Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 27 - Evidence - Meeting of May 29, 2013
OTTAWA, Wednesday, May 29, 2013
The Standing Senate Committee on Foreign Affairs and International Trade met this day, at 4:15 p.m., to study security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: This is the Standing Senate Committee on Foreign Affairs and International Trade. We are meeting with regard to our study on security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.
We have two panelists with us today, one by video conference from the Centre for International Governance Innovation, James Manicom, Research Fellow, Global Security; and Laura Dawson, President of Dawson Strategic here in person. Welcome.
We will go to the video conference portion first and have Mr. Manicom make his statement, and then we will turn to Ms. Dawson. To both of you, senators will then place questions to you and hopefully we can utilize all of the time and get in all of our issues of concern.
Welcome to the committee. Our clerk has advised you of our study and our interests, so I will turn to Mr. Manicom first to make his presentation.
James Manicom, Research Fellow, Global Security, Centre for International Governance Innovation: Thank you for having me. Thank you for taking the time to hear my point of view. My remarks will be about Canadian re- engagement in Asia. I have also done some work on maritime boundary stuff about barrier disputes, so I am happy to answer questions about that, if there are any.
I will begin with my impression of what is driving Canada's shift to Asia. It seems to have originated from the government's jobs and growth agenda. It seems to be aimed at addressing the fact that Canada's economy remains tied to some very mature economies in Europe and, of course, in North America and, therefore, the argument goes that it is necessary to diversify Canada's trading partners, not only to Asia, but also to Latin America and other emerging markets, such as China, India, Brazil and Peru.
I certainly cannot find fault with the logic of that argument. Many in the academic community would find fault in the timing. The Asian century began in earnest in the late 1970s, so Canada is late and is playing catch-up, in a sense. I am sure you have already heard that point of view.
The government seems to understand what needs to be done to improve trade ties with Asian countries. Asia is a region where business is done with friends, where the business climate is not yet fully mature and where there remain concerns about interstate wars over disputed rocks, islands and associated maritime claims. Unlike other regions in the world where insurgencies and domestic conflicts seem to be at the heart of most interstate wars, in Asia it is very much a classic, 19th century, state-based war that people seem to be worried about. Asia is also host to unresolved civil conflicts between Korea and China, each of which feature one nuclear-armed participant.
Our re-engagement in Asia confronts three challenges. First, Canadian involvement in regional security issues will necessarily need to involve China because China, of course, is involved in them and is seen as suspicious in the region. Simultaneously, China is arguably the most appealing Asian economy for Canada and for Canadian business, and improved ties with China appear to be part of the prosperity agenda, so there could be a tension between those two prerogatives.
Second, Canada confronts considerable budgetary constraints on trying to engage Asia diplomatically, which are compounded by our distance from the region geographically.
Third, despite calls for Canada to do more from the region, we may also be perceived as so disengaged that our efforts may be met with skepticism. We do have some trust to rebuild.
It seems to me, however, that the government understands what needs to be done. Minister Baird suggested to the Canadian Council of Chief Executives that security and prosperity go hand-in-hand. Therefore, the government is boosting its presence at regional dialogues, contributing to various initiatives and addressing issues that are of interest to people in both Thailand and, of course, in Canada.
I would add that these overtures are important because many in the region expect that Canadian economic state craft will be matched by diplomatic and foreign aid initiatives. This is a function of what many perceive to be our legacy in the region and what we argue our legacy in the region to be, being a founding member of the ASEAN Regional Forum and a founding member of APEC.
There is still an expectation, however. Former ASEAN Secretary General Surin Pitsuwan made it clear when visiting Canada last year that ASEAN countries expect more from Canada before we will be considered for membership to the East Asia Summit and the ASEAN Defence Ministers Meeting, which increasingly seem to be the two premier fora in East Asia.
On this basis, it is appropriate for the Government of Canada to try to engage in projects that boost our profile and prestige in Asia. I would argue that this plan should have three aims. The first is to improve relations with Asian countries, which could then lead to accessing membership to regional clubs and can help move along trade negotiations with Canada. The second argument is that engaging the region in this way improves the climate for Canadian business by strengthening the rule of law. The third objective would be to strengthen the security situation in East Asia, the stability of which makes trade possible. Stable maritime boundaries, for example, create opportunities to exploit resources; unstable maritime boundaries do the opposite.
I raised the question of what overtures Canada should make to Asia as a region and as a set of individual states that could help boost Canada's prestige. It is typically within this context that Asian countries raise the issue of our South China Sea dialogue, which was funded by CIDA and hosted by Indonesia. I wanted to talk about that because I am often asked whether we should do that again, both by Asian partners and by people in Canada.
These dialogues on the South China Sea for about 10 years during the 1990s were certainly very useful mechanisms at the time that allowed, effectively, confidence to be built between protagonists. They were important because they were the only meetings in which everyone was present, including Taiwan. As we know, China tends to block Taiwan from regional meetings, but because they were Track II, Taiwan could be there. The dialogues did a great deal to boost Canada's reputation in the region and our reputation with China in particular.
However, there are three reasons why I think the resumption of these particular types of dialogues just is not feasible. First, the region has changed and has become much more antagonistic, particularly on the issue of the South China Sea, as you have probably read in the newspaper. This antagonistic climate has permeated regional multilateral Track II dialogues. Participants in Track II dialogues, particularly China, do not really engage in meaningful dialogue any longer; everyone is busy picking sides.
The second reason is that China has changed. China no longer requires Canadian guidance or help to participate in multilateral dialogues the way it did in the 1990s. China is far more confident and far less interested in coming to meetings where it will be publicly vilified.
Third, combined, these two reasons make it very hard for Canada to play a constructive role in the South China Sea issue without risking some deterioration of our relationship with China or our traditional partners of Japan, South Korea, the United States and Australia. It seems to me that claimants in the East China Sea and the South China Sea want countries to pick sides — I have heard that as recently as last week — so it would be very difficult for Canada to manage the China file and the regional file by getting involved in that issue.
This raises the question of what direction there is for Canada to boost confidence in its prestige or role in the region. There are a number of different pathways I am sure you have heard of. I will talk about the maritime dimension of this. Even though it is challenging, it is still top of mind in East Asia. It is still a fruitful pathway to building confidence. Japan, South Korea, China and the United States have all used maritime diplomacy in the past to improve relations with Southeast Asian countries, and maritime and naval diplomacy is seen to be a non-controversial way to improve ties. These are, as a consequence of that, on the costlier side of diplomacy, but I would argue that if Canada's future lies with Asia, then they might be worth it.
On the dialogue side, Canada could invest in a series of bilateral Track II dialogues with important regional states, such as China, Japan, South Korea, Vietnam and maybe Singapore. We have some dialogues with these countries; these should be deepened. These dialogues could address topical regional security or economic issues. Dialogue is important in this context, because it is a way to promote new thinking on pressing issues and to deepen understanding between countries. Canada is still viewed as a non-controversial actor, so there is a role there for us. Other countries, perhaps like Australia, do not have that luxury.
Second, Canada could emulate Australian efforts to build transparency with China through military diplomacy and joint exercises. That could happen either in the East China Sea or in the Gulf of Aden, where all of our navies cooperate loosely against piracy.
Third, Canada could use its position in the North Pacific Coast Guard Forum to improve cooperation with the Chinese, South Korean and Japanese coast guards. Canada could also boost its participation at the Asian Coastguard Forum. I am told we are an observer there.
East Asian countries all have very large, exclusive economic zones, just like Canada. They have to police those with very scarce resources, just like Canada, so I think there is an opportunity for lessons learned to be shared there.
Fourth, Canada can leverage its competency in resource extraction to facilitate dialogue between South China Sea claimants. That is risky, but it has been tried in the past among the state oil companies of China, Vietnam and the Philippines, so there might be an area of growth there.
Fifth, Canada could explore regional interest in establishing a regional fisheries-managed organization in Southeast Asia.
Finally, borne from my colleague Pierre Lizée at Brock University, Canada could push for Myanmar or Burma, however we call it these days, to join APEC as a way to promote rule of law in the region.
In any event, Canada's economic ambitions in the region are served by initiatives that build confidence, increase capacity and foster dialogue. This increases Canada's regional profile, contributes to regional stability and over time improves Canada's economic relationship with Asian states. Canada's interests are not served by initiatives that appear defined by the increasingly divided nature of the security situation in East Asia.
The Chair: Thank you. You have covered a lot of ground. Now we will turn to Ms. Dawson from Dawson Strategic.
Laura Dawson, President, Dawson Strategic: Good afternoon. Thank you for inviting me.
I have spent probably the last 20 years working on international trade issues, primarily from the Canadian perspective, but with other countries as well. I was an international trade professor for a number of years. I have been an adviser to some of Canada's trading partners, such as China, Russia, the Caribbean, Latin America and the United States most recently.
Now I work with the private sector in helping them to engage with the trade advantages that Canada is able to create through our international trade commitments. Therefore, I have been a booster for the Trans-Pacific Partnership, even though it has not been obvious to many people, including myself, why Canada would be engaged in this agreement.
If you have looked at the economics — I know you have many smart economists coming to speak to you — the only trade that is not already covered by an existing trade agreement is something like 4 per cent of Canada's exports, so what are we doing with the Bruneis and the Malaysias, et cetera? Why are we not focusing on the big and rich countries?
In speaking to you today, there are two questions I really want to address and those are, first, why are we in the TPP when the gains are small and we already have agreements with many of the countries? Second, since we are already in, how are we likely to do? Is Canada likely to be a winner or loser in these negotiations?
As we wrap up, I will draw a couple of linkages to the ASEAN Pacific Alliance agreement, and I would be happy to take that up in questions at the end.
The first reason why Canada needs to be at the Trans-Pacific Partnership table is a defensive reason; we need to develop preference erosion. We have most of our trade tied up with NAFTA countries, specifically the United States. We do not want the United States to be the major negotiating table making concessions, new commitments and market excess opportunities that Canada is not included in.
Moreover, we have established with Mexico some very strong modalities on how we do things, things like regulatory issues, food, beverage, health and border issues. We have paid our dues in integrating our economy with the United States first and then Mexico. We do not want to have these gains lost. A defensive position is one of the reasons why we are at the TPP table.
Second, in the absence of any meaningful progress in the World Trade Organization, the TPP is the only game in town. The United States has made the Trans-Pacific Partnership the centerpiece of its trade policy. Again, we need to be there because that is where important things are happening.
Not only that, the trade agreement that governs Canada's trade is decades old. The 1994 NAFTA was implemented before we had electronic commerce, before we had third-party logistics, and before we had many of the services economy activities that we do now. Therefore, we need that TPP as a venue to renovate our 20-year-old trade commitments. That is where it is happening with the Trans-Pacific Partnership.
Third, as you all know, we have enjoyed excellent trade relations with the United States; 75 per cent to 80 per cent of Canada's exports have been absorbed by this market and it has been a warm bath for us. They are an easy market to do business with, relatively speaking. We speak the same language, proximity, geography and culture. It has been very easy and very good for us. However, our largest trading partner, the United States, is shrinking. Its demand is shrinking. The other countries we traditionally do business with, the OECD states and the G7 states, their demand is shrinking as well. These are old economies in terms of their advancement and also in terms of age. We need younger economies where large numbers of consumers are coming of age and where consumer demand is increasing. We need to be in these emerging markets.
At this point, the TPP is the way for Canada to get into emerging markets in a meaningful way. We have not been able to establish a foothold in Asia. We have now got assent for negotiations with Japan, and that is terrific, but we also need to be engaged in other venues with youthful and growing Asian markets.
The fourth reason we are in a trade agreement that only has 4 per cent of our exports covered is that trade negotiations and trade agreements are very different instruments from what they were 20, 30 and 40 years ago. When we were negotiating the GATT, the General Agreement on Tariffs and Trade, the gains on trade came from tariff reduction. By lowering tariffs, you lowered the cost of exports and you gained new markets. It was like water flowing through the path of least resistance.
We do not have that anymore. Most of the gains from tariffs have been eaten up and the remaining tariffs are in very sensitive areas, such as agriculture, dairy and things that may have winnowed down on a very gradual basis.
Where are the gains for trade? They are in these ponderous, slow-moving non-tariff barriers — again, things like regulatory issues, certification, inspection, duplication and rules of origin. These are dreadful and difficult, but that is where we have to be in fighting this slow-moving war of attrition in order to move our trade interests ahead.
Trade agreements also help us out with something called ``retail trade policy,'' and this is simply door-to-door sales of what Canada has to offer. We need to be in Asia; we need to be in Japan; and we need to be in Vietnam. It may be that we are there for a negotiation on customs measures, but that also gives us an opportunity for them to get to know us and us to get to know them to pursue things like investment agreements, education exchange, joint venture, cooperation — all of those ancillary and additional things that really we need to develop as an exporting economy into emerging markets.
Another elephant in the room — or dragon in the room — is that China is not in the TPP. China is the market we all want to be in. Where are they in the Trans-Pacific Partnership? They are not.
Mr. Manicom has a much better handle on these sorts of things than I do, but this is about realpolitik and who is in control of Asian trade blocs. The Trans-Pacific Partnership is the American bloc. ASEAN, ASEAN Plus Three and ASEAN Plus Six is the China bloc. Sooner or later, if Canada is smart and swift, we will be engaged in both of these blocs. However, for now we are going with the TPP; we are getting in the neighbourhood; we are understanding how to do business with these new markets; and we are building supply chains. Within a decade, I would like to see us engaged in both of those blocs and also able to do a business with China. Trade policy is like real estate; it is about location, location, location.
What are the likely outcomes? Canada is not going to make great market access gains from this agreement. There will not be a groundswell of new export opportunities for Canada. This will be those small, incremental gains I was talking to you about. However, they are hard-won and they are necessary.
Again, most of our interests are defensive interests, but we are not going to have to give away very much. Remember that this is a trade negotiation in which the majority of the countries are developing economies that have not been involved in the sort of advanced, deep level trade negotiations that Canada has been involved with. We have paid our dues with the NAFTA. Depending on the outcome on the agreement with the European Union, we will probably have had to make the hard concessions there, so there will not be much difficult asked of us in the Trans-Pacific Partnership. The U.S. and others will be focused on bringing countries like Vietnam up to speed, et cetera. We will be a developed economy that is on the sort of easy side of the table.
At the same time, we need to watch out for innovation in the Trans-Pacific Partnership. The U.S. has made no secret of this 21st century trade agreement 2.0. They want to do some new, novel and interesting things. Canada must be careful that the ``interesting things'' do not set back our interests in areas like a reintroduction under a different name of the precautionary principle, which means not using a science base to prohibit exports but something based on some future belief that things may be a problem. Those could be things like exports from the oil sands, agricultural products from Saskatchewan, high-sugar containing products, et cetera. We need to make sure the innovation at the TPP table does not go too far.
Also, in Canada we have great trade negotiators. Our folks are always very well prepared. They know the issues on both sides of the table. When I used to work for the Americans, they have said, ``We can never underestimate you Canadians because otherwise you guys will eat our lunch.'' Therefore, we have a couple of innovative proposals we are making at the TPP as well. In particular, as you may know, we have had trouble with buy-American policies in the United States and this is covered by procurement rules. As a relatively small economy, we are not making any headway either in the WTO or with the U.S. on procurement, but we have a terrific innovative policy on procurement that we have on the table at the TPP. I would like to see that move ahead because that will help us make gains with the Americans and with other major economies.
I think this is a good place for Canada to be. I believe the gains outweigh the losses and it fits in very well with our efforts in ASEAN and, as a final point, with the Pacific Alliance, which is another ``what-the-heck-are-we-doing-there'' kind of agreement. This involved the ambitious economies of Latin America that Canada is working along with.
What I think is important about the Pacific Alliance is that they are really forward-leaning and they may be setting the agenda for the issues discussed at the TPP table. That is the lean, fast, innovators' table and it is where we need to be as well. Whether or not we conclude a Pacific Alliance, I do not know, but it is a good place to be for now.
The Chair: Thank you. You certainly have a lot of perspectives.
Senator Ataullahjan: Thank you for your presentations.
Mr. Manicom, you talked about security in the region. I am wondering about the rise of Islam. To take Indonesia as an example, as a growing power and the largest Muslim country in the world, what role will that play, if any, in the security of the region?
Mr. Manicom: That is a very good question. I see Indonesia, which is also world's largest Muslim democracy, playing two roles. From the security standpoint there are really two questions. On the interstate security side — the China-South China Sea side — what is Indonesia's role? Indonesia sees itself as first among equals in ASEAN and as having a role in the bridge-building capacity. It is not a claimant to the South China Sea. It is concerned that China's claims do push so far south that it does actually encroach on Indonesian maritime claims, but they do not yet. Indonesia believes it has a role to play in fostering dialogue on the South China Sea. You would also add Brunei to that group as people who have been less provoked by China than other regional states like Vietnam and the Philippines. On the state side, Indonesia sees itself as a player.
On the non-state side, obviously, Indonesia has had a lot of trouble with domestic insurgents, terrorists, freedom fighters — call them what you want. Radical Islam is a big deal in Indonesian politics. When I was studying in Australia, every one of my Indonesian PhD colleagues was working on either radical Islam or corruption in Indonesia, which are both serious problems.
My understanding is that Indonesia has come a long way in the battle against radical Islam. It is a country that takes a lot of pride in that fight — the average Indonesian voter — as Indonesia is not a terribly radicalized country. It is just very big and has capacity gaps of state. There are places in Indonesia where the state just is not, and that is where you can have radicalization.
Those are two dimensions to how Indonesia touches on the security situation in East Asia. Indonesia is doing its best on both those files. Both offer opportunities for Canada to strengthen the capacity of the Indonesian state to do counter-terrorism. I believe we have a counter-terrorism dialogue in the area and the Indonesians are involved with us on that and also on the maritime side, if we decide to get into that.
Senator Ataullahjan: Ms. Dawson, the point has been made that Canada has not been as engaged in the region as it could be and that economic competition is becoming more pronounced. In your view, is Canada lagging behind? Could you give us an example of what other countries are doing? What are they doing that we are not doing?
Ms. Dawson: Yes, Canada is lagging behind. We have tended to rely on our existing trade agreements as being our primary means of engagement in emerging economies. Since we have been unsuccessful in completing a trade negotiation in Asia, it has effectively kept us out of the region. We have been slow to engage other ancillary and equally important mechanisms.
We have a terrific trade promotion service, and we need to ensure that our trade commissioners are working full steam. We need to work at the provincial level and sectoral level to do different forms of business cooperation agreements. Confidence-building is really the main thing we have to do. It cannot all be government policy.
Canadian businesses tend to be risk averse. The U.S. market has been very comfortable for us. Taking a risk to go into an emerging market is difficult and expensive, not to deny the risk involved. We have several national champions that have taken the risk and engaged internationally, the Manulifes, Scotiabanks and Bombardiers. If we could find a way to leverage their participation in these markets to assist small- and medium-sized enterprises to work in these markets and to reduce the risks, it would be an excellent contribution. Anything we can do to increase knowledge and reduce risk and transaction costs should be our mantra across the board.
Senator Downe: Ms. Dawson, we all understand the importance of trade for Canada, but the trend line is not particularly good according to Statistics Canada. The value of goods and services exported to other countries has declined while our trade deficit increased from $37.8 billion in 2006 to $143.8 billion in 2011. This is over the same period when we were running around the world, if you will, signing as many trade deals as we could with what I would call insignificant markets, almost all of which increased our trade deficit after we signed the deals with those countries compared to before.
You have identified correctly that our primary market is the United States. The government seems to be moving resources and trade officials out of the United States to what they hope are new and emerging markets. However, the results are going in the opposite direction of where we want them to go.
Based on what has happened in the last 10 years, why would we advance a lot of resources into trying to conquer new markets when the trade agreements we have signed over the last number of years have not achieved the objective that we had hoped for?
Ms. Dawson: This goes back to the point of trade agreements being necessary but insufficient. Our trade agreements have reflected an old modality of trade that was based on manufacturing and some commodities exports. Canada's comparative advantage is not, for the most part, a manufacturing exporter, unless we can get at the higher end of the value chain and are producing high value, high tech and high capital products. Otherwise, we have to accept the fact that we are not going to be a major manufacturing power in the world.
Statistics Canada has the trade numbers. Do those numbers really reflect our full trade picture? First, Canada is a growing services exporter. That area is growing in leaps and bounds, and most of our trade numbers do not reflect that. Second, Canadian businesses do not tend to be dominated by large exporting entities. Rather, they are small- and medium-sized enterprises that tend to participate in supply chains. When a Canadian antenna goes into a cell phone exported out of the United States, it is not counted as a Canadian value export but as a U.S. export.
First, statistical gathering, taking account of where the value of trade is, is behind the times. Second, to use a hockey analogy, we have to look at where the puck is going as a services exporter in high value-added sectors participating in global supply chains. We need these trade agreements to get out in the world. Trade agreements that focus on tariffs are an imperfect instrument. We need to find a way to engage better with emerging markets. I am sorry; I missed the importance of investment promotion.
Senator Downe: The counter argument would be that our manufacturing capacity is not what it was and is going down because of many of these agreements. We are being flooded with things we used to produce in this country coming from countries that we sign trade deals with.
I am looking at statistics from Industry Canada. The year before a free trade agreement with Israel, we had a trade deficit of under $27 million. Last year, our trade deficit grew to over $58 million. Our trade with Chile before the free trade agreement in 1997 was a surplus of $73 million and went to a deficit of over $1 billion.
We sign these deals with the best of intentions. This may go to your earlier point about Canadian businesses being reluctant or not creative, but I do not want to put words in your mouth. Other countries seem to be more prepared for their end of deal and their opportunities than the Canadian companies are prepared, based on these figures.
In your experience, not only in Canada but also around the world, what assistance are other countries giving their businesses to take advantage of the opportunities that the Canadian Government may not be providing and should be providing?
We are well aware of the Export Development Corporation and so on. In this new environment you are talking about, what else should be we be doing so that people and businesses can take any opportunities from these deals?
Ms. Dawson: There were a lot of points, but I will go to the last question. Canadian businesses could benefit from more effective commercial diplomacy abroad, not just the trade commissioner services and folks at the embassies, but also prime ministers, MPs and senators going out with businesses to emerging markets and helping to increase that credibility and presence to enforce that Canada is a player.
There have been complaints about Canada that we are in emerging markets, but we do not stay. We need to ramp up our presence and be a country that is known to be in for the long term in countries like India, China, et cetera.
[Translation]
Senator Rivard: I am concerned for the manufacturing sector. It is clear that, with globalization, manufacturing companies have seen their sales volumes fall dramatically, and in some regions, I would even say the decline has been fatal. The clothing industry — denim, in particular — the plastics industry and, on a smaller scale, the bicycle industry — except the Louis Garneau company — come to mind, among others.
Can you assure me that, through oil development and all types of mining endeavours, this partnership agreement with 11 countries in the Asia-Pacific region will help us make up for the losses we are currently experiencing?
If we draw a comparison with NAFTA, it is clear that the Americans' standard of living and wages are comparable to ours. We are about to sign a free trade agreement with the European Union, and Europe's main countries have a GDP and wage level comparable to ours. The situation is different when we are talking about competing with countries such as Peru, Chile and perhaps Malaysia. I understand the situation with Australia, whose standards are similar to ours, and with Mexico, which is already part of NAFTA. Can you assure me that this will allow us to make up for the losses?
[English]
Ms. Dawson: Canada will never again be competitive in products in which the major contribution to that project is low labour cost. That ship has sailed. We are not going to do that and, unless we are willing to raise our tariffs and buy $4,000 bicycles domestically, we can never manufacture those products in Canada and be able to pay our workers a living wage and the benefits that they deserve. If we cannot do it on lower skill manufacturing, where can we do it? We do it in higher skill processes.
We have a world-class education system; we have research and development facilities that are the envy of the world. Can we find a way to mobilize these technologies and these capacities in ways that better support our export sector?
When I was a student in Northern Ontario, my high school friends would graduate and go and work in the steel plant and that would be their career for life. Canadians can no longer do that. My son now works for a company that manufactures motion picture equipment that is exported all over the world for extremely high-tech processes from a tiny town on the St. Lawrence. These are the areas where Canada has advantage and must continue to press that advantage.
We can see in the numbers that a lot of the work that was offshore is now returning to Canada and the United States through advance manufacturing processes and through re-integrating manufacturing and research and development. These are initiatives that are very important. Companies like GE are investing in re-nationalizing manufacturing. It is smart, high-tech manufacturing processes that we have to be involved in and, in addition, our work as not only an exporter of commodities but a specialist in commodity extraction. Our knowledge in the mining sector and our capacity in the extractive sector is the envy of the world. Again, that is where we need to focus our efforts.
Mr. Manicom: I am certainly no trade expert, but I agree with the assessment that the ship has sailed on low-cost manufacturing and that there is a role for government here in retraining those who are left behind by the ships that Professor Dawson is talking about. There is a role for government in supporting innovation in high-tech sectors. That is my answer.
[Translation]
Senator Rivard: We know that the budget currently being examined contains a $15,000 grant that will go to those in manufacturing, among others, to help them change their specialization in response to globalization.
Do you think that measure is enough or do you think that a denim or bicycle manufacturer will have a hard time relying on $15,000 to convert their business into a high-tech company, in order to compete with European countries or the 11 countries in the Trans-Pacific Partnership?
[English]
Ms. Dawson: It seems as though you are asking us to take a position. My answer is it is never enough. I do not want to underplay or be glib about the impact on people and communities of economic restructuring. When we did the Canada-U.S. Free Trade Agreement, what we gained was tremendous advantages in our ability to export services. That is where our Nortels came from, but it also affected the agricultural sector, the domestic wine sector and certain manufacturing sectors. If you have those in your community, that makes a difference. That factory worker does not train overnight to become a high-tech cell phone designer.
Senator Wallace: Ms. Dawson, as you point out repeatedly, Canada has been lagging behind and you made the comment that Canadian businesses generally are risk adverse; certainly, it seems to be compared to Americans.
I wonder about the extent to which the lack of harmonization of commercial laws in the region as experienced in Canada in the North American market is a factor. Could you give us some sense of the state of commercial laws in that region?
Ms. Dawson: That is interesting.
First, the World Trade Organization and the agreements related to the World Trade Organization have done a good job of establishing a base coat in basic commercial policy and basic commercial law. Without those agreements from 1994, we would be much further behind than we are now.
Going into the Trans-Pacific Partnership with the United States is advantageous for Canada because most of our important regulatory and legal processes commercially are aligned with the United States. If the U.S. gets what they want, we probably get what we want.
The issue, though, is not the lack of rules and laws. There are plenty of conventions out there. The problem is implementation and capacity-building and the capacity of developing and emerging economies to implement the commitments that they have already made.
We need to have a very concerted focus on things like regulatory and technical issues, because they account for about 5 per cent of the lost cost on a product. That is an important area. We also have to pay more attention to anti- corruption and transparency measures. We can no longer accept in these markets that that is the way they do it. Canadian companies will find themselves in a world of trouble if they do business in that way.
Our involvement in these negotiations is not just a way to get more harmonized agreements; it is a technical assistance exercise in itself. I worked for Canada in Central America for four years on a CIDA-funded technical assistance exercise that was to go along with our trade negotiations. I swear that we trained every trade negotiator and mid-level official in all five Central American countries. How did that pay off? When we finished they understood how the agreements worked; they understood how Canada worked; and they had a deep appreciation for Canada. So, our engagement in these markets at that level is actually very good for our long-term commercial interests.
For reciting priorities, I would say getting Canada back into trade-related technical assistance through CIDA and other development agencies is a very good idea.
Senator Wallace: From a Canadian business investors' point of view, would there be a lack of confidence in the commercial law as it exists in the region and the enforcement of those rights?
We are very familiar here with contractual requirements and the rights that those would bring. Businessmen want to minimize risk. That would be a huge risk if they felt they may not be able to enforce rights. There may be a lack of confidence in the judicial system or the enforcement of commercial laws in those countries.
Are there major differences? Is that something you see reflected in the attitudes of Canadian businesses and investors?
Ms. Dawson: I think the major differences are in the level of implementation and respect for the agreements that do exist.
I have been working a little bit with Export Development Canada on strategies to mitigate risk for Canadian exporters. The best we have come up with is that you have to go in on a multi-levelled approach. You cannot rely on the agreement itself. You also have to engage the Canadian Trade Commissioner Service. You have to have a reliable local partner. You have to be working with the local bar associations. You have to be operating at multiple levels in order to build confidence and reduce risk.
Start small and build gradually, because Canadians have had some great experiences internationally, but there are also some horror stories and an agreement alone is no guarantee of the security of your investment abroad.
Senator Wallace: Thank you.
[Translation]
Senator Fortin-Duplessis: Thank you. Ms. Dawson, Mr. Manicom, I would like to begin by apologizing for my tardy arrival today. The new Senate table calendar was unveiled today.
In a previous meeting, we discussed the issue of establishing political and economic relationships with certain countries in the Asia-Pacific region, against a backdrop in which we do not necessarily share the same values.
Advancing human rights is one example. With the political systems in place in Pacific countries, has there been any progress in their policies on fundamental issues like human rights?
My second question is on the same topic. Do you think Canada can advance its business relationships in the region while working to further respect of human rights?
[English]
Ms. Dawson: I am going to punt that to Mr. Manicom to begin with human rights, and then I can talk a bit about the linkage to economic activity.
Mr. Manicom: That sounds like an appropriate division of labour.
I would first take issue with the assessment that there are a lot of countries in the Asia-Pacific region that do not share our perspective on human rights. You will find no greater advocates of the fact that human rights are universal than Japan, South Korea and Indonesia, to name three. I do not think it is fair to paint the region with one brush.
To that point, you are right that there are governments in East Asia or in the Asia-Pacific that, perhaps, do not share the Canadian perspective on human rights. I think the time has passed where you can try to link human rights with trade. That debate is dead. You cannot do it. It has been tried; it did not work. That is over.
The question is: By doing business with these countries, do you improve standards of living in their country and ours, and does that, over time, lead to improved human rights?
The second part of that also is that these governments that do not share Canadian or Western or what are universal human rights would also define human rights in economic terms versus political or social terms.
I tried to answer three questions at once there. Is it possible to improve international trade? Over the course of time with rising living standards, there is. I think there is an opportunity, as part of the wider diplomatic engagement, to talk about human rights issues but not using the term ``human rights.'' You could talk about rule of law, judicial processes or human smuggling, all those things which are in and of themselves connected with human rights violations, but not have it come across as though we are lecturing countries on human rights. No one wants to hear that. I will punt it back to Ms. Dawson.
Ms. Dawson: I would agree with that. I do not want to argue that there is a homogenizing effect of trade agreements, or simplify it to ``countries with McDonald's do not go to war with each other.'' For Canada, we have never benefited from overt scolding of other countries' human rights or from confrontational behaviour. We have benefited, however, from being a trustworthy ally, an honest broker, an alternative, if I may say, to the United States in the room, not only as a country that can suggest alternative ways of being but a country that has a real model of tolerance, diversity and respect for human rights. I think that serves us very well. As we are known in emerging markets regions, I think Canada's weight in the world will increase on that front.
[Translation]
Senator Fortin-Duplessis: Ms. Dawson, does your information show that security conditions are discouraging interested companies from doing business with certain countries in the Asia-Pacific region?
[English]
Ms. Dawson: Again, I may punt this over to Mr. Manicom.
I was perhaps a bit glib in my introduction when I spoke about a multi-polar trade world in which we have one side dominated by the United States, the TPP and we have China dominating ASEAN. I said if Canada were strategic, we would be working on both sides in order to get economic benefits from our participation in both of these agreements. However, I would say that if we perpetuate this too much and if we perpetuate bipolarity in the Asia-Pacific, then we would not be doing ourselves any favours and may exacerbate some of our security concerns. I turn it over to my friend in Waterloo.
Mr. Manicom: I would like to weigh in on that.
If you define security in the classic state way, yes, I think it has. It used to not do that. Three years ago, the great paradox was that China and Japan hated each other yet traded with each other so much, but in 2010 and afterwards, we saw that political crises led to a reduction in investment, sanctions and informal embargoes, which certainly affected the Japanese economy.
There is also the perception of embargoes. There was a perception that China embargoed rare earth elements, which it did not do. It actually cut off shipments earlier, before the crisis. However, because that was felt at the same time as the crisis, it was perceived to be a political cost.
Also, Taiwan has just slapped a heap of sanctions on the Philippines after a crisis between a patrol boat and a fishing boat, including visa restrictions on Philippine workers in Taiwan. Those are not necessarily business opportunities, but there was certainly an increase in economic cost associated with political crises in East Asia.
The Chair: We did have traditional two-track processes, Mr. Manicom, in Asia-Pacific, and they were incredibly helpful. Now I hear that perhaps we should have some other two-track processes with law societies, regulatory bodies and so forth. That is still two-track, in my opinion. Should these be formalized or informal?
When we were looking before at traditional security, is that a way of getting at our issues about the security of our technologies, the cyber issue? Would that be a way to assist that?
Mr. Manicom: That is a very good question. I think track-twos are always best kept informal just because you avoid any kind of diplomatic ruffled feathers that may arise through ignorance on the part of organizers, who are often academics like me, who are not well versed in diplomatic niceties. I think it is important to keep those things informal but regular. For example, have annual track twos but keep them informal.
As to whether or not they are a way to address intellectual property and cyber theft, it depends who you are dealing with. The major protagonist on cyber and intelligence theft is China. If you asked someone if you could even have a Track II with China, they would say if you even had a group of representatives from Canadian companies and Chinese companies sitting together in a room, would the Chinese companies not be just the government when so much of their economy is now tied to the state sector? There is obviously a problem with how far you can go in terms of making progress at Track II.
Certainly that is not the case with intelligence. On cyber I do not think there is really an opportunity at all for Track II to make a meaningful difference because cyber is very much a government prerogative.
Ms. Dawson: I am, in most commercial respects, a big fan of informal engagement, multi-level engagement, but where I think there is a very strong need for formal engagement and also for formal cooperation is in Canada's ability to defend, monitor and regulate its sensitive and secure sectors.
I have been working a little bit on the China issue — China foreign investment and state-owned enterprises — and I believe if Canada has something that is lawfully for sale that we ought to sell it to a willing buyer. However, I am not convinced that we are able to really monitor the activities and intentions of our trade and investment partners. I would like to think they are all noble and terrific, but I do not think they are.
I know Canada has updated its rules on how state-owned enterprises and national security will be tested within foreign investment rules in the Investment Canada Act, but I do not think we are sufficiently able to monitor.
I have been suggesting, whistling in the wind, that Canada and the United States work together on monitoring investment by certain countries in our shared economic space. I believe the U.S. has a very good capacity to report and monitor on these things, but we do not have any formal mechanisms for sharing this information between Canada and the United States.
The Chair: Thank you on that point.
There is one other area on which I want your comments. Both of you indicated that human rights and trade linked together conditionally is not working and practices in the past have pointed that out. However, is it not fair for a country to trade — to be multi-dimensional, in other words — and still raise the issues and raise them publicly in the multilateral fora in which we have been creating the international standards?
I recall with China the rebuttal was, ``Do not impose your point of view on us; we will not trade with you.'' However, the rebuttal was, ``You have signed on to all of these treaties and conventions. You have an obligation to uphold them and we have responsibilities in those conventions to raise them and equally, you can do it with us.''
Do you not think there is still a lot of avenue for public discussion on all of our human rights records?
Mr. Manicom: What you have outlined I believe is fair. When you sign an agreement or set up protocols with a country, there may be suspicion that it is being violated. Some countries are more litigious than we actually give them credit for so, if you have that in writing, it is useful.
I am concerned about actions that are perceived to be lecturing by country X, because those have not worked in the past. This is an argument to spell out your expectations and the responsibilities of everyone involved. Certainly within that context it is appropriate to raise them.
Ms. Dawson: There is a space for public declarations for taking a stand, but it is a very blunt instrument and it is very difficult to step away from. All other diplomatic options should be explored in the meantime.
We are all familiar with the case currently with Russia and the United States, where a complaint against Russia's treatment of businessmen has escalated into a war on foreign adoptions. It was a principled position that those other countries took, but the consequences have now fallen out of their control.
The Chair: Ms. Dawson, someone put the question about Canadians being risk-averse and we keep hearing that wherever we go. We have done a number of studies where the appetite to go into more risky ventures seem to be in other countries and not ours. You seem to say we are risk-averse because it is so easy to work in the United States. Surely that is not the only reason to be risk-averse.
Ms. Dawson: No. Businesses look at the bottom line and they look at the cost of doing business near to home or in foreign markets. The short-term benefits of going to a foreign market are very limited. The companies that are able to go and to sustain that presence have done very well, but there are only a handful of Canadian companies that have been successfully able to do that.
I am an advocate of working at multiple levels. I am doing a lot of work right now at a regional level, including provinces and states, and building supply chains there as well. I would like to see provinces and states in particular regions working together in emerging markets.
There are many ways to reduce risk. Having a business as a unilateral actor heading across an ocean to contest a new market is very difficult and there are other ways to do it.
The Chair: Just so my members can fault me uniformly at every meeting, I am going to raise Saskatchewan. We have a STEP process that has taken many dimensions, but more recently it has been a combination of businesses in all kinds of sectors, with some government involvement, going into targeted countries around the world. They seem to be successful. In one of our reports, we encouraged others to look at that model or other models. Is that what you are talking about when you say strategically working with provinces, et cetera?
Ms. Dawson: Yes, and I am a huge fan of Saskatchewan's efforts internationally and the way that the sectors and the governments have worked together to promote certain areas of strategic investment. I believe Saskatchewan is the world's leading exporter of birdseed, mint for toothpaste and many other important commodities. Saskatchewan is kind of a role model for many of the other provinces in working smart in emerging markets.
The Chair: Why have other provinces not done that if it is that smart and that successful? I think it is and I am a great advocate for it. One could say it was necessity that drove us into it, and trial and error. We have tried other models. Why is there not an appetite in another province, in the Atlantic region or elsewhere with comparable size or comparable populations? Is it a function of the resources we have?
Ms. Dawson: I think you just said it, senator. It is necessity. The global recession and the restructuring of the global economy hit Saskatchewan earlier than the rest of us. Central Canada was much more comfortable for a longer period of time. Who would have thought a decade ago that we would be looking at Saskatchewan as one of Canada's economic leaders and innovative trade powerhouses? Maybe you did; I did not.
The Chair: I was going to put that as the last statement. Of course, we knew. I think you are right; necessity is one of the issues. As we talk about doing more trade and involving the government, we are having a problem of how to translate that into some model and some procedure. We come up with a generality that we should do more and look further, et cetera, but we are trying to get something that we can attach to a government recommendation that would be actionable rather than facilitating, et cetera.
Ms. Dawson: I know a great trade consultant who would be happy to help you out.
The Chair: I am sure you are talking about yourself. Perhaps we will call on you later.
Senator Fortin-Duplessis, did you have a question?
Senator Fortin-Duplessis: This question is for Ms. Dawson.
[Translation]
Ms. Dawson, as part of a previous study, I thought I read about a measure applicable to other free trade agreements Canada had signed. There was a rule stipulating that Canadian businesses could fine companies in a country with which we had a free trade agreement, if that company employed very young children, between 6 and 10 years of age, to work in a factory or if it failed to pay its employees adequate wages. That measure was in the agreement with Jordan, for example.
Do you think Canada could include a similar measure in a potential free trade agreement with certain countries in the Asia-Pacific region?
[English]
Ms. Dawson: There is a provision in the WTO agreements that prohibits the use of prison labour and certain other labour practices. The very useful thing about a free trade agreement is it is one of the few things in the world that has an economic enforcement mechanism. You can ignore the UN, you can ignore the Red Cross, but if you ignore your trade agreement, then you will pay an economic penalty. Very many interests and organizations would like to attach their interests to trade agreement enforceability.
The issue you mentioned about child labour is very important. That initiative, in order to be effective, needs a lot of ancillary work. We need to work with the folks who do trade agreements in order to do things like traceability. How do you find out if child labour is involved in the production of a product?
I have been aware of an issue in the United Kingdom where a major retailer discovered that some of its garments were produced by children in Eastern Europe, but it is the traceability in this world of global supply chains that is so difficult. We require non-governmental organizations, the social and consumer sector to step up and say, ``This is a priority for us. This is how we are willing to contribute to the mitigation of this problem, and we would like you, Government of Canada, or we would like you, signatories to this trade agreement, to help us to provide the enforcement tools to achieve this goal.''
Trade agreements themselves cannot do it. As you have seen in environment and labour, they have good intentions, but unless there is willingness from outside the trade regime, they are relatively ineffective.
The Chair: Mr. Manicom and Ms. Dawson, as you know, we are starting our study. You have pointed us to directions that we should continue, and you have given us some history of some of the initiatives through Asia-Pacific. Centering on Canada's policy has also been very helpful.
Mr. Manicom and Ms. Dawson, thank you for being here. As we continue our study, I ask you to continue to have interest in it and perhaps at a later date either file more information or perhaps appear before us again.
I should say to senators that next week there is a large conference on Asia-Pacific in British Columbia. We are grounded here because we have so many issues in the Senate, but our researcher will be attending that conference. I think it will be valuable in the contacts, resources and the content of the conversation itself. Because of that, we will have some difficulty getting witnesses here as they will all be at the conference, so we are waiting for the final word.
We may or may not have hearings next week, and we are just finishing the last touches to the report. We hope it will be finished and translated and ready for your reading. If you do not have meetings, you will have a reading assignment, and we hope to conclude our study on Turkey and continue with Asia-Pacific.
(The committee adjourned.)