Proceedings of the Standing Senate Committee on
Foreign Affairs

Issue 20 - Evidence - Morning sitting

VANCOUVER, Thursday, February 6, 1997

The Standing Senate Committee on Foreign Affairs met this day at 9:00 a.m. to examine and report on the growing importance of the Asia Pacific region for Canada, with emphasis on the upcoming Asia Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's Year of the Asia Pacific region.

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


The Chairman: Honourable senators, today we have a panel, the members of which are Professor Terry McGee of the Institute of Asian Research, the University of British Columbia; Professor Douglas A. Ross, the Department of Political Science, Simon Fraser University, and Professor Brian Job, the Institute of International Relations, University of British Columbia.

Professor McGee has had direct experience in the Asia Pacific region, having lived there for several years and has specialized in matters such as urbanization on which topic he has served as an adviser to the relevant governments.

Professor Ross of the Department of Political Science at Simon Fraser University has as his research interests various topics, among which are: foreign and defence policies of Canada and the United States; nuclear strategy and nuclear arms control and disarmament; international conflict; and cooperation arms control.

Our third panellist, Professor Job of the University of British Columbia, specializes in international security relations, especially in the Asia Pacific area and Canadian foreign and defence policies generally.

As honourable senators will have detected from the interests of the panellists, there will be a fair amount of concentration on security questions, but our focus will not be exclusively security measures.

I would ask Professor McGee to lead off.

Professor Terry McGee, Director, The Institute of Asian Research, University of British Columbia: Mr. Chairman, thank you for the opportunity to talk to the committee this morning.

The Institute of Asian Research, which I direct, is an interdisciplinary institute at the University of British Columbia which falls under the Faculty of Graduate Studies. It consists of five centres of various studies, Chinese, Japanese, Indian and South Asian, Southeast Asian, and Korean. We have some 12 full-time faculty and staff in the institute, and 120 graduate and faculty associates in the institute. We carry out our activities in three areas.

We conduct research on various aspects of Asia and also aspects of Canada, Canada's relation to Asia. Currently, we have five research projects which are cross-centre projects, and a large number of projects within centres devoted to Asia. Those include a project on the Asian Diaspora -- migration from Asia to other parts of Asia, as well as to Canada, the United States, Australia and New Zealand. We have projects on the classical studies of Asia in the humanities, and we have projects dealing with various aspects of development. As well, we have a project on APEC and the role of NGOs which we are currently developing.

Today I would like to talk to you about Canada and APEC, and my perceptions of it which, in some ways, reflects the perceptions of my colleagues. I hope I can offer you some observations which will be helpful in your deliberations.

I wish to stress how seriously this area of study has been taken at the University of British Columbia and, I believe, at other academic institutions in Canada. Early on, a decision was made by UBC to invest a considerable amount of resources in building Asia Pacific expertise in that university. Today UBC has the largest collection of Asian vernacular materials in Canada a collection that, by the way, compares very favourably with the largest in the United States. It offers a wide number of courses on Asia, ranging from the Asian legal program, courses in commerce, to courses in the Faculty of Arts. It is one of the few universities in Canada to offer teaching in five of the major Asian languages, Hindi, Chinese, Japanese, Korean, and Bahasa Indonesia. All these are crucial to the training of Canadians and providing them with the expertise which will enable them to grapple with the complexities of being an Asia Pacific nation, which Canada is rapidly becoming. Canada must invest its resources in those types of educational programs.

We have built upon these resources through a very successful fund-raising campaign with largely Asian donors. Our president and others in the administration have raised approximately $20 million from Asian sources, much of which has come to the institute I direct. We now have four endowed chairs, and there has been a variety of programmatic developments. We are also developing electronic linkages with major research institutes in Asia. This has all been done because of initiatives and decisions made a long time ago which were built upon. If Canada is to position itself to become an Asia Pacific nation this type of initiative must be continued.

I wish to focus my attention on Canada and APEC and deal with three points. First, I want to position the developments which led to the creation of APEC. Had APEC not been created, a similar institution would have evolved because of forces which are recreating the need for wider and more flexible regional organizations.

Second, I would make some observations about Canada's role in APEC which is quite important since Canada will be hosting the APEC meeting which will be held at the University of British Columbia in November. In my judgment, Canada is on a learning curve in interacting with APEC in terms of foreign policy -- a learning curve which may have some bumps in it.

Third, I wish to make some brief observations about Canada and Asia which the committee may consider to be, in a sense, recommendations, although I do not think I would want to be quite so prescriptive as that.

With your permission, I will use some slides to illustrate these three points.

One of the forces that is fuelling this particular phenomenon of growth of the Asia Pacific region, is the force implicit in the information era. Telecommunications and computer information systems are linking this region much more and proving facilitative for the growth of interactivity within this region and also at a global level.

Many feel these forces threaten the growth of the nation state, but they also create capacity for growth of cross-border economic groupings. The overhead shows some of the emerging borderless groupings. The nation state is still part of them, but there is an economic flow of activities between these particular trade relations. The growth of New Zealand and Australia, and the growth triangles in various parts of Asia -- the one I know best is the Singapore growth triangle on which I have carried out research -- facilitate the movement of goods, people and commodities across national borders. APEC at this point is primarily concerned with, in a non-prescriptive manner, facilitating the movement of people, goods, commodities and investment across borders.

The popular buzz word is "globalization." I would remind members of the committee that something like this was going on in the late 18th and early 19th centuries, a technological revolution which, 50 years later, people called the Industrial Revolution. It was based upon steam. As yet, we do not have a name for what is happening today. Some may call it "the information era", but the name that seems to be most popular is "globalization". I do not think we will settle upon a term to describe this era for perhaps another 50 years. We may then be able to find a term to capture the process we are going through.

I believe the Canadian government, as is evidenced by the statements of the Prime Minister and many of the ministers, has made a strong commitment to globalization. Many implicit assumptions are part of this commitment. One is that Canada must become competitive. Another is that Canada must become more internationalized, more global.

Globalization is fuelling the forces which are creating new regional alignments of which APEC is one. Why the Asia Pacific? Asia Pacific is a huge geographical region, 18,000 kilometres across the equator. It consists of 18 nations. They do not represent to any extent all of the Asia Pacific region but they represent some of the biggest and most important players in the Asia Pacific region.

On the face of it, the geographical reality of Asia Pacific does not support the idea that geographical proximity would favour the growth of such relations across the Pacific. Indeed, far more logical is the relationship with the United States and, historically, with Europe. I would argue that the forces of this globalizing era are breaking down barriers of geography and that Canada can be intimately involved in the Asia Pacific region and will become more so in virtually every dimension of our lives and our international relations.

This region is extraordinarily diverse. I have here a cartogram. I have simply taken the gross domestic product for the whole of the Asia Pacific region and calculated the percentage contribution of each country. This is not only APEC, this is the Asia Pacific region. The information relates to 1982 and 1992. We see that the wealth of the Asia Pacific region is manifestly dominated by two economies, those of the United States and Japan.

Significantly, the popular sentiment is that the growth of Korea, Taiwan, Hong Kong and so on will erode our presence in the global economy. Over the period 1982 to 1992, percentages have not changed. Figures have remained constant over the 10 years. Indeed, the actual percentage of contribution to the gross domestic product of the whole Asia Pacific region of Japan and the United States actually increased by 3 per cent in the decade between 1982 and 1992. I wish the committee to be aware of this because it is a very important underpinning of APEC.

Finally, I would remind the committee of the demographic realities. This overhead shows live births in 1982 and 1992. It completely reverses the economic picture of the Asia Pacific region. It reflects that approximately 66 per cent of the population in Asia Pacific region live in the eastern edge of the Asia Pacific region and it indicates, given the levels of economic development of these countries, how important that is.

Turning to APEC I wish to make two or three points about Canada's involvement. APEC is not a prescriptive organization; it is a consensual organization. If anything, it is based upon the values which emerge out of the way regional organizations such as ASEAN work. Some critics of APEC see it as being too loose, not going anywhere, a kind of "talkfest." They say it produces no results.

I would argue that that is, perhaps, a wrong perception. APEC may not produce concrete results but that may be its greatest strength. Bringing together large numbers of people from around the region in these forums creates an atmosphere which is conducive to advancing the opportunities for trade liberalization and investment.

Other critics of APEC do not think that APEC can be concerned with human rights. They do not think APEC can be concerned with labour matters. Some NGOs are being very vocal on this matter. In my judgment, this is an extraordinarily complex question. I read in the newspaper a quote from Mike Harcourt who stated to the committee that Canada should adopt some type of modest attitude.

My view is that we must adopt an attitude which informs NGOs of the cultural differences, of the different phases of development, and of the historical context in which Asian development is occurring. We must provide more information to the NGOs as part of that exercise. There are other criticisms levelled at APEC. Should it be more of a developmental organization? Should it consider the idea of the former Japanese Prime Minister's Partners in Progress Initiative? Should it seek to advance human resources in various ways? All these questions will be on the agenda of the meetings during this year of the Asia Pacific.

It is inevitable that Canada will become an active part of this Asia Pacific relationship. Consequences for Canada are threefold. All of them are not new, I suggest to the committee, but all need to be reinforced.

We must continue our investment in education, training, international education. We must continue to encourage the training and education of people from Asia in our country. Not only does it earn us income, it also creates great cultural affinities and future possibilities for networking and relationships. We must also ensure that our own students have opportunities to study in Asia. We need more ambitious programs in this area. The funding for graduate students to work in Asia is extraordinarily limited in the Canadian context.

There is a multicultural challenge to Canada in its involvement in Asia. We are changing rapidly. We have already seen the consequences of that type of rapid change in Australia and New Zealand where, in the last year, problems have emerged over the issue of Asian migration which -- to use a word we might not wish to -- some would call "racist" attitudes. Major Canadian urban centres, where most of these populations settle, must be extraordinarily well positioned to deal with this eventuality. We have been dramatically fortunate in Canada that no major political party has chosen to take any position on these issues which would oppose it. But we must be continually aware that we have to engage in educational programs, in activities, and in thinking about our immigration policy in such a way that it makes us part of the multicultural community of the Asia Pacific region.

Finally, we are into the Canadian Year of the Asia Pacific. We have declared ourselves rather in the way that Bob Hawk did in 1978, as almost an Asian nation. We are not quite as sure as Bob Hawk was when he said that Australia is an Asian nation. However, by declaring in Canada, the Year of the Asia Pacific, I think we have embarked upon that process.

There is still massive ignorance in the Canadian community at large about what APEC is. I asked fourth-year students at the University of British Columbia what they thought APEC was and only three of 20 came up with anything like a sensible answer. That may be a reflection on UBC. I would stress that we need more education on the functions of this kind of organization.

It is important to continue to think about cultural sensitivity in our relationships with the Asian region. I do hope that in thinking about these matters, you will try to think more about how Canada can learn from this APEC experience and create new vision in its foreign relations policy.

Professor Douglas A. Ross, Department of Political Science, Simon Fraser University: Thank you for the opportunity to appear before the committee and address these important issues.

I will take a more security-focused tack. I will also put forward the many problems and concepts that come to mind when we contemplate Asia Pacific, concepts such as prosperity and security, in a longer term context.

I recently returned from a conference in Winnipeg where we discussed Canadian foreign policy between east and west and what the long-term prognosis is for our overall orientation: whether we will strong, effective and vigorous relationships with Western Europe, whether we will become more hemispheric in orientation, or whether we will look across the Pacific. Not surprisingly, we all ended up arguing for our respect bailiwicks and saying we were going to do all three. That then poses the problem: Can we do all three, or are we going to be spread a mile wide and a quarter inch thick? This is the dilemma that increasingly will confront policy-makers and political leadership in Ottawa.

My interest is in long-term environmental threats to global security. Denis Stairs, a colleague at Dalhousie University, has spoken about the Decalogue of disasters that awaits the human race as we move into the 21st century. I would simply put that down to what I would simply call a "Trinity of terrors" -- overpopulation, famine and uncontrolled migration. These are really the cutting edge of practical problems that we will face very soon.

Each of these directly or indirectly can and probably will provoke significant warfare, and not only in the very distraught and damaged countries of Africa, but also there is a considerable potential for disintegration, destruction and conflict in Asia.

In the last 10 years we have seen the APR as the great hope of the world -- bringing prosperity, and all the economic statistics are incredibly encouraging. The bad news is that those who look at the environmental underpinnings, the resource underpinnings, are very pessimistic about the ability of both China and India to pull through a transition to a fairly stable, sustainable economies.

Many writers, whether one is talking about Thomas Homer-Dixon at the University of Toronto, Paul Kennedy at Yale, or others who wrote earlier, are afraid indeed that the population bomb that turned into the population explosion in the last three decades has in fact created unavoidable consequences which will afflict us.

The chart on the screen sorts out many of writers who are more read and debated at the moment, certainly in international politics, when one starts discussing environmental security. Maybe the two most notable Canadians on the list are Thomas Homer-Dixon and Gwynne Dyer. This chart, divided into four quadrants, has those who are most deeply pessimistic in the top left. On the bottom left, we have Kennedy, Gwynne Dyer, Ivan Head whose book, On a Hinge of History is a very important contribution to the debate and not sufficiently widely read in Canada, and a woman journalist in the United States I have thrown in there to represent the environmental challenge of diseases, Laurie Garrett.

In the upper right, which is where I will focus much of my discussion and comment, is Samuel Huntington. It is Huntington's views that are most problematic and which I wish the committee to be aware of when deliberating what to do about Canadian policy and how we see our role in an increasingly, perhaps contentious, divided world.

In the bottom quadrant are those who believe that all environmental problems will be overcome by science and technology, the so-called "technological cornucopianists" and who also believe that conflict will eventually disappear, that the human race will close that chapter of division and conflict, hence the rose-tinted spectacles label. I would put many market ideologues and neoconservative liberal utopians down there. I am not going to talk about them at all because I think they are completely disconnected from reality.

I see a bleak future. Probably if I had to slate myself, I would be somewhere down in the bottom left. Conflict is avoidable, mitigable. Over the next two to three centuries we may be somewhere near being beyond the war system, beyond militarism as Dyer has suggested in his four-part NFB series The Human Race. But this is radically different. Dyer's guarded optimism is radically different from what in fact many others working in this field have predicted.

One problem which has increasingly receded from public awareness is the threat of global warming as a practical problem. Many people think that, after scientists came up with firmer estimates about rates of ocean level increase, with an increase of 1.5 feet around the world over the next 50 to 100 years we will see significant problems in many river estuaries where huge population centres are located, and that will have an impact on arable land and, consequently, food production.

That is not the least problem global warming poses. I would suggest that many of our politicians in Ottawa, Washington and elsewhere are ignoring this problem far too much. There is potential for sudden changes in both climate and in food availability. The water crisis will be exacerbated by global warming. It is absolutely clear that right now these various rivers highlighted in green, already, for significant parts of the year, do not flow to the ocean. The water in these major river systems is drying up completely. The Colorado has not made it to the Gulf of Baja in a decade or more. This type of problem will get worse and worse.

For example, as water does not move down the Nile delta, which is collecting less and less sediment, and it continues to experience that condition, we will see more and more inundation. This is a fairly incremental change. Environmental analysts zero in this area and say that we do have time to adjust, but that the message is not getting through.

In the last two years much research has been conducted on the ice sheets in Antarctica. Many specialists are actively debating what might happen if both the west Antarctic ice sheet starts to slide and slide dramatically and/or parts of the east Antarctic sheet starts to slide. These zones are not stable. We are still learning some of the most fundamental truths, information, mechanics about how our planet's geophysics work. If the west Antarctic sheet started to slide, potentially there could be an ocean level increase of 20 feet, not 1.5 feet. In several centuries, if it started to move fairly quickly, there could be an eventually sea level increase of 150 feet.

Those who have been to Dinosaur Provincial Park, in Alberta know that it is a wonderful site for bones because it used to be on the edge of a huge inland sea. Most of central North America was flooded. If we set up irreversible climate change we could be dooming our descendants to a water planet. We are still a long way away from an average global temperature. The maximum was reached in the last interglacial period. This is a significant consideration. It may not be for most of our politicians who may have four- or eight-year political careers, but it is something that we all have to think about. In fact, we may have to start putting in place the kind of political cooperation that can deal with carbon emissions, particularly.

The United States is, as always, home to a lively debate about how much cooperation should be extended to the major players in Asia. What I see most troubling is that in the last five years increasingly the Americans are, at least in their strategic thinking, leaning more and more to a hemispheric fortress mentality. Samuel Huntington's writings exemplify that most clearly. Huntington's article in 1993, The Clash of Civilizations and the Remaking of World Order, was called by many people, "the X Article for the 21st century", the equivalent of the containment doctrine enunciated by George Kennan.

In terms of U.S. military spending we have seen continued development of aircraft and demands by the Republican Congress to double the number of B-2 bombers. This is the aircraft which literally costs more than its weight in gold. The Americans are spending enormous amounts of money. They are also pouring huge amounts of money into high-technology warfare and remote sensing aerial surveillance capabilities which are extremely stealthy and which will provide them, they hope, absolute control on the battlefields of the future and some prospect for waging what they call "an era of no dead war."

The Gulf conflict asymmetry and casualties will extend into every future conflict in which the U.S. will be involved. The U.S. Air Force and members in the U.S. Congress are pushing very hard to reactivate a scheme of national ballistic missile defence and see us as integral part of it. I have here a map that appeared in Aviation Week and Space Technology. The United States Intelligence Council quite simply assumes that we will be part of the same zone. Presumably this will have some financial implications down the line for us in terms of cost sharing.

It is quite clear that the Americans have given up on official development assistance and are most unhappy with the cuts coming out of Ottawa on ODA which are very ill advised, but they are absolutely no comparison with the cuts which have been made in U.S. spending. Essentially, they have entirely given up on the whole idea of development assistance. However, they have not given up on defence. There has been no peace dividend. I would note that for 1995-96 the United States spent an amount equal to the spending of Russia, Japan, France, Britain, Germany China and India added together.

As to the designated immediate security threats to the United States, places where they feel their forces may be deployed, North Korea, Iran, Iraq and other troubling or potentially troubling countries such as Syria, Libya and Cuba, their collective defence spending is about $9.7 billion United States equivalent. That is one twenty-seventh of what the United States is spending. There may be very modest decreases in the next three to fours years in United States defence spending. The question is: Why has there been this extraordinary sustained commitment to defence, indeed with many more conservative republicans actually advocating an increase in defence spending?

We have to look specifically to some of the recommendations which Samuel Huntington and others have made, but especially Huntington. He essentially has laid out an argument that the world will coalesce along cultural lines, in fact, cleavages; that the major conflicts of the 21st century will be what he calls a "clash of civilizations," and he stated as early as 1991 that there was no basis for collaboration between Japan and the United States. In his view the Japanese economic elite have already declared war on the United States and the United States should recognize that fact and base policy accordingly.

Huntington is also talking about a fundamental antagonism between China and the United States which is equally troubling. Essentially, he proposed distancing the United States from many of its past security commitments and disengaging from Asia Pacific, almost treating Japan as an adversary and rival quite explicitly.

He also suggests that U.S. military superiority must be maintained for as long as scientifically and economically possible. The west is going to be under attack. His latest article suggests that the west, meaning western Europe and North America, will be increasingly outnumbered and that they might even be outgunned in the 21st century to come, so every effort must be made now to play a balance-of-power game, to limit the growth, capabilities and strength of other countries, particularly countries like China and Japan.

This incipient fairly explicit adversarialism is one position in the United States debate. I am not suggesting this is U.S. policy, not at all, but I am very worried that more and more people will gradually gravitate towards it.

Huntington also suggests that NATO is the security organization par excellence for the west, and that NATO should be the primary almost exclusive focus for American international security policy. That would be really dangerous. He is suggesting NATO enlargement is a good thing, but only countries that are quite clearly western European in their cultural orientation can be allowed into NATO. Slavic counties cannot possibly be admitted. The Balkans cannot be admitted. In effect, I think he would probably say the Turks should be kicked out, they do not belong because they are Islamic.

That kind of division, cleavage, which he is forecasting and predicting is not a reality. Many people still take an essentially liberal approach, internationalist approach to American policy and I do hope that those views will prevail. Huntington is very widely read. More and more people are supporting his practical policy recommendations. He also advocates, quite literally, sealing the frontiers of North America to stop uncontrolled migration and lauds what the Western Europeans have done in terms of building a new Berlin Wall all around Western Europe. One of the major objectives for the Italians and Spaniards is to try to keep out uncontrolled migration from North Africa. For the Americans the problem is Mexico and Latin America. He is probably very reluctant to think about Mexico being included within northern North America and western civilization, but it is a possibility.

In any case, I think you get the gist of his overall policy recommendations. His notion of arms control and disarmament for Asia Pacific or anywhere else is quite simply it should be used to advance western security. There is no notion of reciprocity, there is no notion of universality as Canadians see in agreements like the Nuclear Nonproliferation Treaty. This is purely to be kept a discriminatory policy instrument to ensure western security in the longer term.

I have left a copy of a summary of some of the major criticisms on Huntington's work and why I do not find them persuasive.

I want to briefly talk about the implications for Canada and our policy in the Asia Pacific region.

First and foremost what is critical is that we do what we can. We are a smaller player and we will not be decisive, but we must do what we can to try to create an emerging political community. APEC is important. Yes, there is a risk that we will dissipate our energies in three directions simultaneously. However, we must not allow these tendencies in American politics to become dominant so that we isolate Japan, sever relationships with Japan, and consign most of east Asia to its troubles. Huntington's approach is quite clearly isolationist. His view is that the west should not engage in promiscuous interventionism; all it will do is cause trouble. It may sound like a recommendation for self-restraint. In fact, it can be translated into: "Let them rot and collapse if that is what will happen, our interests have to be safeguarded here in the western hemisphere." This type of lifeboat mentality is fundamentally untenable. The kind of long-term recommendations Ivan Head and others, and indeed Paul Kennedy, have made suggest that the wretched of the earth cannot be left to rot and collapse on their own. Increasingly the temptation will be to disengage, to pull away. If we do that, however, one must bear in mind that, within the immense reaches of population and poverty, many of these countries have well-developed industrial capabilities. They may or may not develop nuclear weapons' capability, but certainly many of them have both chemical and biological weapons' capability. If we are indeed an interdependent planet ecologically, the exercise of what Ivan Head termed "Wars of Resentment" is very real indeed. It is essential to prevent that kind of north-south polarization.

To do that, however, we will have to rethink what we are doing on both development assistance and security. We are marginalizing ourselves. By cutting the aid budget consistently year after year to 1999 we made a major error. Pretending that security problems will gradually fade away into insignificance and that Canada has no role is also a mistake. If the objective of our strategy is to try to prevent the creation, the evolution of all of these cleavages and the growing forces of isolation in the United States, we must be part of a security community with the Americans and be able to influence them. If we have no capabilities to share, there will be no effort to try to deal with regional aggression, regional crises as and when they break out. That is what I see happening. Mothballing most of our aircraft and leaving our anti-submarine warfare ships without effective helicopters for long periods of time, is an invitation to complete irrelevance in terms of international security relations.

International security is not disappearing. It will reappear with a vengeance in the 21st century. If we position ourselves badly we will have no influence on the outcome of these serious struggles that are looming over the horizon.

On that cheery note, I will stop.

Professor Brian Job, The Institute of International Relations, University of British Columbia: Mr. Chairman, I wish to thank members of the committee for inviting me here today. I join with others in lauding the committee's attention to the subject of Canada's relations with the Asia Pacific. I firmly believe that Canada's role in the international system of the 21st century will be largely determined by events in that region and by our participation in the economic, political and social life among the nations of the Asia Pacific.

First a brief word about myself and my institutional affiliation. I am the director of the Institute of International Relations at the University of British Columbia. This institute was created in 1971 with a mandate to advance teaching and research on international relations. In the last several years we have focused our efforts on the redefinition of Canada's foreign and defence policies in the post-Cold War era and on the international relations among Asia Pacific states, especially their political security relations.

Our institute works closely with Terry McGee's Institute of Asian Research at the University of British Columbia and I would stress that his is one of the flagship centres for studies of Asia in North America. It is a truly national resource, and I am very envious of his building.

I will abbreviate my remarks this morning and concentrate on three specific points to allow time for the questions you will have.

I assume the committee, although early in its deliberations, has already been provided with ample evidence, statistics and data to be convinced of the economic dynamism of the Asia Pacific region and of advantages to Canadians' participation in trade and investment in the region.

Furthermore, as I suspect is particularly evident in this region of the country, you are undoubtedly aware of the direct impact of Asia and Asians upon Canada itself and their important place in our domestic economy and society.

The basic argument in my remarks is that we Canadians in academic, government and private sectors cannot simply define our relationship with Asia in narrow economic terms, that is, as jobs, jobs, jobs and trade, trade, trade. I argue that if we do define our foreign policy and our bilateral relations with Asia solely in economic terms, we would be myopic because we will eventually undermine our economic interests and our success in the region.

My first point is the inseparability of stability, security and economics in the Asia Pacific region. The second is the drawbacks to what I will term a "monochromatic foreign policy." The third point is sustainability after APEC and the Year of Asia Pacific in Canada.

To the first of these points, the inseparability of stability, security and economics, in 1995 a survey of senior executives and middle managers doing business in Asia Pacific found that 77 per cent of them regarded political instability to be the major barrier to doing business in emerging markets in the region. In January 1997, the lead editorial in the Far Eastern Economic Review states: "The question marks that hang over the Asia miracle have little to do with business. From Japan to Thailand and Indonesia the question marks are fundamentally political."

My point is we have to continue to pay attention in our foreign and economic policy to these particular underpinnings within the region and within these countries as we go forward, I would suggest perhaps a bit more than we are doing at the moment.

As the flow of goods, services and capital within the region have increased, so, too, have the stakes in ensuring that the individual countries in Asia and the region as a whole develops in a stable manner. This stability necessary to ensure continued economic growth is dependent on a combination of domestic political matters within key countries like Indonesia and China and upon the establishment of a framework of peaceful regional relations.

Canadians have to gain a better understanding of these internal and external contexts and pay attention to them in advancing our interests. A key point in the stability in this region is not going to be maintenance of the status quo. We have to understand in business and in governmental policy that stability will itself involve important changes.

On the external dimension, unlike Europe, the territorial boundaries within the region are not satisfactory, especially maritime boundaries. There are serious after-effects of the Cold War especially on the Korean Peninsula. I am sure you have all heard about the Taiwan straits issues and issues related to the South China Sea. I will leave examples like that for questions.

States are dramatically increasing their acquisition of arms. The proliferation of high-technology weapons that can extend the power of states is increasing. You you then also have the dilemmas of nuclear potential in the region.

On the internal side what is interesting and critical about this relationship between economics and stability is Asian governments have, by and large, adopted the strategy of going for economic reform in advance of political reform, and they have been very successful on the economic side. There are three things we need to remember. First, economic prosperity brings with it difficulties itself. There are disparities within regions, disparities within countries; by our terms enormous disruptions in countries. The notion is that there are 100 million people in China attempting to move from one region to the other or attempting find places to live and employment. The potential for what we would regard as societal unrest or concern is substantial.

States have gone towards economic reform but have stayed with soft or hard authoritarianism. Those regimes will ultimately change and, if they do not change, they will bring issues of human rights increasingly on to our agenda and we will have do deal with them.

Every leader of a regime in a country, and I would include in that context the United States government and the Canadian government, defines his or her survival on the basis of economic performance, and they must take steps to ensure that economic performance and to stay in power and, in that sense, there is increasingly a link between politics and economics.

To jump ahead for a moment without dwelling on that issue, I would say that the recent intervention in Indonesia has been a wonderful wake-up call. The attentive Canadian public now has a sense of the size of the stakes involved and the political vulnerability of key Asian regimes. The Canadian business community has been given a dramatic lesson in the need to understand the political security context of Asian players, especially in states where pay-offs in terms of massive infrastructure investment as you would have in mining, in transportation and communications and elsewhere depend on long-term relationships and political stability. We can talk later perhaps about Hong Kong, Taiwan and China.

My second point is on the drawbacks to what I would call a "monochromatic foreign policy." I am overstating this a bit, but I want to focus your attention by using that phrase.

In its statement on foreign policy, the Canadian government defined its primary foreign policy priority as an economic one, that is, advancing the economic health of Canadians. Certainly this makes sense for a country as dependent on trade as Canada. The result needs to be foreign policies that focus on advancing our economic interests. However, this should not mean that our foreign policies can or should be defined solely in economic terms.

The perception at times given to Canadians, and perhaps more importantly to Asians, is that Canada is focused only on economics. To some extent this is heightened by our high profile bilateral Team Canada missions. These have proven very successful both in terms of their economic payoff and their consciousness raising of the Canadian public at large. I am not suggesting they be abandoned, nor am I advocating a mixing of economic and social issues in our dealings with Asian countries. However, I am arguing that we need to rethink and reorient our approach to the region in some ways and we need to be more attentive to some of the factors I mentioned earlier. There are several reasons for this. One is that Asian players are suspicious of outsiders who only appear in their region or their country looking for a quick buck. You would be too, right?

Asian players are also anxious to construct effective regional frameworks and they look for our participation in that process in the ASEAN regional forum and also in Northeast Asia where there are no effective subregional mechanisms. In looking at Terry McGee's maps most of the problems are concentrated in Northeast Asia.

Increasingly, Canada will find that its economic interests have social, political and security implications. Within Canada, the immediate impact of immigration is clear. The immediate impact of something going desperately wrong in Hong Kong would also be quite apparent. I am not predicting that, but I am saying that we need to be thinking long-term and short-term in that context.

In the region we need to advance our bilateral regional relationships. We must consider what some of the larger political security implications are to APEC.

Every time the words "security" and "APEC" are raised together people get nervous. If the United States Secretary of State for Defence raises them, he causes a world-wide stir. We need to be aware that institutions like APEC will ultimately begin to take up issues that have political and security consequences and we need to be attuned to them. Issues of labour standards and immigration will arise, and these, although not strictly trade issues, are important.

My third point is sustainability. As is often said, Asian business and governmental leaders take the long-term prospective. They establish their relationships carefully. They are willing to undergo considerable short-term expense in order to put in place secure bases for long-term pay-offs. Canada and Canadians have to take the same approach. I am concerned about Canadians sustainability in our international business and political relations with Asia and in Canada itself.

On the international side I am sure you will hear, if you have not already, discussions of the need for Canadian business and government to sustain longer term relationships in Asia. I will not talk about that. I am also concerned on the domestic side.

The amount of resources available for policy related attention, both within the government and outside it, in academe and in other institutions, has steadily declined. Notice that I am not talking about academic research in the sense of basic research. I am talking about policy related research or policy related work that has implications directly for the conduct of business and other relationships.

The Department of Foreign Affairs is woefully understaffed in both absolute terms and especially in relative terms. By "relative terms" I mean that Asian foreign ministries devote whole divisions to subjects where their Canadian counterparts assign only one person. If that continues, you cannot expect to be kept up to speed on the governmental side.

Resources for policy related research have sunk substantially. Witness the fate of various institutions and the stringencies imposed on the Asia Pacific Foundation.

The Year of Asia Pacific, indeed the APEC events themselves, are being financed by an extraordinary effort and I applaud that. It is a cobbling together of funds from various government pockets and the private sector. What concerns me is not what will happen in 1997 but what will happen in 1998. Will we have the capacity to sustain momentum, sustain our comparative advantage in the region? Will we be able to train the young persons necessary for the positions in Canadian business, that is, persons who have a combination of the technical skills, the language skills and perhaps some work experience in an Asian business or a Canadian-Asian business-oriented context? We should be looking for creative solutions to provide a legacy of 1997 in Canada, an endowment that provides resources in institutions for the necessary practical education and policy-related training.

Senator Grafstein: Mr. Chairman, the witnesses have provided fascinating material. What overcomes us as we try to proffer some advice is the complexity of the issues and lack of intelligence that we have as a resource.

I was trying as best I could to develop some strategic paradigm in my own mind to ask strategic questions. Let me take a run at it and see if I can get some reaction. We have to take certain givens into account: that we have limited resources in Canada; that the territories we are dealing with in Asia are large and diverse in language, culture, level of development, and political stability; that there is great uncertainty about our stabilizing force in the world, the Americans, who are very unpredictable at this particular time. Huntington is a perfect example of the current basis or root of their strategic thinking. One reads Huntington and wonders where he has been in the last 50 years. The one thing I am always confident about with American intelligence -- as I am with Canadian banks -- is if they are all pointed in the same direction you know you should not be in that direction, but be moving in a different one.

Let us start with existing traditional functions or attitudes, "Pearsonian" attitudes. If we are trying to develop a prism let us use the Pearsonian prism <#0107> what he would say about developing a stable multilateral relationships. The first question I would have is: If you examine the Pacific Rim, who are the two or three basic pillars on which we can build some structure? Japan is certainly one. Where else beyond Japan? Is it Singapore? Is it Taiwan? What are the strong footings upon which we can build a multilateral structure?

It is clear in my mind, and we found this in our study in Europe, that the resources we have allocated to both external affairs and international trade are woefully inadequate. How can we quick-start our intelligence? Can the government play a useful role in coordinating universities, think-tanks, to play specialized roles of intelligence so we can have a much more intelligent base upon which to operate? I look at the German model, the Stiftungs in Germany, who have a high degree of intelligence in every area on a constant basis which is readily available to politicians to assist them in decision-making. Can we give some thought to that?

Thirdly, can we change the strategic approach to our armed forces? Do we want from our armed forces an intelligent officers elite who can play the role the British Army played during the great game where, when there are vast amounts of territory that the British Empire wanted to cover between Europe and Asia, they developed a cadre of brilliant military officers who lived in the region, understood the intelligence, and were able to develop a policy framework? In other words, do we have to reconsider the utilization of our military? Some good things have happened. For instance, if you look at your material the Canadian Armed Forces sent a tour of Canadian officers to Pacific ports. I thought that was a very intelligent thing to do. Perhaps there has to be much more of that.

We have to look at what the Canadian Armed Forces can do in this particular area and whether it is communications intelligence. We are very skilled at communications. We are reasonably skilled at intelligence. Is there some way of us giving ourselves a comparative advantage of putting those two elements together?

Hopefully you three who have thought about this more than others can make some sense of all of this for us.

Mr. McGee: It is pretty obvious to me that the one of the major entry points for Canada into relationships with Asian countries has been ASEAN. Rather than Singapore I think of ASEAN. ASEAN has already incorporated Vietnam into its grouping. It has plans to include Cambodia and Laos within the next two or three years and at some point they are talking of including Miramar once the situation in that country begins to improve politically in terms of representation.

Canada has been a major partner in ASEAN. The Association of Southeast Asian Nations was very thoughtful in the manner in which they developed a dialogue for foreign ministers to meet at the ASEAN meetings at least once a year. When Joe Clark was foreign minister, he gave a talk at the university on the importance to him of how that particular experience of the ASEAN meeting together with foreign ministers from various parts of the world, including the United States, was very important to him because it was an open-ended dialogue. He stated that, if he were working bilaterally it would have taken him three or four years to set up such a meeting which, given politics might never have happened.

ASEAN is very important. Remember, it will have close to 600 million people when it eventually becomes SEA10, or Southeast Asia 10, as I believe it will. It is economically vibrant. It has some of the problems Brian has identified of political stability and systems. Nevertheless, Canada must continue to develop that relationship with ASEAN as one of those pillars of Asia.

More contentious and difficult is China. I do not know if other people have sensed this as I do not have access to the intelligence that would give me a complete basis for it, but I sense that the United States is positioning itself at this point to try to reach out to China since there will be an imminent change of head of state. A lot more dialogue is occurring.

Canada cannot ignore China. It is the largest and, probably, potentially the richest country in Asia and the world if it were to develop and not suffer the type of political instability which my two colleagues have talked about. It is in our economic interests and political interests to continue our dialogue with China. More particularly, it may well have to be approached through some type of offspring organization of ASEAN in the northeast regional area, which is very different in terms of the relationships between northeast Asian states. We have the absolutely intractable problem of two Koreas. There are persistent problems in that region which are very different from those of ASEAN. Compared to Southeast Asia, Northeast Asia is a very intractable area. Should some regional forum along ASEAN lines ever be formed, then the possibility of using that to bring China into another set of relationships which is in their security interests, as well as in their economic interests and ours, is very strong.

We cannot afford to dismiss China, even if things should get very rough over the next three or four years. There is no doubt that Deng Xiaoping must be approaching his maker. We hear many rumours about it. Even when I was in Guangdong last December, I was informed that he would be conveyed south to Hong Kong. He was, at that point, in Shanghai to appear at the July 1 transfer of power. Other people informed me that was highly improbable in view of the state of his health.

I will leave it at that. I am sure my colleagues will touch on the other two points.

Mr. Job: Following from what Professor McGee has suggested respecting pillars, the challenge is to find pillars in Northeast Asia. Southeast Asia, the ASEAN context that Terry McGee has described, is a reasonably settled framework. Northeast Asia presents enormous problems. It is difficult to get all the players at the table. The North Koreans have to be enticed to participate. The Chinese will participate in fora in various degrees. That is where Canada should put some of it is policy-related effort. We have been very successful with a combination of academic, expert and business resources in Southeast Asia. We have been less innovative in approaching Northeast Asia.

Senator Austin was at a Northwest Pacific working group meeting on the weekend which is attempting to do something in that direction. He can reflect on some of the frustrations in trying to get this off the ground. It is a long, slow walk and at the same time events are moving fairly fast.

What do we need in Canada? The Stiftung system in Germany is certainly an important one. Some equivalents are seen in the United States. The dilemma is financial, but the greater dilemma is one of sustainability. We have the resources in Canada which, if we could them on a secure footing, albeit it not a large one, you would begin to see people generate consistent results. I will give one example to illustrate.

The Department of National Defence runs a set of security studies programs across the country. It has put a relatively small amount of money, approximately $1 million at the moment, in 12 or 13 centres across the country. It is not a lot of money per program. This has been going on for 25 years. The result is that, if an institution knows it is getting that money over a five-year period, which is their program cycle, they can plan how to bring students and visitors in, and how to use that money as seed money for other enterprises. Given the resource constraints we are under, to make an argument that we would like to put "X" billions or millions into a key set of long-term institutions or larger institutions will not fly. However, the notion of consistent underwriting is important.

I would also raise another potential here and that is the notion of the APEC study centres. A relatively modest amount of consistent funding there would allow them to get off the ground and present themselves much more effectively to the private sector. The dilemma for the private sector at the moment is, they are here today but will they be here tomorrow? If they could say that they will be in existence for the next 10 years, subject to performance review, I think there would be better participation in these projects.

The dilemma on the military side is that we will never be in a position to have a presence in Asia, that is, a presence relative to the American presence, presuming that at least part of it will stay. On the other hand, we have a couple of important entrées to make with our Canadian Armed Forces in the Asian context, one of which was mentioned, and that is visiting. However, we could also send and receive persons from military establishments in Asia and in Canada.

The second issue is building more effective linkages with Asian countries, particularly peace building and peacekeeping types of strategies. I could go into those in more detail, but time does not permit.

Mr. Ross: In answer to Senator Grafstein's question, Taiwan is a problem, and although it has many attractions in terms of capabilities and overall political orientation, it may, in the next 10 to 15 years, become the focal point for the difficulties between the United States and China.

I believe Terry McGee is correct in saying that the U.S. administration is trying to reach out and make this the year of China and exchange heads-of-state visits, but it is also aware that last March they were engaged in coercive diplomacy in the waters around Taiwan.

One also has to bear in mind that in China itself politics will not be necessarily stable or predictable over the next five to 10 years. Given the extreme social and economic instability inside the country, we can say there is some significant risk that, whatever factions are vying for power in Mainland China, some will appeal to fairly strong nationalist sentiment. They may not be able to deliver domestically, so they will reach for the nationalist card. That means confronting Japan over the Diaoyu/Senkaku Islands and it may mean taking a much stiffer line with the Americans if the Americans ship those F-16 fighter aircraft which the Taiwanese have already paid for. If they ship them there, they are due to arrive there this year. This is a very difficult situation.

Human rights, democratic rights ,are a problem for us insofar as we now have had more or less real elections in Taiwan. Will we feel a moral obligation to, in effect, try to help them maintain their autonomy, their independence should they decide to make a full, visible break? The Americans clearly hope that they can manage this situation by manoeuvring concessions. If they do not, we will be looking at a period of a Chinese-American cold war and I do not see how we can avoid getting caught up in it. For that reason I suspect relying on Taiwan is not the way to go.

In fact, Australia and the United States are more likely to be the two governments where we will find many people who share similar views, who do not share a Huntingtonian perspective, and who are interested in cooperation and community building.

Many of our efforts have to be zeroed in on the Japanese. The Japanese are not ready to play a regional leadership role in security terms. They are not going to be accepted by the ASEAN. The notion of parallel bilateral talks, one-on-one, has been more or less rejected by the ASEAN leaders.

Trying to assist the Japanese in being useful and helpful without necessarily being frightening or intimidating is what has to be done as the Americans disengage from the area. They are not going to leave. I hope they will not leave, but we cannot guarantee that either. Building community links is really critical, but to do that we must have credibility.

Ship visits and military officer exchanges are good ideas. I would note that 100 per cent of all American officers have first university degrees; 50 per cent have second degrees. The figures on the Canadian side are 50 and 10. That is something we should work towards changing right away.

Having intelligent people in these positions is a great idea and would be a great asset but it is not enough. We need submarines on the West Coast. We need capable ASW ships visiting the area regularly and providing some presence. To enter into the coercive diplomatic game of trying to deter or force Chinese accession of Taiwan back to the homeland, the mainland, we must be part of the Pacific community. We must be in that position to deter a military solution to nationalist demands that might arise in China.

The Chairman: Senators, we are running into a time problem, which was predictable. I have three senators who wish to ask questions of our witnesses. I would ask them to be specific in their questions. The first is Senator Austin.

Senator Austin: Mr. Chairman, I feel like a small boy with five cents who can buy one candy and there are 150 candies on the counter to choose from.

I would like to ask the witnesses, who have an enormous knowledge of the topic we are examining, to consider something quite subjective. One of the problems we have as policy-makers is how to deal with the difference between our values and "Asian" values. As we try to advance the political agenda in our dialogue with the Asian community we meet a number of contradictions. These contradictions can sometimes be outright rejection of what we consider to be universal values -- and our critics deny these values as universal -- or human values with Asian characteristics.

The Canadian and the American public are deeply imbued with our value system. It has been developed over a long period of time and we see it as a system that has created the open dialogue, and the adversarial examination of facts that has, in turn, created a transparency that makes democracy work and makes the economy drive forward with efficiency. This type of transparency is not practised in most Asian societies, yet, their economic growth has been phenomenal.

In the area of human rights, what can we legitimately do to advance our interests but maintain a dialogue, maintain an integrating process with the Asians?

In your view is democracy and transparency ultimately essential for economic success in Asia, or can absolutism also be economically successful?

Mr. McGee: On the issue of human rights, it seems to me that what I hear from the Department of Foreign Affairs is that it is better to keep a dialogue going than to take an absolutely intransigent position. There are very strong arguments for that. If you can continue to keep the item of human rights on the agenda with the various governments of Asia, even if it is not central to the agenda, at least it keeps it on the agenda.

I believe that there must be conditions in which human rights demand that the Canadian government take a position where conditions of genocide or of other such human abuses are such that the Canadian government must take a position on these matters. I also realize that it is very difficult and very complex to establish those conditions, but it is not impossible that those conditions do occur, and in that case the Canadian government has a moral responsibility to take a position in such matters, no matter what it does to their trade, and no matter what it does to the relations with that particular state at that point in time.

The issue of values is really difficult. It took our own countries many hundreds of years to develop democratic systems. We expect Asia to become democratic in a space of 10, 15, 20 years. It is asking a lot for these institutions to develop in this way. We have to practice a certain amount of cultural sensitivity to the political processes of Asia and not demand that they be the same as ours. Indeed, to be honest, I do not think we have a right to do that. That is beyond any brief we have as Canadians. We must learn to be culturally sensitive in our relations with these countries; sensitive to religion, sensitive to the value systems of those societies.

APEC is an exercise of that type if sensitivity. We must view APEC as a consulting organization, an organization where people talk, like ASEAN. If an agenda item will cause a problem for one state, the ASEAN policy is not to include it in the agenda. It is a different way of conducting international relations compared to what we have done in the past, but that is part of the exercise.

Mr. Job: One of the issues regarding democracy and democratization is that we have to put use time frame that Terry McGee has suggested. We have to realize that democracy, when moving from an autocratic situation, is a decidedly destabilizing process for regimes and elites in power. Some work has been done on this subject that shows that democratizing autocracies are those societies which are most likely to have either internal or external instabilities, and that is something we have to be very aware and careful of.

Mr. Ross: And they are most likely to go to war.

Mr. Job: Internally as well as externally.

Mr. Ross: It is the warfare aspect that I find most troubling. The toughest question of all is; How do we deal with this? The most visible manifestation is Taiwan. It is almost inevitable that, at some point, the Taiwanese will opt for full, formal independence. If they feel the link to the United States is disappearing at some point they will decide to roll the dice and hope they can get away with it, and that they can rally some support. What will we do at that point? They will have to be able to do it on their own. They will have to do it with military capabilities which they are desperately trying to buy and develop in their own right. They have had a nuclear program in the past and may be interested it attempting to revive it.

As to values more broadly, I was at a conference where Jeremy Paltiel of Carleton said that we must remember that, certainly in the case of China, authoritarian rule is seen as the only way to advance the long-term renaissance of the Chinese people. The state is the vehicle for the liberalization, reintegration and expression of the Chinese people. Human rights and international law from the 1840 opium wars on has been human rights imperialism by the west, by the European colonialists and now by the Americans, and that is a problem. Even the words "human rights" are not translated. In Chinese, the notion of "right" there does not have the liberal connotation it has in the English language. It is more closely associated to "might." This is a dilemma. There is a fundamental cultural gap here. Mr. Paltiel suggested that, perhaps, the way to deal with this is not so much by pressing our vision of human rights and western liberal democratic rights but exploring what he called "dimensions of humane rule" and that that might provide common ground.

I would suggest that one dimension of humane rule is peaceful settlement of disputes and that we preach that at every opportunity. Also, of course, we should have a balance of force in the background which will help diplomacy enormously. Dimensions of humane rule and everything possible to avoid coercion and explosive use of violence certainly may be the way to go to try to achieve some form of reconciliation and common ground.

The Chairman: My question is directed chiefly to Professor Ross. This committee is a committee on foreign affairs. Yet, over the last eight, nine or 10 years almost all our work has focused on economic relations. Why? It is because this is the area that involves paying bills. It is the area where important initiatives are taken by the executive Government of Canada. The government and the department have focused very much on improving economic relations. There are specific and proximate goals. When we move away from that economic side to what one might call the bigger and strategic picture, the specific and proximate goals, the things that we would work towards because they are specific and achievable, become difficult to define.

Is there not a real, practical problem there? I am not saying that what you have said is not of vital importance. But is there not a real problem of having a department or people in a department which concern themselves with these very important but very long-term and general goals? What would they do? Would they lecture to students?

Mr. Ross: The could do long-term policy research.

The Chairman: The problem is exemplified, I suppose, quite precisely in what happens to a peace-time army. A peace-time army tends to go to rot, does it not? I am thinking of the American experience prior to Pearl Harbour.

Mr. Ross: I do not think so. The systemization of military affairs in advanced industrial countries has now gotten to the point where they can be incredibly ready. Look at the reform process of the American military after the Vietnam War. There were many doubts in the public about how they would perform in the Gulf but their performance shocked everyone. If the resources are provided and if the leadership is there, and certainly the investment is made by the national community, you can have a very capable military.

The Chairman: Surely you are defending precisely the kind of concentration and new, highly scientific, militarism which, a few minutes ago you were deploring.

Mr. Ross: Yes. We do not want the Americans to retreat into an isolated shell in North America. I do think that, by maintaining our links with them and being seen to shoulder a reasonable share of the burden, we can have influence with them. If we turn our backs on it and happily embrace free riding to the max, we will be utterly irrelevant.

We must have a credible military capability that can be deployed, one that is versatile, multipurpose and can actually fight, not only engage in peacekeeping constabulary operations. It should be a significant military presence. Air/naval capabilities are what we need. We should not be running the Navy into the ground or allowing it to stagnate. Neither should we be mothballing most of our air force. That is expensive. We have the same kind of constraints as the American and Europeans. We cannot afford to have a lot of people coming home from combat in regional conflicts a long, long way from home.

On the other hand, obviously we do not want this to get out of control. I think we have cut back far too much on the military; and that the Americans are continuing to spend far too much. One of the reasons they may be spending so much is because they do not see any other western nation spending anything at all and, perversely that may exacerbate their own long-term fears and paranoia.

The Chairman: What would Mr. Eisenhower have said? Would he have talked about the military industrial complex at this point?

Senator Andreychuk: Surely another method of deterrence would be to attempt to engage in some sort of dialogue or some sort of cooperation in those parts of the world that are not part of a cooperative unit. There are organizations virtually everywhere, except the North Pacific, which help to keep the peace. It seems to me there is an alternative to the status quo, that is, continuing to accumulate arms, although I agree with you that submarines may be a deterrent.

My concern is that we receive concrete advice that we can include in our report and which may be of some value to the government in the future. Obviously, recent government policy has been concentrated on job concentration and increasing trade. It is as if, miraculously, economic growth will lead to greater freedom. However, I have heard it said that the economic miracle probably cannot be sustained and that instability will follow.

Much has been said about culture and democratization in Asia. Having been involved in the Joint Committee of the Senate and House of Commons some two or three years ago, it seems to me that, whenever Canadians try to establish new trading partners we are questioned about our understanding of other cultures and languages. I am not only thinking of Asia. It seemed we were ill equipped for international trading.

We constantly talk about Asian culture, yet we rarely raise the issue in discussions of other countries such as Russia and Africa which do have problems. One answer might be that other countries have a better PR system, and they know how to use culture to their advantage more than others.

One conclusion that the joint committee reached was, rather than setting up policy and research and then beefing up the Department of External Affairs, we should be going where business wants to go and the Canadian government should not be telling business where it should go. Perhaps it was a forgotten region in the sense that we had been paying too much attention to NAFTA and Europe.

One of our recommendations was that a joint committee be established between business, or an agency of business, and government to look at research, policy and information and that this would be a prime source, initially funded by government and business, but sustained by business to do the types of things that would give business the readiness to enter other markets and to understand the stabilities and instabilities they might face.

Is that a recommendation we should resurrect?

Mr. McGee: The argument about the end of the economic miracle has been being very much associated with Paul Krugman. There have been many critics of that. Krugman has taken the view that the rate of increase of 9 to 11 per cent cannot be sustained, and that the industrial growth is narrowly based, particularly oriented towards the export of lower priced goods. However, he takes insufficient account -- and I think his critics will also make this point -- of the growing internal consumption capacity of Asian countries as their economic wealth increases. At any rate, for us in Canada bowling along at 6 per cent would be desired, so the mere drop from 11 to 6 per cent, to me, is not a particularly dangerous sign.

There will be instability as part of the process of democracy increasing. There will be economic ups and downs. However, I do not think we want to see most of the countries of Asia cease to be highly important markets for us. Clearly, they are very competitive markets. We are competing for their markets with the EU, and the United States. The issue here is how competitive Canadian business can be. This is something that can be aided with what we have called "intelligence."

When Brian talked about policy, he was referring to fora in which business, academia and government interact. I am not so convinced about business always leading government. Government has a role to lead the country and to make its own decisions. It should consult, seek advice but not necessarily lead with business, lead with academia, lead with NGOs, or lead with something else. I believe policy instruments can be built to deal with this. My observation would be that Canada, generally, compared to the United States and some of the EU countries, does not have very good mechanisms for putting business, government and academia together. We do not have good policy institutions. We could work at that as part of this general framework and improve the intelligence the senator referred to.

Mr. Job: The focus of any combined initiative has to be on young people. The future of where we are going into Asia is, to be blunt, not in the hands of this generation. It is also where your greatest talent pool is and probably your greater underutilized talent pool. Producing young persons who have the capacities of language and culture is what will make the difference. That is also the manner in which we will have cultural sensitivity across the Pacific.

Mr. Ross: I would certainly agree with that. Investing in education at the secondary school level and at the university level is absolutely vital. We must take a long-term prospective on developing our abilities to connect in Asia. I am not at all convinced the business community knows what it is doing. The strategy is ad hoc and does not have the depth or the expertise to deliver on building sustained relationships. They will be crowded out.

Our percentage involvement in trade in Asia Pacific region is declining, not growing. That is not accidental. The government has exhorted the way it exhorted the economic link in the 1970s to Europe. It went nowhere.

Our business community needs to be assisted. In many cases young entrepreneurs will build the future links to Asia Pacific region. A long-term strategy will build the infrastructure; and it will not be cheap. My sense is that almost all policy reviews are looking for cheap, quick fixes. How can we substitute brain power for expensive science, technology, infrastructure? We cannot. The time has come. If we are serious, we must spend. We cannot keep deluding ourselves that we can get by on the cheap. It is no longer possible.

Senator Andreychuk: On Monday Senator Perrault and I will be sitting on another Senate committee on post-secondary education. Your comments resound what we have heard in that committee, namely, that the investment has to be in post-secondary education and that we have to deliver that differently. Your remarks would be of interest to that committee.

Senator Perrault: Professor Ross has brought us some supplementary notes to his remarks. It is a very interesting paper although, in some ways, it is a bit of doomsday scenario. Page 13 of your document states:

...the ecological consequences of the emerging 'borderless world' of international business and the extraordinarily heightened risks of both new and mutated 'old' and infectious diseases.

We saw that problem in our province this week. You go on to say:

While the exploding populations of the poor states cannot migrate, bacterial and viral diseases that they catch that have been flushed from the newly penetrated tropical forests can migrate easily.

How serious is this threat and what should Canadians be doing by way of a response to the perils inherent in what we read?

Mr. Ross: I go back to education of our public health infrastructure and investing in more awareness of tropical diseases which are cropping up in Vancouver, Toronto, Montreal more and more. Most of our doctors do not recognize many of the symptoms, they do not have a clue.

Senator Perrault: Just how serious is it? Is there a real concern on the part of our medical researchers?

Mr. Ross: Yes.

Senator Perrault: Are they trained not to alarm the population?

Mr. Ross: Our medical staff are trained not to promote hysteria. That is left to political scientists; it is our job to promote hysteria. We will have a little controlled Canadian hysteria on this.

In the next 10 years it will become a major problem. I do not see the borderless world continuing for that much longer.

Senator Perrault: T.B. and many other diseases have returned.

Mr. Ross: Highly drug resistant forms of T.B. are evolving, and the major drug companies, world wide, have not invested in research because the disease is occurring in poor countries which cannot afford to pay for it.

Senator Perrault: I wish to read one further sentence from your paper which is as follows:

Diseases will, in this view, become a great unifier of rich and poor -- however distasteful and frightening that prospect may be for the affluent. `Lifeboat' fantasies by the rich on this problem are hopelessly naive.

That is a very important statement.

Mr. Ross: It will be one world, absolutely, if we are not already there.

Senator Perrault: We have to increase our expenditures for medical research, and our expenditures for defence infrastructure. That poses a problem for Mr. Martin and his associates, does it not?

Mr. Ross: Taxes, taxes.

Senator Perrault: You are saying that we must be prepared to pay for it.

Mr. Ross: Yes, absolutely.

Senator Stollery: It is a most interesting and vast topic. Under the heading of defence I have not heard anyone mention the U.S.-Japan Defence Treaty, one of only two defence treaties that the U.S. has, the other being NATO.

Do our witnesses have any thoughts on the future of the U.S.-Japan Defence Treaty and whether the United States will be renegotiating the treaty, will be withdrawing from its bases in the Far East, or whether the U.S.-Japan Defence Treaty will provide a framework for a more NATO-like defence treaty in the event of disorders on the mainland of what we are now calling Northeast Asia?

Mr. Job: The U.S.-Japan treaty has been reaffirmed in the last year. However, much more importance is placed on it in a regional context rather than the bilateral relationship. As you read some of the materials, you get exactly the notion that you just described that this relationship is now central to regional stability and the United States and Japan will have to begin planning how to extend a more responsible or a more visible Japanese presence into the region.

That may start in the area of planning for regional emergencies which you described. But the dilemma that arises is the longer term one of what the role of the U.S. will be in the region. Presently, no particular state wants the U.S. to pull out and, certainly on the sidelines, everyone believes that a U.S. presence has an enormous stabilizing effect. We have to look at what would cause the U.S. to pull back. One is the notion that an isolationist sentiment would in fact withdraw.

If the rational for U.S. troops in the region is removed -- for instance, a uniting of the Koreas in a peaceful sense will remove much of the rationale for the presence of the marines in Japan -- that sort thinking ahead would cause the U.S., Japan and other Asian states to be concerned.

Senator Stollery: The United States-Japan Defence Treaty is being transformed into more of a regional defence treaty even though in 1950 it was entered into because of the Korean war. If it becomes the framework of a regional defence agreement and Canada becomes increasingly involved in Asian trade, will this involve, at some point, a Canadian contribution such as that we make to NATO?

Mr. Job: Senator, I believe the prospect of a firmly institutionalized security mechanism like NATO occurring in the North Pacific and Northeast Asia is highly improbable. There is no sentiment to move towards such a firm institutionalized structure, and we fundamentally lack the common value basis we had in NATO. If we tried to form an organization such as that, it would shut out parties like Russia or China. More trouble would be caused than would be alleviated unless there were a circumstance wherein those countries would have substantially isolated themselves.

The prospect for a Canadian physical presence in an institutional structure like NATO is low. However, the prospect for Canadian participation in some multilateral response such as a crisis on the Korean Peninsula maybe somewhat higher. That is likely to be engineered through a UN-oriented mechanism of the type seen in the Persian Gulf.

The Chairman: I am sure, honourable senators, that I speak for all of us when I say we are most appreciative to Professors McGee, Job and Ross for an alarming, exciting, provocative and stimulating contribution to the work of the committee.

The next segment of our work will be quite different. We will hear from three witnesses. Mr. Winston D. Stothert, Stothert Group Inc., an engineering group, has a great deal of expertise in the area of forest products. Dr. John MacDonald, the chairman of MacDonald Detweiller, represents a company involved in telecommunications. Mr. Phil Crawford is the general manager of Simons Consulting Group, management consulting company.

It may well be that my brief introduction does not make the most important points with regard to the experience and expertise of any one of these witnesses, so I will rely on them to supplement or correct what I said where such supplementation or correction is desirable.

Mr. Winston D. Stothert, Chairman, Stothert Group Inc.: Mr. Chairman, honourable senators, it is a pleasure to be here. In the session that has ended you were given a bird's eye view of the whole picture, whereas I am more inclined to have a gnat's eye view, working perhaps more closely with the nitty-gritty. If you wish to hear about a close-up on trade and investment in the Asia Pacific region, the Honourable Raymond Chan is one of the best spokesmen and supporters we have ever had in the field of international trade and investment in Asia Pacific region. I have nothing but the highest commendation for Mr. Chan.

Stothert Group commenced operations with its head office in Vancouver 31 years ago, although our forestry consulting division actually started 53 years ago. We provide a broad range of management and engineering services which range from market research, feasibility studies and project financing, to operations training and plant management; from engineering concept to detailed design, procurement of complete plant equipment and construction management.

We specialize in integrating expertise in these areas to provide a complete range of professional services to handle industrial, commercial and public projects from inception to completion. Our services are directed mainly towards the environment, forestry, wood products, pulp and paper, chemical plants, oil and gas facilities, thermal and hydroelectric power.

Starting in 1973, Stothert looked overseas as a way of diversifying and becoming less vulnerable to the economic downturns in the domestic market. We have carried out resource and industrial assignments in most provinces of Canada, most states in the United States, and in more than 50 other countries. More than half of our overseas work prior to 1990 was in Africa, when international funding agencies were financing parastatal industrial projects. Most of this funding has dried up for reasons with which I am sure you are familiar. Stothert's targets are for 50 per cent of its business being domestic and 50 per cent foreign.

I will outline some specific business activities of ours in the Asia Pacific region, which may provide signals with relevance to our government's foreign affairs and trade policies.

In conclusion, I will offer some comments and suggestions.

Stothert has made several forays into China with little success. We did some work on some small straw and reed grass mills and made certain recommendations. We visited them to see how they were coming along with it. They completed all our recommendations and achieved the results they had wanted. We were then asked to develop proposals for much larger projects, but there was no funding available and nothing progressed. There are many such mills in China. They have no effluent treatment. Because of the high silica content in the rice straw, normal North American processes for reduction of pollution will not function.

An interesting project that we worked on for an Ontario client in China was to use bamboo as a fibre resource. We sent a team of engineers there for a month or two to conduct a feasibility study. The client was to finance all the imported equipment and materials component with the state government providing the civil and structural works, the infrastructure components and the fibre resource. The client would take part of the production for the export market to recover its investment plus a profit and, when this was satisfied, the mill would be owned totally by the state. The project died when the state established the input cost for the bamboo was greater than that of the much higher quality wood fibre here in North America.

An excellent lead was provided for the engineering design and total equipment and material supply of a water treatment plant which would supply the needs of a population of 250,000. They were dependent on wells and the water table was dropping dramatically. Due diligence was carried out to the extent possible to determine whether the initiating agency would be able to obtain the necessary funds. They provided assurance that a foreign loan provision had been approved for the project by the Central Bank of China, drawing on Canadian government credit. We prepared a bid. The design and supply portion was about $6 million. The bid cost us $60,000.

The bid was accepted by the agency. However, they later advised that approval by the Central Bank had been delayed until they cleared default on two previous foreign loans. We followed up over several years and then we identified some ethnic Chinese offshore who were prepared to put money into the project for the foreign component. However, now the Central Government has imposed a duty of 30 per cent on imported foreign equipment and materials and that eliminated our opportunity to carry out the project.

Operations improvement for a new pulp mill in China, designed and built by the Chinese, has experienced difficulties. A significant loan had been made to the project by the Asian Development Bank. The bank, by a referral from our Canadian government representative, contacted Stothert to visit the mill and do a preliminary assessment. This was followed by a second assignment with several engineers from Stothert visiting the plant and preparing a detailed plan for an improvement program. This was then issued by the Asian Development Bank for bid. An unlikely bidder from the United States was successful over Stothert

Some companies have a string of successful projects in China. Those we have checked on advised they have two key criteria. They must have a Hong Kong or Taiwan-based partner or client, and the funds must be clearly available.

We are also involved in business in India. On a visit to the Asian Development Bank in Manila, which Stothert calls on two or three times a year, it was learned that the bank had approved a $400 million loan to India for development of the oil and gas sector in Gujarat State. Bid documents were obtained and the project was broken down. A partnering arrangement was made with an Indian construction contractor with whom Stothert had worked elsewhere in the world. We prepared the bid, working in our partner's Bombay office and our offices here during the final stages. The bid was in the order of $50 million. It went to the National Oil Company in Delhi. They referred the bids to Engineers India Ltd., a state corporation. There was no follow-up or response. Help was sought from the Canadian High Commissioner's office but over two years nothing could be learned about the fate of the project.

In the third year Stothert was advised, after a visit to Delhi, that the project had been awarded to an Indian company. The Asian Development Bank appeared to have no involvement in the decision. In India, bids receive a 15-per-cent advantage on any part which is sourced domestically.

We had an interesting experience in Nepal. We learned of an Asian Development Bank project for a pulp and paper mill in Nepal. We obtained the bid documents. During the evaluation process the ADB played a significant role. We sought help from the Canadian representative at ADB but were told he represented three countries and could not show any favouritism by supporting the Canadian bid. We did receive support from an unexpected source, the South Korean embassy. Stothert has had a long-time working relationship with Korean companies. We won the bid despite very strong intervention by Indian competition.

We completed the studies and filed the report. There was a major flaw. The ADB had allowed, in its planning, $30 million for the mill in Nepal. Our studies indicated the cost for a minimal simple mill would be $50 million. We received much criticism and the second phase to design and manage construction of the mill was not awarded to Stothert.

Over time, Stothert learned it had not followed "due process" which would have been to estimate the mill in line with the ADB planned $30 million. Then, when well into construction with $10 million or $15 million expended and a check estimate showing the final cost would be $50 million, the plan was to apply for a further $20-million loan, which could not be refused because so much had already been expended. It is interesting to note that, eight years later, the mill has not been built.

On business in Vietnam, a call was received from the World Bank in Washington, D.C. inviting Stothert to respond to a request for bids for the supply of management services at a pulp and paper mill in Vietnam, the largest such mill there. The World Bank was assisting the Swedish International Development Agency, SIDA, in the selection of a management services group for the mill in Vietnam which had been built about 10 years previously with Swedish development aid funds. Stothert bid against international competition and was awarded a three-year contract.The objective of the consultancy was to assist the management of the Vinh Phu Paper Mill at Bai Bang to become an efficient, profitable and autonomous enterprise. During the three years, productivity and sales increased from less than 50 per cent of design capacity to over 100 per cent.

Stothert assisted this industrial business in many aspects related to the move of the government from a centrally planned economy to a free market economy. Guidance was provided in planning and execution of the company's long-term business objectives in management of foreign exchange, financial planning, accounting practices and marketing.

In 1995 and 1996 Stothert, in conjunction with an associate, conducted a pre-feasibility study for a 120 megawatt hydroelectric power project in central Vietnam. The government is interested in the project going ahead with a build, own and operate investor.

Initial study indicated the project to be physically feasible and with the probability that electric power could be produced at competitive rates. The initial study was partially funded by CIDA through a CPPF. The next step is a completed feasibility study at a cost of $1 million. A preliminary commitment has been obtained from a Middle East aid fund for $250,000 to cover the in-country direct expenses. The Asian Development Bank, the IFC and private investors are interested in the project.

We have been working in the Philippines since the early 1980s, primarily with the Paper Industry Corporation of the Philippines, the largest forest industry company there. In 1994 we were asked to carry out an appraisal of the value of the operations, which resulted in acquisition by new owners. We were then asked to provide a management team for the operations and are presently continuing to manage that.

In Thailand, we carried out a major environmental impact study. Much of the country's electric power is from coal-fired plants, which have been the source of acid rain. The study included monitoring of a vast area of the northern part of the country. It was determined the problem was severe. Below certain parts of some of the valleys it would not have been possible to live for any length of time. Recommendations were made to burn limestone with the coal to reduce sulphur emissions.

Fortunately, limestone underlies the open-pit coal. This recommendation is being instituted by EGAT, the Electricity Generating Authority of Thailand. The study, which we lead, was conducted in conjunction with a Quebec-based consultant, Quebec Hydro, a Thai consulting firm, and a university in Thailand. Initial financing was provided partially by Canadian CIDA. The major second phase was paid by EGAT. There was much confusion in Sweden when SIDA awarded us that major contract in Vietnam.

Some years ago a CIDA-funded CPPF feasibility study was carried out for a potential wood products plant in Indonesia. A parastatal company with timber allocations would be a partner with other investors. When Stothert arrived in Indonesia to present the study report to the president of the parastatal company, the agent advised it would be necessary to pay, through the agent, a fee of 25 per cent of the cost of the study. Stothert refused and was unable to meet with the president. Stothert appealed to the Canadian ambassador, who understood the problem quite clearly. He undertook to deliver the copies of the report personally to the president. We did not follow up on the project.

Over the last six years Stothert has provided design, equipment and material for process plant sections of a number of pulp and paper mills in Indonesia. These clients are private companies. Payment is by confirmed, irrevocable letters of credit and there have been no difficulties or unreasonable demands made on Stothert.

Several years ago, the chairman of Stothert Group participated in a Vancouver Board of Trade mission to several Southeast Asian countries. Excellent contacts with government leaders and senior business executives were pre-arranged. The mission arrived in Jakarta immediately after the East Timor riots, which were strongly subdued by government forces. The mission met with the Canadian ambassador. She advised she would accompany the mission at its meeting with a senior cabinet minister the next day. When the mission left, the minister, our ambassador, stayed back to lodge an official complaint regarding East Timor. There is no doubt she had her orders and was following them. She had evidently been unable to arrange a meeting, so she used the mission as a vehicle. The circumstances seemed to react negatively on the objectives of the Board of Trade mission.

In Malaysia we have a joint venture company with B.C. Gas International and a Buma Putra partner with its office in Kuala Lumpur. We have a separate office there with one senior management staff. She is following up on industrial project opportunities at the same time as developing local government policy and administrative systems on a for-fee basis. She also conducts Women in Development seminars and provides recommended policies in that area for a number of countries, including Indonesia.

I have some general observations and suggestions. These presentations have identified support by the Canadian government offices in these countries. Prior to the merger of trade from the former ITC Ministry with the Ministry of Foreign Affairs, the commercial and trade representatives abroad were very helpful. However, in general, the senior foreign affairs officers were not interested.

This has changed dramatically in most cases. The ambassadors or high commissioners show a very strong interest and provide positive support for Canadian business representatives in pursuit of trade and investment opportunities. Frequently, the senior post is now occupied by a person with some trade background. We should continue to emphasize trade and investment as a major function of senior foreign affairs officers overseas.

It is difficult to win ADB-backed contracts involving supply of equipment and materials. There are tangible and intangible obstacles within the recipient countries. Similar contracts are won in international competition by Canadian firms when ADB loans are not involved. We recommend that the Canadian government director for the ADB and the embassy representative continue to strive for a level playing field.

Several of the projects outlined in this presentation started with a CPPF. A study has been partially funded by CIDA's Industrial Cooperation Program as a first step. Their objectives state:

The Professional Services section of the Industrial Cooperation Program consists of five mechanisms permitting eligible Canadian organizations to conduct studies and provide professional guidance and advice to potential clients in developing countries.

Many of the projects started in this way are completed with commercial funding.

Our recommendation is that, since CIDA's Industrial Cooperation Program is effective in achieving its objectives of introducing technology with job creation in developing countries while at the same time supporting Canadian business overseas, it should be continued.

Some of the projects described in this presentation and numerous others carried out by Stothert have involved placing staff on two-year contracts overseas. In most cases, the staff are Canadian nationals. Canadian employees have a reputation for more readily accepting such postings than those of some of the other developed countries. This may be partly due to the nature of Canadians, but it also may be because, on these assignments, they are free of income tax. Canadians working overseas on industrial projects influence a source of purchases from overseas by the clients and tend to guide them to Canadian manufacturers because they are most familiar with their products. This enhances Canada's export trade.

Our recommendation is to continue to allow Canadians working overseas to be free of income taxes under the terms which currently prevail. However, the two-year minimum period overseas to qualify, which is only a regulation of Revenue Canada and not law, should be reduced.

Hiring of nationals in overseas offices has been increased as a way of cutting costs. One of the disadvantages of this is that locals do not have a knowledge of Canadian goods and services, so they are unable to promote them. The recommendation is to increase the hiring of knowledgeable Canadians for trade and investment positions overseas.

In the China market, where Canadian government funding such as EDC is likely to be involved, it appears necessary for the Canadian firm to expend a significant amount of money to develop a firm price bid and win the contract before the customer can go to the Central Bank of China and determine whether the bank will agree to using parts of the EDC line of credit for the project. Our recommendation is that there should be a process wherein the Government of China will consider conditional approval of projects for Canadian funding. International funding agencies are now not only providing long-term debt for private sector projects, especially in the infrastructure area, but are also providing some equity funds. This provides the project developer with considerable support when seeking additional equity and term loans. The host country is less likely to change the rules for foreign investors when a major international agency has an interest.

Our recommendation is that, since EDC is understood to have a mandate to invest equity funds in selected projects in the private sector, this policy should be encouraged for the reason indicated.

Stothert has participated in the Team Canada missions to the Asia Pacific region led by the Prime Minister. These have provided outstanding contacts with business and government leaders in the countries visited. No other country appears to have placed such outstanding emphasis on trade and investment. Our recommendation is that Team Canada missions should be continued.

If we were passing out bouquets, a big one would go to Prime Minister Jean Chrétien.

Dr. John MacDonald, Chairman of the Board, MacDonald Detweiller: Mr. Chairman, our company was formed in my basement 28 years ago and now employs between 800 and 900 people. It is a global company. Our revenues this year are 78 per cent export, much of that from the Asia Pacific region. We have done business in all of the ASEAN and APEC countries, except Mexico and Chile. I have spent a good portion of my life travelling in the Pacific basin attempting to sell products.

We are an advanced technology company with three business areas. One of which is geo-information systems and is the part of the business for which we are best known. We build ground processing infrastructures for earth-imaging spacecraft. We have been responsible for building 80 to 85 per cent of the world's infrastructure in that area. Our second business area is what we call "space and defence," but it is mostly related to defence. The Department of National Department is our major customer, although we are trying to develop export markets. We had a rather unpleasant experience in Korea, but we will not waste time on that. The final area of our business is aviation systems, where we are involved in automated air traffic control and aeronautical information systems worldwide.

As to my own background, I have served on just about every science and technology advisory group the Canadian government and the provincial government has managed to dream up. I served as the Canadian member of the APEC Eminent Persons Group, so I was very much involved in shaping the direction APEC is currently taking.

With that background, I would like to spend a few minutes discussing my own view of why relationships with the Asia Pacific region are extemely important for Canada. As everyone in this room knows, we have a serious fiscal problem right across the country. It is serious and will remain so for some time in spite of the very real progress that the current government is making. Economic growth is essential to working our way out of this very serious problem. We are in the unenviable position of being unable to afford a recession. If we are to beat the debt problem, economic growth is an essential. It cannot be done with cost cutting alone, although cost cutting is extremely important. According to my current figures based on the last budget, if we do not sustain an economic growth rate at least greater than 1.34 per cent, we will never get out of trouble, given the current parameters.

We are one of the world's top trading nations, particularly on a per capita basis. If one thinks about this logically, to reduce the probability of having a recession in this country, it is important to increase our trade with rapidly growing economies. In other words, a trading nation must have a growing economy and the place to trade is with nations that have economies that are growing faster than yours. There is only one place in the world where that is true -- Southeast and East Asia. I would specifically exclude Japan in that description. Japan suffers from the same disease as we do.

Another extremely important factor in this context is that increasing our trading relations and paying attention to the development of broad relations, but particularly trading relations with the countries of Southeast and East Asia as well as South Asia, gives us diversity of trade. Currently and historically, trade with growing economies is and has been an important part of our recovery process from the economic difficulties we have encountered. Historically, our trading relations have been with the United States, Europe and Japan, our three largest trading partners. All of those economies are mature industrial economies, as we are and they all have the same disease, although they are not quite as sick as we are, with the exception of Italy. It is very important that we concentrate on developing strong trading relations with East and Southeast Asia and South Asia.

The question then arises, what do we have to offer? We must change our thinking. Historically, Canada's main trade was in primary resources, and it probably will be for a long time to come. If we are to be successful in the markets we are talking about here, we must change our emphasis. Indonesia, China and the Philippines are competitors in the resource business, or soon will be. What we have to offer these countries is, to some extent, resources, but our real competitive advantage is in the knowledge-based sector. In other words, what we have that they need is know-how. How we package that know-how is another matter.

Based on my experience in moving around Asia for many years, Canadians are well regarded everywhere. We are welcomed everywhere, as soon as they realize we are not Americans. We are seen as the non-threatening gateway to the North American technology base. The North American technology base is, and will be for the foreseeable future, the world's top knowledge base. Scientific and technological knowledge is at its zenith in the North American continent, and the Americans are no better at it than we are, they are just bigger.

One of the things that struck me a few years ago, which has been confirmed on many visits into Asia since then, is that an interesting dichotomy exists. In the science and technology area in North America, there is basically no money. However, we do have a lot of know-how that is, quite frankly, being largely under-utilized, particularly in the government sector but also in the academic sector, hopefully not in the industrial sector. The opposite exists in East and Southeast Asia. Those areas have a chronic shortage of technological and scientific know-how that will not be cured within, certainly, one generation and probably two, so you are looking at probably a 20-year to 30-year time frame. They do have a lot of money. They all are running on surpluses. They all have the desire to do what we did to develop our economy, that is, establish a technological base. They have a huge need for technology and for infrastructure, as well as a need for the knowledge that lies behind all of that.

Embedded in that realization is a good opportunity for those of us with the ability to go around the world and sell what they need. I came up with an idea -- and it is currently being pursued -- of developing a Pacific basin research network where resources are pooled. Canadians know about research networks. Although we had had an occasional failure, we have been successfully operating centres of excellence for about six years. That is currently being pursued by a group on the west coast to see if Canadians can be employed to provide knowledge which will be paid for by peoples across the ocean.

It is extremely important that Canada participate in APEC in meaningful ways. During my tenure as Canada's member of the Eminent Persons Group, my colleagues would ask me what Canada's view was on this and I would indicate that it is benign indifference, and I believed that to be true. Here on the west coast that is no longer the case, but as one crosses the Rockies and goes to the mysterious east, it tends to be more and more the case. The focus is still on the United States and Europe which are, quite frankly, declining economies.

We are a fairly substantial player in the APEC family. On a GNP basis, we number fourth. We are tied with China on a GNP basis; not on a population basis. Our GNP per capita is much higher. With the exception of the United States and Japan, we are in a game where the economies are roughly the same size or smaller, so we are very much a middle player. We are well respected.

APEC is a consensus-building organization. It is culturally more Asian than Eurocentric, which is good for us. It operates on a principle called "open regionalism." I can define that during the question period. Most importantly, in Bogor, in 1994, APEC leaders set the objective of free and open trade and investment in the Pacific basin by the year 2020 for everybody, and by the year 2010 for developed countries. I played a small part in putting that forward since that came straight out of the report of the Eminent Persons Group. This is a a mind-boggling objective, but I see no reason why it cannot be achieved. We should be, in fact I believe we have to be, a major participant in that.

This is Canada's APEC year. I have to tell you that on my recent trip through Asia I learned some things that I found a little disturbing. The expectations of our Asian colleagues of Canada's year are not high. They do not believe Canada is going to do anything significant. However, there are a couple of things that I think are very important for Canada's APEC year. We must keep the trade liberalization bicycle rolling. That is important for us and it is important for the Pacific basin as a whole.

The topic on which Canada can make an important contribution, apart from continuing the thrust for the liberalization of trade and investment, is in the area of the environment. There are huge business opportunities for us in the long run in the environmental area in Asia Pacific. Think of the industrialization of China. The population of China is more than double the entire population of the G-7, more than double the population of the industrialized world. If India is added, it goes up to four or five times. Think of the environmental impact of the industrialization of that part of the world, which will happen, if modern environmental technologies are not employed to the utmost. We know how to do these things. There is a huge business opportunity for us there.

A key issue in this regard is how to include environmental costs in the economic equation because, if that is not done, it is very difficult to deal with.

In closing, I would comment on what Mr. Stothert said about our trade commissioners. I have said this many times in many fora without success, but it is particularly true of Asia: We rotate our trade commissioners far too frequently. Anybody who has dealt with Asia knows that, in Asian cultures, personal relationships are absolutely critical to doing business. They are important in Europe and in North America, but they are absolutely essential to do business in Asia. I do not wonder that we run into problems with some of our trade commissioners. They are moved so frequently they are incapable of doing their job.

With diplomats, the situation is different. However, I would strongly recommend that the government consider keeping the trade people in their positions for eight to 10 years. There are people in the department who would be happy to do that. They are students of those cultures; they speak the languages; and they are happy there. Presently, they spend a year getting to know the place; they may be effective for six months; and then they worry about their next move. By the way, there is no corporate memory.

I have been on only one of the three Team Canada missions, although I quite frequently go on my own missions. I have been with the Prime Minister once. They are successful, they are worthwhile, but their major value is here at home because they raise the profile of the importance of Asia.

The action will be in the first quarter or first half of the next century, and we must participate in it.

Mr. Phil Crawford, Vice-President and General Manager, Simons Consulting Group: Mr. Chairman, honourable senators, it is my pleasure to be here and have an opportunity to talk about H.A. Simons Ltd., and our views on how government policies can be made to enhance our business and that of Canada in the Asia Pacific. I am talking about the whole of H.A. Simons. The Simons Consulting Group, which I head, is a front-end strategic group which does a lot of the feasibility study work, the strategic thinking that takes place before major investments occur. We have teams of consultants who travel the world.

Simons, as a whole, expanded its activities substantially in the region during the 1990s. We have been pleased with the trade assistance we have received from government agencies. The Asia Pacific is a huge market potential, both in size and economic growth which create the demand for products and services. We target clients in that region, as well as others around the world who are exporting into that region and require our services. Simons also applauds the recent Team Canada trade missions. We participated in those to South America, India and Indonesia.

For those of you who are not familiar with Simons, I did attach a brief description. We are a global business, headquartered in Vancouver, which designs and manages capital projects and is committed to meeting the expectations of its customers for solutions, systems and facilities.

We focus on the excellence of our people, use of technology and partnering with others. Our chief areas of operation are in the forest industry, mining, environmental, consumer products, specialty chemicals, energy and water resources. We operate throughout Asia Pacific and currently have projects in Indonesia, Thailand, Malaysia, China, Philippines and Papua, New Guinea. We also have work going on in India, Australia and New Zealand, which I did not include in this. I obviously was unclear about the definition the committee was applying to "Asia Pacific."

The Asia Pacific region represents about 30 per cent of our Canadian business income, revenue. Presently we have approximately 130 employees. Simons has 3,000 employees in total, but we have 130 physically in the Asia Pacific region. Our revenues from Asia Pacific in the last three years probably represent about $300 million. It is a significant area of the world for us.

As to opportunities, there is a huge population and tremendous ongoing growth. Living standards are improving in this area of the world. All of this creates a tremendous need, and we are doing our best to meet some of those challenges in the areas in which we specialize. In Southeast Asia and in the Asia Pacific region there are significant mineral resources, forest resources, energy requirements, and infrastructure needs, particularly for water and food requirements.

This is a terrific area for us to target. It is a high-opportunity market for pulp and paper projects because the fibre in Southeast Asia grows at a phenomenal rate. In British Columbia the average tree reaches harvestable size in about 70 years, and the further north you go, the longer it takes. In Indonesia we are looking at six to eight years crop rotation, so that has a terrific bearing on competitiveness. Because of the huge population, there is a large market for the products that are produced by these mills. Most of our employees currently working in the Asia Pacific region are occupied in the pulp and paper business, but we also have mineral resource discoveries ongoing. We also have a large mining group that is showing keen interest, and there are opportunities and work going on in the environmental field, water resources and food and beverage.

We have a business development team that focuses on the Asia Pacific region. We have offices in Jakarta, Bangkok and Singapore. In addition, we have a joint venture company in Australia and New Zealand which is part of the network.

Given the experience of Simons in the Asia Pacific region, I would like to talk about the issues and challenges. We focused our presentation on this and the impact on Simons' ability to compete effectively in the Asia Pacific region. These are matters that we believe are largely within the sphere of influence of the Canadian government.

Regarding the development of industry-specific incentives for key markets, we would like the Canadian government to establish a short list of strategic industries that provide goods and services to the key Asia Pacific market. For example, telecommunications, engineering, grain, and industries which deal with environmental services. These strategic industries need incentives and teamwork to capitalize on their strengths and achieve greater market penetration. In particular, I am thinking of maximizing the return on investment, getting the biggest bang for the buck. Funds are scarce.

The development of a highly-focused team using incentives with a rifle approach and comprising members of government agencies and specific industry members would most likely bring much greater success, while a more general shotgun approach is needed for trade in general.

Simons' most formidable competitor in the Asia Pacific region is what we call "Team Finland." This is comprised of a Finish engineering company, government support through embassies and export credit agencies, together with Finish equipment vendors and banks. Finland is able to provide projects with a comprehensive array of goods and services along with timely financing. Business development is supported by their consular staff and remains focused on key industries strategically identified and targeted at specific markets. Canada is somewhat disadvantaged in pulp and paper as we now have a much smaller equipment manufacturing industry in this sector. There has been a reduction in the number of vendors of this type of equipment worldwide. They are merging and, in effect, are becoming direct competitors of consulting engineers by providing their own engineering solutions. Canada should work to offset this disadvantage through a focused Team Canada initiative to penetrate key markets. We must have a cooperative attitude towards partnering with foreign vendors so that we can achieve market share.

On the placement of industry specialists in specific consular offices, following on from the focused team approach outlined, we would recommend a strategy employed by some of our competitor nations. The industry specialist concept has not been tested significantly by the Canadian government. The practice of supporting a broad spectrum of commercial products and services has not in the past permitted this approach to be effectively developed. Canada has global expertise in certain key industries with great potential in specific markets, and we believe that this should be exploited to the best effect.

Providing specialist support to a more focused group of goods and services supplied to the Asia Pacific market would encourage success to breed success. The consular commercial sections could assist business significantly in this area. In the past we have had excellent support from the Canadian embassy staff throughout the Asia Pacific region. However, the proposed approach would only enhance the relationship and market development.

I would like to withdraw item 3 of my brief which deals with export credit. We feel it is not pertinent.

Offshore personal taxation should be more in line with foreign competitors. Mr. Stothert mentioned that, if a Canadian is resident overseas for over two years, he has a tax-free status. However, the nature of consulting engineering is such that very often the people are overseas for shorter periods of time, perhaps six to 24 months. In that time the employee gets a credit for 80 per cent of his salary which is tax-free, and this has a maximum limit of $80,000. That $80,000 was put in place in 1984, when it was recognized that we needed this measure to be competitive. That $80,000 maximum or 80 per cent has not been changed or indexed since 1984. If it was correct in those days, it should be adjusted now.

I understand that the province of Quebec also has an incentive under which, after 90 days away, the employee does not have to pay provincial tax. I am not sure about that, but I understand that is the case.

Social security treaties are another tool which deal with competitiveness. Canadian overseas residents working in countries with which we have social security treaties and who continue to pay their Canadian social security while overseas, can place us in a strong position versus many of our competitors. This is because many countries have higher social security costs than Canada and, consequently, the extension of social security treaties to certain key countries would make Canadian companies more competitive. It is understood that no Asia Pacific countries have such treaties with Canada.

Another area is the focused approach to funding support for exposing Asia Pacific customers to Canadian technology, goods and services. Over the years, the Canadian government concept of financing foreign delegates to meet with Canadian companies and attend shows has been implemented with mixed success. The biggest contributor to the lack of success has been a lack of focus and continuity. With diminished funding available and organizations pursuing the limited resource, the program may continue to falter. Only through a concerted effort by the government to establish a goal to develop an export support strategy focused on certain strategic industries and services can those limited resources be used effectively. These resources must be narrowly applied on a continual basis to select support groups in order to not marginalize their impact.

We believe there should be streamlining of procedures in Asia Pacific countries for visas and work permit renewal. A number of obstacles impede Canadian workers from performing services in foreign countries in a timely and cost-effective manner. Obtaining visas and renewing work permits is perhaps the biggest impediment of this nature encountered in the Asia Pacific region. In some cases, Canadian foreign residents must renew their permits every three months, which means a trip outside of the country, losing time and spending money. This procedure puts us at a distinct disadvantage versus our competitors.

It appears in some cases that this hardship is a direct result of the reciprocity of Canada's work permit and visa policies regarding residents from the Asia Pacific region coming to Canada. We recommend that Canada's policies regarding visas and work permits be examined to determine if they are an indirect impediment for Canadian industry performing services in the Asia Pacific region which require extended stays in the countries of the region. These policies should also be examined in the light of the policies of other industrialized countries competing against Canadian industry.

With government-to-government negotiations, economic interdependence and regional cooperation has increased in the Asia Pacific region, welding it into a more powerful unit. Trade and investment liberalization and economic globalization is moving rapidly, and our federal government must keep Canada well positioned in any ongoing negotiations that will occur in GATT or world trade agreements and political treaties concerning the dynamic Asia Pacific region.

Simons has confidence that our government will ensure that, through APEC and other bilateral discussions, Canada will continue to be a key player in the Asia Pacific region with good access or even further trade improvement.

In 1972 a Senate committee reported on the Pacific region. It was recognized then that Canadian business should receive government support comparable to that provided by other countries. In particular, it referred to export incentives, the tax climate, financing and export credit insurance. It seems as if nothing very much has changed. There have been changes to those things but they are key to keeping us competitive.

In a dynamic and exciting region of the world such as the Asia Pacific region, Canada is a well-placed Pacific Rim country. We must all be vigilant in ensuring at least a level playing field to ensure the success of Canadian business.

The Chairman: I am impressed by the specific recommendations we have received from these three witnesses. They will be very helpful to the committee.

Senator Andreychuk: My question is for Dr. MacDonald who indicated that Canada should put emphasis on the knowledge-based sector. I am inclined to agree that that is our strength. You say we have a 20- to 30-year time frame before Asia catches up. What would you specifically suggest that the federal government do, in practical terms, to improve access to Asia for the knowledge-based industries in Canada? My emphasis is generally on youth, what do we do after 20 and 30 years in the Asia Pacific region? Mr. Crawford quite rightly pointed out that the 1972 report is still on the books.

Mr. MacDonald:I will attempt to answer the second part of your question first. We had better be competitive by the time the Asians become competitive. We have a competitive advantage now in the knowledge-based sector because we have a very good educational system in this country and we produce very good people. More emphasis should be on the types of programs occurring in Capilano College where we train young Canadians to deal in the Asia Pacific region and send them abroad. The results of those programs are phenomenal. It is amazing what these kids can do. Some, in fact, are no longer kids. The program has been ongoing for some time.

To answer the question regarding what the government can do to help advanced technology and knowledge-based industries, I will relate a Korean experience so you understand the type of environment in which we must operate. We bit on a contract for a rather large reconnaissance system for the Korean military. We were told we were top technically; our bid was the lowest price; and we had the best industrial benefits package. But, the United States government told the Korean government to buy American or they would start charging money for satellite reconnaissance. We were competing against the foreign military sales organization in the United States, for which there is simply no Canadian equivalent. We cannot even come close. It is basically a military marketing organization that would boggle the Canadian mind. We had a lot of help from the embassy. They tried their best.

In the high-tech area and particularly on the military side, which is only about 20 per cent of our business, if your own government is not buying from you, you are carrying two buckets of sand into the international market. While I am not a proponent of government spending, government has an economic responsibility as well as a functional one respecting Canadian capital expenditures, not only in defence but also in the civilian area. As well, it has as a responsibility for the export implications, the development of knowledge within DND, the Ministry of Transport, Atomic Energy of Canada, and the development of a culture. That certainly exists in other countries.

The Canadian government has to behave in ways that are competitive with how other governments behave in dealing with their industries. We have this gigantic debt problem and that is very difficult to deal with at the moment, so we must get out of trouble and then start doing some of these things. I would not advocate the Canadian government do anything more than be very cognizant of what it takes to be competitive and what the role of the government, as well as consider what is being done by other governments.

In the advanced technology sector, certainly at the scientifically top end of it, which is where we play, like it or not, governments are very important customers. Most of our customers around the world are governments, simply because of what we do. I wish it were not so, but that is the way it is.

Senator Andreychuk: Mr. Stothert, you were advocating for more Canadian trade people because their expertise is in Canadian goods and services. We know that some would like trade commissioners to stay overseas longer. I note the government recently moved to keep locally engaged staff in place, and to provide them with further training so they may become more expert in their areas of responsibility. I agree that Canadians have to be there at least 10 years in order to make the proper linkages. Where we have been successful in trade is where we have had locally engaged and trained staff who have been there for a long time, and who are well respected, well educated and well plugged into the nuances of the internal system. I gathered that, from your point of view, that had not been the case. Am I correct in that assumption?

Mr. Stothert: Both the Canadian embassies and high commission offices where we have worked, the nationals that we have been exposed to, do not seem to have had that depth of experience.

Senator Andreychuk: Some businesses and industries have given full credit to government staff. I am not referring only to the Canadian staff at the embassy but to those locally engaged individuals who recognized exactly what was going wrong and were able to push the buttons quickly enough so that the Canadian expertise could deal with the problems. Having served overseas, I know that to be a fact.

Mr. Stothert: I am pleased to hear that those who have been staying on for a time are providing that type of service. Regarding the frequency of change of our senior commercial secretariat, we have seen occasions where a large office overseas with three or four people engaged in trade and investment will all be moved within six months. That can be avoided.

Mr. MacDonald: The performance of trained people at our embassies and high commissions is very dependent on the individuals. Some are very good and some are awful. I have had ambassadors and trade people lobby me to go to Ottawa and request that an individual not be moved. The person did not want to move. Nevertheless, they moved him. I have a theory that there is an outfit in the Pearson Building that makes its living by moving people. Get rid of that outfit and the problem will be solved!

I would imagine the same is true for the locally-engaged staff. My experience with locally engaged staff has not been positive, but that may be the luck of the draw.

Senator Andreychuk: There is also the cost of moving. The media continually highlights the fact that it costs a minimum of $25,000 per family member to move.

The Chairman: We have identified a concern which we will certainly bring forward in our report.

Senator Corbin: Dr. MacDonald mentioned the huge business opportunities in the realm of the environment. I would like you to expand on that and also tell us what the concerns are from the Asian point of view in this field. Are they concerned with the quality of their environment? Have they been able to establish norms and policies in terms of a decent quality of life? What are the challenges? How can we as Canadians and North Americans respond to their expectations and needs? In your own firm, sir, what have you to offer in terms of qualified environmentalists to assist not only your business concerns but the challenges presented by these various countries?

The Chairman: Senator Corbin, may I supplement your question before Dr. MacDonald replies, because I had that same question in mind with a different slant?

Senator Corbin: Certainly.

The Chairman: Assuming that governments in these areas are aware of the concern, what about the capacity to finance the environmental facilities?

Mr. MacDonald: Those are many-faceted questions. Let me begin with the opportunities. The root of the opportunity is the desire and the ability now of many Asian nations to begin to move up the economic ladder. This means increased energy generation, increased transportation. Has anyone attempted to drive a car in Bangkok? Kuala Lumpur and Jakarta are just as bad. That is the root of the problem.

Do Asian governments have the proper standards and understand the problem? The answer to that is mixed, but by and large, no. Like all human beings, they only respond when the problem becomes acute, such as the Bangkok traffic problem. In places like Singapore it is well understood and well under control, but in other places it is not at all. Certainly they do not have the kinds of environmental standards that we have in North America, with the odd exception like Singapore.

The question of providing the capital is why I raised the issue of the internalization of environmental cost. We have some research institutions in this country that deal with those issues. I am a long way from being an expert. When making of an investment or assessing the cost of a project in the modern world, with our current knowledge and the way we do business, the true cost of environmental degradation is not part of the equation. We do not know how to do that yet. If we do not learn how to do it, we will run into some very serious problems.

In a few weeks I will go to France to attend a meeting of a committee of what is called the "IGBP," International Geosphere Biosphere Program. Our concern is carbon dioxide in the atmosphere and how to measure it. We try to model the atmosphere and the atmosphere-oceanic interface. The problem is serious and it is potentially a runaway problem. Some models predict that there will be a greenhouse effect and thermal runaway. Other models predict there will not be. The problem is, if we do not pay attention to the problem and the people that say it will go into runaway are correct, by the time it is understood it will be too late and we will have a disaster on our hands that will make the Canadian debt look like child's play. Those are the kinds of issues one is dealing with here. They are long-term quality-of-life issues.

A question was asked on whether Asians have the same view of quality of life that we do. Within their own cultural context, they do. We all know the horror stories in Japan. We all know about Minamata disease. People there are aware. Whether these matters will be raised in our consciousness is another matter.

Since our company is one of the top companies in the earth observation business, our main contribution is global resource and environmental reconnaissance and we provide some of the tools for that. That is why I am aware of what is going on in this area.

Mr. Stothert: On the industrial side, not with respect to automobiles, in our experience, especially in green-fields operations, without exception, the host countries have asked us to provide the same kind of standards in environmental controls and pollution controls as we have in North America. We would not do otherwise, nor would any other Canadian consultants of any reputation.

Senator De Bané: You have stated that those countries, like Canada, have a lot of natural resources but that we have an edge in knowledge-based activities. Except for a specialized niche such as the one Dr. MacDonald is involved in, what edge do we have? Japan, with a population half that of the United States, produces more engineers per year than the United States, and every year it registers almost as many patents as the United States. Korea is offering to buy the electronics side of Thompson in France because the government of France cannot manage it properly. Do we really have an edge in straightforward engineering?

I know that Dr. MacDonald's company is in a very specialized niche, but do the companies of Mr. Stothert or Mr. Crawford have something that they do not already have in those countries?

Mr. Stothert: We collaborate with companies from other countries. I mentioned collaboration with Korean companies. We built a pulp and paper mill in Bangladesh with a Korean company. We had a project worth $4 million in fees on which we worked with a Korean company in Cuba. That is currently on hold.

There is an obvious need for some of the expertise we have in the engineering field, in the project management field, and sometimes in finance. Asia does have more engineers. However, I would make a personal observation on the Asian way of study. Students get very high marks in their examination subjects because they study with blinders, by concentration and by rote. Our engineers have a broader background and a broader view. I would not want to be quoted on this but, once their engineers have been shown how to do something, they do it again and again very well. Our engineers have more initiative and more ingenuity because of their background. That is cultural, and we will continue to have that advantage for quite some time.

Mr. MacDonald: I endorse what Mr. Stothert has said. One of our major customers is the Japanese space agency and, from our dealings with them, I can tell you that what he said is true.

Mr. Crawford: In the Asia Pacific region the majority of the companies definitely need Canadian expertise. However, I would exclude Japan from that statement. Other countries such as India and Korea have excellent engineers, but Canada can capitalize on that by following the "Nike" formula, one might call it, where a lot of the "grunt" engineering work can be done overseas. It would still be a Canadian project, but some of the work could well take place in, say, India. I am aware of a company in Germany that is doing that right now. It is all done on the Internet. The job is managed in Germany and the work is done in India. That sort of thing will likely occur more often in the long term.

Senator Perrault: Mr. Chairman, these three presentations are excellent. Mr. Stothert, you have provided details of certain projects which can only be described as horror stories in that, after a major investment of effort and money, something which was beyond your control went wrong.

Are we providing sufficient protection for Canadian companies that venture abroad on this wild whirl of international engineering? Yesterday architects appearing before the committee stated an insurance program was needed. They had lost a great deal of money on overseas projects, obligations had not been fulfilled, and certain countries had reneged on their promises and pledges.

Do we need an enhanced insurance program to help companies such as yours in their overseas endeavours?

Your presentation indicates that you are in a very high-risk occupation. What percentage of your projects have to be aborted for reasons beyond your control?

Mr. Stothert: Part of the insurance is provided by our experience. You know the old saying that good judgment comes from bad experience and good experience comes from judgment. We have to use the rifle-shot approach that someone else mentioned. You have to be very selective in the projects you go after. You cannot get carried away with enthusiasm.

Senator Perrault: Do you need a local person on site?

Mr. Stothert: Sometimes you must have a local representative to help you. That is essential in most developing countries and Asian countries.

I do not know how one could introduce any kind of an insurance program. I mentioned the CIDA CPPF program which, in a way, is that sort of program because it provides some of the funding for you to get your feet wet and determine whether there is a real project and whether it can be feasible. By then you ought to have a better idea of whether there are some major pitfalls or not.

Senator Perrault: This is a case perhaps of high risks and high rewards, so you really are not that enthusiastic about the idea?

Mr. Stothert: We have not found the high rewards yet, but we are still looking.

Senator Perrault: Dr. MacDonald, certainly your company has come a long way from that day in the basement 28 years ago. For the information of some of my colleagues around the table, the MacDonald Detweiller company is not only a great Canadian success story but a great west coast success story. In how many countries have you had projects during the life of this company? Do you have a dollar estimate of what it has meant to the country? I know that is a tough question.

Mr. MacDonald: I have lost count of the number of countries we deal in. I have been to every continent except Antarctica. Thus far, we have dealt with all of the Asian economies except for what was formerly known as French Indochina. We will be there soon. We have done business in all of the European countries and some of the East European countries even before the Berlin Wall fell. We have done business in over half of the Latin American countries and a few African ones. In the Middle East we have done business on both sides of the fence.

By the last count, collectively, our company employees speak 34 languages. Our receptionist has a data base on our computer terminal and if she is talking to someone on the telephone who is having trouble with the language, all she has to do is determine what the language is and then connect him with someone who can look after the person in his own language.

Senator Perrault: You would like the government to play a more activist role in this process. If there were some specific action that the government could take in this year to assist our campaign to capture more of the world's advanced technology business, what would that action be?

Mr. MacDonald: I am not a proponent of increasing government spending under the current circumstances. We all recognize that, financially, the government has its hands tied to a large extent.

The government should help to build the credibility of the Canadian knowledge-based industry in various ways. One of the most effective programs that we had in the past, which I think still exists, was PEMBY. For years we had a revolving charge account. We would get a little money, go out and win a job, pay the money back, and then we would borrow it again and find another job. That was a good little program. It was inexpensive and very effective.

The point has already been made several times about giving a trade commissioner the tools and the time to get to know the environment. That is absolutely critical in Asia. We would save money if we pursued that.

It would be advisable to have a strategy in the government procurement sector to help all government departments understand that they have an industrial development responsibility as well as their operational responsibility. Finland Incorporated and Sweden Incorporated deal with the forest industry and their governments are very well coordinated.

Canadians tend to eat their young. There is a joke that illustrates the point. Have you heard about the two baskets of lobsters? One has chicken wire over the top of it and the other one does not. The question is asked: Why has one got chicken wire over it? The answer is, those are the American lobsters, there is chicken wire so they cannot get out. What about the other one? Those are the Canadian lobsters; if one of them tries to climb out, the others will pull him back in. Too often we tend to compete with one another when we should be working in concert. The current government processdoes not help the situation.

Mr. Stothert: Technology has been emphasized here. Consulting companies, both domestically and overseas, live off the technology we have. A government task force should examine what happens to our technology. We develop the technology and then we lose it.

There is a good story about Kvaerner in Norway. It is a small steel fabricator which did some work on the north shore rigs. It made a lot of money out of it. Then they started buying up shipyards and moved from one thing to another. Now they have a turnover of around $40 billion U.S. a year and they have done that in probably about 20 or 25 years. Thirty or 40 years ago we were perhaps the leading country in terms of technology and pulp and paper equipment and we have virtually none now. Most of it was bought by the Scandinavian countries. How were they able to do that? How was Kvaerner able to move the way it did? I would say there was some government involvement.

If we want to hold the technology that we develop at home here, which we will need if we wish to export, we must determine how the Scandinavians did that.

Mr. MacDonald: A substantial part of the knowledge base for the Norwegian aquaculture industry was created in a lab in Nanaimo. The idea of a mini-computer industry originated at Atomic Energy of Canada. It goes on and on and on. It is cultural.

I taught at MIT at one time. I have always argued that Canadian engineers are the best in the world. I do not say they are among the best, they are the best in terms of their ability to develop science and technology. However, our ability to exploit it is absolutely abysmal.

The Chairman: Who are you blaming for that -- big business, the World Bank?

Mr. MacDonald: I do not know. It is an interesting question. Perhaps it is our colonial mentality that we have never shaken. Perhaps it is our geography in that we are spread out so thin. Perhaps it is the jealousies between the regions. Perhaps it is a combination of all those things. I do not really know, but it is a fact.

A friend of mine once said to me that, once a company becomes successful, the government will start buying from somebody else to create competition. That is exactly what has started to happen. I have always maintained that the purchasing policy should recognize that with Canadian companies in certain fields we can only afford one supplier because we are a small economy. The government should somehow recognize that and judge that company on its export performance, on its ability to create wealth through export. Our domestic economy in many industries will never create big companies. It is cultural. Recognition of the problem and government leadership in this area is where we must start. Governments do not need to spend much money, but we must become more commercially oriented. As I said earlier, I think it has to do with having a colonial mentality and all that it implies.

Senator De Bané: In the Canadian public service there is a small program of bonuses for senior executives who perform in an outstanding manner. How would the Canadian business community react if there were also bonuses for trade commissioners who play a vital role in helping Canadian businesses get contracts abroad? How would the Canadian business community react to that?

Mr. MacDonald: It is a great idea.

Senator De Bané: It should be the Canadian government, of course, that should pay that.

The Chairman: Why?

Senator De Bané: I have my own idea of why the Canadian government and not business should pay that. Business would have to substantiate why they believe that person has played an important role.

As you stated, some are outstanding, others are rotten. That should be reflected in their pay. If they do help, that should be recognized and they should receive a bonus. Not only those who are based in Ottawa in the public service should receive bonuses.

Mr. MacDonald: Most of our salesmen are paid in commissions. Most of our executives receive bonuses based on performance. I do not see why it should be any different.

Senator De Bané: Those civil servant officials who help you should receive bonuses.

Mr. Stothert: I believe the bonus, as you suggest, should be paid by government. That is the only way it could be kept impartial.

Senator Corbin: Earlier Mr. Crawford wanted to add a comment to the environmental questions. Perhaps he could be afforded an opportunity to do that now.

The Chairman: Yes. Please bear in mind that we have a time problem, Mr. Crawford.

Mr. Crawford: I will be brief. My comment is not on the environmental issue. It has to do with Senator Perrault's comment about whether we had one specific aim. In my brief I mentioned leveraging -- getting the biggest bang for your buck. As Mr. MacDonald mentioned, we do not have many funds available. A focused approach to key strategic markets and key industries in which Canada is very competent, would yield the best value for the dollar.

The Chairman: Honourable Senators, we have asked Professor Richard Harris to meet with us at lunch. He is the editor of a most interesting book: The Asia Pacific Region in the Global Economy: A Canadian Perspective.

I would invite Mr. Crawford, Mr. MacDonald and Mr. Stothert to join us for lunch. Of course, you are not obliged to do so.

You have provided us with a very interesting segment and we appreciate it. Thank you very much.

The committee adjourned.