Proceedings of the Standing Senate Committee on
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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,
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
Senator De Bané: Those civil servant officials who help you should
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
The Chairman: Yes. Please bear in mind that we have a time problem, Mr.
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.