell. Subsequently, we became a major supplier of grain to the Russians because no matter what equipment we sold them they did not know how to grow.
We are back now to selling them equipment and expertise. If you recall, Minister Whelan had a very good relationship with Gorbachev when he first came here, which excited Gorbachev's interest in Canadian expertise. There is a long history of that. I think it will continue to be the case that some of our farming methods are very applicable, because the land and the conditions they face are similar. That probably is one of those niche markets that makes a lot of sense for Canada.
The Chair: Thank you for that.
It remains for me to once again express our appreciation to Professor Hart, and as well to thank you for waiting for us for 45 minutes. We do not control our own time, as you know, having been in the business, so to speak. A double thanks to you for taking your time appearing before us. If you think of something else that would be useful to us, please direct it to the clerk and we will ensure that every member gets a copy of it. Once again, thank you.
(The committee adjourned.)