Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue No. 5 - Evidence - Meeting of April 21, 2016
OTTAWA, Thursday, April 21, 2016
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:35 a.m. to study foreign relations and international trade generally (topic: bilateral, regional and multilateral trade agreements: prospects for Canada).
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: Welcome to the Standing Senate Committee on Foreign Affairs and International Trade. The committee is authorized to examine such issues as may arise from time to time relating to foreign relations and international trade generally. Under this mandate, the committee will continue to hear witnesses today on the topic of bilateral, regional and multilateral trade agreements and prospects for Canada.
To date, the committee has held several meetings on this topic and heard from academics, experts and governmental officials. The committee is pleased to continue its study today, and we will now receive a presentation from an expert who specializes in intellectual property.
On behalf of the committee, I welcome by video conference Barry Sookman, Partner, McCarthy Tétrault. Mr. Sookman specializes in the area of information technology, intellectual property and privacy anti-spam law. He is also the author of numerous books and articles dealing with information technology and intellectual property. As well, he is an adjunct professor who teaches copyright and intellectual property at Osgoode Hall Law School. He has a much more extensive biography that has been circulated, but I thought I would raise some of the highlights as they pertain to this committee.
Mr. Sookman, our usual practice is to hear from you in a presentation and then to allow time for questions from senators. I welcome you to the committee, and the floor is yours.
Barry Sookman, Partner, McCarthy Tétrault, as an individual: Thank you very much. I would like to thank the committee for inviting me to appear today to provide input on international, multinational, regional and bilateral trade agreements. I am going to be focusing my remarks on the Trans-Pacific Partnership.
I have a practice that spans the areas covered by the important chapters I want to refer to, being the e-commerce chapter, or chapter 14 of the TPP, and the intellectual property chapter, being chapter 18 of the TPP.
I'm here today in my personal capacity and not on behalf of any clients.
The TPP has been heralded as a 21st century trade agreement. The e-commerce and IP chapters reflect this, in my view. The e-commerce chapter is truly innovative in trade agreements in that it tackles barriers to the use of the Internet and other networks to conduct trade. This gives Canadian businesses the opportunity to do business in the other 11 TPP countries from Canadian soil, giving Canadians a chance to develop and maintain high-paying jobs in this country.
Under the e-commerce chapter, no party can impose customs duties on electronic transmissions, although taxes may be imposed. The agreement is at the forefront of trying to remove other barriers to electronic commerce, including to recognize electronic documents and signatures. The treaty would require the parties to be consistent with one of two international model laws related to recognition of electronic documents and electronic signatures. This will bring all of the parties up to Canadian standards, standards that have been in use in Canada for over a decade. It will also facilitate the use of sophisticated authentication technologies, of which Canada is at the forefront as being an innovator in those technologies.
Parties will not be able to block market access by preventing Canadian businesses from transferring personal information to Canada for processing or require Canadian businesses to establish data centres in other countries in order to conduct business there. There are exceptions to permit legitimate public policy objectives consistent with international norms for exceptions. These provisions are very important to enable Canadians to do business from Canada over electronic networks with other members of the TPP.
The TPP also requires minimum standards for protection of personal information, to prevent spam and to promote consumer protection. Canada meets and, in fact, exceeds these standards. Some have criticized the TPP for not going further, but in my view, it's unrealistic to have expected a trade treaty to be, in fact, a treaty for privacy, anti-spam and consumer protection.
The TPP also requires minimum standards for intellectual property protection. Canada played an active role in the negotiations of these provisions. The result is — and I know the committee has heard this already — that with few exceptions, Canadian law is already compliant with these requirements.
The IP chapter has been subject to criticism in Canada by a few vocal individuals. In my view, quite a lot of what has been said about the IP chapter is not accurate and potential problems have been exaggerated. I'm submitting to the committee several blog posts that I have published that deal with these criticisms, and I would be delighted to answer any questions the committee may have with respect to them.
In assessing the IP chapter, and in particular, the appropriateness of its minimum standards, in my view the committee should take into account the following: First, there are minimal changes required by the treaty to Canadian law. Second, the impact of the changes that have been publicly identified are not significant, especially in relation to the overall context of the treaty. There are good public policy reasons for the changes. These include amendments requiring an extension to the term of copyright, the addition of criminal sanctions for those who would engage in facilitating piracy by removing rights management information from digital products, and requiring a criminal sanction that targets computer hacking to steal trade secrets that is detrimental to Canada's economic interests, international relations or Canada's defence or national security.
Honourable senators, the TPP will give Canadian businesses access to a trading block with 40 per cent of the world's GDP and most favoured access to markets of our top three trading partners, the U.S., Japan and Mexico. It will enable Canada to be part of global supply chains that operate in this market space.
Intellectual property laws promote innovation and commercialization of IP products. The 21st century and the fourth industrial revolution that we are in the midst of increasingly relies on IP to raise capital and to foster innovation and commercialization.
The Canadian market by itself is too small to support the level of investment needed for high technology and intellectual property based companies to succeed. Canadian businesses need to compete internationally and will need to leverage the high levels of intellectual property protection accorded by Canada's trading partners, whether or not Canada joins the TPP.
Honourable senators, in my view, it is hard to see how Canadian businesses would be disadvantaged by agreeing to keep standards of protection of intellectual property protection we already have. The standards in the TPP are consistent with international norms and they support intellectual property intensive industries while providing reasonable flexibility in accordance with international norms.
Those are my introductory remarks, and I would be delighted to answer any questions you may have.
The Chair: Mr. Sookman, thank you for your presentation. You gave a more general presentation and then talked about TPP. Do you have any comments on the proposed CETA agreement? Or is your specialty TPP and I shouldn't ask you that question?
Mr. Sookman: Well, members of the Senate, you're free to ask me any question you want since you control the floor.
I think the CETA is less ambitious than the TPP, at least with respect to the e-commerce provisions. The TPP is similar in many ways with CETA. They approach some of the provisions in a different way but, by and large, Canada has managed to preserve most of the laws it has. There are a few changes required, particularly geographic indications and with respect to patent term extension. In the TPP, Canada has managed, I think, to limit the changes to those that would already have been in CETA, with the exception of one or two in the copyright area.
The Chair: By extension, do these new proposed treaties reflect at least the intent and direction of the World Trade Organization?
Mr. Sookman: I think they go beyond the WTO. The WTO has stalled, on my understanding, in terms of moving forward with a trade agenda. The TPP and CETA are agreements that attempt to establish comprehensive rules among the parties. It is conceivable that the TPP will become a recognized standard that other countries could join. There have already been requests, I understand, from other countries, including South Korea, to join. It may well be that these standards will become ones that eventually find their way into the WTO.
So I would say that these treaties certainly build on the WTO standards, and many of the examples of the provisions in the TPP, in fact, are already obligations in WTO, but some of them go further. As an example, there are requirements for protection of trade secrets under civil law in the TPP. Some have criticized the introduction of that provision, but in fact it's the identical provision that exists in the WTO, identical to what already exists in NAFTA and we're fully compliant. It both builds on what we have and supplements it.
The Chair: Thank you.
Senator Dawson: We had Mr. Geist as a previous witness, but I guess you've learned to disagree with him on a bunch of subjects. There are a few issues he brought up and I'd like to get your thoughts on the record. I saw some of it on the blog. He said that since we came into the negotiations by the back door and we were not allowed to retroactively debate things that have been agreed upon, it puts us in a weakened position.
He says that by joining the TPP, we also join, whether we like it or not, nine international IP treaties that become part of the core of the TPP.
Starting with those two issues, I'm wondering if you would like to add to those comments.
Mr. Sookman: Thank you, senator. Let me address both of those claims.
When you read the chapter of the TPP on intellectual property, it is absolutely abundantly clear that Canada played an active role in the negotiations and managed to secure many changes that would not otherwise have been in the TPP. There are many unique elements of the TPP that you would not find in trade agreements, principally exceptions from commitments that reflect unique aspects of Canadian law. I would say that anybody who is familiar with the actual text of the treaty will see Canadian fingerprints all over the treaty. To suggest Canada didn't play an active role would actually be demonstrably wrong, I think, and can be evidenced simply by looking at all of the many aspects of the treaty, including the many footnotes in the treaty.
One of the things that Canada pushed back on fairly hard was to preserve our notice and notice regime and not be required to implement a notice and takedown regime. My personal belief is that the notice and takedown regime, which is almost universally accepted among all our trading partners, is a good regime and one that should be an alternative to notice and notice, but in fact both of them play equal roles.
Looking at Canada's position at the negotiating table, if the mandate was to preserve the flexibility and maintain the regime that we had, Canada pushed back very hard, and we have a special annex to the treaty that specifically preserves that element of the framework that Canadian policy-makers believe was right.
So I disagree that Canada didn't play or was unable to play an active role.
When it comes to treaties that are at the core, one has to remember that Canada is already a member of those treaties, so it's not adding anything new. But there is a significant difference, Senator Dawson, in the way the TPP deals with the international treaties from the way they're dealt with in CETA. In CETA, the parties agree to abide by all of those treaties, so they're effectively incorporated by reference, and a breach of one of the elements of the treaty would potentially result in something that's a breach of CETA.
In that respect, TPP is a lighter touch. It merely requires the parties to have acceded to those treaties. That doesn't mean they're incorporated by reference. Canada is already a party to those treaties. I don't think we have any intention of resiling from them, so I don't think it adds anything more onerous as far as Canada is concerned, but the TPP has a lighter approach to them than CETA does.
Senator Dawson: You spoke in your introductory remarks about criminalization, that it's an added touch to past trade agreements where criminalization was not part of those agreements, and this one deals with criminalization. Could you elaborate on that, please?
Mr. Sookman: The allegation that Professor Geist makes is that the TPP adds criminal sanctions for trade secret violations. His claim is that somehow that would be a problem.
But when one actually examines the way the TPP addresses criminalization of trade secrets, you can readily see that it's much narrower. The TPP gives parties quite considerable flexibility as to what they must make criminal. There are a variety of choices, but one of the choices, as I mentioned, really involves computer hacking by foreign states, which would undermine the national security of Canada. In my view, it's hard to see any policy reason why there would be an objection to criminalization of that kind of activity.
Senators, I think you all know that one of the challenges Canada faces — not only Canada but really the industrialized world — is computer hacking by cybercriminals, terrorists, state-sponsored terrorists and criminal organizations. That is becoming an ever-pressing problem. Our trading partners, Europe and the United States, are moving ahead to amend their laws with respect to trade secrets.
The TPP's criminalization of trade secrets is a very moderate, minimum requirement, which I can't see any problem with. In fact, given the pressing and real concern Canadians have about cybercrime, I think having some theft of trade secrets being a criminal offence is good public policy.
Senator Dawson: Thank you very much.
Senator Poirier: Thank you for your presentation and your comments so far. A couple of my questions were already asked by our colleague, but I have a couple more to add.
The committee has heard so far much testimony regarding the TPP and most of it has been negative. Through your blog you have answered to some of its harshest critics. I was wondering if you could comment. The TPP has brought a conversation on intellectual property and innovation to the wider public. What has been said so far is basically Canada is lacking and the impression left is negative.
In your opinion, is Canada in a good position and heading in the right direction?
Mr. Sookman: Senator, thank you for your question. I agree that among certain popular press and blogs there has been some negative commentary around the TPP. There has also been quite positive commentary as well with respect to the intellectual property provisions. They haven't gotten perhaps as much dissemination as unpopular posts. I think it's the way the media works. Something that is a criticism tends to get more circulation than something that's positive. There have been good analyses of the IP chapter that have basically looked at the criticisms and have found them to be wanting.
In terms of where Canada stands, I did hear Dr. Halucha mention yesterday that Canada played a real catch-up role. Our intellectual property regime had been antiquated; it was creaky and really needed changes. It had not kept pace with the fast-moving changes in digitalization, so there have been considerable areas in which we have made progress. The 2012 Copyright Modernization Act is one example. The anti-counterfeiting legislation to help our porous borders deal with counterfeit goods and protect the Canadian public was another good example.
Do we stop there? Senator, I think the answer is no. There are still considerable challenges that innovators need to address problems. There are still areas where there's considerable leakage because of piracy. More still needs to be done, but we've certainly moved a long way to try to modernize our laws.
I think when you look at the standards in the TPP and compare them to Canadian laws and see that Canadian laws are, by and large, consistent with that, and if you view the TPP chapter as I do, as being global international standards, then you can see Canada's laws being consistent with that and well on their way to being within the framework of where our major trading partners are. Do we have to stop? No, but I think we've made significant progress in the last couple of years.
Senator Poirier: Thank you. For future agreements, is it to Canada's advantage to include the intellectual property chapters? What would you like to see different in the future agreements regarding intellectual property?
Mr. Sookman: Thank you, senator. I think the answer to that is definitely yes. Canadian businesses cannot succeed simply by trying to leverage the Canadian marketplace. If we're to succeed in the fourth industrial revolution, then we're going to have to be at the forefront of innovation and commercialization.
If you think about where we're headed, we're headed to a world where there will be an Internet of things and where everyone will be connected. There will be wearable technologies, new technologies to deal with climate change. British Columbia is at the forefront in that area. There will be new innovations in medicine, including genetic treatments that will revolutionize medicine. There are going to be considerable further developments in robotics. And quantum computing is probably going to provide many unpredictable opportunities for Canadian businesses as well.
That's the marketplace that Canada needs to succeed in if we want to leverage high-paying, interesting jobs and those that are going to support the kind of system that we have all come to know. Those kinds of industries depend on intellectual property laws that promote investment, that enable Canadian innovators to develop products at home, market them abroad, have access to those markets and know that the intellectual property laws in the other countries are going to protect their innovations from knockoffs and competitors.
When you think about trade in the 21st century for Canadian businesses, if we're going to be at the top of our game and if we're going to try to compete, then having a sound intellectual property framework that we're familiar with at home and that we can rely on abroad is important.
So as these trade agreements expand into other countries, then given that Canadians want to have those trade agreements and want to be able to do business in those markets, and given how important intellectual property is in the 21st century and how even more important it's going to be in the future, then I heartily endorse having intellectual property provisions as part of treaties that we're going to enter into in the future.
Senator Poirier: In your point of view, are the intellectual property chapters from the CETA similar to the TPP?
Mr. Sookman: There are similarities and there are differences. The Europeans have a particular interest in geographic indications, so there is a much more extensive regime on geographic indications.
I think the patent provisions are fairly similar. The copyright provisions, again, have certain similarities. There is more emphasis on certain things in the TPP, but by and large these are international standards, and Canadian companies that are consistent with the TPP will be consistent with CETA and vice versa.
Senator Ataullahjan: Trade agreements can sometimes lead to changes in legislation, so do you see any changes in Canadian legislation concerning the protection of IP? Do we have to amend our Copyright Act?
Mr. Sookman: Senator, you're right that the implementation of the TPP, assuming Canada decides to ratify it, would involve some amendments, but the amendments are not radical. I put them into two categories. Some of them are simply conformance related. For example, Canada has certain requirements to give national treatment to other countries. When you do a trade agreement, you add other countries to our law that will recognize the rights of those foreigners. There are those kinds of technical amendments that have to be made. Then there are several amendments that I referred to that would need to be made.
By and large, the regime we have in Canada is going to remain the same. That goes back to the point that I made earlier in response to the question from Senator Dawson; namely, that the Canadian negotiating team seemed to be fixated on ensuring that the flexibility and regime we had in Canada didn't have to be significantly altered by the TPP.
So yes, there are some changes. But are we rewriting all of our copyright law? The answer is "no.''
[Translation]
Senator Rivard: Welcome, Mr. Sookman. Over the course of the past few weeks, we've had the opportunity to hear from a number of experts on intellectual property as it relates to trade deals, free trade and so forth. The committee had the privilege of hearing from Jim Balsillie over a number of days. I listened closely to what he had to say, but I don't recall his commenting on the subject I would like to ask you about. In a January 30, 2016 article of The Globe and Mail, he wrote that Canada did not have the arsenal of intellectual property to benefit financially from such provisions. Do you agree with him? What is your take on the situation?
[English]
Mr. Sookman: Let me answer the specific question and then some of the other things that were referred to in that article.
Mr. Balsillie did make a point of whether Canada would have as many patents as the United States or Japan at the time of ratification of the treaty. The answer to that would be "no.''
However, the real focus is not how many patents we have at any particular point in time; the goal of the TPP is to create a framework that allows us to innovate. It's not what we have today, but what we will have in 10, 15 or 20 years when we are competing on a global scale. It's the long term you have to look at, not any position at any point in time.
The second thing Mr. Balsillie mentioned in that article was a concern about being locked into a standard that wasn't a Canadian standard and a concern that we retain flexibility in Canadian law.
Let me give you my thoughts on that. First, we're already largely compliant, and our law is what it is. There aren't substantial changes in any event.
If you think about that question of lock-in, I'd suggest there are two things you have to ask. First, is there a benefit by everyone playing by the same rules as opposed to Canada having a unique set of rules that somehow are less protective of intellectual property than those of our major trading partners?
Let's think in terms of football. We have the CFL in Canada, and the United States has the NFL. Say the NFL was thinking of expanding into Canada, and we said, "You can expand into Canada, but the rules you have to play by are the CFL rules, because those are our unique rules.'' I suspect there wouldn't be a lot of interest in forcing an NFL team to come here and then play by the CFL rules and not NFL rules.
Think of the converse: Think of the owner of a CFL team wanting to join the NFL, the major market for football. To say, "We're going to do that, but when we play the rest of the teams, we're going to play by the CFL rules, not by the NFL rules.'' Somehow, I think that's a non-starter. There are some real advantages to both investments in Canada and Canadians who are seeking to move and expand their businesses into other regions — that they play by the same rules.
Then the question is: Are those the right rules or are those the wrong rules? There are a couple of things worth thinking about. The first is that those are the de facto rules, and they're going to be the de facto rules whether we join the TPP or not. If there are benefits to joining the TPP and if we're going to have to play by those rules anyway, then what's wrong with them being in the TPP?
Second, actually look at which countries are the most innovate countries in the world and what their IP regime is. If you look at the United States, think of Google, Facebook, Intel, Microsoft, Motorola; and major cultural industries, including book publishing, software, music and movies. That's the intellectual property regime under which they have grown and succeeded.
There is no reason to think those rules are not rules Canadians can play by and succeed with.
So in my view, again, thinking about the 21st century and the challenges we have, I don't see any benefit to having radically different rules and thinking that we're going to play only in a local market by different rules and that we're not going to try to innovate and export beyond our borders. If that's the vision, then playing by the international rules has a lot of benefit and those international rules have proven to be successful.
You can make an assumption about Canadian businesses; you can assume that we're not smart, we can't and won't innovate, we won't commercialize and we will lose. If that's the view, maybe there is a problem. But if the view is that Canadians are smart, can punch above their weight and that Canadians will have the support of their governments, including through innovation policies, then there is no reason to think that there is a problem.
I have great respect for Jim Balsillie and his insights about whether we've had successful innovation policies. I recall when I was still in university decades ago, I'm sad to say, I remember there was a report from the Senate on why we had a branch plant economy. The Senate was concerned back then about a science policy for Canada. In some respects, we still have challenges, and I think we still need to think about how to support Canadian companies to enable them to innovate. But I think the issues about how we support Canadian innovation and whether the IP rules in the treaty are good or bad are two separate questions.
The Chair: Mr. Sookman, thank you for your very excellent presentation. You obviously read the TPP, at least the chapters that you are concerned about and that has been very helpful.
It's also very helpful that you noted that in university days you were reading Senate reports. We're very proud of the fact that our reports have depth and meaning and contribute to the policy debate in Canada.
Therefore, thank you for your university training but also thank you for the evidence that you have given here. It certainly has been helpful and will be for our report and study and understanding where trade agreements are going, what is necessary within trade agreements and what environment they need to be implemented in. I appreciate that you're at a distance, but on behalf of the committee here, all of the members, I thank you for your evidence.
Honourable senators, we have our second panel.
The Standing Senate Committee on Foreign Affairs and International Trade is authorized to examine such issues as may arise from time to time relating to foreign relations and international trade generally. Under this mandate, the committee will continue to hear from a witness on this panel on the topic of bilateral, regional and multilateral trade agreements, prospects for Canada.
I am pleased to have in person Robert Wolfe, Professor, School of Policy Studies, Queen's University and Research Fellow, Institute for Research on Public Policy.
Professor Wolfe's research forecasts on the process of trade negotiations and on transparency and accountability mechanisms in global governance. A longer biography is available, but I am keeping it short, Professor Wolfe, so you will have more time to present to us and to receive questions.
Robert Wolfe, Professor, School of Policy Studies, Queen's University, and Research Fellow, Institute for Research on Public Policy, as an individual: Thank you very much for inviting me. It's a great pleasure to be here today. I have read the transcripts of the sessions you have held in the last couple of months, and I hope I can add something to the excellent presentations you have already heard, including this morning.
My presentation draws from a book that's going to be published later this year by the Institute for Research on Public Policy. You have the table of contents for the book. Many of the chapters are now online.
Today, based on what we've been doing in that book, I want to provide you with an analytical framework for how to think about where you would negotiate the kinds of issues that we've been addressing.
The first point is we can't forget that the WTO is our trade agreement with the world. All significant traders are members. Its agreements cover goods, services and intellectual property. Its main principles of multilateralism and non-discrimination have served Canada well.
This slide shows how each successive WTO negotiation round has included more participants, which is the blue column, and has taken longer to conclude, which is the solid red line. Contributing to its growing slowness is the growing complexity of the agenda, which is the dotted red line.
The proliferation of regional trade agreements in the last 20 years is both caused by the slowing in the WTO but, arguably, in itself has slowed the WTO.
The WTO has also been slowed by an agenda that reflects a world that has gone in two directions. First, power has shifted. In 2001, China's share of world trade was comparable to Canada's but now is comparable to the EU and much more than the United States.
The second is change in what is traded. This car in this slide — it's a Volvo — shows one example of what a global value chain looks like in practice. What we trade now is bits and pieces in manufacturing, in services and even in complex agri-food chains.
One big trade policy implication is that imports matter as much as exports. That means eliminating tariffs on intermediate inputs, as Canada has done. It also means addressing regulatory uncertainty all along the supply chain and very much reducing trade costs, the things that create a wedge between the domestic price and the world price without serving any policy purpose.
The issues involved are not peculiar to current preferential trade agreements, and there is no inherent reason why a new WTO agenda could not address them.
The trading system must adapt to the changes in what is traded, but the WTO, in common with most multilateral negotiations in a world without leadership, is stuck. That's why so few new treaties have been negotiated. Proliferating bilateral, regional and plurilateral negotiations are certainly a manifestation of this global fragmentation. I would suggest that one of the strategic questions for this committee is whether they are also a solution.
How should we think about future trade policy strategy in light of global value chains in a G-Zero world? In my research, I try to observe the set of negotiations in the handout as if they were a natural experiment. I ask what we can learn about whether such agreements are negotiable and whether they can be effective. I also ask how well they can deal with the regulatory agenda.
A big issue that affects negotiability and one that has come up in your previous sessions is whether the transparency of negotiations matters. Of the two options on the slide, neither openness nor secrecy seems to make a huge difference to the speed of the process, but the results of an open negotiation might be easier to ratify since all stakeholders, including parliamentarians, would better understand the process and the results.
Also on negotiability, large packages, as in the WTO, allow trade-offs across countries and issues but require everyone from the United States to Bangladesh to agree. It seems easier to reduce either or both the number of issues or participants, but trade-offs might be harder without something for everyone.
The need for multilateral consensus is said to be a problem in the WTO, which has led to a search for plurilateral alternatives. Critical mass in the jargon now means that if a deal covers 90 per cent of the trade in environmental goods under the Environmental Goods Agreement, participants can simply inscribe the results in their GATT schedules. They might not care if other countries benefit under the most-favoured-nation rule without contributing. Can the trade and services agreement get to critical mass in the absence of China, that doesn't belong to that agreement? TiSA could survive WTO legal challenge as a regional agreement but would face the same problem of institutional weakness as other PTAs. What do I mean?
Successful trade agreements provide transparency for trading partners and accountability for meeting obligations. In WTO, this means an elaborate system of formal notifications of changed policies, with subsequent discussion in regular meetings or committees and, ultimately, resort to robust dispute settlement, all of which is supported by a large and sophisticated secretariat. In contrast, PTAs look good on paper but notification is usually through the WTO because they have no secretariat support. The committees under existing agreements rarely meet, and their dispute settlement mechanisms are almost never used. This institutional weakness is not serious for market access, but it may be fatal for the 21st century regulatory agenda.
The intent of many of the negotiations in the handout is to create ambitious rules on behind-the-border issues. The WTO has rules to ensure that regulations do not create unnecessary obstacles to trade, but more is needed given the changes in how trade now takes place. The first way in which PTAs try to go farther is called "regulatory cooperation,'' meaning collaboration between regulators aimed at alignment.
The second is "regulatory coherence,'' which is simply aspirational principles, for what is called "good regulatory practice.'' Those principles lead to better regulations, which help firms but alignment is likely to prove elusive.
CETA and TPP are impressive achievements, but ratification is uncertain and it's not clear whether they will have the institutional strength to make a difference on the vital behind-the-border issues. If all the PTAs are concluded, firms would face overlapping and inconsistent disciplines, and if China, the world's largest trader is excluded, then they may not be worth the bother. We won't know for some time, but if the answers are negative, will the WTO be a solution?
The multilateral negotiation function at the WTO is certainly stalled, but it has had some recent successes. Given their institutional weakness, the operation of PTAs is dependent on the robust transparency and accountability mechanisms of the WTO. There is no alternative to WTO for some issues like subsidies. If the results of the current set of negotiations prove inadequate for the large traders, they can and ought to go back to Geneva.
Canada must maintain access to the U.S. market and access to U.S.-centric supply chains, access that is at least as good as that of any of their other trading partners. That means that we go where they go, including TPP and TiSA. If either of those agreements fails, ideally, we'd like the United States to take their business back to the WTO. That may not happen until after the 2018 congressional elections at the earliest. China is the world's biggest trader and the WTO will not be able to address the implications of their centrality until the U.S. and China start cooperating with each other. Bilateral Canadian negotiations with China on 21st century issues will help both sides learn about further integrating China in the trading system, and I would argue that's the real prize in the coming years.
Thank you very much. I look forward to your questions.
The Chair: Thank you. You've covered a lot of ground. One of the things I would ask you to elaborate on, if you can, is that you're saying that China is not in. Now China is with the WTO but is not in the TPP and is developing its own structures in many ways.
But there is an argument to say as more countries go into regional groupings, sooner or later that will drive the international standard in which China then would be obliged to participate, so they may come in at a later stage. They may be drawn into it. But if there is sufficient clout collectively, China will have to address that. That's one theory.
On the other hand, with respect to agricultural subsidies, that was the theory behind the WTO. We could get everyone at the table, small and large players, and we could make a dent on the agricultural subsidies and the dispute between Europe and the United States, but it didn't happen.
What is your thinking?
Mr. Wolfe: Those are two important questions. I have thought a lot about both of them. Let's take the first one. Can you force China to play by the rules? In saying the answer to that is no, I'm up against President Obama, who was clear on that point in the State of the Union, and that is central to what the Americans have been trying to achieve in TPP. You can play a game like that if you're the United States and you're trying to influence Canada or Vietnam or Bangladesh, but not a country that has a bigger share of world trade than you do.
You could argue equally that that is what has been bothering the United States. At some point China could say, "These are the rules and you will have to learn to play by them.'' So China isn't in TiSA, the trade in services negotiations, and it's not in the TPP. My view is that there is simply no hope that they are going to agree to go through a long accession process to an agreement they didn't help to negotiate. That's why the argument I've been making is that if it turns out the TPP is useful, and if it turns out that global value chains find it unhelpful not to have China participating, I think the only way that's going to be reconciled is in the WTO in a multilateral negotiation in which everyone participates as equals. I don't see how China can be forced into that kind of a situation.
Agricultural subsidies are something I've been working on for a long time. In fact, I wrote a book called Farm Wars focused on the subsidy wars of the 1980s, which were central to the negotiations that led to the WTO. I think the WTO has succeeded very well, partly, it has to be admitted, because structural change in commodity prices means that the rich countries are not offering as much domestic support as they used to. At Nairobi last December, as you've heard, there was an agreement to eliminate export subsidies. There are proposals on the table in the very stalled Doha round that would make a great deal of progress on what is now called "overall trade-distorting domestic support'' — trade negotiators love obscure terms — but that has the potential to further reduce domestic subsidies.
In any event, what has become clear, and you can see this if you read TPP or CETA, even in deals that are ambitious, you cannot make progress on domestic subsidies. You can only do that unilaterally.
The Chair: There two other points that I thought I would cover, and you just touched on one. We are looking at our exports, but we should also be looking at our imports that are this global value chain. We have had witnesses say that we are putting too much emphasis on the global value chains. That was one comment made.
The other is that we're not paying enough attention to it and that it's very hard to track because so much of our statistical gathering and our inclinations are to one item coming in or going out, where, in fact, it's moving, and not only is it moving but it's moving constantly, so you don't know where the parts are coming from at any given time to get a consistent tracking.
Is this going to be harder for your job and our job in trying to figure out the whole thing and get to some policy position?
Mr. Wolfe: Yes, is the short answer. The longer answer is that there are papers on this issue in our IRPP volume. Beverly Lapham's paper on the thinking of firms and not products or countries as the centre of trade policy talks about the need for much more availability of data on what firms are doing on international trade and even what particular plants are doing in international trade to really understand what's going on.
There have been major research projects led by the OECD and WTO in cooperation to develop much better data on what they call "trade in value-added,'' which is what's going on in a complex supply chain. These efforts are important. They need to be supported, so I guess one recommendation that we would love to see from the committee is that StatsCan needs to be supported in engaging in these international efforts to develop better data in Canada and finding ways to make better data available at the firm level to Canadian researchers. All of that would make a big difference to our understanding of exactly how Canadian firms do participate in these value chains.
I should add there is also in our book good work by StatsCan researchers talking exactly on this point, namely, what's going on with Canadian firms and value chains.
The Chair: Also, we've been preoccupied with goods moving, but it appears services are the growing area, and that, of course, has led us to intellectual properties, et cetera. Any comments about public policy in that area, including getting at the data?
Mr. Wolfe: All I know on data in services is how hard it is to get good data on services, particularly in services in trade. I shouldn't go beyond what I know in saying that. It is certainly the case that we need better trade rules on services, better ability for people to trade intermediate services, in particular, across borders. It's another area where imports of high quality services can matter as much to a Canadian firm as exports. One of the ways trade economists think about this is something called "servicification of manufacturing,'' which is a way to get at how even what looks like a manufactured product is, in fact, full of services deeply embedded in the process.
The classic simple example is an iPhone, which looks like an export from China of the full value of the phone, but in fact the bits and pieces of an iPhone come not only from all over Southeast Asia and some from Europe, but a lot of them are actually services created and delivered in California, the design, the after-sales marketing and the advertising. All of these things become part of what an iPhone is and they, too, are sent across borders all the time.
A huge part of what an airline does is telecommunication services.
Banks are another classic example of where lots of the services that a bank is actually offering can be unbundled and traded across borders.
Coming to grips with those issues, with an international legal framework that makes it easier to do those things while maintaining the domestic regulatory obligations that we all have, that's a huge challenge for negotiators.
The trade and services agreement is an attempt to do that. It's complicated because it's not inside the WTO and because both key sectors that you would want to address and key markets that you might want to address aren't included in the negotiations. It might make better progress than the TPP or CETA has been able to make, but there too — and this is my old multilateralist heritage showing — you want to get back to the WTO because that's where you're going to do a better job on services.
The Chair: Is the reason that the WTO hasn't reached the services area because it's an evolving issue and also to do with mobility of people where you can move? It's not like moving a branch plant, which is what we used to study. You're moving so quickly, so that's one aspect.
The other is that leads to the pirating issues, and how you track in the services and how you know what people are doing. So we've been focusing on cybercrime, the stealing of ideas and the movement inappropriately of moneys as well as goods and services.
Any thoughts on where that should go?
Mr. Wolfe: You've had some witnesses much more expert than me on those topics so I don't think I should say anything.
Senator Unger: Professor Wolfe, would you comment on whether or not China's focus is now shifting more to services and away from commodities?
Mr. Wolfe: I've done no research on that point. What I read in the newspapers suggest that's probably the case. It's what happens as economies become more sophisticated, but I have no research base to talk about that. I'm sorry.
The Chair: Senators, are there any more questions? I think you covered your point and you made your strong multilateral point to this committee and underscored what other witnesses said. I very much appreciate that you came to the committee to reinforce that perhaps we're on the right direction in this study and are dealing with the appropriate issues.
It is a very new and emerging issue and the role of the Senate has been to try and bring depth to what you see and hear by the communicators in the blogs or on television. It is a much more complex field than it used to be.
I appreciate that you came to reinforce our study and give us some new reflections on the WTO and how we might approach that issue in the future.
Thank you for coming before the committee.
Mr. Wolfe: Thank you for having me.
The Chair: Senators, we started early and we're ending early. I trust we can now adjourn.
(The committee adjourned.)