Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 15 - Evidence - Meeting of September 24, 2014
OTTAWA, Wednesday, September 24, 2014
The Standing Senate Committee on Foreign Affairs and International Trade met this day, at 4:15 p.m., to examine the potential for increased Canada-United States-Mexico trade and investment, including in growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Welcome to the Senate Standing Committee on Foreign Affairs and International Trade. Before we go to our reference, we had placed on the agenda an item for consideration later in camera. I wish to deal with it now but not in camera.
Basically, it is our response to the government's response to our report on Turkey. It was circulated to all senators and we asked for feedback; otherwise I would take it as given the letter was approved.
As it is before you, I propose that I receive a motion to accept the letter as written with instructions to file in the Senate.
Discussion? If not, is everyone in agreement?
Hon. Senators: Agreed.
The Chair: Thank you. That will be filed and will complete our study on Turkey.
Our new study is to examine the potential for increased Canada-United States-Mexico trade and investment, including in growth areas in key resource, manufacturing and service sectors; the federal actions needed to realize any identified opportunities in these key sectors; and opportunities for deepening cooperation at the trilateral level.
We commence our study today. We are pleased to have had a quick response from Foreign Affairs, Trade and Development Canada, as I would have expected; and so thank you for being here. Representing the department to give their perspectives on our study we have Mr. David Morrison, Assistant Deputy Minister (Americas); Mr. Martin Moen, Director General, North America and Investment; and Mr. Christopher Wilkie, Acting Director General, North America Strategy. Gentlemen, welcome to the committee. We are interested in following up some of the recent initiatives and changes in the institutions and laws in Mexico, which have a trigger effect for us, and any perspectives that you can give on this in addition to NAFTA, which is not what we are studying. We're looking for new increased opportunities to deepen a trilateral and perhaps a bilateral initiative with Mexico and/or the United States.
Your perspectives would be most welcome. The floor is yours. You know how we operate in Senate committee, so we will have many questions I'm sure at the end.
David Morrison, Assistant Deputy Minister (Americas), Foreign Affairs, Trade and Development Canada: Good afternoon and thanks for inviting us here to address this subject this afternoon.
[Translation]
Our topic this afternoon is the potential increase in trade and investment between Canada, the United States and Mexico. This is a topical issue. After 20 years of NAFTA, speculation over what the next step will be is growing. The Canadian economy is doing well, and it is among the strongest in the G7. The United States is slowly coming out of the recession, and the shale gas revolution is quickly spreading across the continent. The recent historic reforms in Mexico, especially in the energy sector, are a potential game changer in that country.
[English]
It is the confluence of these factors in Canada, in the United States, and in Mexico that has commentators and experts asking the question as to whether we might not be approaching a watershed moment for North America because of new and untapped potential for increased trade and investment. Like this committee, think tanks, such as the U.S. Council on Foreign Relations and others, have launched studies to look at this question with a view to identifying ways to increase North American prosperity.
I propose to address the issue before us today in three ways: first, by discussing the overall trade policy dimension that frames our North American partnerships; second, by discussing how Canada engages bilaterally with Mexico and the United States; and third, by responding to the question as to what we can do trilaterally to strengthen relations and foster increased prosperity on the continent.
First, on the trade policy dimension, NAFTA, the North American Free Trade Agreement, came into effect 20 years ago on January 1, 1994, creating the largest free trade region in the world. By strengthening the rules and procedures governing trade and investment, NAFTA proved to be a solid foundation for building Canada's prosperity and set an example of the benefits of trade liberalization for the rest of the world. NAFTA created a fair and predictable framework for trade and investment.
It is unquestionable that NAFTA has led to greater prosperity. Canada is a trading nation from the baseline of 1989 when the precursor to NAFTA, the FTA between Canada and the United States, was put in place. Overall trade has tripled since the 1989 baseline and has doubled if you use the 1994 baseline of the coming into force of NAFTA.
While Canada, Mexico and the United States used to trade with each other, it is much more common today to talk about how they make things together. Indeed, this notion of a North American production platform with regionally integrated supply chains across sectors from auto to aerospace to electronics is generally how we speak now of North America. Canadian exports to the United States contain, on average, 25 per cent American content, which means that we sourced some of the material that went into the exports from the United States. In Mexico, the percentage is even higher as Mexican exports to the U.S. contain 40 per cent American content.
This demonstrates the degree to which North American supply chains have become integrated. The North American production platform has turned all three countries into partners, even as we regularly compete against one another. In a world where proximity is again found to be important, owing as much to transit time as to transport costs, NAFTA gives our region an edge in a competitive world.
Let me turn to the Canada-U.S. bilateral commercial relationship.
[Translation]
The Canada-U.S. trade relations remain at the core of NAFTA. Canada and the United States have long had the world's largest bilateral trading relationship. Every day, $2 billion of goods and services cross the border. The Canadian economy continues to depend on free and open access to the United States, which remains by far our largest trading partner. More than 77 per cent of Canada's exporting SMEs are active on the U.S. market.
[English]
To protect in advance Canadian commercial and economic interests, we must remain vigilant in responding to trade restrictions and be proactive in advocating for economic integration.
However rich the relationship is, some challenges remain. I will name two of them. The first one is what you would know as Buy American provisions that creep into U.S. procurement legislation, which tend to disrupt long-standing business relationships and impede legitimate cross-border trade between our two countries. Our embassy in Washington and our network of missions throughout the U.S. work tirelessly to advocate against the introduction of new such restrictions.
Second, there is the Country of Origin Labeling law, or COOL, which requires American food processors to label the origin of meat produced in the United States so that there's a label that says "raised in Canada." This is a costly and difficult process for beef and pork due to the integrated nature of the supply chains. Canada continues to seek legislative change and is challenging COOL at the World Trade Organization in Geneva.
So we intend to remain vigilant and quick to respond to potential new trade restrictions.
We are equally determined to press ahead in two key market-access initiatives vis-à-vis the United States. The first is the shared vision for perimeter security and economic competitiveness, better known as Beyond the Border, and the second is the U.S.-Canada Regulatory Cooperation Council. The goal of Beyond the Border is to manage security risks while facilitating the legitimate flow of people, goods and services. The goal of RCC is to ensure that one set of criteria satisfies the regulatory needs of both countries. Over time, this will help us eliminate what has become known as the "tyranny of small differences" that unfortunately sometimes leads to large impediments to trade. A classic example of this is different certification requirements for child car seats. Both sets of car seats are safe, but they require separate regulatory regimes. That is an impediment to free trade as we would like it.
Your committee has asked specifically about federal actions needed to realize new opportunities. In our view, the answer is continuing to press ahead forcefully on Beyond the Border and the Regulatory Cooperation Council initiatives. We have made good progress, but more needs to be done. You may wish to note that as part of the commitments made at the 2014 North American Leaders' Summit in Mexico earlier this year, Canada and Mexico are now invited as observers to the regulatory and border cooperation mechanisms that each country has separately with the United States. So there is a real move afoot to try to "trilateralize" some of these important bilateral mechanisms.
Finally, in the field of energy, a key priority for Canada is to expand infrastructure to deliver products to international markets. In this regard, the approval of the Keystone XL pipeline remains an important objective of the Government of Canada, as it will create economic and energy benefits for both Canada and the United States.
Let me now turn to Canada-Mexico bilateral commercial relations. Mexico and Canada are now each other's third-largest trading partners. Two-way merchandise trade in 2013 totalled $32 billion. This is a remarkable 608 per cent increase in merchandise trade since pre-NAFTA.
Canadian direct investment in Mexico has now reached over $12 billion. Between 1999 and 2013, Canada has been Mexico's fourth-largest source of foreign investment. Mexico's investment into Canada has not kept pace, but the announcement recently of a major Mexican investment in Canada Bread, which is owned by Maple Leaf Foods, is a nearly $2-billion investment, and we very much hope that this is a sign of more things to come.
[Translation]
More than 2,200 Canadian businesses identify as companies that export to Mexico, where over 200 Canadian mining companies are operating. Mexico is currently the second largest Canadian market in terms of air transport after the United States. Canada and Mexico produce both for the North American market and the global market.
Mexico's growth in the automotive and aeronautical industries, for instance, illustrates the type of North American production as a whole that is harnessing countries' competitive advantages.
[English]
Last is trilateral cooperation. Trilateral cooperation among Canada, the U.S. and Mexico is inherently more challenging than focusing exclusively on Canada-U.S. or on Canada-Mexico bilateral relations, but one only has to look at a map or read about regional integration elsewhere to see the power of what has been called "the North American idea."
The North American Leaders' Summit that took place in Toluca, Mexico, in February 2014 included an explicit focus on an ambitious competitiveness agenda. Follow-up is taking place as we speak, nationally in each country and through trilateral work. Some highlights of this new trilateral work include a North American trusted traveller program that will see the benefits of the Canada-U.S. NEXUS program extended to Mexicans, and the Mexican counterpart program, called Programa Viajero Confiable, will be extended to those who have a NEXUS card from Canada and the U.S.
The three countries are implementing a single window through which importers can electronically submit all of the information they need to comply with customs and other requirements, and efforts are ongoing to establish new pre-clearance and pre-inspection protocols that will further expedite the flow of people and goods across borders.
Efforts within the trilateral context are also under way on innovation and entrepreneurship, with a special focus on women entrepreneurs and on further developing North American human capital through educational exchanges, academic exchanges and analysis of the future North American labour needs throughout the continent.
[Translation]
Allow me to say a few words about energy security. North America is quickly becoming a force in the energy sector, given its recognized potential to achieve energy independence. In terms of the economy, the abundance of energy will directly fuel economic growth and job creation, while also reducing production costs in North America. Experts predict that the three countries will benefit from this individually. Canadian, Mexican and U.S. ministers of energy are planning to convene a meeting in December to discuss how to maximize the benefits of this resource.
[English]
In closing, let me return to the committee's central question on the potential for increased Canada-United States-Mexico trade and investment. Our analysis is that the potential is significant and indeed growing. This trend is driven by some of the economic facts that I have tried to outline above, but also by political developments. Hispanic voting patterns in recent U.S. elections have led to increased policy attention by Washington towards Mexico. It is worth noting that President Obama has visited Mexico five times in his mandate, and Vice President Biden now leads the U.S.-Mexico high-level economic dialogue, which is a new cabinet-level mechanism aimed at advancing strategic economic and commercial priorities, creating jobs and enhancing competitiveness.
While it may be too soon to say definitively whether we have arrived at a new North American moment, as we were at 20 years ago, there certainly does seem to be significant untapped trade and investment potential on the continent. We expect this will be the basis for discussions when Prime Minister Harper, President Obama and President Peña Nieto of Mexico meet at the North American Leaders' Summit here in Canada next year.
I will close there. Thank you very much. We look forward to your questions.
The Chair: Thank you.
Senator Eaton: You were talking about how many times President Obama has gone down to Mexico — five times. I think he's been to Canada once. We have his Buy American legislation. We saw there was an incident in Colorado, only last week or a couple of weeks ago. I think it was with steel that had been sent across to Canada to have something done to the steel and then back, but because of the bills — anyway, you know all that. And then of course there's Keystone XL.
Do we have problems with this administration? Are our problems in growing trade with the U.S. more political than actual problems with trade or not enough goods to sell? Are they more political than other things?
Mr. Morrison: The U.S. remains, by very large measure, Canada's largest trading partner. I refer back to what I tried to say in my prepared remarks, which is that we have a very comprehensive plan to further deepen our integration with the U.S. economy and to increase overall North American competitiveness. That plan rests upon the twin pillars of the Regulatory Cooperation Council and the Beyond the Border initiative.
What we have discovered is that it is hard work. A lot of minute detail needs to be sorted when you are talking about regulatory cooperation and trying to make borders more fluid while still looking after the security dimension.
From time to time, irritants do come up. One of them is definitely Buy American. Those tend to be decisions of municipal governments and state-level governments. The U.S. is a very large and pluralistic place. Any time you have such a multi-multi-faceted relationship, you are going to have challenges, but there is no getting around the fact that we are and will remain for some time each other's largest trading partner.
Senator Eaton: I don't argue with that at all. It might be pluralistic, and there might be a lot of state regulations, but it seems to me that the atmosphere right now in Washington is not very pro-Canada at every turn of the wheel with this administration when it comes north. I remember Senator Wallin telling me about a Homeland Security visit where they still think that 9/11 was Canadians going across the border, and that was the Secretary of Homeland Security. Then Keystone is constantly, constantly being put off, put off, put off, and then this Buy Canada thing. I'm sure there are many opportunities, but it doesn't seem to be very positive as long as this administration is there. They don't seem to be very willing or interested.
Martin Moen, Director General, North America and Investment, Foreign Affairs, Trade and Development Canada: I won't be able to address the overall question, so you can perhaps return to that, but the Buy American situation is certainly of great concern and we are doing our best to try and address it.
In this particular case, legislation was passed in 1982, so it is a long-standing issue, not an issue that is specific to this administration, and it is also legislation that applies equally to Mexico as it does to Canada.
[Translation]
Senator Fortin-Duplessis: Thank you very much, Madam Chair. Mr. Morrison, I want to commend you on your positive statement regarding NAFTA. I had an opportunity to sit as a member in the other house. I was on the committee that toured Canada to look into the possibility of concluding a free trade agreement with the United States. I learned about the obstacles and issues that can arise with our closest neighbour.
In the wake of NAFTA's 20th anniversary, Canadian, American and Mexican organizations and business people argued that our respective governments could do more to increase integration and competitiveness in the North American economic space. They are advocating for a renewal of the type of trilateral cooperation that initially led to the NAFTA agreement. What does Canada plan to do about that?
[English]
Mr. Morrison: Thank you very much. It is absolutely accurate that the business communities of the three countries are calling for increased efforts to create the North American economic space. It is worth saying that there is no appetite for a reopening of NAFTA. It remains unpopular in the United States, somewhat less so in Mexico, despite what the economic data says. The business communities of all three countries, separately and in some cases together, are examining, on their own, mechanisms that would help to drive deeper in North American integration and ideally competitiveness.
The three secretaries of commerce, if you will, U.S. Secretary of Commerce Penny Pritzker, Mexican Secretary of Economy Ildefonso Guajardo and our own Minister Fast are meeting regularly. They will meet at the first of October at an event in Toronto, and they have their own North American competitiveness work plan, which is feeding into the overall agenda for the North American Leaders' Summit that the Prime Minister will host next year.
It is fair to say that none of the individual initiatives being proposed by the business communities of the three countries are cut-through, breakout initiatives in the way that an overall free trade agreement proved to be in 1994. Once you get a free trade agreement and most of the goods are already crossing the two borders in a very free-flowing way, it has proven to be the case that the next steps are quite incremental. That's the basis for our Beyond the Border work plan and what came slightly after but now is dealt with in a similar fashion, the Regulatory Cooperation Council.
The work of the three business communities that you mentioned is taken seriously at the level of officials. We will be participating in some of the events that they are convoking later this fall, and that will find its way into the work plans of the North American Leaders' Summit process.
In addition to the communities of CEOs that are advocating for this, there is some significance in the fact that the energy ministers for the three countries will be meeting later this fall, and the defence ministers for the three countries are now meeting regularly because there are interesting opportunities for collaboration in the near neighbourhood, I would call it, in Central America and the Caribbean. We are seeing some degree of greater Canada-U.S.-Mexico collaboration and cooperation now than we certainly have in recent years.
[Translation]
Senator Fortin-Duplessis: Since the September 2001 terrorist attacks, focus on security has increased, and I think this hinders the flow of people and goods at our borders. You mentioned a few obstacles earlier that hurt our free trade agreement. Are there any others that prevent the growth of trade and investment in our three countries?
[English]
Mr. Morrison: The short answer is yes. It's not just security. To take an easy example, there are different phytosanitary standards in the two countries. This is why regulatory cooperation is so important. We learned that the two countries treat gypsy moths differently when they come in packing crates. What to one country is cause for alarm, other countries may have different ways of dealing with.
The other example I gave was child car seats. Speaking personally, I lived in the United States for many years; I know they love their babies just as much as we love our babies, but the truth is you cannot use a U.S. car seat if you are a Canadian resident. That is obviously an impediment to trade. That is why the line in the prepared remarks was that small differences can become large impediments to trade.
Our experience thus far in the Regulatory Cooperation Council has been positive, but you will have noticed that quite recently our Prime Minister and President Obama spoke of a new approach. If you think about it, regulatory cooperation will work best if it happens upstream; that is, if the regulatory authorities in any one sector talk to each other early, before the differences get embedded. Rather than trying to work out whose car seat certification process is superior, if the regulatory authorities are talking to each other early on, we can have better outcomes over the long term.
That is why I say that it isn't the kind of grand breakthrough strategy that we had at the time of NAFTA. We already essentially have free trade, but there are all sorts of regulatory challenges as well as, frankly, border infrastructure challenges. You asked about security. You are all well aware of the challenges that Canada is currently having with its desire to add an additional bridge across the Detroit River at one of the busiest border crossings on the whole border between Canada and the United States. Sometimes that's what it boils down to, the infrastructure through which goods and services need to flow.
Again, the short answer to your question is no. It's not just security; many other things can inhibit a greater flow of goods and services and, therefore, a greater degree of prosperity.
Senator Oh: The U.S. has decreased its purchase of Canadian oil after the breakthrough in shale oil extraction technology. Is it about time for Canada to cooperate with other countries in the energy sector? What about the advantages of energy trade with emerging markets like Mexico and the Pacific Alliance?
Mr. Morrison: It is a very explicit policy of the government to diversify the markets to which it is selling Canadian oil and, indeed, all energy products. You have given two great examples: Mexico and the Pacific Alliance. There are four constituent members of the Pacific Alliance and two aspirant members. Canada has free trade agreements with all six of those countries, so we are very well positioned to sell into the Pacific Alliance markets.
Let me say a brief word on Mexico. My prepared remarks used the words "historic reforms." Mexico had a strong element in its constitution dating from 1938 that restricted any kind of investment in its energy sector. President Peña Nieta, who is not yet two years in office, has fundamentally thrown the doors open to foreign investment in Mexico's energy sector. This is complicated because it's not as simple as just selling things to the Mexicans, because in some sectors we will be competing with them.
But this is absolutely good news for, for example, the oil service industry based in Alberta. There will be huge opportunities for energy companies, for pipeline companies, for anyone in the oil service industry in Canada, and there are terrific opportunities to further greater Canadian interest. I will give you an example. Mexico and the Province of Alberta recently signed an MOU that Mexico will receive advice from Alberta on how to set up its overall energy regulatory regime, which will be set up along Alberta standards. Obviously, that will be beneficial to Canadian companies because, if everything goes to plan, doing business in Mexico will be very recognizable to Canadian companies.
So, absolutely, there is a broad effort afoot to diversify Canada's energy export markets.
[Translation]
Senator Verner: When Canada comes across issues in its trade relations with the United States, I assume that Mexico acts as our ally. Do we work with Mexico to advance our interests in our dealings with the Americans? I am referring to what has happened in the past, as I understand, given the questions you have been asked here, that an attempt is being made to bring the countries together, so that the three of them can work closely.
Have we found ways in the past to work with Mexico to help relax the U.S. measures that interfered with our trade relations?
[English]
Mr. Morrison: That is an excellent question. The translation at the end of your question was about things that stood in the way of our trading relationship. There hasn't been a great deal that has stood in the way of our trading relationships in the past 20 years. But those irritants that have come up, and the one I mentioned in my prepared remarks was the Country of Origin Labeling law, COOL, also affect Mexico; and we have an expert on that here in Mr. Moen. We are at least coincident with the Mexicans in our opposition to that legislation. Again, I am not an expert on that particular irritant. I am sure there are geographic differences in the supply chains, but in pork and beef, both Mexico and Canada are facing the same kinds of issues because of COOL legislation.
We have launched a process at the World Trade Organization; but I'm not certain whether Mexico is party to that same process. That's an example of us having a coincidence of interests with Mexico. Overall, the proof in the pudding about NAFTA is that there have been remarkably few irritants that we have needed to come together in opposition around a common issue over something the United States has been trying to do.
[Translation]
Senator Verner: I am also curious about the potential implementation of a NEXUS system for Mexico. We know that, as a retaliatory measure, Mexico is asking Canadian parliamentarians for a visa when they visit that country. What will the situation be with a NEXUS card?
[English]
Mr. Morrison: That is one I know as I am the resident expert, unfortunately.
There has been an irritant in relations between Canada and Mexico around visas. We are in the process of active dialogue with the Mexicans on that. The Prime Minister and Minister Alexander are on record as having expressed concerns. I do not think it likely that a visa on Mexico will be lifted any time soon.
Nonetheless, we are putting in place many facilitative measures to allow trusted Mexican travelers and, frankly, travelers where there is a clear win-win benefit. Business travelers are the obvious ones, as well as Mexican workers coming for the agricultural program and Mexican students. There are all sorts of special programs where the visa impediment is quite insignificant. Almost all Mexicans are eligible for an up-to-10-year multiple-entry visa. Much ado has been made in the press about that. It is the one irritant in an otherwise sound and growing relationship.
On the NEXUS card, which was your question, I guess the answer is that anyone with a NEXUS card has already been vetted as a trusted traveler. I am assuming that senators have diplomatic or red passports.
The Chair: No, we have green passports.
Mr. Morrison: What happens with an official passport and a NEXUS card, I don't know. That is a policy dilemma, but we would be happy to work with the Mexicans on that. My portfolio includes other countries in Latin America. This issue will not go away; and the way it is dealt with is through reciprocity. That is where we are.
Senator Housakos: Thank you, Mr. Morrison, for being here this afternoon. I have three distinct, interrelated questions.
Without a doubt, the U.S. trade relationship with Canada is the most significant. Thus, we thought it important to look it at after the twentieth anniversary of the North American Free Trade Agreement.
In your opinion, is it fair to say that Canada at times takes for granted our North American market because we have had such success with the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement? Have we become complacent, in your opinion? The government has intentionally pursued emerging markets over the last decade and a half. As a result, we have had some successes and some failures in various parts of the world. Inevitably, North America still produces one third of the world's goods and services and is still an economic force second to none.
The first question is this: Have we been a bit complacent and taken that relationship for granted because everything has worked well?
The second question is on our resource-based economy vis-à-vis our manufacturing sector. Over the last decade, our resource-based economy has had strong growth in large part because of the need to nourish markets in the U.S. with our resources and because of markets in the Far East and the Pacific. Our manufacturing sector has not fared as well in North American trade as the resource-based economy. In your opinion, is that because of hindrances in the trade arrangement in terms of infrastructure, as you mentioned earlier; or is it due to other trade impediments; or is the state of the Canadian currency, which fluctuates from time to time, playing as big a role as any trade agreement? What is the solution? What are possible remedies to give a better footing to the manufacturing sector in Canada to be able to take advantage of this North American agreement?
My last question is short. What percentage of trade between Canada, the U.S. and Mexico is done by small Canadian businesses as opposed to larger companies?
Mr. Morrison: Sure. Let me take your third question first because I don't have the answer. We can get you the answer as to the percentage of trade done by SMEs. My guess is that it is quite significant, but we will come back to you with exact figures if we can get them.
I will resist your invitation to offer my opinion on the other two questions. On the first question, I will simply say that I don't think it is a case of complacency at all. One of our largest embassies in the world, 13 consulates general plus three trade offices in the United States are dedicated primarily to market access issues. That is what we do literally day and night. You don't hear much about it because the trade policy agenda of opening new markets has shifted to Asia and elsewhere. But I know we're not being complacent, and the statistics about the ongoing significance of our trading relationships with the United States and Mexico I do think speak for themselves.
We would need some statistics to back this up, but there's a figure in my prepared remarks about 77 per cent of SMEs say they export to the United States. Canada is a country that has some large companies and a large number of small companies. If you look at the high-tech sector, for example, one very interesting phenomenon in high-tech and other sectors is that selling into the United States is a way to sell abroad. You can get a Canadian SME selling into Walmart's value chain, and Walmart is going to be selling those goods in China.
So we're trying to cover various bases in terms of our own department and our trade promotion efforts, but the statistic of 77 per cent of SMEs accessing the U.S. market can also be a statistic about accessing global markets at the same time.
In terms of your second question on energy and exchange rates, I'm afraid I'm a historian rather than an economist, so I won't take the exchange rates part, but I would say that Canada has done exceptionally well since 2008 vis-à-vis other G7 economies, and that's across sectors.
I believe the statistics would show that the resource sector has led because of the global commodity boom but that Canada's manufacturing sector has also fared relatively well, particularly if you look globally at other similarly developed economies.
I know the perception is that it has been all about resources, that that has been the driver, but that has frankly been an equation of supply-demand for Canada, which is an exporting country.
Senator Downe: Thank you. I would like to follow up on Senator Housakos' question.
You mentioned the number of Canadian trade and diplomatic missions in the United States, but is it not true that we have been cutting back and that at the same time, the Mexicans have been increasing their presence?
Mr. Morrison: I know that Mexico has many more consulates than we do. Frankly, there are many more Mexicans living in the United States requiring consular services.
In our department's response to the Deficit Reduction Action Plan, yes, we did cut consulates in the United States. We cut resources all over, and the government took a decision to shift some of those resources relatively to other markets in the region that I now supervise. Mexico was not cut, but consulates in the United States were.
I think that reflects a decision that some of the services that Canadian companies are asking for in places like Mexico and Asia and the Pacific Alliance countries are not required to the same extent in the United States, where the statistics would show Canadian companies are more comfortable going on their own.
The answer to your question is yes, there has been a net cut in our resources in the United States.
Senator Downe: I appreciate the Mexicans have a much larger population, but I also understand they have increased the number of their trade offices. Obviously, that's not your department, so I will research that on my own.
This goes back to the point made by my colleague. Our main trade is with the United States. It is our biggest market, far and away. The argument could be advanced that we are taking it for granted. The Canadian business community feels very comfortable doing business in the United States, so the more opportunity they have and the more regions of the United States, it could be argued there would be more trade and more prosperity in Canada. So why the cutbacks?
Mr. Morrison: The government took the decision about the cutbacks. I believe that —
Senator Downe: I appreciate the government took the decision, but did they specify reductions in the U.S., or was that a departmental decision?
Mr. Morrison: I wasn't with the department at that point, but we can certainly get — I think there is a diversification question here about exports, and it plays to an earlier question about reliance on any one country on the part of the government's overall plan for economic diplomacy. The government's Global Markets Action Plan has been to diversify our export markets, and in a world of fixed or declining budgets, that does mean shifting resources amongst regions.
Senator Downe: No question that has been the plan not only of this government but of previous governments for a host of years, but the United States continues to remain our dominant market. I'm just surprised we would reduce resources and services on the one hand where we're doing so well, and trying to pick up business in other markets.
My second question: You mentioned the defence ministers of the three countries meeting. Correct me if I'm wrong, but I understood that under Mexico's constitution the armed forces were not allowed to leave their country. Is that correct?
Mr. Morrison: I'm sorry, I don't know.
Senator Downe: If so, obviously their systems in South America and Central America would be limited.
Mr. Morrison: Yes.
Senator Downe: My last question is on the NEXUS card. Am I correct that that is totally controlled by the United States, or is Canada involved in that as well? It is an American card. Is there a joint agreement?
Mr. Morrison: My understanding is there's a joint agreement. Actually, I just went through this; when you go to the airport to get your NEXUS card, there is a CBSA person and a U.S. Customs and Border Protection person sitting side by side. To the best of my knowledge — and this is personal knowledge — it is a joint card.
Senator Downe: So if a Mexican business person is refused the NEXUS card, is there a Canadian equivalent to allow them to come to Canada much easier? Or are we dependent on the Americans to accept or reject people who may want to do business in Canada?
Mr. Morrison: The card is a joint decision. The modalities of how we're extending it to the third country have not yet — currently it's joint because both countries are saying this is a trusted person that can cross the border with less diligence. How we're extending that to Mexico and what all the rules around that will be are still being worked out.
Senator Downe: So it will be a joint decision between Canada and the U.S., not just the Americans deciding on their own?
Mr. Morrison: Again, I don't know exactly what the protocols will be about access by Canadians and Americans to the Mexican program and by Mexicans to the Canadian-American program. That's something the leaders committed to doing in 2014, so we will know soon.
The Chair: We may wish to follow that up. I understand NEXUS was Canada and the U.S., but there was always a contemplation that if it works, if it facilitates business entry in and out but doesn't in any way impede the security issues we have, it would be extended. I know there have been talks with the Europeans, too, so it might be valuable to bring some official to explore that issue on the basis of a trade perspective. It has been on a security perspective that I have had the briefings before. Thank you for that.
I want to ask a few questions, and then Senator Demers has a question. Part of the fact is that we want to maximize our position and keep up with the trade and investment issues for the prosperity of Canada. We zeroed in on the United States. We went into NAFTA because we saw it as a matter of self-interest. It was originally an initiative between the United States and Mexico, and we weighed the pros and cons and said that we have to be in and not out. We have been perfecting that.
At this point, we will be exploring the bilateral aspect with Mexico, where we will get the maximization of Canada's benefits. Is it increased bilateral attention in a different way with the U.S., or is it a trilateral? Because if we do bilateral, it leads to trilateral.
So which mechanism will we be exploring? Are these issues that the department is looking at?
The other issue is that we're looking at regional. There's TPP and the Pacific Alliance, and we're trying to see which one of these regional initiatives will be in Canada's best interests, and of course how to strategically enter them.
So is that part of the equation that you think we should be looking at — the strategy of how we address Mexico and the U.S.?
Mr. Morrison: The answer is "all of the above." That is simply a reflection of the fact that it's a pretty messy world out there. Some of these issues require the involvement of state and local governments in our country, Mexico and in the United States, as well.
I'm pretty confident that I can say we're going to continue pursuing some issues bilaterally with the two partners, and some issues trilaterally. I'm also pretty confident that the other two countries feel the same way.
Some issues you can start bilaterally and then trilateralize them; some issues lend themselves initially to trilateral cooperation. The ideas will lead across fora and, ideally, will be picked up and addressed in the most effective way possible.
We are in a world of greater regionalization. That has certainly been the case with respect to the Pacific Alliance, which has, frankly, come out of nowhere and made incredible strides in its two-year lifespan.
The four founding countries of the Pacific Alliance are 36 per cent of the economy of Latin America. Brazil is 37 per cent. So you have a very significant new player that has emerged that has already landed free trade among itself — not quite, because it is 92 per cent free trade, but with a commitment to getting to almost entirely free trade. They are talking about a common stock market. They're talking about common passports. They have already opened common diplomatic missions in a couple of different countries.
This is something that has emerged quite quickly and forcefully with significance for the politics of the hemisphere and certainly the politics of the Latin American part of the hemisphere.
The emergence of the Pacific Alliance does seem to offer new opportunities for Canada to further diversify its trading relations. As I said, we already have FTAs with the four existing countries and the two aspirant countries. There is great scope because of the changes in Mexico. We're already very close to Chile. Peru and Colombia are development countries of focus for former CIDA that is now the development part of DFATD. We have multi-faceted relations with all four countries. Our department is hard at work on new initiatives that we could use.
We're an observer to the Pacific Alliance, but we're trying to position ourselves as sort of an observer-plus-plus with a strategic partnership with the Pacific Alliance.
The four constituent countries have respect for human rights, they have respect for the market, they are like-minded in many international fora, and they have been great partners to Canada, and that is especially noteworthy when you look at other countries in Latin America.
Our government, as well as others around the world — the Pacific Alliance now has 33 observer countries. People have noticed. It is a significant new development.
The Chair: I have just a final note. I understand the Canada-Mexico Partnership meeting took place in Calgary two weeks ago. I know it involves business and government. Their report is taking an awfully long time to come out in a public forum. Is there anything we could receive earlier to find out, perhaps, some of their perspectives on Canada-Mexico trade?
Mr. Morrison: Sure. I was there, so I'm happy to tell you about it. It was my first one, so I didn't know that our reports took a long time, and I will —
The Chair: Speed them up.
Mr. Morrison: I will go back to the office and speed them up. It was the tenth anniversary. For others who don't know, it is sort of unique. In our foreign policy, we don't have such a mechanism with any other country. There are ongoing working groups in eight different sectors, from energy, to trade and innovation, to human capital. It's unique, and having seen it now in operation for the first time, I think it's a uniquely promising mechanism.
We and the Mexicans this year decided that the tenth anniversary was also a time to look at what is really working and what could be improved a little bit. We're on a campaign to revitalize some aspects of it, but I came away very convinced that if the agenda is to deepen relations with Mexico, this is a very good vehicle.
It evidently needs to get its reports out more quickly, so we will ensure that happens as well.
The Chair: Thank you. We want our report to come out quickly, so we need the information quickly.
Senator Demers: Please correct me on what I'm going to ask you, and then I have a question. Let's say I have a Canadian passport ending in 2014. My NEXUS card finishes in 2016. The next day, after my Canadian passport is done, I renew it for 10 years, let's say. I must go back and identify my new passport, even though my NEXUS card is 2016. Are you aware of that? Does it make sense is what I'm saying? You can't just go with your passport, even though the other one finishes in 2016. You have to go back.
Mr. Morrison: NEXUS and passports aren't something our department deals with. I just got a NEXUS card, and I'm good for 10 years.
I believe you are correct. Personally, I have a blue passport and a red passport, and I had to make two trips to register each passport. Following on from what you said, I think it makes sense, according to how NEXUS is run, that if your Canadian passport expires and you get a new one, you would have to tell them about that.
Senator Eaton: When you get a new passport and your NEXUS is still working, you can do it online. Or the next time you're in an airport, go to NEXUS and they'll do it for you.
Senator Demers: Even though it finishes in 2016, you still have to go?
Mr. Morrison: Yes.
Senator Demers: Okay, thank you for that. Thank you, Senator Eaton, for your support.
I will ask a question to you, sir, or anybody. What role do Canadian provinces and territories, as well as U.S. and Mexican states, have in increasing trade and investment among Canada, the United States and Mexico?
Mr. Morrison: The role of the provinces and territories?
Senator Demers: Yes, thank you.
Mr. Morrison: One factoid to begin with: Since the coming into force of NAFTA, Canada is now the top export market for 35 of the 50 U.S. states. At our consulates around the United States, this is something we mention all the time. If you look at Texas, for example, we're the number one trading partner. That's not how people at the state level tend to think, so it is part of our advocacy efforts.
Let me mention two groups that are working on exactly what you just said. One is PNWER, the Pacific NorthWest Economic Region, which is a club that gathers together on an annual basis, but there's an executive director and there is a work plan. The governors and premiers of Idaho, Montana, Washington state, British Columbia, Alberta, Alaska and Saskatchewan had their annual meeting this year in Whistler. Ambassador Heyman from the U.S. here in town went, and our Ambassador Gary Doer went. That is the model.
There's a new entity around the Great Lakes attempting to do the same thing. There is currently a quite vibrant organization that groups the Great Lakes governors, and they sometimes invite the premiers of Ontario and Quebec. There's a new institution run by a young Canadian that is trying to emulate PNWER for the Great Lakes region.
Both of those entities are dedicated to looking at their territory as economic regions that happen to have an international boundary between them, but looking at trade in the Pacific northwest, which would seem to make great economic sense. They come to Ottawa and they tell us the areas in which the federal government could lend its support to their prosperity agenda.
The Chair: Just to follow up on PNWER, I think it is unique, and I can swear to the fact that it works because it involves legislators and parliamentarians federally on both sides. Businesses are there, and now academics are there. They work on issues and problem solving. It has been a worthwhile concept. I know that other areas want to emulate that. They do have meetings between governors and premiers, but they're more networking, and these are problem solving. They chart their program. It might be an example with Mexico or something like that.
Thank you very much. You have opened our study with a whole host of issues. We have many directions we could go in this study. We're going to try and contain it so we can be helpful in a timely fashion, and you certainly have helped the dialogue.
Turning to our next panel, we have circulated everyone's CVs so you will get a short introduction. I'm very pleased to welcome, as individuals, Ms. Laura Dawson, President of Dawson Strategic; and Mr. Michael Hart, Simon Reisman Chair in Trade Policy, Professor of International Affairs, Norman Paterson School of International Affairs, Carleton University, who is well known to this committee in previous incarnations. Welcome to the committee. The clerk has given you a bit of an idea of what we're studying and the areas in which we might uniquely contribute to the dialogue on this issue with Mexico and United States. I will take you in the order that you are on my list here, so Ms. Dawson, your opening statement, please.
Laura Dawson, President, Dawson Strategic, as an individual: Thank you for the introduction. It is a pleasure to be here with you again.
I would like to thank you most of all for embracing this issue. I feel like the last trilateralist. Telling people that you are studying or promoting NAFTA, North American competitiveness, is a bit like saying you are studying the dodo or resurrecting the Dead Sea Scrolls. Unfortunately, even though it is our most important trading relationship and our most important trading agreement that covers most of our trade, the NAFTA, as it was conceived, has now become the Exxon Valdez of trade agreements.
Michael Hart, Simon Reisman Chair in Trade Policy, Professor of International Affairs, Norman Patterson School of International Affairs, Carleton University, as an individual: I like that.
Ms. Dawson: Do you want to be the NAFTA chair at Carleton University or the deputy minister in charge of NAFTA relations?
Unfortunately, the NAFTA has become a scapegoat for all that is wrong with globalization. It has become a shorthand that media, protesters and opponents to trade use to criticize illegal movements of people, declining jobs in manufacturing sectors and restructuring of the economy. It is all the fault of trade agreements and NAFTA. So this is an uphill battle for us.
I was listening to the presentation of the gentlemen from DFATD and I do have prepared remarks. However, I want to tailor some of what I have to say at the beginning to some of your questions.
I think it is helpful for you to know that although I used to be an academic — I'm a fallen academic; I worked with Professor Hart, who was my professor, and we worked together — and although I am a Canadian and I run a company that works with Canadian businesses on Canada-U.S. business issues, I worked for the U.S. government for three years. I was the economic adviser to two ambassadors and was often sent to Washington to work with the Department of Commerce and the Department of State. So I saw Canada as the U.S. sees us, and I saw how matters of a trilateral nature are organized at a bureaucratic and institutional level.
Backing up, the United States is our most important trading relationship, but if you project forward to where we will be in 10, 20 and 30 years, all of the growth in North American trade and competitiveness will come from Mexico. That is where we have youth, population growth, a growing consumer class and affordable labour that will enable us to commercialize the technologies that we develop here in Canada. Mexico is really our future advantage.
Many in the government and outside government would not have chosen Mexico as a trading partner 20 years ago. It was almost foisted on us as a way to avoid the hub and spoke problem when the U.S. decided to do the trade agreement with Mexico. So we got into this arranged marriage with a country with which we had little natural trade complementarities. But what ended up happening is our modalities of trade, our trade rules and regulations, and our assumptions and beliefs became synchronized and harmonized with Mexico, whether we wanted them to or not. Now we have this very integrated economy and integrated system that we are not using. Why? Because, I guess, we prefer novelty. We prefer the bird way, way in the bush and to trade with other countries around the world, which is very important, but not to the detriment of our own backyard. I believe the future of Canadian competitiveness comes from developing that North American competitive framework, which we are not doing particularly well right now.
Part of it is a failure of U.S. leadership, and part of it is the fact that the U.S. government will not use the "NAFTA" word and will try to do anything to avoid the political and media backlash that comes from talking about the NAFTA. Last year Secretary of Commerce Pritzker launched a trilateral trade program and they were trying to come up with a name for it because it was the twentieth anniversary of NAFTA. Rather than call it the "North American community," they called it "trade south," which, if you are north of the United States, is kind of a weird name. This is what we are struggling with in the United States, a failure of leadership to push forward the North American agenda. Their mind is clearly on the Asia pivot, Trans-Pacific Partnership and now work with the European Union; so it is Canada's job to push the trilateral agenda.
We prefer not to push the trilateral agenda. Why? Because we have relied on a traditional special relationship with the United States where an official from DFATD can pick up the phone and talk to someone at the U.S. Trade Representative and things just happen, or they just happened, in the past tense.
However, the U.S. government is institutionally organized to deal with economic issues in a trilateral framework. There is not a bureau of Canadian affairs, but there is always a bureau of North American or hemispheric affairs. When they go looking for an announcement, a new program or an allocation of resources, they don't say, "What is up with Canada?" They say, "What's up with Canada and Mexico?" If we are to be heard in Washington as Canada, we have to put it in a trilateral framework whenever possible. This is why we end up in these situations with tremendous allocation of U.S. resources to the southern border — Otay Mesa and San Diego — and almost nothing on the northern border — the Detroit customs plaza problem, for example. As Canadians, we need to promote trilateralism as a way to get our voice heard in the United States.
It is difficult to work with Mexico. They are a challenge. They are a developing country. They are kind of chaotic. It is easier to work directly with the U.S., but we need to do better with Mexico.
Someone earlier asked a question about the Mexican visa and is it not a problem? It is absolutely a problem. In absolute terms of people who are getting turned away at the border, the numbers are not big; but it is the emblematic or psychological barrier that it creates: Canada hates us. Canada promised to get rid of this and now they are treating us like second-class citizens. In fact, when they instituted the visa in Mexico, the form they required was twice as long as the form that Guatemalans were required to fill out. You know how we react to the U.S. on Keystone XL and say that it's no way to treat a neighbour. Well, that's exactly how Mexico feels about the visa.
While we are dithering on Mexico, our business community is much more forward-leaning, as I am sure you have learned in your studies. Canada is the leading foreign investor in Mexico's extractive sector. That is right. We are the biggest miner in Mexico. Scotiabank is one of the leading banks, and we have companies like Palliser Furniture, Linamar auto parts and Bombardier, which are utilizing the best that Mexican supply chains have to offer: our technology, their labour, their innovative capacity and their access to our markets. It is much cheaper to ship something from Monterrey, Mexico, than it is to ship from Shanghai or Beijing. We have these advantages literally on our doorstep, and we are choosing to ignore them.
Yes, those gentlemen from DFATD are absolutely right in saying that a lot of incremental activities are going forward. They are difficult because there are matters behind the border, such as non-tariff barriers and regulatory issues, border issues and the movement of people. We have to do better; and we have to engage better in the key areas of border and regulatory issues, infrastructure, transportation, energy and people, including educational exchanges, knowledge exchanges and whatever we can do so that Canada is seen as a strong partner in Mexico, not a fair-weather friend or a come-and-go trading partner.
The Chair: Mr. Hart, please proceed.
Mr. Hart: Thank you for inviting me. I think I have appeared before this committee a few times, and I am happy to be back. Sorry I am a little late but I am a little slower than I used to be; and going to the wrong block didn't help, but I am here. Unlike Laura, I don't have a prepared statement because most of what I would say is available in papers that I have done. The most recent three papers for the C.D. Howe Institute deal with the issues currently before us.
My former student and now formidable consultant suggests that the issues are largely institutional in Washington and with the way Washington is organized. It is difficult for Canada to get the kind of hearing that we need in order to advance the agenda. Well, there is some truth to that, but we have had that institutional problem since we began Canada-U.S. relations. At least we have moved up; we are now part of the North American bureau rather than the Western Europe bureau, which was the case until we negotiated the FTA.
I have observed Canada-U.S. relations now for nearly 50 years, since I was a student there, and I have never seen an administration that is as uninterested in the Canada-U.S. relationship as this administration. In many ways that is surprising because when Mr. Obama made his first visit to Canada in 2009, I had never seen a presidential-prime ministerial meeting that went so well, where the President came out with an enthusiastic endorsement of the agenda that we were working on. In fact, the reports that came from reporters who were debriefed by the President's staff on the plane home gushed about the extent of the President's commitment to pursuing the issues they had discussed, which include the ones that Ms. Dawson mentioned and which I have written about, that we need to look at Beyond the Border issues, that we need to deal with the stultifying effect that border administration has on bilateral trade; we need to deal with the regulatory issues that divide us, none of which are terribly important, but they are important enough to create a formidable barrier to Canada-U.S. trade. So I thought we got off to a terrific start.
Well, there was no follow-up, none whatsoever. There was kind of a laggard decision to begin the dialogue, and while Mr. Sunstein was in the White House, there was some progress on the regulatory agenda, but once he left and went back to Harvard, the interest was gone. Even though that early institutional response was good for a start, there was never any political interest in it. So the Canadian officials involved in that initiative soon lost their enthusiasm for the project. I hate to say it, but they, too, adopted a kind of "we are in no hurry" approach to things.
I consulted with them quite a number of times, and I could see the waning enthusiasm. Because of the lack of response in Washington, the political interest in Canada began to wane, so this important relationship, which, as Ms. Dawson indicates, is the backbone of Canada's foreign trade, is not going anywhere. Of necessity, we put more resources into ensuring that we have a good relationship across the Atlantic and across the Pacific. I have no problem with that, although I think that perhaps we are overstaffing secondary relationships and understaffing a primary relationship, but I think that is in part because of the lack of response in Washington at the political level.
In your study, I would say that we are looking forward to building a stronger relationship with the next administration, that it's time to write this administration off — most people have — although the level of popularity is hard to explain.
In terms of policy development and policy response to world problems and to bilateral relationships, this is a lost administration. The only thing that I can say — and it is not politically correct — is that Jimmy Carter must be very pleased because he is no longer regarded as the worst President since the Second World War.
The Chair: I am not sure that I will respond to that. My jaw dropped; I will close it and move to the first questioner.
Senator Housakos: Thank you, Ms. Dawson and Mr. Hart, for your refreshing comments. I appreciate your presentations; they were informative.
I will throw this out there as my perspective, and I would like to have your comments on it. Could it be that right now in the United States it is a bit difficult for an administration and for Congress to get all that excited about a trade agreement that currently has a trade deficit with Canada? We export far more to the United States than they export to us. They have a deficit in regard to foreign investment. Over the last decade, there seems to be much more American investment coming to Canada than Canadian investment going into the United States.
Inevitably, there are those numbers that politicians look at before they start peddling any project and any agreement. In addition to that, you appropriately commented that in the United States there is a clientele that believes there is a degree of resentment with these agreements, be it NAFTA or free trade. The American economy has not performed in the last decade as well as the Canadian one.
I would like your comments with regard to those views, as well as my perspective that Canada hasn't utilized Mexico enough as a springboard in the Americas, both South America and Latin America. There are some examples, and Ms. Dawson alluded to them vis-à-vis Bombardier and other Canadian companies, but can Canadian enterprises and the Canadian government focus more on using Mexico as a springboard into the Latin American and South American markets? Can you comment on those two broad questions?
Ms. Dawson: Professor Hart will probably have something to say on U.S. interest in trade agreements, so I will respond minimally to that, except to say that the nature of trade agreements or interstate commercial relations has changed.
When we were doing the GATT, the WTO and the Canada-U.S. Free Trade Agreement, there were large tariff barriers that we had to overcome, and these trade agreements became the focal point of our commercial relations. Over the last 20, 30 and 40 years, these barriers have come down and we are into this world of irritants and barriers behind the border. The problem with them is that they are incredibly difficult to root out. It is incredibly difficult to get enough stakeholders to support them because they tend to be the things that affect small and medium-sized enterprises, and they cannot be very good lobbyists because they don't have the resources to do it, where the big companies find workarounds. So that has made it much more difficult to get enthusiasm for large agreements.
Finally, when you're doing the Regulatory Cooperation Council, we are talking about meat cut nomenclature and poultry wash. You don't want to send your ministers down to have a big announcement with CNN and talk about poultry wash or pesticide residue; it is just not sexy. So we have this problem of approaching complicated agreements with thousands of moving parts and trying to crystallize them into large, summit-type events, and it is just not working particularly well.
The question about using Mexico as a springboard for the rest of Latin America, absolutely I agree. We heard the gentleman from DFATD talking about the Pacific Alliance, and that is a good formal relationship we should certainly pursue. But, yes, Mexico is the springboard for the rest of Latin America.
You mentioned in the previous session about the importance of SMEs. The SME integration into our North American supply chain tends to start locally. A small supplier will work with a Linamar in Guelph, and a Linamar in Guelph will work with a foundry in Mexico. Then they will re-export or joint venture with Chile, Peru or Colombia. Yes, we should be using Mexico as a springboard into the region. It makes good, logical sense, but we also can't be shy about ourselves engaging with these countries as well; we have free trade agreements with Colombia, Peru and Panama, and we need to use them.
Mr. Hart: I don't disagree with Ms. Dawson, but I would not want anyone to leave with the idea that Mexico can be a good inroad into dealing with the U.S. or that we can get a lot of reward and return for improving things with Mexico. Mexico is a difficult market. It still remains a Third World market, with all the bureaucratic problems that Third World markets have.
Mexico has made great strides over the last 20 years in implementing the NAFTA. They initiated an aggressive regulatory reform movement from about 1995 to 2000 and made a lot of progress. The Mexicans would be prepared to pursue a regulatory agenda on a trilateral basis, but doing so would make a complicated issue impossible. I think we need to work with the Americans first to make that progress.
The Mexican border is a problem that is not going to be resolved anytime soon, as long as there are millions of people crossing that border illegally. So the U.S. attention to the border with Mexico is strictly an issue of migration and of security rather than of commerce.
A lot has been done to improve that commerce, but there is a limit to which they will go — a limit we have to convince them they can breach — in Canada-U.S. relations. We have indicated a variety of ways in which we are prepared to cooperate with them to the point where we may be compromising Canadian interests, letting much of what they do be what we do.
There are areas where I'm not sure that is very well thought through. Over the last year, for example, in order to work with the Americans and look at the interests of Canadian banks in the U.S., we now have legislation that forces the Canadian banks to be agents of the IRS. Having a wife who was born in the United States, I know what kind of harassment the IRS is capable of applying; it makes the Canada Revenue Agency look like a bunch of sweet angels.
So there are limits to what we are prepared to do, particularly as the U.S. hardens these kinds of issues.
That being said, in general terms, this is not an administration that has exhibited any real interest in a trade agenda. Mr. Obama came into office without the requisite authority from Congress to engage in trade negotiations, so all the negotiations they have pursued have been done on the basis of the President's foreign policy authority. In today's world, it isn't worth much, because if you want an agreement that will go anywhere, it will either have to be the result of approval by both houses of Congress — that is, the implementing legislation will require approval from both houses of Congress — or it must have a two-thirds approval of the Senate. That isn't ever going to happen in today's world, unless one party or the other gets 75 seats, and that's unlikely.
Second, this is a democratic administration that is strongly beholden to the labour movement and to other left-wing movements. Therefore, it is generally hostile in its attitude toward trade. So the negotiations that are going on in the TPP and in the early stages of the transatlantic agreement are being conducted without the strong kind of political authority that I would want as a negotiator to make sure that the concessions we make are ones that will be reciprocated in a way that we can count on it.
Now, we are told by the people in Washington that Mr. Froman is a much more active USTR than his predecessor. That may very well be true, but there is no way that the current Congress will grant him negotiating authority. It is possible that the new Congress next year will be made up of different people, because it is likely to have more Republicans in it who are more interested in trade; they may be prepared to give that negotiating authority. But that will be an interesting negotiation between the administration and those two houses of Congress, because the administration will want things that the Congress does not want, and the Congress will want things that the administration doesn't want.
So it will be an interesting area to watch. They have promised that they will get that authority in time for Congress to consider the TPP, and it will be an interesting thing for Washington-watchers to watch, but I'm not 100 per cent sure that is likely to happen.
In those circumstances, as I mentioned earlier, I think we need to concentrate on preparing to do our homework and so on for the next administration.
The Chair: I have two more questioners on my list, and I will close the list now. If we can put forward shorter questions and answers, we can get it all in within the time allocated.
[Translation]
Senator Maltais: Mr. Hart, thank you for your short introduction. I see that you are an experienced man who is very familiar with the issue.
Ms. Dawson, my question is for you. Your comments were very rhetorical and well-structured. I see that you possess the qualities of an exceptional teacher.
I must say I disagree with you over Mexico's view of Canada. In another parliament, I worked a lot with Mexican governments, as well as with the Mexican people. I do not agree with your statement that Mexicans hate Canada and say that our country treats them as second-class citizens. For Mexicans who come here, Canada is among the best countries when it comes to the treatment of foreign workers, as it provides them with benefits such as employment insurance and medical care. We are one of the countries qualified to provide the best care to foreign workers. It is certain that, if we were to open the border to Mexico tomorrow morning, Canada could receive 85 million work visa applications.
However, Mexicans are much more apprehensive toward the United States, for historical reasons, as well as manufactured ones. I say historical because of the Spanish-American War, when Mexico lost part of its territory, as well as the Border War. Mexicans are much more concerned about the wall between them and the United States, and American visas.
As for Canadian investors in Mexico, they are highly regarded and treat their employees very well, no matter what some may say or think. I was a member of another parliament for a long time, I participated in a number of trade missions, and I never heard about the situation you described.
What you said is very rhetorical, but that is not what you hear on the ground. However, it is certain that Mexico is a developing country that has been ravaged by many revolutions; a country that was shamelessly exploited by the Spanish.
Here is my question for you. Are you certain that Canada is seen as a country that treats Mexican workers as second-class citizens?
[English]
Ms. Dawson: No, I'm absolutely not sure of that statement at all. I apologize if I misspoke or have been misunderstood. Canada has a wonderful relationship with Mexico in the form of its Temporary Foreign Worker Program. As you mentioned, we have one of the world's leading temporary mobility programs, which helps both Canada and Mexico to fulfill their labour market needs.
So let me dismiss that, first of all. You are absolutely correct, and I apologize for any unintended statements that I might have made.
With respect to whether Canada is detested by Mexico, absolutely not. Absolutamente no. However, our partners in Mexico feel let down by Canada as a result of assertions that were made about ending the Canadian visa within a certain time limit, and then it didn't happen. Yes, there are some security considerations, but there are many ways around them. There is, for example, an automated or electronic travel authorization program that the United States uses for visa-waiver programs in which foreign nationals can enter a certain amount of information and within a few minutes find out whether they are admissible to the country. This is the sort of thing we need to work towards — not to treat all Mexicans as though they are enemy aliens.
We had the misfortune in Canada to be memorialized on Mexican television. Mexican telenovelas, the serial romances, are one of the centrepieces of Mexican culture. A boyfriend and a girlfriend are arguing in this telenovela, and the boyfriend tells the girlfriend, "You ask more questions than the Canadian embassy." When you are known to be that kind of a neighbour and friend, we have some work to do on our reputation.
I also should emphasize the important work that individuals, municipalities and provinces do in Mexico. In particular, the Province of Quebec has maintained a strong, solid, continuing relationship in Mexico. In some ways, they are carrying the flag for the rest of us.
[Translation]
Senator Fortin-Duplessis: Ms. Dawson, before I ask you my question, I would like to know what Dawson Strategic does. I did some research, but I did not find anything about it.
[English]
Senator Downe: The emphasis in your opening presentation, Ms. Dawson, was about Mexico being the real avenue of growth. Parts of the U.S. government consider Mexico as a possible failed state. They're not sure how it's going to go with the corruption and the drug wars. You mentioned Scotiabank's presence in the country. The officials from Scotiabank drive around in armoured vans with a backup van for security. They have more security than the Prime Minister of Canada has travelling in Ottawa.
If you are a small business person, even medium-size, that is a very big deterrent to doing business there. If you are a large company, kidnapping and ransom demands are part of the way of doing business. You can see why many Canadian businesses are reluctant to enter into that market, over and above the language barrier. Are those concerns overemphasized, or are they, in fact, the reality of Canadian businesses on a daily basis?
Ms. Dawson: I'm going to start with your question, Senator Downe, and then I'm going to tell you all about what my company does.
Is Mexico a failed state? No. Mexico has a lot of heavy lifting to do in order to get itself from the state of a developing economy with a lot of security and transitional issues and unhappy neighbours on its southern border that it has to contend with. It is having to do battle on a number of different fronts, and it is a challenge and the U.S. is involved there. However, there is also a lot of strong cross-border commerce that is going on, and it is growing cross-border commerce.
Last year, the Canadian Council of Chief Executives hired me to do a study on Canada-Mexico arrangements, and I spent about three weeks in Mexico talking to Canadian businesses, looking for myself at what it was like. Yes, there are security concerns depending on what region you are in and depending on what business you are in, but, generally speaking, if you are in Mexico City, the security concerns there for an average business person are no more than they would be in any other major city in the world.
Yes, it is not doing business in Paris or Frankfurt, but if you look at the list of developing economies with whom we can be doing business and you look at the advantages and the relationships that we already have with Mexico and you compare that to the risks and challenges we would have in a Moscow, a Beijing or a Bangalore, Mexico is pretty good.
EDC, Export Development Canada, has a very good program where they try to tie in small business interests to their lending activity and guarantee activity in Mexico. It doesn't always mean that you have to locate in Mexico to be active in Mexico. There are many good resources provided through the embassy, the trade commissioner service and the Mexico-Canada business council. They are all there to backstop the efforts of Canadians there.
Senator Downe: A small point: I didn't want to leave the impression — if I said it, it was a mistake — that Mexico is a failed state. The Americans are looking in the future and the possibility of its being a failed state. I also address the same question to Mr. Hart, if I could, if we have time, chair, if he has any comment.
The Chair: I know professors like 20 minutes, but 20 seconds will do.
Mr. Hart: I don't think Mexico is a failed state. I understand why some American officials are tending in that direction. I have now observed Mexican development since the Portillo administration, which is some years ago. At the beginning of each administration, one of the things they promise and try to tell Americans and so on is that this is the administration that is going to tackle the corruption problem for the first time.
I listened to an energetic presentation two years ago from the chief of staff of the current president, and I thought, wow, that sounds good. Of course, nothing has come of it because the corruption is so deep, particularly now that the narco side has developed even as the political corruption has declined somewhat. Canadian businesses are well advised to make sure that they're not going to get compromised while they're there, and that does add to the expense of doing business there.
Ms. Dawson: When I left academics and the U.S. government, the only place left for me was the private sector. What I was used to seeing were these companies that were doing business in Canada under one set of rules and the United States under a different set of rules, and the businesses themselves are saying, "How do we work this out?" My little business works with business associations, coalitions and groups who are trying to navigate cross-border trade. If there are different transportation rules that are affecting them or different banking rules that are affecting them, we try to help them figure out a change that doesn't involve changing policy or government lobbying but communication and coordination among government officials like the fellows who were here today.
[Translation]
Senator Fortin-Duplessis: As far as I can see, your experience is mostly related to trade between Canada, and the United States and Mexico. How do you view the Asian economies that have an increased global role and affect trade and investment in North America — and the same may be said for European countries? Do you think this hurts our relations with our closest neighbours, the United States and Mexico?
[English]
Ms. Dawson: Yes. Canada has long been encouraged to diversify its trade. Trading with just one partner is never a good idea, so Canada has been involved in this diversification effort, but instead of swimming with one whale now we are swimming in a pond with many whales. China is a whale, the European Union is a whale, and we are a small fish. We need to be a small and fast fish. In order to exist in this world, we have to be very vigilant about the conditions under which foreign investors come to Canada and supervise their operations to ensure that they meet all Canadian labour health, environmental standards, et cetera. We cannot be lackadaisical and assume that just because we play by the rules, everyone else will as well. We need to toughen up a bit in order to meet the demands of diversification.
The Chair: We have run out of time. You have certainly started an interesting debate with your forthright manners in dealing with these issues. I strongly suspect that as we continue our study, we may wish to have you back to respond to some other aspects. If that doesn't occur, I strongly think that some of the senators around here may want to join your class, Professor Hart. You have a provocative way of dealing with the issues, and it makes us think. Ms. Dawson, you come with a wealth of experience in the U.S. which is extremely helpful. Thank you for appearing before us, as you have in the past. We look forward to continuing this dialogue.
Senators, we will be back here in this room tomorrow, so I just remind you in the morning to come here for the session, and then next week we will revert back to our regular meeting room. The meeting is adjourned.
(The committee adjourned.)