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Proceedings of the Standing Senate
Committee on Foreign Affairs

Issue 1 - Evidence


Ottawa, Wednesday, February 28, 1996

[English]

The Standing Senate Committee on Foreign Affairs met this day, at 5:00 p.m., to organize the activities of the committee.

Mr. Serge Pelletier, Clerk of the Committee: Honourable senators, it is my duty to preside over motions to elect the committee chairman. I am ready to receive motions to that effect.

Senator Grafstein: I move that Senator Stewart be elected chairman of the committee.

Mr. Pelletier: Are there any other motions?

I declare the nominations closed.

I declare the Honourable Senator Stewart to be chairman of the committee.

Senator John B. Stewart (Chairman) in the Chair

The Chairman: Honourable senators, our second order of business is the election of a deputy chairman.

Senator Ottenheimer: It is my great honour to nominate Senator Pat Carney.

The Chairman: Are there any further nominations?

Senator Corbin: I move that nominations cease.

The Chairman: All in favour?

Hon. Senators: Agreed.

The Chairman: I declare Senator Pat Carney to be the deputy chairman.

Senator Carney: In my inaugural speech, I would like to make the point that my plane to Vancouver leaves in 50 minutes, so, with your leave, I will depart this place.

The Chairman: We need a motion for the compensation of the subcommittee on agenda and procedures as follows:

That the Subcommittee on Agenda and Procedure be composed of the Chairman, the Deputy Chairman and one other member of the Committee to be designated by the Chairman after the usual consultation; that the Subcommittee be empowered to make decisions on behalf of the Committee; that the Subcommittee be empowered to invite witnesses and schedule hearings; and that the Subcommittee report its decisions to the Committee.

Senator Grafstein: I so move.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: The motion is carried in the affirmative.

The next organizational motion relates to the number of copies of our proceedings to be printed. The proposed motion is:

That the Committee print 500 copies of its Proceedings.

Senator Grafstein: Is that expenditure within our budget?

The Chairman: I believe it is.

Senator Grafstein: Then I so move.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: We have a proposed motion relative to taking evidence without a quorum:

That, pursuant to Rule 90, the Chairman be authorized to hold meetings, to receive and authorize the printing of the evidence when a quorum is not present.

Senator Ottenheimer: I so move.

The Chairman: It is agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: The next standard motion relates to the reporting of expenses:

That, pursuant to rule 105, the Chairman be authorized to report expenses incurred by the committee in the last session.

Senator Grafstein: I so move.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: The next standard motion states:

That, pursuant to section 32 of the Financial Administration Act, authority to commit funds be conferred on the Chairman or, in his absence, the Deputy Chairman; and that, pursuant to section 34 of the Financial Administration Act, and Guideline 3:05 of Appendix II of the Rules of the Senate, authority for certifying accounts payable by the Committee be conferred on the Chairman, the deputy Chairman and the Clerk of the Committee.

Is someone prepared to move that motion?

Senator Ottenheimer: I will make that motion.

The Chairman: Is it agreed, honourable senators?

Hon. Senators: Agreed.

The Chairman: Carried.

We have another proposed motion:

That, pursuant to Rule 103, reasonable travelling and living expenses be paid to witnesses invited to appear before the Committee and that such expenses be paid at the discretion of the Committee subject to a maximum of two (2) representatives per organization.

Senator Ottenheimer: I recall that the last time we made this motion, the point came up that some witnesses appear but do not wish to be paid. Obviously the situation is they may be paid, but perhaps the phrase "at the discretion" would cover such situations. Some corporate witnesses do not wish to be reimbursed. Obviously, there would be no obligation to do so.

The Chairman: Senator, I would have leaned more heavily on the word "invited". It is not just that the committee is making itself available to people who want to be heard, but where the committee selects a potential witness and invites that person.

Any further discussion? Will someone move the motion?

Senator Bacon: I move the motion.

Senator Corbin: Are there guidelines with respect to the reimbursement of witnesses' expenses? Is there a bottom line and a ceiling?

Mr. Pelletier: Yes. For example, we pay economy class for plane tickets. For hotels and meals and per diem expenses, we use Treasury Board guidelines.

The Chairman: Is that motion acceptable to the committee?

Hon. Senators: Agreed.

The Chairman: Carried. I should tell the members of the committee now that the man seated here beside Mr. Chapman is Mr. Galpin who has been made available to the committee by the Department of Foreign Affairs as a resource person for our work in Europe.

Honourable senators, we had hoped to hear two witnesses from the Department of Foreign Affairs this afternoon but, by reason of the time taken in the chamber, I took it upon myself to tell the witnesses that it would be pointless to start so late in the day. We have another matter to grapple with this afternoon, and there may well be extensive discussion on certain points.

The committee continued in camera.


Ottawa, Wednesday, March 6, 1996

[English]

The Standing Senate Committee on Foreign Affairs met this day, at 11:00 a.m., to consider its order of reference to examine and report on the consequences of the economic integration of the European Union for the national governance of the member states, and on the consequences of the emergence of the European Union for economic, political, and defence relations between Canada and Europe.

Senator John B. Stewart (Chairman) in the Chair.

The Chairman: Honourable senators, we have as our witnesses from the Department of Foreign Affairs and International Trade Mr. Jean-Pierre Juneau, Assistant Deputy Minister, Europe Branch, and Mr. Gordon Venner, Deputy Director, European Union Division.

Gentlemen, I believe you know the focus of the committee at the moment. It would be helpful to hear what you have to say.

Mr. Jean-Pierre Juneau, Assistant Deputy Minister, Europe Branch, Department of Foreign Affairs and International Trade: Mr. Chairman and honourable senators, let me begin by saying how pleased I am to be here this morning to discuss with you Canada's political and economic relationship with our transatlantic partners.

I should like to divide my presentation today into four parts. First, I should like to provide a brief history of the events and circumstances that have led us to the eve of negotiations with the European Union on a new agreement on the future course of bilateral relations. Second, I should like to make some brief comments on the EU-U.S. agreement signed last December in Madrid by President Clinton and Prime Minister Gonzales of Spain. Third, I should like to discuss the impact of transatlantic trade liberalization. Finally, I should like to update members of the committee on the Canada-EU trade relations since you were briefed by one of my colleagues in November.

In a few short years, since the end of the Cold War, the face of Europe has changed dramatically. In a span of six short years, we have seen the fall of the Berlin Wall, the dissolution of the Soviet Union, the reunification of Germany and its emergence as a dominant continental economic power, the expansion and continuing integration of the European Union, the widespread introduction of market economics in central and Eastern Europe, the spread of democracy and respect for human rights, and the war in Bosnia.

Together, these changes have forced us to reassess our interest and priorities in Europe. The common security interests that bound North America and Western Europe so closely together for over 40 years have become significantly less. The countries of the European Union are now more than ever preoccupied with the changes of deepening integration, from the creation of a single currency to the gradual development of a common foreign and security policy. An EU inter-governmental conference which will map out the next phase in this evolutionary process will open in Torino, Italy at the end of this month.

Economically, the $7 trillion GDP of the European Union is now larger than the GDP of the United States. Within the World Trade Organization, the European Union exercises enormous influence. If the European Union is already an economic superpower, its global political power and influence is slowly catching up. For example, in world bodies such as the United Nations, EU member states try hard to act together as one bloc on most issues. This influence can only increase as EU integration increases.

Against this backdrop, how have Canadian interests in Europe, particularly in the European Union, changed? First, of dominant concern and overriding interest in the past was the successful deterrence of aggression by the Warsaw Pact countries. With the Cold War over, the first priority for the Canada-EU relationship is now jobs, economic growth and building the conditions for long-term prosperity. Our two-way trade with the European Union in 1994 was $32 billion. Total EU investment in Canada in the same year was $33 billion, more than three times the level of investment from the Asia-Pacific region. Taken together, the European Union is Canada's second most important trade and investment partner. Enhancing levels of economic integration and dealing effectively with trade irritants can mean more jobs on both sides of the Atlantic.

Politically, we need to re-emphasize that we are partners, not rivals, with the European Union. We must increase our cooperation in addressing transnational crime, illegal immigration, smuggling, terrorism and other global issues. As European political strength grows, Canada must work hard to ensure that transatlantic relations do not become dominated by an exclusive EU-U.S.A. dialogue. On the security front, our continued participation in NATO and the OSCE means that we will maintain a strong interest in European peace and stability.

How do we pursue this new transatlantic agenda? Our initial approach was to focus on the need for trilateral dialogue involving Canada, the European Union and the United States. Why? Because on the economic front the level of integration of the Canadian and U.S. economies makes it important to maintain, to the extent possible, a level playing-field for trade and investment between the European Union and North America. New transatlantic trade and/or investment agreements that exclude Canada could have negative economic consequences for Canadian jobs and economic growth.

In December 1994, in a speech to the French Senate, the Prime Minister called for Europeans to consider a transatlantic free trade agreement linking the European Union and NAFTA. In subsequent months, the Minister of Foreign Affairs and the Minister for International Trade repeated this message in Washington and throughout Europe. The strongest support for Canada's call for transatlantic trade liberalization came from Germany, the U.K., Italy, Sweden and the Netherlands. Others, such as the French and the Americans, were more lukewarm to the idea.

At about the same time, the European Union and the United States began discussing the possibility of developing a joint action plan for renewing their transatlantic relationship. We were eager to join this process for reasons that I have already mentioned. However, the bilateral fish dispute between Canada and the European Union last March, combined with Spain's assumption of the rotating EU presidency in July, doomed our efforts. Nevertheless, we continued to make our case that the transatlantic initiative should involve all partners, and should not be seen as a bilateral process involving only the European Union and the United States.

In October, together with Germany, we formed a working group to develop an outline for a Canada-EU action plan. The report was issued in November and forwarded to all transatlantic partners. One of the key recommendations was that, where appropriate, these discussions should be trilateralized.

On December 3, the European Union and the United States held a summit meeting in Madrid where they issued a joint declaration and action plan for deepening their relationship. Copies of this document have been distributed to members of the committee.

In January, we presented to the European Commission and the Italian presidency a working document outlining a Canadian proposal for a Canada-EU action plan. This document, copies of which I have brought with me today, is much more concise than the EU-U.S.A. action plan. There are two reasons for that: First, Canada already has a much more advanced relationship with the European Union than does the United States. For example, in 1976, Canada was the first country to sign an economic framework agreement with the European Union. This agreement requires annual consultations on matters of joint concern. In 1990, we signed a transatlantic declaration requiring annual meetings between the Prime Minister and the current EU president. In addition, we have important new bilateral agreements with the European Union on education, science and technology which will bring direct benefits to individuals in the Canadian private sector. Second, the Canadian proposal is a more focused, action-oriented agenda than the EU-U.S.A. plan. The Canadian proposal addresses our priority interests. Among these, economic and trade elements figure prominently.

Our short-term economic objectives include the resolution of outstanding bilateral trade disputes, acceleration of scheduled WTO tariff reductions, the conclusion of a series of bilateral agreements currently under negotiation, enhanced cooperation in the WTO, and a more active transatlantic business dialogue.

One of our long-term objectives is the reduction and, where possible, eventual elimination of barriers to transatlantic trade and investment. The proposal calls for a trilateral study to determine the best way to bring this about.

We have also indicated our interest in greater cooperation in the security, foreign affairs, justice and home affairs areas. We expect that the EU Council of Ministers will shortly approve negotiations with us on a joint action plan. Should these negotiations proceed quickly, the Italians have expressed an interest in a Canada-EU summit involving the Prime Minister and his Italian counterpart, at which such a document could be signed. Such a summit could take place in June, either before or after the G-7 summit in Lyon.

As I noted earlier, the European Union-U.S.A. document is quite lengthy. While the list of issues it covers is very broad, there are only a few places where specific new areas of cooperation are identified. In this respect, the action plan is more of an overview of the future course of EU-U.S.A. relations.

There are two areas, however, on which I should like to touch briefly: The transatlantic trade study, and cooperation to address what are termed global challenges. The action plan calls for the creation of a "new transatlantic marketplace," which is a euphemism for freer trade and transatlantic flows of goods, services, and capital. The idea of a transatlantic free trade agreement, or TAFTA, was specifically avoided.

The notion of a TAFTA has been resisted by those EU member states fearful of the negative consequences this could have on the EU common agricultural policy. The Americans, wishing to protect certain industries such as textiles from cheaper European imports, have also been less than enthusiastic about the idea. The compromise was an agreement to study the issue. This idea is also contained in the Canadian proposal, and consequently, we have called for this study to be carried out on a trilateral basis.

The European Union-U.S.A. Action Plan also calls for the negotiation of specific agreements that would facilitate trade. Canada is already way ahead of the Americans in this area. We have already concluded agreements with the European Union on science, technology and education. We are nearing the conclusion of negotiation on additional agreements concerning the mutual recognition of product standards and testing, veterinary standards, custom cooperation, and cooperation between our commercial competition authorities. These agreements will provide substantial assistance to Canadian exporters trying to sell into the European Union market.

Much of what is in the EU-U.S.A. Action Plan under "Global Challenges" can also be found in the Canadian proposal combating organized crime, terrorism, smuggling, illegal immigration, environmental protection, et cetera. If these problems are to be effectively addressed, then all transatlantic partners must participate in framing common strategies. This is why we have emphasized in our proposal that these are issues where trilateral cooperation is key.

When considering the impact of transatlantic free trade on Canada, it is worth remembering that because in excess of 80 per cent of our trade is with the United States, any agreement to liberalize trade flows with other countries or regions will have, at best, a modest positive impact on economic growth in Canada. Nevertheless, it is the view of the government that the two-way trade and investment flows between Canada and the European Union are significant enough to merit the negotiation of a comprehensive transatlantic trade agreement as a legitimate public policy goal.

Quantitative analysis of the impact of transatlantic free trade is complicated by the difficulty of adequately measuring the benefits that would be gained from a reduction or elimination of non-tariff barriers as opposed to reducing or eliminating tariff or import quotas. In other words, it is likely that any statistical analysis will always under-report potential benefits. It is also important to remember that many of our leading exports already enter the European Union duty free. This again renders marginal the direct economic gains that we could attribute to a transatlantic free trade agreement.

Having said that, preliminary departmental analysis yields three main points that I think are worth mentioning: First, a transatlantic free trade agreement that did not include agriculture would have only an insignificant impact on economic growth in Canada. As you know, any change to the common agricultural program is a very politically sensitive issue within the European Union. Although we have made recent progress, our access to the EU market for agricultural products remains tightly restricted, primarily to import quotas. Second, when agriculture is included in a transatlantic free trade agreement, the impact on economic growth in Canada is marginally positive. Again, this does not take into account the positive benefits that would result from the reduction and elimination of non-tariff barriers.

Third, we believe that the main benefit to Canada from a transatlantic free trade agreement would be the positive impact that it would have on stimulating European investments in Canada. The EU currently is the second most important source of investment in Canada after the United States. By 1994, the total stock of EU foreign direct investments in Canada was $33 billion. This compares to $10 billion from Asia and the Pacific region. However, this simple comparison alone fails to demonstrate the real importance of EU investment to the Canadian economy.

Investment from Europe, like that of the United States but unlike that of other regions, tends to be in the form of new plant and equipment. This involves a technology transfer that enhances the long-term competitiveness of the Canadian economy. Therefore, making Canada an even more attractive destination for European investment through a move to more liberalized transatlantic trade will contribute to strengthening the economic growth potential of the Canadian economy.

[Translation]

Considering our high volume of trade with the European Union, only a small area poses a problem. May I point out that our exports to the European Union were up by 39 per cent between January and November 1995 over the same period for the previous year.

While trade problems between Canada and the European Union are relatively few in number, the fact remains that problems tend to last for extended periods of time. The nature of our exports has also changed over the years. The volume of finished goods exported to the European Union increased from 12 per cent in 1978 to 25 per cent in 1994, whereas exports of processed products continue to account for 46 per cent of our total exports to this region.

We have made tremendous progress in our trade relations with the European Union and we have also resolved a series of longstanding problems and negotiated fair compensation, further to the recent expansion of the European Union to include Austria, Finland and Sweden. A press release and backgrounder are available if you would like further information.

Finally, the new dispute settlement rules of the World Trade Organization - in particular those which make arbitration mandatory and accelerate the dispute settlement process - should serve Canada well in terms of addressing its trade problems with the European Union.

[English]

In conclusion, I would mention that Sir Leon Brittan of the European Commission will be here on March 18 to meet with the Prime Minister and the Ministers of Foreign Affairs and International Trade to launch the process of negotiating the action plan between Canada and the European Union. If you have any questions on this subject, I would be quite happy to answer them.

Senator Ottenheimer: I have two questions, and I think they are related: First, would I be correct in inferring from your remarks that Canada's interests would be better promoted in terms of a Canada-EU economic pact rather than a Canada-U.S. FTA-EU economic pact? Second, would there be restrictions on the regime, or would it be a less liberal trading regime if it were a bilateral Canada-EU regime rather than an FTA-EU regime? In other words, would Canada's membership in the FTA or NAFTA create restrictions if that FTA or NAFTA trading block were not the party negotiating with the EU?

Mr. Juneau: Our preference is to negotiate an agreement between NAFTA and the European Union. There are various reasons for that. One reason, obviously, is that we do not like the Americans negotiating bilateral free trade agreements with other partners that would not involve Canada. In our negotiation with Chile, for example, we supported the idea of an extension of NAFTA simply because we did not want the Americans having all kinds of bilateral free trade agreements. From the beginning, therefore, we said that we would prefer a NAFTA-EU free trade agreement.

The vocabulary has evolved with time because there was not as much enthusiasm for the idea of free trade in the United States, for example, as they were moving toward the next presidential election. This means that the words "free trade" have almost completely disappeared from their vocabulary. As well, they have disappeared from the formal vocabulary of the European Union because key members, such as France, opposed the idea of negotiating free trade agreements with other partners. For example, you may have seen last week that they opposed the idea of the negotiation of a free trade agreement with South Africa. The opposition came from France. They have been consistent in their opposition to free trade.

We are speaking about measures to reduce tariff and non-tariff barriers in a way that will be consistent with our WTO obligations. Everything we do in the discussions with our European partners will be consistent with the policies we are pursuing with the WTO, which is our main priority in terms of trade policies. We want to ensure that the WTO regimes work well. As you know, senator, we will have the first conference in Singapore, and that conference will look at that subject.

I do not know if we can say that a bilateral free trade agreement between Canada and the European Union would be less restrictive than a NAFTA-EU agreement. Personally, I think that a NAFTA-EU agreement would be less restrictive. It would be better for investment, because if we have a bilateral agreement between Canada and the European Union, for example, we would need to ensure that investors coming to Canada have access to the U.S. market for their products. Most investors who have come from Europe to Canada in the last few years have come here with the idea of having access to the entire North American market. That is why we are more in favour of a NAFTA-EU arrangement.

The free trade dimension is not very active right now, not through our doing but because of the resistance and hesitation of the United States, and also because of some resistance in Europe. I think this is something that may be reopened once the members of the European Union have gone to their famous inter- governmental conference. They must redefine the way in which they work together before they expand the European Union. Until they have done that, they will not know on what basis they should a approach that kind of trade policy issue with major partners, such as North American partners.

The Chairman: Given the difference between the Canadian economy on the one hand and the American economy on the other, is there a possibility that a NAFTA-European Union agreement would be more restrictive than one between Canada and Europe?

Mr. Juneau: I do not think we can say that a NAFTA-EU agreement would be more restrictive. Obviously, if you have a NAFTA agreement, it will involve the entire North American market. This is in our interest because with that kind of agreement, we are looking for an additional mechanism to attract European investments to Canada. We have done quite well with investments coming from Europe. They are good investors. However, more and more, they come to Canada with a strategy aimed at targeting the entire North American market.

Having only an EU-Canada free trade agreement does not mean that all of the aspects of that agreement will necessarily be acceptable to the Americans. For example, we could wish in theory to be more generous in a bilateral agreement, but if it is not compatible with what we have negotiated with the Americans, it will not be applicable. That is why we always felt, intellectually, that it was better to think in terms of a NAFTA-EU agreement, given the main objective we are pursuing with that kind of agreement, which is basically to support an increase in investment from the Europeans.

As I said earlier, most of the products we export to the Europeans are exported duty free already. There is not much more to achieve in that respect; it is already done. From time to time, we debate this issue amongst ourselves. If we concentrate on the WTO, perhaps we would progress more rapidly by going the WTO route rather than going to that kind of agreement.

In any event, investors are still very much attracted to Canada. While I was in Spain, for example, we negotiated and finalized a deal that brought a major $150 million investment into Quebec.

This company did not come to Canada solely for the Canadian market. They already export 90 per cent of their product to the United States. They are coming here because of the conditions. They felt it was easier for them to operate here in this market, but they will be targeting the whole of North America.

[Translation]

Senator Bacon: I have a brief question further to those that have already been asked.

At the present time, the European Union's attention is focused on its own affairs as well as on the business of strengthening and broadening its ties. Do you feel that the EU is really prepared at this time to move toward freer trade with Canada and the United States?

Mr. Juneau: No, I do not believe that it is prepared to embrace freer trade. Moreover, that is why we have had to adopt a different tone in recent months. The EU is not ready because it is still unwilling to change its Common Agricultural Policy.

The day will come when it will have no choice but to change the Common Agricultural Policy. When the European Union expands to include Central and Eastern Europe, the important thing for us to consider is the transition period that EU countries will require of Central and Eastern European countries before they can become full-fledged EU members.

We expect this transition period to be fairly long, a minimum of 10 and maybe even 15 years, as was the case when Spain and Portugal joined the European Union. Therefore, it will be some time yet before the EU is in a position to amend its Common Agricultural Policy.

Under the circumstances, we cannot expect a traditional free trade agreement to be negotiated between the North Americans and the Europeans. When the Americans began their discussions with the Europeans, as soon as the word "free trade" was uttered, the question of reforming the Common Agricultural Policy was immediately placed on the table. Right away, it posed a major obstacle for certain countries.

We always mention France because it is the most outspoken country when it comes to agricultural policy issues. However, Germany also benefits to some extent from Europe's current policy in this area.

Senator Bacon: Nonetheless, during his last trip, Mr. Chirac spoke of a transatlantic alliance with the Americans.

Mr. Juneau: Yes, but not in the context of free trade.

Senator Bacon: No, not in that context.

Mr. Juneau: When we met with French President Chirac at the Halifax Summit, he noted that Canada would be actively involved in any renewal of the transatlantic relationship and that as far as he was concerned, there was no question of conducting bilateral affairs between the United States and Europe without Canada's participation.

However, he was referring more to changing relations in the area of security and defence, for example, to increased cooperation in such fields as science and technology. We signed our agreement on science and technology during this transatlantic meeting with Mr. Chirac.

Leon Brittan signed on behalf of the Europeans, despite the fact that at the time, the European Union still had a number of objections, given the situation with the fishery. However, President Chirac wanted this agreement to be signed to demonstrate that the European Union was clearly interested in pursuing development and enhancing its relations with Canada.

[English]

Senator Stollery: My first question is a technical one. You made the point that we are, in many areas, quite ahead of the Americans in our relations with the European Community. You mentioned a series of things, some of which I recognize. However, you say we have an agreement on education. What does that actually mean?

Mr. Juneau: We signed an agreement a few months ago to promote exchanges between high level education centres, such as universities, in Canada and Europe. This project is financed essentially by the Department of Human Resources, and has a budget of $1 million. We have organized seminars in Montreal, Toronto and Vancouver to promote scientific and technological agreement. We will visit the rest of the provinces to promote that education agreement. There is a very high level of interest from Canadian universities thus far.

The Chairman: Would this be an exchange of professors?

Mr. Juneau: No, the program is for students.

Senator Stollery: Regarding my second question, it is interesting that the Americans have become, at this point in their election campaign, very opposed to anything involving free trade. As you pointed out, they immediately turn to the agricultural question.

I recall the unhappiness of Germany regarding the Mexican bailout about a year and a half ago. We are discussing NAFTA and TAFTA and the European Union, not the FTA. Will the Mexican financial shenanigans have any effect on discussions of free trade? Is it a factor?

Mr. Juneau: Yes, it is a very important factor. While we have been speaking about a free trade agreement between NAFTA and the European Union, the European Union has never reacted by suggesting that they would be interested in a free trade agreement that would also involve the Mexicans. In their minds, they were always referring to the United States and Canada.

During this past presidency, there was some idea touted about negotiating a special agreement between the European Union and Mexico, an agreement which would be similar to the agreement signed between the European Union and MERCOSUR countries. There was opposition to that, because the Europeans were afraid that the Mexicans would increase their export of agricultural products. You always come back to the issue of agricultural products with the European Union, so this is not something that has been entertained in any way by the European Union.

I mentioned at the beginning that the vocabulary has changed. It is very important to remember that we were among the first to speak about free trade between Canada and the European Union. Then the Prime Minister expanded the idea to include the United States, with the NAFTA concept, and the European Union. Eventually, this idea was taken up by some other people, such as the Germans and Sir Leon Brittan, and then we were pushed aside because of the fish dispute one year ago. Now no one except us is speaking about free trade. We are still speaking about free trade because, for us, it is a long-term objective, but the vocabulary that most people are using describes the concept as basically a means to reduce tariff and non-tariff barriers.

Senator Stollery: And Mexico is another story?

Mr. Juneau: Yes, it is another story.

Mr. Gordon Venner, Deputy Director, European Union Division, Department of Foreign Affairs and International Trade: The Mexicans also have not expressed much an of interest, for three reasons: One is that the Mexicans already have preferential access to the European Union market, more preferential than Canada or the United States enjoys, so a NAFTA-EU agreement would mean greater competition from the United States and Canada for Mexican products in the European Union market, which might not be desirable, from Mexico's standpoint.

The second reason is that a tremendous proportion of Mexican exports to the European Union is one product, and that is oil. Over one-third of their total exports is oil, and it is already going in duty free.

The third reason is that, although European Union investment is very important to Canada, it is of much greater importance to Mexico. One of the reasons they attract investment is that they have that preferential access. For example, European auto parts manufacturers are more likely to locate in Mexico because they know they can ship the parts back to Europe over a lower duty barrier than they would from either the United States or Canada.

Senator Stollery: As you have said, vocabulary has become part of this. When we speak of TAFTA or NAFTA, we are really talking about the old FTA and the EU.

Senator Grafstein: Just to come back to the same topic, I am still not too clear in my mind about your earlier comment that there seemed to be a strategic objective by the Canadian government to pursue an agreement, in conjunction with the United States, for all the reasons that you have mentioned. However, it strikes me that it is almost the reverse of that, having in mind the political atmosphere of the United States. The Europeans would have major objections to a full-front approach by the Americans. We might have a window of opportunity here, before the Americans get their act together in the next year or two, to put ourselves in a more preferential position than we might otherwise have if we were to travel the same path with the United States. Is that a fair comment?

Mr. Juneau: Yes. What will happen is that we will go our own way with the European Union. The Americans have their document, their action plan, that has been approved by the Europeans in December. We will need our own paper, our own action plan.

The problem we have from time to time, when we discuss those issues with the European Union, is that we would be willing to do much more with the European Union than would the United States. There is sometimes hesitation on the part of the European Union to do more because they do not want to be confronted with having to extend to the United States the same kind of cooperation that they will have with Canada.

In the economic field, for example, some European countries have told us from time to time that they would be quite happy to have a free trade agreement with Canada. It would be relatively easy to negotiate. However, the fact is that this agreement would need to be compatible with our NAFTA obligations, and on that particular score we may be able to achieve our objective more quickly by concentrating on the WTO, rather than by following that bilateral route with the European Union, which may not allow us to go as far as we would like because there is that United States dimension.

That is a fair question, senator. We are proposing to the European Union a series of objectives which, in many respects - for example, on the economic front - are quite interesting and quite advanced, but we must wait and see what the Europeans will propose to us.

I mentioned a working document that we have prepared with Germany. We have distributed that document to each European country, but we are just at the first step of what the European Union will wish to do with us. They have requested authorization to proceed with an action plan for us. Sir Leon Brittan will be here on March 18. The proposal to negotiate an action plan with Canada is apparently to be reviewed by the European Council of Ministers around March 26. In theory, it is possible that the European Council of Ministers will decide that they do not want to proceed with that kind of negotiation with Canada at this point in time. However, I would be very surprised if such were the case, because then Leon Brittan would not be here on March 18. He is coming here just to present that proposal.

We will be discussing enhanced cooperation in four sectors: The first pillar is economic cooperation which, by the way, is the responsibility of the European Commission. The second pillar is defence and foreign policy. The third pillar is justice and home affairs. These two pillars refer to issues that are governed by intergovernmental cooperation, in the sense that the European Commission as such does not have any specific role with regard to them.

Then there is a fourth pillar, dealing with more global affairs. We will be discussing developing more systematic contact between business people and between young people. We are even considering the idea of promoting more regular contact between legislators of Europe and Canada.

Senator Grafstein: I want to focus on the economic and trade relationships, as well as investment relationships. Defence, justice and the others have much more complex dimensions, while our focus is much more on trade and investment. I gather from what you are saying that there are two concerns: One, if we had our own agenda, we would try to establish a similar agreement with Europe, as Mexico did, based on those parameters, but what is perhaps holding us back are the Europeans, on the one hand, and covering our backside from our American colleagues, on the other. The Americans would view that as a small problem if the shoe were on the other foot. They would call that harmonization and work something out, even though it would be a contrary issue. We seem to be more concerned about that.

At this moment in the United States, there are three different views in the power structure that, to my mind, invite us to move very quickly on our action plan to develop a strong bilateral relationship with the EU. There is a division in Congress, a division between Congress and the presidency, and a division between the presidency, Congress and the bureaucracy as it applies to free trade initiatives or trade liberalization initiatives. That situation will not be unclogged for the better part of two years. The agenda is that the next president will sit there. He comes in next January. It will take him six months to find his desk. Nothing will happen on that front for the better part of two years. Meanwhile, the Europeans are anxious to move ahead.

The Chairman: Are you ruling out Mr. Clinton?

Senator Grafstein: This is merely my reading of the issues, Mr. Chairman. My sense from our side is that we are not taking advantage of this unique opportunity to move as quickly and as skilfully as possible, and say to the U.S. State Department, "You people know that you cannot move, but we can, so let us move quickly." We should also assure the State Department that we will do everything to be the door opener and the nutcracker, and nothing that is incompatible with our NAFTA relationship. Why is that not our strategy?

Mr. Juneau: The question you ask is very important. It was our strategy at the beginning, but eventually our strategy changed for three reasons: First, there was the turbot war, whether we liked it or not. It still produces some effects from time to time. Second, the American views on so-called "free trade" change quickly and dramatically, to the point that if you mention the phrase "free trade" these days in Washington, you become automatically radioactive.

Senator Grafstein: Or liberal.

Mr. Juneau: Yes. In Europe, as well, the support for free trade has not increased. On the one hand, in Europe you might visit countries that, in the majority, are more in support of free trade, such as Great Britain and Germany. In France, however, you will see the other side of the spectrum. As well, smaller countries such as Greece or the Benelux countries are more careful. They do not understand yet what will be the real impact of the expansion of the European Union towards Central and Eastern Europe. As long as they do not have a good understanding of what these implications will be, they will be hesitant to embark upon a chapter of free trade negotiations with major North American countries. There is still the feeling - and that is a feeling you will sense strongly in France - that they will have to absorb the shock of the WTO agreement before launching something massive again.

We have been as active as we could be, bearing in mind the circumstances that we were facing. For example, it is not by chance that the Prime Minister raised the idea officially in Europe when he was in France. With respect to free trade, we knew that France was the most difficult country to convince. At this point in time, if the European Union does not want to move on the idea of free trade negotiations and if the Americans do not want to hear about free trade, I would welcome any advice that you would have, senator, about how we should approach this matter. As we say in French, it takes two to tango.

Mr. Venner: One of the other things we must take into account is how much leverage we would have negotiating on our own with the Europeans as opposed to how much we would have negotiating in conjunction with the United States. Obviously, as a unified block, we would have a lot more leverage.

In negotiating free trade with the United States and in negotiating with Europe, in both cases you are dealing with a partner that is 10 times bigger than Canada. The difference is that in negotiating with the United States, we are their most important trading partner. On the other hand, we account for less than 1 per cent of European Union exports. That does not give us much leverage when we negotiate trading matters.

Senator MacEachen: Having listened to what has been said, I can understand the validity of the comment made by our chief witness that our principal preoccupation ought to be the World Trade Organization, because the prospect of any active results between the United States, Canada and the EU is minimal in arranging an agreement to liberalize further trade. What I gathered from Mr. Juneau was that if Canada and the EU achieved, or were able to have, an agreement despite the obstacles or difficulties, the gains for Canada would be modest in terms of economic growth. This brings to mind the multilateral approach. Why not go for that as our main highway to the future?

This committee has had good experience in dealing with the trade world. We examined the free trade agreement with the United States. Then we examined the NAFTA agreement. Then we examined the World Trade Organization agreement. At the time the FTA was put forward, there was an element that argued in favour of the multilateral approach rather than a regional approach. When we dealt with the WTO, the witnesses told us that, in terms of tariff reduction, Canada would have gained just as much from the WTO as from the FTA. It seems to me to be a good strategy, but maybe not the only one.

I take it that in any new negotiations with the EU, Canada could be more generous with the EU than the basic provisions of the WTO. I take it also that we could be more generous if we wished with the EU than we have been with the U.S. and Mexico in those trade agreements. In other words, is it a fact that there are no constraints on us in negotiating with the EU arising from our obligations under the FTA and the NAFTA? Is our hand as free as it would be if we did not have these agreements?

As a member of the committee, looking at it realistically based on your testimony, we have very thin pickings in supporting anything concrete in this business. We are assured that the Germans are working with us, and that is important when looking to the future, but there are not many immediate objectives we can support. We would have sympathy in the U.K. and sympathy in Germany, working together, yes, but nothing concrete as to the future. Am I right?

Mr. Juneau: Senator, we will distribute documents which basically present the proposal for the renewal of trans-Atlantic relations, as well as the communication issued by the European Union on the idea of an action plan with Canada. You will see in those documents that, while the economic dimension is your main point of interest in this exercise, there are three other sectors which are extremely important for us, and that is why I mentioned the foreign and security policies and global issues. The economic dimension is now one of four major objectives that we are pursuing with the European Union. In that sense, when you visit Great Britain, France, Germany and Brussels, you at least will have in mind the basic objectives being pursued by the European Union and by Canada.

How free are we in negotiating with the European Union? You know better than I, senator, that we are never very free because we have other obligations. We have our GATT obligations which are now the WTO obligations. As I mentioned earlier, we also have our NAFTA obligations. Therefore, we cannot negotiate with the European Union something that would not be in line with our other international obligations.

Senator MacEachen: Do we give benefits to the European Union that we have not given in the World Trade Organization to other countries?

Mr. Juneau: Investment.

Senator MacEachen: Just investment?

Mr. Juneau: It is one. I mention that because it is easy to identify, and, if we forget about the United States, it is clearly, our main advantage in our relationship with Europe, as compared to our relationships with the other areas in the world. The Europeans are major investors here, and they are good investors.

In terms of trade increases, our volume of trade in manufactured products is higher in Europe than in the other areas of the world, with the exception of the United States. We speak very much about science and technological cooperation in that field. We never speak about the United States when we do our work in the European branch because it cannot be a valid point of reference for us.

We look at Europe as representing a group of countries we understand. We speak their language, they speak our language, and there is much interest on the part of the Canadian private sector to promote exchanges with that part of the world. We are not pursuing at this point a free trade agreement with the European Union. We are looking at ways to further reduce the tariff and non-tariff barriers that affect our relationship.

Senator MacEachen: Just to build on that, if we were in a negotiation with the EU on access and if we said we will give better access to their products in the expectation that investment would flow and so on, would we be obligated to give the same access to our other partners in the WTO?

Mr. Venner: The answer is "no", provided the overall agreement is consistent with article 24 of the GATT. For the same reason, we are not obligated to extend the benefits that we give to the United States to all of our other trading partners. Article 24 of the GATT requires that a free trade agreement, to be compatible with the GATT, must cover substantially all of the trade in the trading relationship. That test is a little subjective, but if you meet it, you can extend concessions to a trading partner that you do not have to give to other trading partners.

Senator MacEachen: That would apply to Mexico and other partners in the WTO and the U.S.

Mr. Venner: It applies to all members. Any free trade agreement that takes place between members of the WTO would be covered by that provision. However, there are also provisions that allow for developing countries to receive preferential access, which allow for the Mexico-EU arrangements to which I referred earlier.

Senator MacEachen: We are not trying to negotiate a free trade agreement. Article 24 would apply only if there were a free trade agreement.

Mr. Venner: For it to be a free trade agreement, it would have to be consistent with article 24.

Senator MacEachen: That means the liberalization is general and covers a wide array of products; right?

Mr. Venner: That is right. You cannot pick and choose. You cannot say, "We will let your textiles in but not other things." You pretty much have to remove tariffs across the board for everything.

Senator MacEachen: To do that with the Europeans is out now, is it not?

Mr. Venner: It would be extremely difficult to envision an agreement in which the European Union would allow duty-free access to all agricultural products.

Senator MacEachen: I am trying to understand the strategy. Mr. Juneau said we are not trying to get a free trade agreement with the Europeans now.

Mr. Venner: I think Mr. Juneau was trying to distinguish between our short-term objectives and our long-term objectives. The government has made very clear that, in the long term, we have an interest in trans-Atlantic free trade, but the document that was just circulated does not require that there be an agreement by June that would be signed at the G-7 summit.

Senator MacEachen: Does the document call for a reduction in tariffs on certain products?

Mr. Venner: The document proposes a study that would examine whether that is feasible.

Senator MacEachen: What line should we be taking in Europe on this subject?

Mr. Juneau: The free trade agreement is the long-term objective that we are pursuing. The fact of life now is that, within the next four months, we will be negotiating a political declaration and an action plan with the European Union. In that context, they do not want to speak with us about a free trade agreement. The free trade agreement is the long-term objective, and neither the Europeans nor the Americans want to speak about it.

During your trip, you can say that the objective of the Canadian government is still to eventually negotiate a free trade agreement between North America and the European Union, but the way things are going it is quite possible that there will be quicker liberalization through the WTO than through that kind of bilateral instrument if the Europeans are not willing to move on a free trade agreement before they have enlarged the European Union to the new countries of central and Eastern Europe. The transition phase may be between 10 and 15 years, or in some cases perhaps even longer. The objective is there, but, in the short term, it does not seem to be available to us.

Senator MacEachen: You make a good point about the increased investment accruing to Canada as a result of Canada's current access to the U.S. market. I understand the most encouraging part is the investment picture, being European investment in Canada. We do not need to do anything further to sell that. That exists now.

Mr. Juneau: At one point we were suggesting that we would like to participate in a study with the United States and the European Union, a trilateral study to find the best means to enhance further trade liberalization between North America and the European Union. At this point in time, we have not achieved the objective of participating in that study. I do not expect that Sir Leon Brittan, when he is here, will tell us that they are happy to do it à trois. I think he will tell us they are willing to participate in a study with us, as they are doing with the Americans, so there would be two parallel studies.

As far as I can see, one reason they do not want to trilateralize this study is that they are afraid of us. We have been too outspoken with the objective of trade liberalization. They do not want to hear about that in the United States. In the European Union, there are still major disagreements about it.

We will participate in that study. We would prefer to do it trilaterally, but we will do it bilaterally. We are convinced that, eventually, the studies must merge because of the nature of the North American economy and the nature of our economic relationship with the Americans. Obviously, we will discuss the study with our American friends, too.

As long as that study is not cancelled, I cannot tell you specifically the means which will be employed by us to ensure that we move forward towards reaching that objective of further liberalization of trade between North America and Canada and the European Union and, in the short term, the means to reduce further tariff and non-tariff barriers.

I mentioned early in my presentation, senators, that we were playing with the vocabulary. We have had to adjust our vocabulary to the political reality which surrounds us in Europe and in the United States.

Senator MacEachen: It is an interesting and useful approach for Canada to talk about a free trade agreement with the European Union because, in the long run, it establishes our continuing interest in Europe and the European Union. It shows that we are prepared to engage when they are ready to accept us.

Mr. Juneau: Yes.

Senator MacEachen: That is a political statement. I suppose the studies between Canada and the EU and between the EU and the United States are also political statements, more than they are necessities for examining the tariff schedules, and so on. Surely we have done all of that work in connection with the WTO. We must have assessed and evaluated so much that it would be a question of reassembly, would it not?

Mr. Juneau: That depends on the objectives of the commission which will be announced when the study is announced. Our first idea was to have a trilateral study on free trade between North America and the European Union. This idea was not accepted. They went ahead with their study with the United States and then the expression "free trade" disappeared completely. You mentioned TAFTA. These expressions that we were reading in the press a few months ago have disappeared completely from the vocabulary of the European Union, the European Commission and the Americans.

To repeat, the study will have as its objective to find a means to increase European investments here. This is not necessarily something which has been covered completely by the studies we may have held on enhancing trade liberalization through the WTO.

We must wait. We did not have a formal reaction from the European Union before this document was issued in Europe last week. We never had any kind of formal reaction from the Europeans to our various proposals to enhance the trade and economic relationship between Canada and the European Union. On that score, we are all looking forward to the visit of Sir Leon Brittan. We hope to reach agreement quickly on how to progress in that respect.

To repeat another point here, I understand that your priority interest is in relation to the trade and economic relationship. However, the action plan which we will be discussing with the European Union and European Commission is much more broad.

Senator MacEachen: It is interesting too that "free trade" has become an unacceptable political expression in the United States and within the European Union. There are reasons for that which may eventually reach Canada.

The Chairman: We will be meeting in Europe with officers of various Canadian companies doing business over there. Are there particular changes in European tariffs or policies with regard to investment that these Canadians are likely to speak to us about? What can you tell us in advance? What can you predict for us in this area?

Mr. Venner: The only issues that come to mind, senator, are the pending European proposals for legislation on protection of data and protection of privacy. Those proposals are causing some concern in the financial services industries.

As a means of trying to protect the dissemination of personal data which is being collected by companies and by financial institutions in Europe, the European Union is proposing legislation which, although now in the early stages, could have the effect of making it very difficult for financial institutions to exchange information across the Atlantic. That may be of some concern to Canadian financial institutions, if you are meeting with any of them.

The Chairman: What about tariffs? What about aluminium, for example? Are we happy with the entry threshold there?

Mr. Venner: There were certain things for which we tried to get lower duties in the Uruguay Round negotiations. There were some notable cases where we did not succeed, such as aluminium, processed fisheries products, and some value-added forestry products. We discussed some select high technology goods but that issue also involved certain government procurement practices. You might hear complaints about that. However, the Uruguay Round just recently having been completed, most Canadian industries understand that there is not likely to be an opportunity to reduce those tariffs in the near future.

The Chairman: Has there been any change in the tariff on telecommunication equipment in which Canadians would be interested?

Mr. Venner: That is still an area in which the tariffs are quite high.

The Chairman: Has there been a change upward or downward?

Mr. Venner: If there were any changes in the Uruguay Round, they were quite marginal. I would need to check that.

The Chairman: I have another question of a very different kind. We have heard a great deal about the prospect of a monetary union in Europe. Sometimes I think it is the leading topic. Let us not speculate as to whether or not it will take place, but let us assume that it will take place.

I then go on to think - and I may be incorrect - that such a monetary union would have an effect upon the economies of certain countries; countries with which we do business. I then ask myself: Will that monetary union have an influence on Canada, either in its imports or investment in Canada indirectly, by reason of the influence of the monetary union on particular countries in Europe?

Mr. Juneau: It is a large question, the answer to which is not easy, Mr. Chairman. We do not know exactly what kind of monetary union will take place eventually. They are still discussing amongst themselves the policies that will need to be defined in that respect. Obviously, there will be some effect on Canada. One which is obvious to me is the exchange rate, which could affect the export of our products.

I am not at ease with the subject yet because we have not had the kind of discussions that we want to have with the European Union before they start their inter-governmental conference. That will be one of the topics that will be discussed during the conference. We will need to have discussions with them to ensure that we get a better understanding of what the effects could be.

Mr. Venner: In terms of a direct impact on Canada, competition for investment from third parties must be considered. I refer to Japanese investment and others. If the European Union were to achieve an extremely large area of exchange rate stability, that would make them an attractive investment location. We would be competing with the European Union for that investment.

The second area of impact is for our exporters. There is a certain ease that comes with only one exchange rate, and being able to operate in one currency. That could be a positive impact.

The third question, which is harder to get a handle on, is the question of economic policy coordination in forums such as the G-7. If the G-7 convenes and there are only four currencies represented, one being the European currency, the United States dollar and the yen, it is hard to see where Canada would fit into the equation. If European monetary union actually came about, it is likely that we could be marginalized in those kinds of discussions.

The Chairman: You have said enough to convince me that this is an important matter from the Canadian point of view.

Honourable senators, that concludes this section of our work for today. We thank the witnesses very much for appearing here.

The committee adjourned.