Proceedings of the Standing Senate Committee on Foreign Affairs
Issue 1 - Evidence
Ottawa, Wednesday, February 28, 1996
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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.
Senator Bacon: I have a brief question further to those that have already been
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
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
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.
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
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
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
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
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
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
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
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
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
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
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
Mr. Venner: The document proposes a study that would examine whether that is
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
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
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
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
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
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.