Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 20 - Evidence - Afternoon sitting
VANCOUVER, Thursday, February 6, 1997
Upon resuming.
The Standing Senate Committee on Foreign Affairs met this day at 2:00 p.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.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: This afternoon we will begin with a panel from the Alliance of Manufacturers and Exporters Canada. We have with us Ms Sandy Ferguson, and I would ask her to introduce her colleagues. It is a diverse group, as you will see.
Ms Sandy Ferguson, Vice-President, Alliance of Manufacturers and Exporters Canada: Mr. Chairman, honourable senators, thank you for the opportunity to appear before you today. Yesterday and this morning you had the benefit of receiving input from a variety of stakeholders, including those from the business communities whom we also represent here today. The Alliance of Manufacturers and Exporters Canada is the recent merger of the Canadian Manufacturing Association and the Canadian Exporters Association. Our association represents the interests of manufacturers and those involved with international trade.
Our mandate is to improve the competitiveness of Canadian industry and to increase export growth. We provide a wide range and variety of services, including advocacy and lobbying activities. We have over 3,000 members in Canada and about 250 of what we call leading value-added manufacturers and exporters here in the province of British Columbia.
You heard earlier today from Win Stothert and John MacDonald, two of our members, so you have technology covered off. This group will focus on some other sectors that are of importance to the economy of British Columbia.
We are grateful to have the opportunity, as a B.C. division, to speak before you. You will be hearing from the Alliance in Ontario next month, but we believe, as do most people in British Columbia, that we have some distinct and unique profiles of our organization here that represent the uniqueness of British Columbia.
In my introduction, I will confine myself to a few points that I wish to make in my role as the vice-president of the Alliance. Then I would like you to hear from our members who have a whole range of experience and interests in the market. They represent different sectors and different sizes of companies, so they will give a little bit of an around-B.C. flair to what we are doing in international trade.
In the last day and a half have you been inundated with statistics and a profile of what we are exporting to the Asia Pacific region?
The Chairman: I think it is fair to say we have that material on paper.
Ms Ferguson: With regard to trade, the economy of British Columbia looks quite different from the rest of Canada. We are about 50 per cent reliant on the United States market as opposed to 80 per cent for the rest of Canada. The Pacific Rim, Asia Pacific area is about 37 per cent and, within the total trade in this province, which is about $26.9 billion, $607 million is what we call "value-added" to the Pacific Rim. We are still commodity and resource focused in this province. It is important to remember that much of our growth, many of our new jobs and much of our innovation is coming out of the small- and medium-sized firms. In British Columbia that is most of us, except for the big resource companies.
While it is true that we are the gateway to the Asia Pacific region, on average our firms tend to be smaller, less reliant on government support and perhaps more service oriented than what you might see in Central Canada.
There is also a sense of isolation from the centre, which is real and it is true, as Senator Carney has raised as a diligent observer of British Columbia, in economics and policies. That must be recognized and addressed. I will say no more on that.
This Senate committee is travelling the country, in part, to promote or to provide recommendations around Canada's Year of Asia Pacific and the upcoming APEC. It is a tremendous opportunity for us in British Columbia to shine. APEC should reach out beyond a rather elite core of companies and stakeholders that tend to be centred in Central Canada. Expectations have been raised, through the themes of business, youth and culture, that there will be some spin-off for a very broad-based community. It is important that the process be open, and that there be sense of inclusiveness over this next year.
We had a very interesting round table last fall where we talked about how to increase British Columbia's competitiveness by building alliances with the Asia Pacific region. Our stakeholders are mostly small and medium-sized businesses with a few large firms. A major theme was the whole issue around education and training: How we are doing as far as training and helping our exporters? Despite the fact that we are inundated with information, there is much confusion. People are not quite sure where to go and who is offering what.
Financing continues to be a key issue. The alliance has done a lot of work around the issue of how to provide better financing support. Tremendous strides have been made by the Export Development Corporation in terms of the support they provide. We want to see more of that. We must continue to work with the financial institutions, and encourage government programs which can provide a good infrastructure for our firms.
The cost of doing business in this province is high. We have the highest taxation rates in the country. This is the only province with a machinery and equipment capital tax which is quite punitive to investment. We need investment if we are to continue our trading activities.
I will not speak to the issue of market access. It is in our report. The representatives of the firms present today will talk to you about their experiences in increasing their market access in the Asia Pacific region. Overseas trade missions are good door openers for business, although there is some question about how effective they are for the SME community. The direct spin-off to individual firms should be examined.
The role of the trade commissioners has been a good one within Canada. We have a good foreign service but there are areas for improvement, including keeping them in those posts for a longer time. In three years in Asia you only begin to make a name for yourself. In three years you only begin to hear, know and find out what is going on. Four, five or even six years is not too long in those markets.
Let me introduce Mr. Brian Young, the vice-president of the International Division of UMA Group, a consulting engineering firm in Canada. I have provided copies of Brian's resume. Today, he wears two hats. He is a representative of the UMA Group and chair of the Export Committee of the Consulting Engineers of British Columbia
Mr. Brian Young, Vice-President, International Division, UMA Group; Chairman of Export Committee of Consulting Engineers of British Columbia: Mr. Chairman, as Ms Ferguson mentioned, I am wearing two hats. In preparing for this discussion, I had occasion to discuss with a number of our exporting colleagues in the Consulting Engineers of British Columbia some of the issues and experiences they wished to convey, so what I plan to put forward here is not necessarily UMA's position or viewpoint, it is an attempt to consolidate diverse experience, not only in Asia but elsewhere. I realize that your focus is Asia, but many of our concerns regarding export activities are equally applicable to other market regions.
One of the issues on which we were unanimous when we were discussing this program was that the government is on the right track by separating trade from other objectives, social justice and environmental objectives. We welcome that. We encourage the government to continue on that path.
Before dealing with specific items, it might be appropriate to outline the consulting engineering sector. I realize that you will be receiving presentations from different parts of the social spectrum. My comments today will focus on the consulting engineering industry and perhaps if I cover a little background to that sector, particularly that in B.C., hopefully you will keep this in mind when you hear my remarks because they may not necessarily reflect the position of people in manufacturing.
The consulting engineering community is very much front-end focused. We are involved heavily in pre-investment studies. We are then engaged in the design stage. The project still has not gotten off the ground. We do eventually have a part to play during implementation, but our main role is in that conceptual area. To some extent we are pioneers in the development process.
In 1995 the total export services of consulting engineering from Canada was approximately $2.6 billion. The B.C. portion, about 15 per cent, was $390 million.
Among OECD countries, Canada ranks fourth in volume of consulting fees in exports. If one translates that bulk volume into per capita population volume, we rank second behind Holland.
The consulting engineering costs represent usually between five and 10 per cent of the capital value of projects. If one translates the fee income that we have exported in 1995 to a capital value, you can see we are an industry to be reckoned with; $26 billion to $30 billion worth of capital value hinges very much on the skills and capabilities of the engineering profession here in Canada.
All consulting firms in B.C. who are exporting are actually active in the Asia theatre. Others cover the Pacific Rim through Latin America, and there is quite a heavy interest in Eastern Europe and Africa. We have some difficulty in pinpointing specific common problem issues. Quite often, when a firm experiences a difficulty, it is an issue of, perhaps, bad judgment or inadequate preparation. Therefore, I am not sure that we have too many clearly identified problems.
We do, however, have two major territorial concerns. One is China and the other is Indonesia. We have some problems in reconciling the formal and informal commentary that takes place about doing business in China. There is much pressure on the private sector to go out and trade with this country. The country has no tax code, it has no commercial law, it is pretty unstable. Contracts are worth nothing once they are signed.
My own company has been trying to establish itself and do things in China for about eight years. We have gained nothing from it other than a lot of pain, grief and financial loss. We have tried all sorts of initiatives to test different approaches and all to no avail.
Last year we made the conscious decision to pull out of China, that we would not return to that country until there was some basic protection of commercial rights.
When one sees what is happening to the larger enterprises -- I think immediately of firms such as McDonald's -- I feel we are quite justified. I talk with a number of colleagues of mine, not only in the consulting industry. Informally, there are very severe reservations but, formally, they say, "Yes, we are going to China. We are trying to do business in China." When one gets to the bottom of these discussions there is a sense that the government is indirectly pushing them. They feel obliged to do something.
In the long run that is not healthy for Canada's exporting objectives. I do not have a ready solution. However, I put it forward as a widely felt concern, not just of UMA. There appears to be a communication problem on objectives and realities.
For different reasons, we have similar concerns about Indonesia. The fiasco over Bre-X has made absolutely transparent some of the practices of the administration in that country which will come back to haunt those who hold roost today. I believe that 50 per cent of the population is under the age of 25, most are unemployed and many are illiterate, unlike the other 50 per cent. To me and to others that appears to be a passport for civil unrest. In fact, we are already seeing that. Those who invest in that country will face some tough times ahead. Some colleagues of mine, with whom I tend to concur, would not be at all surprised if civil war broke out there in the next five years.
We have government policy tending to push, encourage entry into that market, and yet it is a very volatile, unstable situation, one in which we believe that Canadian investment is very much at risk.
We are seeing huge swings away from public sector funding of projects into private sector opportunities. In 1995 our consulting engineering community in B.C. was generating 37.5 per cent of its revenues from the foreign private sector. I realise that includes the United States. Some of our members, because of their corporate structure, tend to treat the United States as a province of Canada, but others treat it very much as an export market. The high percentage does reflect the inclusion of the United States.
This surge in available private funding is opening windows to emerging market investors. Typically, these are much less sophisticated than their counterparts in the Western World. Consultants like ours are being asked to undertake pre-investment studies and the wonderful carrot is, if the job works then you get paid. What is forgotten here is that pre-investment advice is our métier; it is what we have invested a lot of money in developing, and we see this as something for which we should rightfully be reimbursed. In essence, it is our product.
The CIDA bilateral program is becoming less relevant to the engineering communities. We fit into what they call the for-profit sector and there are swings away from that which demand much engineering.
The CIDA-INC program is an important tool for leveraging access to export markets by manufacturers and construction interests. It has also been exploited by consultants. We feel that, in the changing global capital climate, it is out of touch with some of the realities of the marketplace. Here I come back to the question of the exposure that we, as a consulting sector, experience in being expected to self-finance pre-investment studies for private sector investors, particularly in the developing markets.
We would like to see the government rethink its policy in this area. The embassies are a very important facility for us. They are a storefront for Canada. Alas, we are seeing inconsistencies in the calibre of staff when succession takes place. This sends the wrong signals. It would be inappropriate for me to mention the incredible change in the reputation we have in Mexico. It is mind-boggling. Two or three years ago there was a dynamic, trade-oriented community there. That seems to have evaporated. That is a pity when a major trading bloc partner in NAFTA is looking to us very much as an ally because it seems we have a common friendly enemy between us. It is not helpful when we have ineffective representation.
The contrast between embassies is extraordinary. The biggest problem is the inconsistency within the delegation. If teams were consistently mediocre, at least the country would have an opportunity to become familiar with what service can be provided. However, if it goes from very dynamic to very passive, it is not a great deal of help to us. We would like to see the Department of Foreign Affairs addressing some of these concerns which apply throughout the Asia theatre.
Exporting is increasingly becoming a necessity for the survival of the consulting community. We see diminishing markets in Canada. If we are to grow, we must take on a new kind of globalism. Many of my colleagues in the consulting engineering community still build their international strategies around projects. My own company is moving away from that concept and more into investment orientation projects. They are obviously important to our financial survival, but we are looking at the acquisition of local firms, engaging local staff, and becoming part of the UMA Group. In other words, we are seeking to become a global company.
I believe there is an initiative here that the government could embrace in encouraging people to do that. We are taking advantage of the Renaissance Europe program. I believe that this is the way Canadian firms have to go. We will need the support of government as we seek to exploit this opportunity.
UMA is a fairly large engineering firm with construction interests. This year we are turning over $150 million in revenues, of which approximately $75 million comes from construction. The remainder is technology or engineering services based. We have been working overseas for about 30 years. We have been heavily dependent on CIDA funding for our basic experience, but we are trying to wean ourselves away because we see a diminishing opportunity there for us
With that particular background, I will mention some specific recommendations that have emerged from our discussions.We would like to see a new procedure established in Foreign Affairs for staff selection to assignments in embassies, particularly in trade sections, which seeks to achieve some form of consistency in the standard of service. We fully recognize that there are problems associated with staff allocation. Human resource management is not as flexible in the civil service as it is in the private sector, and we recognize that hurdle. These trade sections are very important windows and we believe we have a right to expect consistency in that area.
We suggest that the for-profit funding component of CIDA's bilateral programs are largely channelled through the trust funds of the international financing institution. These would come through as tied financing, so it would an exclusive Canadian opportunity. That would be one of the more effective ways of leveraging the technical assistance activity into procurement of goods and construction interests. That would be a much more efficient system than the one that prevails at the moment.
The Government of Canada, through its various ministries and departments and CIDA-INC cost-sharing programs should be revised to one where consultants receive the potential at least for modest profits with a corresponding increase in payback obligation. At the moment the cost-sharing formula varies from agency to agency, but the fact that there is cost sharing presents several risk problems to the consulting community.
As I mentioned earlier, we are a low-margin industry. We do not make big profit reserves on which we can speculate for future revenues. The payback to the manufacturers and the construction interests in this country are enormous ratios, as much as 10 to 15 to one, depending on the type of project.
We feel we deserve some kind of special consideration in terms of CIDA support but, at the same time, we would like to encourage CIDA to enter into contracts which demand much more, even the whole payback of the amount advanced on a project that is going ahead and being implemented. At the moment the scheme basically boils down to half of two per cent of the value of any contract. That is peanuts and does not generate a lot of return cash to CIDA.
There is probably some justification for research and development tax credits, to firms that undertake pre-investment studies for overseas clients when they do not take advantage of the Canadian government's trade promotion facilities, particularly financing ones.
The exporting side of consulting is a net wealth generator to Canada. Canada is a services-based economy and many of those services revolve internally. We contribute to the gravy and we would like to see one or two incentives. Where we speculate our resources, it would be nice to see some return. With that, Mr. Chairman, I rest my case.
Ms Ferguson: At the suggestion of the chairman, we thought we would do all the presentations and have all the questions at the end unless somebody has something important they wish to raise now.
Our next speaker, Mr. Clem Pelletier, is a graduate from the University of Saskatchewan. In British Columbia many people are from the prairies, myself included. Mr. Pelletier has a Bachelor of Science degree in chemistry. He has worked in both the United States and Canada for a number of years. He has worked for large multinationals and is now the president of a dynamic and active firm, Rescan Group Inc. He will tell you more about the various programs and projects his group has. The group has environmental engineers, chemists, geologists, biologists and hydrologists. We have many very active small service exporters in British Columbia and Mr. Pelletier's firm is one that will give you a good feel for some of the strategic alliance building that is going on, some of the innovative strategies, and some of the real challenges and hurdles these firms are facing in becoming larger and in taking that next step.
Mr. Clem Pelletier, President, Rescan Environmental Services Ltd.: Mr. Chairman, honourable senators, it gives me great pleasure to appear before you today to provide my views on the role of the Canadian government in overcoming trade barriers and assisting small-sized companies in foreign trade.
I am a farmer from Saskatchewan who speaks French. I have worked for a large corporation. I started with Inco in Thompson and then I moved to British Columbia. I represent small business. Ours is not a large company like UMA.
In 1981 I started Rescan, which is an acronym for Resources Canada, and we offer services in the mining industry.
Why did I leave a good future with a large corporation? I had a yearning to be my own boss. However, little did I know all the problems I would face once I left the comforts of a big corporation.
I financed this company with a small loan from the Toronto-Dominion Bank, which took security by a second mortgage on my house. I also had to assign my accounts receivables. I thought the bank was doing all it could to make me fail when I started this business. I must say that we have a better rapport today. The bank did help me, but it was very difficult to start my own business, which is what I want to talk about today. I listened to what Mr. Young had to say. We are interested in many of the same issues, however I wish to focus more on the small business, the small enterprise.
Rescan is made up of two companies, Rescan Environmental Services, which has been doing business for 16 years out of Vancouver, and Rescan Engineering, which has been in business for three years. The combined revenue of the company is now about $16 million a year. The company employs 130 professionals and support staff in Vancouver.
Of the two companies, Rescan Environmental Services has been the most active in foreign business since its incorporation in 1981. The company's first significant project was a mining project in the Philippines in 1981. We have since worked in five continents and are presently actively involved in Southeast Asia, South America and, to a small extent, in the Middle East. We recently opened offices in Lima, Peru and Antofagasta, Chile. In Chile we built an environmental laboratory in a joint venture with another Vancouver company and, on this project, we had assistance from the government through CIDA for the first time. We built our company without assistance from anybody.
CIDA provided some funding for us to do a market survey and then they provided some assistance for local training on the basis of transferring Canadian technology, It was very helpful. On that occasion, CIDA approached us and stated that, since we had never had help from anyone, they would like to help us. They were most helpful.
One of the major problems for small companies is how to build and retain capital in the company. We need capital to expand and to create jobs. I wish to direct my comments to this area.
In foreign business development, particularly in Asia, when entering into a partnership you must review your balance sheet. One of the major issues in foreign joint ventures is how to retain earnings in small companies. Relative to other countries, Canadian private companies have generally lower retained earnings. That is simply due to the Canadian tax structure. In many Asian countries the corporate tax rate is 10 to 15 per cent, so these companies have developed high capital bases.
The corporate income tax structure in Canada drives high bonuses to the owners. The effective corporate tax rate in Canada is 45 per cent, so 45 cents of every dollar goes to the government and then the shareholder can take dividend money out of the remaining 55 cents at a 37-per-cent dividend tax rate for an effective tax rate of approximately 65 per cent.
As small business, we do not do that. If profits are bonused out to shareholders, which is common in Canada, the maximum personal tax rate in British Columbia, is 54.7 per cent. There is an effective savings of 10 per cent. In this situation tax is driving the company instead of business. As a result, small-sized companies in Canada have very low retained earnings. Canadian companies are financed with greater amounts of debt over equity than foreign competitors. The debt is usually shareholder loans and bank loans. The small companies retain the $200,000 in taxable corporate income for small companies, which is taxed at the 22-per-cent rate. That $200,000 is extremely low if you are in the $10-million to $20-million range. It is practically insignificant. The remaining profit is bonused out, resulting in a corporate balance sheet with very low retained earnings. If negotiating with a foreign partner, he cannot understand the low retained earnings in the company. This is an issue that I faced recently in Korea during the Team Canada Trip. One solution could be that the corporate tax rate should be a maximum of 33 per cent and a maximum personal tax rate on dividends should be 28 per cent to have a maximum integrated tax rate of 50 to 55 per cent, which is the same range as the maximum personal tax rate.
There would be no motive to run the company on a tax-motivated basis versus a business-motivated basis. The result would be to increase the capital base in the company. There is absolutely no incentive to keep funds in the company now because of the tax structure in Canada. The issue is to build a significant capital base in small companies so that they may grow, create jobs and be more attractive to foreign partners in joint venture opportunities.
In Korea, Hyundai was interested in doing a joint venture with Rescan in an airport development. They looked at our bottom line and saw that our retained earnings were $600,000, which is nothing. We had to explain why we were doing $16 million in revenue with such a small amount of retained earnings. Then I had to show them how we bonus it out and then bring it back into the company. We do not get that money, we give bonuses and pay less tax on it that way. Then it is shareholder loans back to the company. You run your company through shareholder loans. However, it does not make the bottom line look very attractive.
Another area I would like to comment on are RRSPs and permitting RRSP funds to be used in small business. Today RRSPs have created a huge mutual fund business that has a monopoly on our money. In the future our children will probably have to work for themselves in their own businesses. How will they get started? The banks will not provide the funds, they will have to come from the parents. Therefore, why is there not the opportunity for a family RRSP to be invested in promoting family business? In my own business, for example, our combined family RRSP fund would have had a much better return in our business and helped us at the same time.
There are huge capital funds in Canada that are controlled by the banks or mutual funds, and some of these funds are invested abroad to create jobs in other countries but they are not available to small business in Canada.
The government could help us compete abroad by changing the overwhelming cost of legal penalties if paperwork is not completed on time. These include GST, T4 slips, T5 slips, CPP, UI payments, and information for Statistics Canada. In a company such as ours we must have a staff to be able to respond to the requirements of the Canadian government to keep people on side
As an example, I brought the vehicle and travel sales expenditure bulletin. This is what you must know to provide some incentive to employees to work for you. This is the rigmarole you have to go through.
For foreign trade, Canada could help small companies with a better tax structure and by trying to cut down on the red tape. Approximately 80 per cent of our revenue comes from foreign sources, but there are many difficulties.
Ms Ferguson: Perhaps you could mention which countries in Asia you are most active.
Mr. Pelletier: At the moment the most active country is Indonesia, which is a bit different from UMA. We have been very successful in Indonesia. We work with Placer Dome and a number of the large corporations such as Inco. I would be reluctant to open up a business in Indonesia and I would support what UMA and Mr. Young have stated.
We are active in a number of other areas. We see a new market in Vietnam. The embassies do a very good job for us. They provide small companies us with the opportunity to get into decent hotels at discounted rates. It may be a small item, but it means something to us. When attending a meeting in Seoul and staying at the Sheraton or some of other hotels it could cost $250. If the accommodation is arranged through the embassy it could cost $80. That is a tremendous saving.
Ms Ferguson: That comment has been echoed to me by many of our members. It is a small thing but it is paying off big time towards helping the companies.
We have heard from representatives of a medium-sized company, a medium-sized service company and a small service exporter. We will now move to the experience of a very large firm here in British Columbia, one of our leading companies, Western Star Trucks. This is not a $10-million or $100-million company; it is closer to a $1-billion company.
It is a very important company for British Columbia because of the many small firms who contract to Western Star and who themselves are exporting through the activities of this leading manufacturer. They will talk about manufacturing as opposed to the service comments.
With that, I will introduce Mr. Kevin White, who will speaking instead of Michael Harvey, who was originally to appear before the committee. Kevin White joined Western Star in July of 1995 as the manager of the international operation. He brings 15 years of sales and general management experience to his position. The focus on export sales outside of North America and Australia for Western Star Trucks is in countries and markets where there is a demand for premium, severe-service vehicles. Canada has expertise in this niche market, as I am sure you will hear as you travel across the country.
Western Star recently acquired ERF in the U.K. and prior to that Orion Bus Industries in Mississauga, Ontario. It is a very fast growing company and much of the growth has come from sales in export markets.
Mr. Kevin White, Director of Sales, Western Star Trucks: Mr. Chairman and honourable senators, I have supplied each of you with a package which contains detailed notes as well as copies of the overhead.
I appreciate the opportunity to share with you information on a fast growing part of our business. As with anything that is fast growing, there are many opportunities but also many obstacles. The agenda is fairly simple. At the outset, I want to talk about who we are and what we do. We are involved in business around the world but why, particularly, Asia? We would also like to discuss some of the roles we see the government playing in assisting an organization like ourselves, and what we need to do and take responsibility for, as a corporate citizen in Canada.
Western Star Trucks Holdings is comprised of three organizations. Western Star Trucks Inc. is located in Kelowna and it trades on the TSE. This year, Western Star Trucks Holdings is looking at revenues of more than $1 billion, which brings us into the top 20 corporations in British Columbia. We have three factories. One is in the beautiful setting of Kelowna, which manufactures our classic trucks. We purchased ERF, the last U.K.-based independent track manufacturer left there. A year prior to that we took over Orion Bus in Mississauga with outlets in Oriskany, New York.
Western Star Trucks is a custom builder of both conventional and cab-over Class A vehicles. With the acquisition of ERF, we now have what is called a "cab-over engine" design which has no nose and which is very European or Japanese oriented.
We have taken our classic or conventional truck and have built military derivatives from that and have been doing business with the Canadian military over the last few years. Most recently, we shipped 64 units, severe-service 6x6 vehicles. from our Kelowna factory to the Canadian military.
With Orion Bus Industries and ERF, we now produce the municipal transit buses one sees in Vancouver and the Lower Mainland. Our highway coaches are from the ERF acquisition.
In a world-wide context, we are fairly young. Prior to 1994-1995 we were taking advantage of opportunities that came to us, but we were not very proactive in going after markets with an organized, dedicated focus. Our plan outside of Canada for this year is to sell 2,600 trucks in total in the United States, Australia, Asia, Latin America, Africa and the Middle East. We very much cover the globe but the United States comprises about 1,500 of those units, with Australia the next at about 400, and then the remaining units in other areas.
The real emphasis came when we were purchased by Terrence Peabody literally days before they closed the doors of the manufacturing facility in Kelowna. It is truly a turnaround as a result of being focused and having some international emphasis.
As a Canadian corporate citizen, we try to articulate what we do for the Canadian economy as an exporter. Our vehicles made in Kelowna have over 50-per-cent Canadian content. Some examples are truck cabs, modifications to the frame rails and wiring harnesses. Obviously a major portion of that is labour. Direct employment in Canada is 1,800 individuals, in the United States it is 800, in the U.K. it is 800, and then it is 50 for Australia and 50 for other areas around the world. The figure I have from our accounting staff for indirect employment was a multiplier of about five on the 1,800. We are effectively impacting 9,000 jobs in Canada.
In addition, one of the benefits or spin-offs of our products internationally is being able to showcase products of other suppliers on our vehicles. For example, we will not build the box on the back of a typical dump truck. That is built by another Canadian company and we are in partnership with a company called Dell, which is located in Coquitlam, British Columbia. That gives Dell a chance to market its products worldwide. There are several other organizations that we partner with in Canada to continue to increase our Canadian content on our export vehicles.
In addition, since we are a custom builder, technology plays a key role because we will try to apply the technologies to the niche marketplaces. For example, if a mine has a typical application but it is in a severe service area, and the vehicle has to go up some severe inclines, then we will actually customize our vehicles to suit the altitude they function in, the degree of severity that they are running on and specifically what kind of body they want on the back of the vehicle. We can actually forefront some interesting Canadian technology into the international marketplace.
Why Asia? Obviously the growth in the consumption of goods and services is a very attractive point for us as an exporter. As well, in terms of developing and developed countries, there is a tremendous need for infrastructure development. Trucks are needed to facilitate infrastructure development anywhere in the world. In Asia we have seen figures of more than $1.4 trillion Canadian needed for infrastructure development. We want a small portion of that.
I would like to share with the committee an outline of our dealings in Indonesia, and this will focus on what we have done in the past as an exporter, taking advantage of situations and pulling technology together that meets a specific customer's requirement. That is exactly what exporters have to do. It is no different from any other sale situation. You must understand what you are looking at first and be able to build a product that will meet the customer's needs.
In Indonesia we have our single largest export customer, Freeport Mines. That is a niche market. That is a copper mine/gold mine opportunity with a resource development focus. Western Star started out by building severe-service, rugged forest, or logging applications for the trucks. We have also partnered with a multi-national organization, that being Freeport out of Houston. Because of our particular partnership with the Indonesian mine site, we have been able to develop a local dealer who that aids and facilitates our parts and service organization for the mine. Later I will explain, in terms of partnering, how I see that as an opportunity for a Canadian exporter and the requirements in which I would like to see the government participate.
Western Star is flexible in its approach to the marketplace. We can be responsive to market inquiries and we also have regional sales managers. We are slowly building an international dealer network. We are now looking at being proactive in attempting to partner strategic alliances with resource-based companies, particularly in Canada.
Presently, our focus in Asia is in Thailand, Myanmar and Malaysia. That is only because we have looked at opportunities to gain partnerships with local dealerships, and we have been using the Caterpillar dealer organization as a benchmark on that. We have considered proactive ways of trying to enter the Asia marketplace. We have made several attempts in China, all to no avail for same reasons Sandy discussed to do with the rules and regulations on doing business there. We have been very close, but it did not feel right because of the lack of control we would have over the situation and the lack of a certain element of mutual trust that is necessary when doing business in that area. We have not done very well in China. Currently, we have a proposal on the table, but it is early and we are approaching with caution.
We are also targeting an area in Mongolia simply because it is very similar to a North American based natural resource environment. The oil and gas industry there is new, and there are few competitors relative to Class A trucks in that marketplace. Money is obviously a key factor, that is, how we get paid, but we are looking at partnerships there.
Specifically, the role of government as we would like to see it is the continuation of removing the tariff and non-tariff barriers. That is an obvious requirement. Another element relates to the environmental and road safety standards. As a North American manufacturer, we have had to build products that adhere to North American policies on the environment and regulations. Manufacturers in third world countries or developing countries internationally do not necessarily have to meet those same regulations.
On a recent trip to Brazil I saw the extent of the damage that can be done by lack of regulations on truck manufacturers and what the engines are spewing out in that environment. It is pathetic to drive down the highway and see the filth that is coming out of those units simply because they are using old engines. Emphasis should be placed on trying to bring them up to the standards of North American or European manufacturers.
On the other side, we can take advantage of that as a Canadian supplier or Canadian builder because we have already had to meet those standards. We hope you can continue to pressure other countries to continue their drive towards environmental standards and also road safety standards.
Access to capital and financing is a whole topic in and of itself. We would like to see you continue to work on that. We have had some very good experience with EDC. EDC has played a key role in allowing us the flexibility to get into countries where we would have difficulty selling. Market intelligence and project information is the point that we are struggling with at this stage in our development. The sheer mass of information available through the government is very difficult to sort through in order that we can take advantage of being a Canadian manufacturer. If there is some way of pooling this information together in a format that is fit for easy consumption, that would be a definite aid from our point of view.
We would like to see more tied programs in CIDA. Structural adjustment programs are providing less and less opportunity, and there are more soft aid programs. As a manufacturer of hard goods, we would like to see more tied structural adjustment programs. The source of information for us as an exporter needs to be defined and brought into a format that we can quickly interpret.
From an internal perspective, providing timely and accurate information directed at corporate users is important. Resources are slim in the corporate community. Mr. Pelletier has shown you the documents on how to manage a small- and medium-sized exporting business. We also have the same situation. Even though we are a large company, our export group is very small. Being able to sift through the masses of information makes it difficult to try to pinpoint where the opportunities are. If that could be streamlined, it would probably make for some quicker turnaround.
On the subject of higher Canadian content on Canadian financed projects, we are unique in the Canadian marketplace in that we truly are a Canadian company that manufactures and retains its earnings in Canada. We have three major truck manufacturing competitors in Canada, but ultimately their funds go to either Germany or the United States. We would appreciate an opportunity to use that as a sales strategy to create a better partnership with other Canadian companies when government financing is involved.
We must try to tie organizations in Canada together, to partner together as Canadian companies to go after the international business.
Ms Ferguson: I wish to make a brief comment about China because since it has been raised a few times, and I am sure that is an issue you heard about throughout the last few days. I am only speaking from the perspective of our membership and I am generalizing, so keep in mind there are many exceptions.
Most of our firms are not having much success in the China market. Some of the very large corporations are doing well but, by and large, the SME community and Western Star have found it to be a very difficult market. The exceptions seem occur when our firms use the trading house vehicles or expertise that is already out there. For some of our firms, having Asian Canadians with very strong ties to China or Hong Kong is also proving to be successful. However, they are definitely in the minority, and we certainly are running into problems. For example, when incoming delegations generate interest and excite people about China, there is a little wariness because some of the hard work that has been done has not paid off.
I would introduce Mr. Dan Wong, who is the manager of corporate relations for Dairy World. Dairy World is Western Canada's largest food company and largest dairy cooperative. As many know, the agriculture industry in Canada is a difficult and complex one.
Dairy World has about 3,000 employees and about 2,100 member farmers. It is owned by the farmers who produce the raw material. In Canada they go from British Columbia all the way to Ontario.
I will ask Dan to talk about Dairy World's experience and its outlook for Asia.
Mr. Dan Wong, Manager of Corporate Relations, Dairy World: Thank you, honourable senators, for the opportunity to appear before you today and to talk about international business activities from the perspective of an industry that, historically, has had very little international business experience.
Dairy World Foods is a long-established company in Western Canada. It markets brand names that certainly the Western Canadians among you will be familiar with, such as Dairyland, but also national names like Yoplait and Legend. We are also the only significant dairy products exporter in Western Canada at this point, although it is very early in the game.
I would like to underscore our activities particularly in Asia. While the export and international business activity of dairy foods companies is still very minor, still very modest, overall it is an absolutely critical part of any long-term strategy for the survival of the dairy industry in Canada. Let me explain why.
Many of you are probably aware that the dairy industry in Canada is in transition. There has been much press about supply management and free trade between Canada and the United States. The fact is that the dairy industry is changing, maybe too fast for some, maybe too slowly for others. We have a number of very serious challenges that we are dealing with that go beyond what is reported in the media. Of most importance is the fact that the industry in Canada is, very simply, a mature industry. The market in Canada is a mature market. People are not consuming any more dairy products than they have in the past. As a matter of fact, in many categories, they are consuming fewer dairy products. Therefore, there are very serious constraints on our ability to grow within Canada.
The international trade agreements, the Uruguay Round agreement at GATT, has opened up, if only by a small degree at this point, an opportunity for other countries to export their dairy products into the Canadian market. The North American Free Trade Agreement prohibits the use of past policies to export dairy products from Canada. In the past, through Canadian dairy policy, levies upon producers have been used to fund the exports of surplus dairy products. All that has changed. The rules have changed. We are no longer allowed to do that, yet we are faced with this situation where the market domestically is either static or shrinking. We are all, therefore, struggling to adapt to new trade rules.
The international marketplace has been explicitly designated to be key to the future success of the Canadian dairy industry. However, there are some realities we have to deal with. On the one hand, internationally, Canada, at least under its current policy regime within this industry, cannot compete with the rest of the world on price. On the other hand, Canadian dairy producers and dairy processors have an excellent reputation for product quality. Cheddar cheese, for example, is a Canadian specialty and our own brand of cheddar cheese, Armstrong cheese, won the 1994-1995 award for the best cheddar cheese in the world. An international competition was held in Wisconsin with some 500 different entries.
In British Columbia we have the added advantage of being the gateway to the Pacific Rim. This is significant for our organization because there is a fairly strong market potential for our dairy products in the Asia Pacific region. One does not normally think of Asia as being a large dairy products consuming part of the world. Looking at the size of the population and the fact that dairy products are products that become consumed as personal incomes increase, the potential in Asia can be seen. In fact, it has already happened.
In 1990, prior to the liberalization of trade laws in Japan, all Japanese ice cream consumption was supplied by Japanese sources. Since that time, with the opening up of the Japanese market, 15 per cent of all Japanese ice cream is imported and we are fortunate to have a share of that.
As a strategy, Canada must focus on value-added niches to benefit from export trade. As I stated, we cannot compete on price. There is no point in getting into commodity price battles with Australia, New Zealand or the United States. We simply will not win. Our own company, Dairy World Foods, has a growing export component, albeit still small. The principal products we export are ice cream, frozen yogurt, frozen desserts, juices and drinks, and butter, and we are very bullish on the opportunity to export cheese except that worldwide trade restrictions on cheese as a category have taken a longer time to come down.
Our principal markets are Japan and other Asia Pacific countries, particularly Taiwan, Hong Kong and the Philippines. We have a surprisingly large business servicing United States cruiseships here on the west coast. It is a business that we would like to see grow. It may surprise members of the committee to find that the majority of the dairy products sold to those cruiseships are actually sourced in Seattle and shipped up to Vancouver in bond, where they are loaded on to cruiseships in port in Vancouver. In our opinion, there is no reason for that. At the risk of sounding self-interested, Canadian companies should be supplying all of those dairy products.
The key point is that, while the volumes of dairy product exports from Canadian sources remain fairly small, the potential returns are large. In our company, export sales constitute less than one per cent of our gross volumes. In this past year, admittedly a bad year domestically, they constituted over 20 per cent of our net income.
There are, however, some very serious hurdles to overcome. Because of the nature of the industry we are dealing with, many of those hurdles derive from domestic policy. Exporting is still an unfamiliar activity for most Canadian dairy suppliers and, in particular, dairy policy-makers. Over the past year and a half there has been some significant movement in this area. The Canadian Dairy Commission introduced some very innovative programs to try to make milk, the raw product for all dairy products, accessible to exporters at prices that approximate world prices. However, these programs remain slow and cumbersome to the point that the so-called "optional export program," which is a nice idea in theory, has only been used once. It was used by our company to supply a customer in Japan with a brand new ice cream product which we are very pleased about, but this program has been in place for a year and a half now and there has only been one successful application. The process itself needs to be streamlined; it needs to be made more accessible.
In general, the philosophy underlying these programs may be a backwards step and, in some ways, we have put the cart before the horse. Without giving a lot of details, the way the programs work is you go out and you find a customer and negotiate the terms of an agreement to supply that customer with whatever product it is. You go back to the Canadian Dairy Commission and negotiate a price that will allow you to compete against alternate suppliers that the customer might have. We are really putting the cart before the horse here. You cannot go out into the marketplace, particularly the international marketplace, when you do not know what your price is. It is an extremely difficult way to do business.
Not surprisingly, domestic policy also drives the availability of product for export. Historically, the theory behind supply management was that you do not produce surpluses, therefore, you do not worry about exports, nor do you worry about imports. As I mentioned, the rules have changed and we now find ourselves in the situation where commercial exporters of dairy products are effectively competing against a Crown agency, the Canadian Dairy Commission.
In September of 1996, the Canadian Dairy Commission, because of a shortage of milk, cut off one of the programs that was designed to facilitate commercial exports. What was irksome was that the reason there was no milk left was because the Canadian Dairy Commission had sold a large amount of butter and skim milk powder to its traditional customers in Tunisia, Cuba, and Algeria. Nobody is downplaying the importance of those activities in the past, but those activities were designed to remove surplus products from the Canadian marketplace. When trying to build commercial markets, it is extremely frustrating to be unable to get the product because the Crown agency has sold it.
In general, I would suggest that Ottawa is unfamiliar with some of the dairy export opportunities that are available in the Asia Pacific region. There is an orientation from Ontario and Quebec that tends to look more towards Europe than to Asia. Because the administration of these programs is from Ottawa, we sometimes have to beat people over the head with a stick to make them see some of the opportunities that lie on the other side of the Pacific.
All or many of the factors that the preceding speakers have mentioned also apply to us.
We had to deal with the problem of having our ice cream melt on the dock in Japan. We learned from experience that we have to deal through the trading houses. We have to go through the process of building relationships over many years before we can cut through some of the bureaucracy that lies on the other side of the ocean. Otherwise, it is extremely difficult to get perishable products to their end markets.
As much as we in Canada are attacked for our trade laws in dairy products and, in turn, attack other countries such as the United States for theirs, trade laws respecting dairy products all over the world are arcane and in some cases completely bizarre. Tariffs are high in Japan. To export cheese, a fairly large tariff has to be paid. Once your product arrives, you are not allowed to sell it. You can sell it to another manufacturer who, in turn, will cut it into consumer-sized packages, put their own label on it, and then sell it.
Many countries, including the United States, use technical standards as non-tariff barriers. They will reject a product on the basis of a bacteria count, or something like that. It is strictly a numbers game that is used as a way of prohibiting product from entering their markets.
We recognize and agree that international markets are critical to the long-term viability of the Canadian dairy industry. We must get our act together here at home so that we can do a better job overseas. We need policies that consider international opportunities, not as an adjunct to the domestic policy but as a central part of the policy itself. We must further explore the integration of interests between policy-makers and the actual commercial exporters of dairy products so we are all moving in the same direction and not competing against each other.
The Chairman: Ms Ferguson, I must say you have presented us with very specific information on an interesting range of exports. We are running a little late and I am uneasy that, if we open up to broad questioning on such a diverse set of topics, we will run fatally late.
I would ask senators to be specific in their questions and not to ask a question which will require an answer from each of our four witnesses. I would ask our witnesses to be as succinct as possible.
Senator St. Germain: Thank you, Ms Ferguson, and your delegation for your diverse presentation.
Mr. White we heard from many of our witnesses that trade commissioners should be left in postings longer, so I am certain the chairman will include a recommendation in that regard in our report.
Mr. White, witnesses have told us that defence support is key to competing successfully with the Americans. How important was this to the profitability and viability of your company? Without it, would you have survived?
Mr. White: The single most publicized venture was into Kuwait with a military opportunity of over 2,000 vehicles. That was approximately five years ago. Today we have spent a significant amount, well into the seven digits, and have yet to receive one single order out of that area. The derivatives that we have built and designed, we have been able to place in the Canadian military and they are being effectively used today.
The problem in Kuwait was one of high expectations. The realities of that market, and the realities of the political influences in that market, created the barriers, and we have yet to see an order. German manufactured units have been sold to Kuwait, as well as Mercedes and Russian-manufactured products. You can make your own assessment of the political infrastructure needed for those units to be placed there.
I would also like to comment on the length of time trade officers are posted to countries. Once you present your product to a trade officer or an ambassador and that person gets to know your product, difficulties arise when that person is moved a couple of years later. The same process has to be gone through time and time again. There are some very good people out there but, just as you are getting to the point where they understand your business, they are moved.
Senator Carney: The range of information we have received from this panel shows why we export so much to Asia from B.C. They are all hustling this market very well.
Mr. Young, in terms of this China "fatigue," this pressure to work in China and the expectations of working in China, we heard two suggestions which would help smaller companies do business in Asia, particularly China. One is some type of private sector insurance scheme so that a company such as yours doing the pre-investment outlays could insure themselves so that they would get paid at some point. The second is that there should be some sort of letter of comfort, which is my term, not theirs, between Canada and China to ensure that contracts will be honoured.
People have said that contracts mean nothing. There is the wonderful quote, that: "A contract is only a pause in the negotiations." Would it be helpful if we recommended that there be an insurance scheme whereby you would get paid for all the work that you do? Would it be helpful to have a letter of comfort arrangement between governments to provide some way of enforcing contracts?
Mr. Young: There are insurance schemes to protect against certain risks such as client default and political risks. The EDC offers such a package and an organization affiliated with the World Bank in Washington also does that. The assurance of being paid is part of the equation. Doing business in a market simply because we know we paid the insurance premium and that we will get paid, strikes me as being philosophically wrong.
Senator Carney: The people who suggested this were selling architectural services.
Mr. Young: They could buy that insurance. It is not cheap. I have never tested the insurance premiums for the China market, but I imagine that they would knock a bit out of the bottom line. Despite the fact that we can access that type of insurance, it does not make sense for us to continue in that market because there are other risks for which you cannot get insurance, and that eventually "torpedoes" all interest in that market.
Senator Andreychuk: I was rather intrigued with your remarks regarding RRSP provisions for small, family businesses. Do you have that fleshed out in written form? I found that rather intriguing and novel, particularly when the government has cautiously moved to use RRSPs in other ways.
My question is to Mr. Wong. I spent some in Geneva at the time the Uruguay Round was being negotiated and heard about nothing but yogurt and pork bellies and the Canadian position in that regard. How much of your problems are caused by the market is moving more quickly than government policy?
I am mindful of the fact that we are balancing off the dairy sector with other agricultural sectors; trying to appease one province or another or one region or another. How much of it is an internal problem in Canada?
Mr. Wong: I would suggest to you that that is, perhaps, the nub of the issue. Having said that, the various interests that are around the table, both in macro trade forums and within the industry, are all legitimate. What we are missing in all of this, though, is the opportunity to develop a coherent strategy that takes all of those factors into account. Some important strategies exist at the level of dairy farmers that are completely exclusive of manufacturers and marketers of the end products.
The converse is also true, and the role of the Canadian Dairy Commission and the provincial marketing boards has a lot of history, and they are taking their time in adjusting to the new realities, as one would expect. That is not to say they cannot play an important role, but they are dealing with so many different pressures at the same time, many of them political, that it is difficult to pull it all together and put together a strategy that at the end of the day that puts dollars in everybody's pockets. I would not say to what extent the point that you are making is a source of difficulty for us, but it is certainly a source of difficulty.
The Chairman: Mr. Wong, as I understand it, the Canadian dairy industry fears United States competition. How is it that you can compete effectively with the United States in the Japanese market for ice cream?
Mr. Wong: Some of the rhetoric within the industry would lead you to believe that the Canadian dairy industry fears United States competition. Certainly, if we get into a commodity price war with the United States or other countries, we will lose for various reasons, whether it be the policy hang-over that we have right now or whether it is because the Canadian market or the size of the Canadian industry is not large enough to achieve world class economies of scale. This gives us all the more reason to focus on international opportunities, the so-called "value-added niche" opportunities.This is not to say we would not do it if we could get the right price, but we have no particular interest in going out and selling milk to Hong Kong or Taiwan.
We have, however, great interest in selling ice cream to one of those countries because it affords us greater control over our own destiny. First, we are able to capitalize on the reputation that Canada has as a source of high-quality products. Second, much of the value added in those products stems from our ability to work with the customer. The ice cream products sold to Japan are custom-formulated to Japanese customers' specifications.
Finally, it gives you more control over your own pricing because the value that you put into the product is something that you are actually adding yourself, as opposed to simply drawing the commodity out of the marketplace.
The Chairman: Thank you very much. This has been a most interesting, diverse and specific presentation, Ms Ferguson. It has been most helpful to us.
Ms Ferguson: Thank you for this opportunity.
Earlier I mentioned that you probably did not want a statistical presentation. However, I do have some employment and investment statistics which you may find interesting. I will leave copies of that with your committee.
I would also ask the assistant to copy our B.C. Issues Round Table report, which deals with how British Columbia can become more competitive by building alliances.
The Chairman: Our next witnesses are from the NOVA Corporation. I have heard their testimony in Ottawa when they have appeared before two or three different committees and I have always come away feeling impressed and wishing that I had more money to buy shares in their corporation.
Today we will hear from the Vice-President of Government Relations, Mr. Gerry Finn. I would ask him to introduce the other persons from the corporation to the committee, and then to proceed to make the presentation.
Mr. Gerry Finn, Vice-President of Government Relations, NOVA Corporation: Mr. Chairman, with me today is Mr. Rick Milner, an executive vice-president of NOVA's international gas services business; and Mr. Dave Sansom, a vice-president with NOVA's chemicals business. We appreciate your invitation to appear before your committee.
The Asia Pacific area, because of the forecasted growth in the region, has a particular appeal for us. Therefore, NOVA's business strategies are focused, in a large part, in those areas. That is why we wanted to take the opportunity to appear. If we could convince you that the current management of NOVA is still worthy of your admiration, we would be glad of that, and if any of your colleagues have more money than you do, Mr. Chairman, and they want to invest in NOVA, we would welcome you as shareholders.
We will take about 20 minutes to outline some activities in which the company has been engaged, and then we will gladly answer your questions. I will first give a brief introduction about NOVA.
We have three businesses. Mr. Rick Milner and Mr. Dave Sansom will each describe the the international gas services business and the chemicals business, with specific focus on our activities in the Asia Pacific area. They will describe what we have been doing there, our plans, and what we discovered when we were there.
Finally, we would like to mention our expectations from the APEC trade agreement which, I think, is one of the principal focuses of your activity here.
NOVA is a natural gas services and petrochemical company, headquartered in Calgary. The three of us live in Calgary. We are a relatively big company in Canada but a relatively small company internationally. By and large, we are an almost typical Canadian company in that we started with resource-based natural gas and we upgraded it. We have three wholly owned businesses. The first is the gas transmission business. That is the business we started with. That business today has about 13,000 or 14,000 miles of pipe in the ground, mostly in the province of Alberta. Our pipeline system in Alberta transports 80 per cent of Canada's marketed natural gas. About 18 per cent of all natural gas produced annually in North America comes through NOVA's gas transmission system. That 14,000 miles of pipe serves 1,000 small points throughout the province of Alberta. Small gas wells hook up their gas to our pipeline system.
The knowledge and expertise we gained over more than 40 years working in the gas pipeline business in Alberta led to the development of our second business NOVA Gas International, of which Mr. Rick Milner is the executive vice-president. This business has taken the pipeline operating capability and the engineering capacity and capability that we have developed and marketed that around the world. We have been engaged in approximately 300 projects in 50 different countries around the world. That forms the basis of our second business.
The third is our chemicals business, the one in which Mr. Dave Sansom is involved. Our chemicals business is Canada's largest petrochemical business, and we are one of the top five petrochemical companies in North America. The most basic petrochemical is ethylene, and there are 60 ethylene complexes around the world. All of the major countries have them. NOVA has the second-lowest-cost ethylene complex in the world in the middle of Alberta near Red Deer. The only other country that has a lower-cost ethylene plant than we do is Saudi Arabia, where the gas is transferred into the plant at much less than the market cost. Not only do we have the second-lowest cost at the moment, we are building probably the largest single ethylene complex at that same site which will be on stream by the year 2000. When that is operational, we will not only have the lowest-cost site in the world, we will have the largest single ethylene complex in the world, all built on Canada's resources.
NOVA is the largest single shareholder in Methanex, which is the world's largest producer of methanol. It is headquartered here in Vancouver and has most of its manufacturing facilities in other countries around the world.
Those are the three components of NOVA. We would like to focus on the chemicals division and the international division. Mr. Sansom and Mr. Milner will each take a few minutes to talk about some of the activities in those divisions, particularly focusing on the Asia Pacific activities.
Mr. Dave Sansom, Vice-President, Chemicals Branch, NOVA Corporation: Mr. Finn mentioned that we are the largest petrochemical company in Canada. Our activities in the Asia Pacific region are also significant. I would mention two specific areas we have concentrated on since 1984: the sale of polyethylene plastic resins to the Asia Pacific region; and the sale of polyethylene technology, licenses for polyethylene technology.
Every year, we ship 100,000 metric tonnes, or approximately 20 per cent, of the Joffre output of polyethylene material to Asia Pacific. For those who do not recognize metric tonnes, that is 100 million kilograms, and for those who were born before 1960, that is about 220 million pounds. We have sales offices in Singapore, Beijing and Tokyo. We have also been fairly successful in selling our polyethylene technology. There are three world-scale plants operating within the Asia Pacific region, in South Korea, China and India. I was personally responsible for the delivery of that technology a number of years ago. We have two additional plants in India that are under construction, and recently we have sold a license in Uzbekistan.
Our major market is North America itself, but we see that North America will only grow at about 4 per cent per year for the next period of time and Asia will double that, about 7 per cent. We expect our sales of plastic resins to double between now and the year 2002. Mr. Finn mentioned an ethylene plant that we are planning to put in and start up in the year 2000. Ethylene cannot be shipped any distance, so we must make some downstream derivatives from it. We suspect we will be adding significant polyethylene capacity as well. We are looking to double the amount of material we sell, 440 million pounds of material, into the Asia marketplace.
In addition, however, we will continue to try to sell our technology. We believe it will not necessarily compete with us. We believe will expand our market. We will also look for high quality opportunities to build equity positions in chemical projects. We believe that our technology, plant expertise and feed stock cost advantage capabilities will allow us to take equity positions in Asia. This will require us to substantially increase our global marketing requirements. However, it also creates cause for some concerns. I would like to address some of the concerns that we have based on our sale of resin and sale of technology so far. This is where it can get fairly personal because I have been involved.
Concern arises from the lack of an international set of standards for safety, health, environment and risk management. NOVA operates to either Canadian or local standards, whichever is highest. We have been spreading the value of the responsible care ethic throughout our activities in the international market, but we are concerned that standards in international agreements concerning safety and environment do not exist. There is an inclination to link these to trade agreements.
An interesting approach we might consider is to address environmental issues internationally as a multilateral environmental agreement that will address major transborder and global environmental problems. To avoid the confusion of policy interests which lead to non-tariff barriers to trade, governments clearly must coordinate healthy, safe environment and risk management standards through a body such as the ISO, the International Organization for Standardization.
Areas we are also most concerned about in terms of taking equity positions in a number of foreign countries, particularly in Asia, go beyond environmental and safety concerns. These are linked to human rights and ethical business and political behaviours, which are also increasingly linked to the trade agenda because we have to compete with others who may be dealing with a somewhat different code of ethics than we want to adhere to.
We would like to see more activity in Canada around the whole area of ethics and human rights. We believe these issues should be addressed fully by international committees made up of business and government, maybe under the auspices of an agency similar to the UN. An international code of conduct with such features as dispute settlement mechanisms would bind both business and government to certain behaviours.
We are currently working with several other Canadian-based companies to develop a code of conduct. This was a challenge by our Department of Foreign Affairs in Ottawa and we have taken up that challenge, The code would be applicable to any country and would obligate both companies and governments, including their agencies, to adhere to certain standards and practices. We would encourage the Canadian government to consider how to provide additional momentum to create such a code of conduct that would complement rather than complicate international trade.
Mr. Rick Milner, Executive Vice-President of International Natural Gas Services, NOVA Corporation: Mr. Chairman, honourable senators, I will try to capture in a short few minutes some of the more focused issues that we see for ourselves in what we refer to as our natural gas services business, the international gas services business. In that context NOVA is looking at three areas of the world outside of Canada and the United States: Mexico, South America and the Asia Pacific region, with more focus in Southeast Asia than the broad region that we see on a map.
We have been in the natural gas services international game for some 20 years. Initially, and up until about five years ago, our main business thrust was consulting. Mr. Finn mentioned project management, engineering and consulting services or commodity services of like nature. Another important facet for us during this period of time was what I would refer to as pipeline technology and gas services operating transfer. During these consulting assignments we have transferred a lot of our experience and expertise into these regions, as witnessed by a significant relationship with Petronas in Malaysia. We were there at the outset and contributed to the development of their peninsular gas grid.
Another important feature of this consulting has been training activities and extensive programs with nationals in these various countries, both in the region as well as bringing major groups back to our operation and having training them on our gas transmission system.
This 20 years of consulting history has given us some insight into this region called Asia Pacific and it has helped us focus on where we think we can deliver value from NOVA's point of view. Consulting remains a very important arrow in our quiver. It is a relationship builder for us. When we started in this region, we recognized that we had to have a lot of patience, and I think we have that patience. Activities or transactions do not occur overnight. We are focused, however, and we see many opportunities for us.
Four or five years ago, NOVA reassessed its strategy. In the international gas services business we took the position that, although consulting was an important business, what was more important was to be the investor and the operator of the infrastructure we were building. In North America as well as Mexico, South America and the Asia Pacific region, NOVA is looking for investment opportunities. We will become corporate citizens of those lands if we succeed in our strategy. We consider these to be long-term investments and, as a result, we must continue to have solid knowledge and information about what is happening in those regions.
In Southeast Asia we have been focusing on Malaysia, Thailand, Indonesia, particularly, and we keep watching briefs on places like Vietnam and other areas where significant growth could occur down the road. We have also had consulting experience in China. I would be pleased to respond to any questions that might arise about those experiences. Currently, we are in the midst of a six-year technology transfer program with the China National Petroleum Corporation that has been funded by CIDA and that experience, although it is not a large program, has put us in a very good position to observe what is going on in that country. We have received very valuable assistance from the embassies and the trade consulates in the countries in which we work. We are proactive in using those services to gain intelligence and information that will allow us to know more than our competitors about what is happening.
This part of the world, the Asia Pacific region and in particular Southeast Asia, is undergoing significant and rapid economic growth. The forecasted growth in electric power generation is staggering. Natural gas has become a fossil fuel of choice for these people. They are finding abundant sources of natural gas and looking at how they can move that natural gas into their markets, either to serve the power generation requirements or other industries.
All of the major global energy companies are vying for position, so it is a very competitive field. The economic growth, the need for expertise and capital, together with the movement towards privatization, creates a very competitive landscape. The infrastructure involved is from the well-head to the consuming industry. Our business is not upstream in exploration and production, we like to take the gas from the producer, gather it, process it, transport it and get into power as well as distribution.
There are challenges in undertaking these assignments of looking for investment opportunities in Southeast Asia and the Asia Pacific region. My colleague has spoken about some of the challenges which the chemical group faces. I thought I might mention several that we face every day. These are challenges that are apart from what I would call normal commercial and operating factors.
We obviously want to make a profit and create shareholder value but, in doing so, there are other factors that some people have called "soft" issues to which we must pay a lot of attention. They are often intertwined in the relationships between countries there, as well as between our country and that region.
One issue is the safety and security of employees and families. When we invest, we become permanent citizens. We are not only moving product in, we have our people with their families on the ground. Safety and security within the region is an important factor for us. Safety and security of the asset and the investment, once we have made the investment, is important. We must consider the risk of expropriation, blockage of currency flows and cash flows, and other elements that could affect the security of our investment.
There is a huge need for creative financing. The private capital markets, the development banks and the export credit agencies must become greater partners in order to meet the huge financing needs that this part of the world will have to face. I am not an expert in the power game. However, as a reference point, Southeast Asia, seven or eight countries in the ASEAN countries, have forecasted that, in the next 10 years, they will require 200,000 megawatts of electrical power generation. A rule of thumb is each megawatt costs approximately $1 million to install, so within the next seven to eight years that is $200 billion. China's forecast is 400,000 megawatts. Albeit these are forecasts, they are, nonetheless, two measures of the staggering amount of capital which the rest of the world will have to help these people find in order to develop their economies.
When assessing investment opportunities, we consider safety, health and environmental practices. One of the advantages we have is that if we are going to be an investor and we are on the ground, we are in a very good position and have great opportunity to influence the development path. We do not have to influence from outside, we are there. We have done that with some success. It is often a matter of where these countries are in their progress towards better standards. People must realize that they are not all at the same level. They are all at different parts of the curve and the more influence investors into those countries and other bodies can have would help.
We find laws, rules and regulations to be unclear. In the regulated business that we come from in Canada, that is very difficult to deal with. Many of these regulations or the lack thereof is because the industries have been government controlled. The government owned 100 per cent of the business. They did not require rules. Once you start privatizing the infrastructure and inviting investors such as NOVA and many others to the table, then there must be some ground rules so the investors believe that there is a long-term future, and that the rules of the game will remain somewhat permanent. This is another major issue for us.
Mr. Finn mentioned societal issues: human rights and labour standards. That is another area on which we focus. It is very important for us and it does influence our thinking about how we will enter into certain countries.
Business conduct and ethical practices are other issues we face every day. We probably face the business conduct and ethical practices issues before we think about an investment. We think about them when we first observe an opportunity. The first time you enter a country you have to deal with those relationships and they influence how you deal with local partners, local representatives and local governments. Those are very telling and very important elements in considering whether we will invest.
The various countries are at different levels in their thinking on the development of policies and standards. At times, there appear to be very significant gaps between Canadian and North American standards and those of the countries we are discussing. Those gaps are closing, but we should push to close them faster.
When companies such as NOVA work internationally, they are examined under a microscope, so to speak. We are under the microscope of our own boards of directors and the microscope of shareholders. They question why we are working in those countries, and they want to know how we can create shareholder value for them in those countries. We are under the microscope of our employees. We are under the microscope of special interest groups. We are under the microscope of the Canadian government which wonders what their Canadian corporates are doing in some of these parts of the world.
That covers the comments that I would like to offer.
Mr. Finn: Before we finish I would like to add few words about the potential APEC trade agreement or free trade region. The details are in a brief we have circulated to you, but there are a few comments I would like to make.
We are strong supporters of the World Trade Organization and, consistent with the comments you have heard here, we like the idea of standardization and rules. The WTO is the best vehicle by which to do that. Any trade agreement that is constructed otherwise should be done in a way that is consistent with GATT.
There is a significant proliferation of trade agreements which causes us some concern. We wonder why we need so many bilateral, multilateral and pluralateral trade agreements, particularly because many of the new agreements have side agreements to them which create the need for bodies such as an environmental commission or a labour commission. There must be some rationalization and thought given to that.
Another major issue is a parallel issue to that Mr. Sansom and Mr. Milner talked about. Trade agreements are complicated unnecessarily if labour, environment, ethics, human rights, and all of those issues are included in them. That does not mean they are not important and that they should not be contained in multilateral agreements parallel to the commercial agreements, but trade agreements should not be complicated by having all these issues merged into one agreement.
In our brief we mention six specific items we would like to see in an APEC free trade region. Those are some of the items found in a GATT-like agreement, where there is mutual recognition of each other's standards. If every country would do that, different standards would not have to be met.
The elimination of subsidies, protection of intellectual property, the freedom to move in and out for people, services, investments and a movement towards common standards around the world would be some of the elements that should be incorporated in any kind of an APEC trading agreement.
We would be prepared to respond to any questions that you have on any of the matters we have raised.
Senator Austin: I found your presentation most interesting. On the question of standards of conduct, has it been observed that United States corporations have an anti-corruption law that they are obliged to meet? It followed the Lockheed scandal in Japan in the 1970s. Do you believe that legislated code of conduct by Congress over United States corporations has inhibited them in any way in competing with you?
Mr. Milner: Mr. Chairman, the act is the Foreign Corrupt Practices Act. Being a public company with shareholders in the United States, Canada, and around the world, and being registered in the United States, NOVA is bound to comply with that act. That act has a very personal aspect to it, from my point of view, because every officer of the company has to do a soul search when dealing with these issues. The issue is: Besides the United States, are other countries complying? It is not an issue between United States corporations and Canadian corporations. We have the same degree of vigilance and concern. The provisions of the act are appropriate and have not impeded our progress. We are early entrants, we started the investment focus about four or five years ago and have had significant success in South America. We do not have an investment on the ground in Southeast Asia. We are making every effort to do that, and we do not believe that will interfere in our ambition, as long as everybody plays by the same rules.
Senator Austin: Should our federal parliament pass legislation similar to that of the United States Anti-Corruption Act? You say our international companies are already adhering to those standards. That has also been my experience. Do we need to state the point more emphatically as a national policy in order to assist the evolution of an international code of conduct?
Mr. Milner: From a corporate point of view we are already there. That does not trouble us. The act, by an large, is fair in that it applies a reasonable-man test to what you know or what you would expect to know. As a personal response, I believe it would be an appropriate step to take.
Senator Austin: Is there a dialogue going on with our European competitors on a corporate code of conduct -- senior corporation to senior corporation? Is there a relationship with European corporations or is this still a quiet area?
Mr. Sansom: It is mixed. There is some significant ongoing dialogue. When I talked about us being part of a group of companies that have been involved in creating a code of conduct, one of those companies is Shell which is represented around the world, particularly in Europe. They are on board with that concept and are diligently considering it. There are other initiatives, like Transparency International, which started in Europe and is spreading throughout the western countries, which tries to bring a code of conduct to business ethics. Are all European companies and countries at the same point? No.
Senator Austin: In pursuing this subject a little further, there are major corporations in Asian countries, China, Japan and Indonesia. Do these corporations have the same interest in pursuing an international code of conduct? Are you natural allies?
Mr. Sansom: No. That is part of the concern. In dealing with and competing with United States corporations in Southeast Asia, we are probably on a fairly level playing field. I will not single out Europe, but for other countries around the world that are trying to do business within Asia and from outside of Asia into Asia it is not a level playing field. That is why we are concerned about the idea of codes of conduct which become truly international and truly interbusiness and intergovernment.
Mr. Milner: Over the last 10 years a lot of progress has been made in this area. It may have resulted from the Foreign Corrupt Practices Act being introduced, but we have seen business practices improving in this period of time even when we were doing consulting. There is still a large gap, but it is not as apparent everywhere one goes as it was 10 or 15 years ago. There is improvement in the agencies and the groups Mr. Milner talks about. Certainly it will help immeasurably to close the gap.
Senator Austin: I notice that, as global capital markets emerge, the standards for raising capital, whether it be in North America or Europe, are standards that do raise the transparency of these corporations and their practices. When companies list on the New York Stock Exchange or on a European stock exchange they then submit themselves to a completely different code of behaviour. Perhaps on the basis of those events you can see a more positive international practice developing.
Senator Carney: Without in any way disagreeing with your presentation, what you have just said on this question of ethics and a code of conduct would seem to contradict what you state in your brief, which is that you do not believe ethics and human rights should be linked to trade as this approach confuses both the trade agenda and the human rights issue.
Surely there is a link between international standards and a code of conduct of business -- child labour standards, safety standards and all those other issues that go into the mix. How do you explain your statement?
Mr. Sansom: The intent there was to suggest that these particular standards or codes of conduct should not be linked to specific trade agreements themselves, but that they be looked upon as a separate and distinct element of doing business. These are usually overarching principles that should be dealt with on a multilateral basis. It comes from the concern that it creates very complicated arrangements if you try to include them in a specific trade agreement. We recognize that these are trade issues. Operating to different standards and different ethics gives a different competitive situation. In no way did we intend to imply that these are not trade issues. They very much are.
Senator Carney: There is a lot of support for that position. They have to be dealt with in an international context. Can we amend your written statement to say, "Nonetheless, we do not believe ethics and human rights should be linked to specific trade agreements as this approach confuses both the trade agenda and human rights issue"?
If you want to add anything to that in light of this discussion I am sure the Chairman would welcome a revised submission of that paragraph. It is an important point and the record should be clear.
Senator De Bané: There is another point in the same sentence. You say we do not believe human rights should be linked to trade.
Mr. Finn: In the NAFTA there are side agreements that deal with labour and environment. The manner in which those are linked is appropriate, but they are linked and not an integral part of the trade agreement.
If a commercial trade agreement that is trying to describe the rules by which you will trade commercially is confused with the rules used around the world for human rights awareness and protection, environmental issues and other labour issues, you will end up with such a mix of policy objectives and such a mix of international agreements it will unnecessarily complicate the trade. You will create something you are trying to avoid. You are trying to free up trade and make the movement of people and resources and the protection of intellectual property easier. If you lump all these together you are more likely to confuse them and allow opportunities for non-tariff barriers. Find a way to create parallel multilateral agreements to the trade agreements, so the trade agreement is one of a family of parallel issues. Trade would be one, human rights would be one, and labour would be one. You keep a clear vision of what you want to do in each of those areas, and you can talk about how you link them. That is what we have in mind, rather than putting them into one agreement.
Senator De Bané: I remind you of what former Premier Harcourt told us yesterday when talking about those issues. He said that we should not be arrogant with those countries and impose on them our business ethics and all the other rights that we have taken a long time to espouse ourselves.
Putting aside this wish list, on page 4 of the brief, under the paragraph on government and industry cooperation, you state that there is room for much greater involvement and improvement. There is a need for government-industry cooperation. You say that the Team Canada mission was very good, but there is room for much greater involvement. You give one example and I do not understand exactly what it means. Can you give us some explanation of what you would like to see? What is the improvement you are looking for?
Mr. Finn: One area in particular concerns some of these other codes of conduct. The trade agenda has advanced to the point where it is today is because of industry-government cooperation, now embedded in the World Trade Organization. If we look at the APEC agreement we can argue that that is an advancement of the trade process because it is not only going to be a free trade region among these 18 nations, driven by the governments, but they are working harder to have much great industry participation.
If that model is applied to the parallel issues, human rights, labour and environment, you need multilateral discussions. The reason you have multilateral discussions is to avoid what Premier Harcourt was talking about: the arrogance of North Americans wanting to impose their standards on others. That will not happen if you have multilateral discussions that would allow you to talk to all of the 18 APEC members to try to determine what labour and environmental practices and human rights codes should be put in place.
The only way that can realistically be done is by having government lead, because the APEC process itself and the WTO, are all government or quasi-government organizations. If the government took the lead and worked with industry, you would have a greater level of cooperation between government and industry.
Senator De Bané: In your brief you state that this could lead to the Canadian government providing more assistance to businesses working in the Asia Pacific region by providing greater financing. Do you not think the priority for your company and for all Canadians is to reduce the deficit and not increase cash outlays by the government to NOVA or other companies? This is what I have heard from representatives of other businesses today. Now you are saying the government should give you greater financing. Is this what you are really saying?
Mr. Milner: The context of that comment is with respect to looking at these developing countries and the huge financial burden they will have in order to bring their economies forward in the next 10 or 15 years. NOVA is not looking to borrow money for its own investments. I can assure you of that. In most cases these countries are maintaining ownership of some of these resources. In order to exploit these resources they need capital. Indonesia, today, is attempting to develop its own peninsular gas grid and has sought financing from the Asian Development Bank, in which Canada is a participant, to finance future phases of this development. It is using that facility, as well as the World Bank, in which Canada is also a participant, in order to, country-to-country, borrow money to help them develop their infrastructure.
We are not exporting goods, we are exporting intellectual capacity. In order for countries to pay for that capacity they often have to look to other venues to help finance their growth. We are not pleading, we are suggesting that those countries, whether it be Canada, the United States or any other of the OECD countries, step forward and help less developed countries to grow. Some of these countries have huge deficit problems themselves. APEC will have an interesting challenge as they deal with this transfer of huge amounts of capital, which will allow some of the members to grow, and that is where the government support will come from. It will not come directly to an industry like NOVA which will then be able to invest.
Senator Grafstein: We heard yesterday that the capital formation in the Pacific Rim countries is proceeding at a faster pace than the capital formation in Canada because of the savings rates. The savings rates are sometimes triplee and quadruple the savings rates, which was one of the surprising pieces of testimony we heard. Their capital formation is happening much faster than ours. The sense I am getting is that these countries, particularly China, are very astutely using our capital to help with the transfer of technology, as opposed to paying for it on a business-like basis.
We have heard mixed stories about CIDA. You indicate on page 3 that you have had two successful contacts with CIDA. Should CIDA be in this business? Why should we not privatize that portion of CIDA that is directed towards business-driven deals? Why should the federal government be cross-subsidizing CIDA? It is no longer a development corporation, it now provides soft funding for business transactions. Why do we not put it on a business-like basis and reduce our deficit?
Mr. Milner: I can only respond from the point of view of the relationships we have had when CIDA has been a factor. In the two cases we have cited in our brief, CIDA has been used in the transferring of technology. What we have transferred has not been a product that the recipient country has turned around and necessarily earned a profit on. We have transferred our Canadian expertise in pipelining and CIDA has been the facilitator with China. We have also done this in Pakistan through massive training programs with their people to upgrade their knowledge and services. From that perspective, the only other way that kind of resource and expertise could be transferred into the region would be if we did it, because it would not happen otherwise.
Senator Grafstein: I am not suggesting NOVA should do it. I am wondering whether or not this form of financing should be put into a more private sector environment and funds raised specifically for that purpose, as opposed to NOVA doing it. I am thinking of another banking operation that is more private-sector driven as opposed to public-sector driven.
Mr. Milner: Traditionally, CIDA has been there to help this transfer of knowledge and information. When it becomes more of a commercial operation, then clearly there are other forms of capital markets and development banks that can lead that charge. We have only looked at the CIDA arrangement when a foreign government or a crown corporation of a foreign government has looked for a form of technology transfer or training assistance, and that has been well defined and understood.
When it goes beyond that the capital markets are becoming strong enough. In some instances they need the support of expert credit agencies and they need the support of development banks in order to make the total financing package work. There is a lot of capital trying to find a home.
Moving away from your CIDA question, many of these countries are what people have referred to financially as "basket cases". They are starting to try to reform their economies in order to grow. They have not, as yet, got the confidence of the international capital markets to the degree where they can be fully supported in that arena.
We would see CIDA focusing on the transfer of technology and intellectual capacity. Beyond that, we look to other capital markets.
Senator Andreychuk: If I understand what you are saying, it is that you think the relationship of entering into business should remain the same, but you would like it to come under some sort of umbrella of fair trade practices and good ethical standards, and that international standard would probably come under the World Trade Organization. Incidentally, I support that. In your brief you state that you would encourage the Canadian government to consider how it can provide some momentum to create such a code of conduct that would complement rather than complicate international trade. Can I infer from that that business is moving much faster and becoming more complicated? We thought the World Trade Organization would create those umbrellas so that business could expand.
Further, I hope you are not saying that human rights is only tied to trade and should be part of a foreign policy strategy, government to government, in all other parallel relationships that governments have beyond trade.
Mr. Sansom: It is a foreign affairs issue, government to government, and companies are working in concert with government to aid in that. What is the right forum? I am not sure whether it is the World Trade Organization, the United Nations or some other mechanism, but we do believe this is an overarching issue that does relate to foreign affairs interchanges between all countries.
Senator Andreychuk: Not to be abandoned.
Mr. Milner: Not to be abandoned. We would look to this committee and many other committees to try to persuade our government to continue to work diligently in this regard.
Senator Andreychuk: While governments are working on this issue, questions on intellectual properties remain to be resolved -- how they will be protected and what success we might have internationally. How does that factor into your work in the areas in which you are now working? As you pointed out, you are entering into countries that do not have internal codes of conduct because they were often run only by governments but they are now moving into privatization. We know what happened in the case of Guess tape cassettes. Intellectual properties is a questionable area. How do you think it affects your ability to work in those countries?
Mr. Sansom: The intellectual property area particularly relates to our sales of technology, whether pipeline technology or polyethylene manufacturing technology. We have fairly freely gone into contracts with people who do protect that technology for multi-year periods. Our technology is so large and so evident it cannot be hidden. If a polyethylene plant is built, it is quite evidence that it is there. It is not in the same milieu as Guess jeans, watches or cassettes. We do not feel we have quite the same situation.
Furthermore, the chemical industry is a relatively close industry. We pretty well know what our competitors are doing. We know whether or not they have added to their technology.
Mr. Finn: We have, however, in the FTA, NAFTA, GATT and in this brief indicated we believe that there must be strong protection of intellectual property. Even though our own industry is not necessarily as hard hit by people skirting the issues, and it is not as easy to skirt the issues as it is in some other areas, we still believe there must be strong international codes protecting international property. The recent Uruguay Round of GATT dealt with intellectual property protection. We should pursue a common set of rules that everybody has to abide by, with some dispute settlement mechanism.
We would argue that the same provision should be part of an APEC trade agreement. Strong protection for intellectual property should be spelled out. If the rules are violated there must be recourse to a dispute settlement mechanism.
Senator Andreychuk: I appreciate your approach to the issue of ethics and rights. We heard some witnesses say that the advice they would give to the government of Canada is that, if they wish Canadian businesses to be competitive, they should know what other governments are doing and should follow suit. We were in polite company and did not enter into what was meant by that, but I think we all knew what was meant. What would your answer be if the Canadian government took that route?
Mr. Milner: As I understand the question it is: How do we feel about the Canadian government imposing and dealing directly with this issue between nations?
Senator Andreychuk: Some witnesses stated that the practices of some corporations and companies are less than desirable, and that is with the full consent and knowledge of their governments and that, because transparency or corruption is going on, we do not get the competitive edge. The competitive edge is not based only on the properties of your product. You may have the finest product, but you may lose because of other factors. The Canadian government should be aware of that and move to some of the other ways that governments help their companies. I took that to mean some negative ways.
Mr. Sansom: The Canadian government should not lower their standards of ethics. The Canadian government can be an example, along with Canadian industry, in setting an example that might be amplified around the world. If the government can help us to understand the practices in different countries and how to overcome the concerns that we have, that would be fine, but in terms of setting of a code of conduct we should be in concert in that.
Mr. Milner: What is important for NOVA Gas and NOVA Gas International to identify is the fact that Canada and North America, as a result of the discussion surrounding passage of the Foreign Corrupt Practices Act, has standards. Those standards are now imposed on individuals within companies. We take a lot of comfort in working with government in the various embassies around the world to get a better understanding of what is happening in those countries. They operate at a very high standard. We operate at a high standard. If doing business means reducing those standards, then you should not be in the business. We have a large economy in Canada and North America that we can continue to invest in and prosper. We need not lower standards.
On the other hand, some of those countries are going through a transition and they have not come as far as we would have liked. They are still wrestling with some of these fundamental issues that cause us a lot of aggravation, but they are coming along. The fora we have suggested would be helpful in moving that along and close the gaps.
Senator St. Germain: Do you take issues such as human rights, child labour and all these things, into consideration when you are making these decisions?
Mr. Milner: We certainly do. We think about it internally. We have had opportunities to work in certain countries, but we have refused because, after discussion with our own leaders and talking to the Canadian government, we have chosen not to go in, but, others have. We must be certain that a certain standard exists before we are comfortable. We do not have to pursue business in every corner of the world if we are not comfortable being there.
Senator St. Germain: There is an inference that certain western civilizations are prepared to do business with left-wing dictators, yet they are opposed to doing business with right-wing dictators. In your deliberations, has this issue been raised?
Mr. Milner: I do not think we have thought directly about left or right. The standards are there. Perhaps I could answer the question with an anecdote. We deal with alliance partners in these regions whose environmental standards, ethical standards and all of the business conduct standards are on the same plain as ours. However, they may do business in an area that we choose not to work in. Since they are neighbours, we have openly admitted to them that we have a problem going into a certain country and have asked them why they are doing business there. Their answer in some ways is very simple and, in others, very complex. It is that they are there to help the citizens in that country to develop. Governments will change, leaders will change, but the people will always be there and if they need help they are the ones that can help them. I have heard this is from fairly senior business leaders. They can rationalize their entry into those markets in that manner. Whether it is a left-wing or right-wing government they can still do that. We are sitting outside, many thousands of miles across an ocean, wondering why those people would do that. We go through a very thoughtful process and, in some instances, we will not go there even after listening carefully to the advice we are given.
The Chairman: The witnesses from NOVA have been very helpful. They did not disappoint me. Thank you very much.
Our next witness is Dr. Jan W. Walls. Honourable senators, Dr. Walls has degrees in Chinese and Japanese languages and literature. He began an academic career at the University of British Columbia and the University of Victoria. He served for some time as First Secretary for Cultural and Scientific Affairs at the Canadian Embassy in Beijing. From 1985 to 1987 he was the senior Vice President of the newly established Asia Pacific Foundation of Canada. Currently, he is the founding director of Simon Fraser University's newly established Asia-Canada program, an interdisciplinary minor or intensive minor degree program for undergraduates who wish to complement their traditional major program with basic competence in Asian languages and culture, as well as an understanding of Canada's own Asian heritage.
I am told that Dr. Walls is a very interesting and highly informed witness in the whole area of intercultural relations.
Dr. Jan Walls, Director, Simon Fraser University Asia-Canada Program: I would begin by reminding my colleagues that Canada has been discovered at least twice. The first discovery of Canada, to my knowledge, was by those people who immigrated here from Asia during the Ice Age. They walked across the frozen Bering Strait and discovered Canada. I do not know if it was by design and they were looking for new territories, or if it was by accident and they were trying to get away from the glacial movement. Nonetheless, the discovery was first made by the people from Asia who we now know as our First Nations people.
The second time was a few thousand years later when Canada was discovered by people from Europe, not as the object of a quest for Canada but as the unintended byproduct of the quest for a shortcut to the riches of Asia.
Today, many of our colleagues across the country are still looking for shortcuts to the riches of Asia. This, I suggest, has some relevance, not only from the soft-core cross-cultural dimension, but from a more pragmatic dimension of our own economic interests, because we are still looking for different shortcuts to the riches of Asia.
I want to say a few words of what I consider to be the importance of what I call "C to the fourth power, CCCC" -- I am not speaking Spanish -- it means a cross-culturally competent citizenry for domestic as well as international relations. The distinction between cross-cultural competence for international purposes and cross-cultural competence for day-to-day survival within our own nation is becoming increasingly academic as our population diversifies.
The best way to illustrate the importance of the plea is to describe the three hats I wear. I will try to infect you with my enthusiasm for the three roles I play under those hats. One hat is a conventional one, as a faculty member in Simon Fraser University working with undergraduate and graduate students. I am the director of the Asia-Canada program. The program was established to provide an option for students in conventional disciplines to acquire basic cultural competence in the languages and cultures of Asia. I say this not in any pejorative sense because I respect the conventional disciplines and conventional departments, whether it be economics, history, politics or business administration. We have brochures if you are interested. It is a very important aspect, not only to create yet another marginalized centre of excellence in obscure Oriental studies, but to integrate ourselves into the establishment. That is why I talk about the importance of the conventional departments within the university.
The second hat that I wear is that of director of the David Lam Centre for International Communication, through which I work with career people. These are business people, professional people and government people who, as a result of the increasing traffic and commerce with colleagues who formerly seemed a long way away on the other side of the Pacific, today are mostly no more than nine hours away and even less than that because we communicate through the Internet, the telephone and through faxes. We are doing business with these people every day. I work to train adult in-service business, professional and government people who need to acquire cross-cultural competence to do what is today not obscure, but everyday business.
The Lam Centre was created in 1989 and, in 1990 we started training business people. We have trained over 2,500 business, professional and government people in various levels of the languages and cultures of East Asia. We feel very good about that because that means there are 2,500 people who are no longer dealing with the "inscrutable Orient" -- which is what I knew it as when I first entered university -- but with people who possess an interesting combination of similarities and differences.
We need diversity not only around the Pacific Rim but within Canada. It is much easier to see differences than it is to see similarities, whether it is in the way we dress, the shape of our nose or the colour of our hair. The first primer that every Chinese student has memorized for the last 2,000 years starts out "Ren zhi chu, Xing ben shan", in the beginning people are basically good when they are born. "Xing xiang jin", by nature they are very close and have a lot in common. "Xi xiang yuan", different life experiences makes them seem further away from each other. Different experiences create different habits and different habits create different mind-sets and that is how difference is created. It is only created through different experiences.
Today, as a result of advances in transportation technology and communications technology, more and more we are enjoying shared experiences. Our experiences are becoming less and less different. Still, we come to our commonalities, our common lifestyles, from a different starting point. Very often it is an ethno-linguistic starting point, pursuing basically the same life experiences. The Chinese have another interesting way of describing this. They call it "Shu tu tong gui", different paths to the same goal.
Any system, whether it is a social system, a civilization, a company or a ministry, if it works well it covers all the bases. Some of the bases you tend to look at first and others you look at second, but they are all covered. That is what cultures do. What do you talk about first? Who says what to whom in what order? That is the only difference. We have trained 2,500 heads. We count the heads as they come in because sometimes the same head comes back for a second or third course. Two thousand five hundred heads have been brainwashed or massaged in these courses, and we consider this to be a major contribution to the development of what I have called a "cross-culturally competent citizenry".
The third hat I wear is that of an outreach volunteer. I co-MC cross-cultural and multicultural events that involve Asian-Canadians or people from Asia. I volunteer a lot of my time for this. One reason I am not going to give you a long presentation today is that I have been working right up to the last minute in producing the English surtitles for a presentation, which will be hosted by the Vancouver Opera Society in two weeks. It is a Beijing opera. For the first time in the history of the Vancouver Opera Society they are presenting a Peking opera. It is the first time they have done anything outside of the European tradition, and I want to make sure it is done right and done well. I have been producing the translation of the surtitles in English so that people will be able to not only understand but, hopefully, viscerally enjoy what is going on.
I am asking for what I consider to be the support of enlightened mind-sets. Those are the mind-sets which acknowledge, simultaneously, the importance of local communities being able to do things for themselves, but also that there are certain basic infrastructural requirements. We do need infrastructures for people like myself to be able to engage in the pursuits in which I am engaged.
Senator Stollery: I am unclear as to how many languages are spoken in the 28 provinces of China. I know about the hundreds of dialects, but in terms of tonal differences, which I would say is the definition of a different language, how many are there?
Mr. Walls: You have opened a can worms which warms the cockles of my heart, because that is what I did my Bachelor, Masters and Ph.D in. I am pleasantly surprised to learn of your interest. Of that 22.5 per cent of humanity that we call Chinese, 93 per cent are ethnic Han Chinese, which means they speak what we would call Chinese; 75 per cent of the 93 per cent of that 1.3 billion speak Mandarin. The other 25 per cent of that 93 per cent of the 1.3 billion who are Chinese speak one of four or five other major dialects. I am speaking of Cantonese, Shanghainese, Fukienese and Hunanese. We call them "dialects" because they can all read the same text, but the differences are very much akin to the way we read the Arabic numerals. If I give you a list of one, two, three, four, five Arabic numerals, you may look at them and read them un, deux, trois, quatre, cinq; or uno, dos, tres, cuatro, cinco; or eins, zwei, drei, vier, fuenf. We call those different languages but in China the entire written language can be read that way, with differences that are at least as great as the differences between Spanish, Portuguese, Italian and French.
Senator Stollery: They are, in fact, pictograms and they are the same pictograms no matter which language is being expressed.
Mr. Walls: Exactly.
Senator Stollery: Did I understand you to say that there are six?
Mr. Walls: The professional dialectologists do not agree on that. Some say six and some would say seven. The other 7 per cent of that 1.3 billion are scattered among approximately 55 minority nationalities, many of whom speak languages that are not even Sinitic, they are in the Sino-Tibetan language family.
Senator Stollery: Do you know how many members there are of the Chinese Communist Party?
Mr. Walls: It is something like 3 per cent of the population. It is a very small percentage of the population.
Senator Stollery: It is three per cent of 1.3 billion people?
Senator St. Germain: About the same number as the population of Canada.
Mr. Walls: That is an estimate. Go on to the Internet and log into the CIA world fact book, one of the best sources of this type of information. The statistics for 1995 are on the Internet and can be accessed pretty easily. Every year they release the last year's figures, and it is very reliable information.
From my experience and I expect also from the experience of the Canada-China Trade Council -- people who have been there a lot -- the fact that someone has acquired membership in the Chinese Communist Party tells you about as much about them as you know of someone who, if questioned about their religion, would respond that they were Baptist. It could be what we call a "Home Baptist," which means, "When I am asked, I will do."
Senator Stollery: I am curious how many people in an authoritarian regime have an interest in maintaining the regime. You have told me it is roughly 3 per cent of the population, which is quite a lot.
Mr. Walls: The fact you have 3 per cent of 1.3 billion people, for many, many of them that I know personally the only reason they joined the party is not because they are committed to it, but because they are committed to a path of less resistance in achieving success in their careers. Very often it is easier to get a better job if you are a member of the party. It is not so much an indication of commitment.
Senator Stollery: I did not think it was. I understand exactly what you are saying.
The Chairman: People have been known, I am told, to join political parties in Canada for much the same reason.
Senator Carney: As our guest knows I have been an admirer of his work for some time. I have been attempting to enrol in your Mandarin course and have come to the conclusion, Senator Stewart, I will have to take time from the Senate to do that. If I am absent from this committee you will know there is a good reason.
Your work is extremely important. I want to talk about an intercultural personality and a cross-culturally competent citizen because tonight we will be having a working dinner with some Canadians of Asian descent, mainly women associated with SUCCESS. The working dinner will talk about some of the problems that develop in our societies when there is an influx of Asian immigrants, and the development of parallel cultures. The dinner will be in Richmond tonight. I am told that people who go to Richmond sometimes think they are in Hong Kong. You have no idea that you are in a North American city. There are strains and stresses from this. We may not all be cross-cultural competent citizens, although we should attempt to be. What happens if there are parallel cultures developing in a place like Greater Vancouver? Does it concern you? Do you think we should be doing something about it? Is there anything in our relations with Asia and our foreign policy, since this is the result of our foreign and immigration policies, that we should be paying attention to?
Mr. Walls: If I were strategizing as to how to deal with this, there is a danger of a plurality of solitudes within an increasingly diverse, greater metropolitan population. Once you have achieved a critical mass of people who share a common language, culture and often religious value, there is the danger that they may not feel the need to acquire the competence to deal, on a day-to-day basis, with the host community. My area of least incompetence is Asia. The question is not limited to Asia but this is the only area I can talk about.
We need to highlight in the media the merits of those people who can move with grace and agility from one language and cultural context to another without feeling that one is somehow compromised by stepping out of one and into the other, or that one is somehow better or superior in any way to the other. It must be considered a source of strength. We must see ourselves as developing more competent Canadians, becoming better Canadians rather than diluting our Canadian-ness, because we become precisely more interculturally competent in an era that will to be seen, decades and centuries from now, as an intercultural era.
Senator Carney: Is there a danger that it is one-way, that you are asking it to be from Caucasian to Asian?
Mr. Walls: It has to be two-way. This is why we need to highlight day-to-day activities and achievements of ordinary people, not just the David Lams of the world. We want to be careful that the population does not get "Lam'd" out because they keep focusing on one or two really high profile people.
There are other achievers in this area. One only need look at the Vancouver Music Academy, which is next to the Vancouver Museum, where, above the main entrance you will see, "The S.K. Lee College of Vancouver, Canada." Here is a Chinese-Canadian who came here from Singapore who has done everything he can. He still loves his culture and plays the erhu, the Chinese fiddle, and he sings strange songs that sometimes sound like you are slaughtering cats. It is very much part of an old cultural tradition. He has given as much support as he can to the Vancouver Music Academy, where people are learning to play violins, cellos and trumpets, very western instruments.
The contributions of people like this need to be highlighted.
Senator Carney: I recently heard the Vancouver Bach Children's Choir sing at the Asian Parliamentary Association meeting that was held here at the beginning of January. The participants were from countries around the Pacific Rim. Senator Perrault and I and Anna Terrana, the M.P. for Vancouver East were here. For the entertainment of the Asian parliamentarians the Vancouver Bach Children's Choir sang. They sang in Mandarin and they sang in Japanese. What impressed the Asian parliamentarians was that it was Caucasian children who were doing this. It was not a Japanese child singing in Japanese, they were little, blond, blue-eyed 11 or 12 year olds.
Do you think we should allocate more resources to infrastructure? For years, the argument in Vancouver has been about the allocation of more funds for English as a second language. The argument is made that we always have money for French-language lessons, but never for English-language lessons. Is that the kind of thing that you mean when you talk about infrastructure?
Mr. Walls: Yes. In my opinion, this is not the time to ask for more money for anything, but it is the time to say please think twice before gutting infrastructures which allow us to develop and maintain a competent citizenry. The competent citizenry today, more than ever, includes this cross-cultural competent citizenry.
The Chairman: What you say takes me back to my own undergraduate days. I had a professor of English who pointed out at one time the English language was a lyrical language, perhaps as the Welsh language is, but as the English society became increasingly scientifically oriented and business oriented the language lost its cadences.
We have heard again and again about the need for certain features of western legal and business culture to provide an appropriate business environment for the conduct of economic relations with China. Are we really advocating a kind of cultural imperialism here? We talk about how they must have the rule of law. They must have democracy. When I hear that demand for the rule of law I immediately remember the comment I once heard from a law professor that emphasis on the rule of law makes for a highly litigious society and that is not a good thing. What do we mean when we insist that they must democratize? Much of the industrialization of Western Europe took place before people even thought that women could vote intelligently. Are we engaging in cultural imperialism?
Mr. Walls: Yes and no. Some people do not question the complexity of the issue you have raised. If they do not question the complexity and say this is the way we do it, it works, therefore let us all do it, that could be interpreted as cultural imperialism.
Another way of looking at it is if Deng Xiaoping, the paramount leader in China, can talk of socialism with Chinese characteristics, by which we can only infer, given the direction his reforms have taken, that we are talking about a much more highly decentralized-driven, market-based economy, then surely we can talk about democracy with Chinese characteristics. It does not have to be either American democracy or Canadian parliamentary democracy. It does not have to be precisely either one of those. If that were a requirement, surely we would have Singapore on our list of questionable friends and that is not the case. Singapore has a democracy that is quite different from ours and it is based upon the traditions that have evolved in the East and Southeast Asian paternalistic-authoritarian traditions.
It is possible to strive for something that is more democratic in nature, that involves direct elections by individuals, without insisting that it take place within an identical political structure to our own.
The Chairman: Earlier, in answering a question posed by Senator Stollery, you talked about the language structure of China. It has been suggested to me that I should think of China as something like a great ice floe. It looks very big, but it is actually quite thin and perhaps fragile. The comment has been made that much of the concern for security in China arises from the sense that this could break up very quickly. As an authority, what do you think?
Mr. Walls: Let me remind you that my Bachelor, Masters and Ph.D degrees are not only in Chinese and Japanese language and literatures, but within that broad spectrum there is medieval literature. I have worked in the Canadian Embassy and I have dabbled in more contemporary events. We have international cooperation projects and I have a little experience in that. I have been to every region in China except Xinjiang and Tibet. I have been to 26 out of the 28 regions. Anyone who has been to most of the regions of China would probably agree with me that, from north to south and east to west, in China there is more diversity than we find in all of western Europe. Can you imagine trying to hold western Europe together as a single country? They are trying to move in that direction with the European Community. It is not easy. It has to be a loose affiliation of people who not only have a geographic proximity but a commonality of purpose.
If it can be done in Western Europe it can probably be done in China, but I do believe that, over time, it will require a very delicate tuning of the relationships between the various elements.
When I say China, please imagine I am putting quotation marks around it, because it does contain all of the diversity that you will find in all of western and eastern Europe together. It is fragile. I do not see it in danger of falling apart in the very near future, because I do not see them releasing enough control for that to happen.
The Chairman: The implication of your answer is that that power is pretty important.
Mr. Walls: Yes, it is. It is for what they consider the stability of the nation. You can make a case for the importance of stability.
Senator Grafstein: Do you have any sense of what the literacy rate is in China?
Mr. Walls: It would depend a little bit on how we define literacy.
Senator Grafstein: Being able to read 2,000 characters.
Mr. Walls: Most of the population, including most of the peasant population, would be basically literate.
Senator Grafstein: Someone said to me not too long ago that the literacy rate in China is higher than the literacy rate in Canada.
Mr. Walls: The literacy rate in Japan is much higher. I do not know the situation in China.
Senator Grafstein: We have a chronic illiteracy rate of somewhere between 18 and 36 per cent. It certainly is not anywhere close to that in China. Am I correct?
Mr. Walls: Some people might say that you could have a similar rate of illiteracy. The more specialized you become in the study of literacy the more firm you are in applying your standards and some people may wish to do that. I do not see that as a problem. The literacy rate in China is not anywhere near as high as the literacy rate in South Korea, Japan, Taiwan and Hong Kong. They are up at 98 per cent.
Senator Grafstein: Am I correct in concluding that the second language in China is English?
Mr. Walls: It used to be Russian. There is a huge number of E zhuan Ying, Russian turned to English; people who majored in Russian in high school who are now trying to become competent in English in order to advance in their jobs.
Senator Grafstein: We heard a lot yesterday about democracy with Chinese characteristics and that western ideas really have no place in the Chinese environment because the cultural differences are so intense. It is almost as if the natural rights of man have no place in the natural environment of China. My conclusion, having heard that in the last day or two, is that there was such a thirst, in my trips to China, for English and wanting to understand the English culture, English ideas, that I came to almost the opposite conclusion, that there was a deep desire to move towards a rights-based, democratic-based system.
I am not attempting to be chauvinistic about the English language, my comments could apply to the French and German languages, but the English language as a modality to achieve that. Do you agree with that? In the last day or two we have heard the other side of the coin: Stay away; do not talk about this; this is their culture; you cannot get too close; be careful about human rights; hands off; if you want to do business there understand the differences.
My experience was quite the opposite of that. There was almost a thirst to try to be American. The Tiananmen crisis was based on the Statue of Liberty symbol, a very potent symbol.
Your notes state that every society needs the rule of law and interpersonal trust, which is contrary to what we heard from the Chairman. Tell us, from your perspective, where we should be on all of this.
Mr. Walls: I was in Beijing in late April and early May of 1989. I was in Tiananmen Square, walking around like thousands and thousands of other people who happened to be in Beijing at the time. I talked with the students, their parents and teachers. Their parents and teachers who, in many ways, have hopes that are as high as their students but they are a little more realistic about how you go about achieving and articulating those hopes, were telling them to please be careful because they would get themselves into trouble -- "Do not go for public provocation." Their parents were a little shocked when they set up what they call the "Goddess of Freedom." It is clearly based on the Statue of Liberty.
It is not a question of, do they want democracy, do they want something that brings them more in line with what we would consider the mainstream in the west, not just American but in the west. Many Chinese do have a love-hate relationship with the United States, as they do with Japan. They do not have that with us because we have never really offended them by trying to bully them or by occupying their space. It is not love-hate, it is love-neglect. When they think about us they like us, but most of the time they do not think about us because we are only one-tenth of the population of the United States, one-tenth of almost everything in the United States, except land mass.
The question is one of how the discourse will proceed. It is a discourse challenge, not an intellectual challenge or a question of cultural imperialism. How do you define the movement towards participatory political structure? The Chinese have no difficulty with grass roots participatory politics. It is percolating up; it will not come down. They have direct elections up to the county level in many places in China now. That participation will increase.
We need to find alternatives to public, mass-media confrontation. There is a place for disputative or confrontative situations to bring out the truth, but right now that is not the best way to achieve the goal by the most peaceful means in the shortest possible time. It is to find a way of accommodating the need for stability, with the need for joining the mainstream in the world. We need to help the leadership in China to come up with ways of articulating an optimal compromise that will allow them to maintain optimal stability while achieving optimal progress, and that progress includes prosperity and the raising of the standard of living.
Senator Grafstein: It is linguistics?
Mr. Walls: It is discourse. How do we express what you know and I know needs to be addressed, and do it in such a way as to save you and me from losing face? I do not want it to appear, in public, that you have lost face. We are not engaging in a win-lose battle here, we are engaging in an effort to find ways that we can not only co-exist, but in fact co-prosper.
Senator St. Germain: Do you see China, because of its dense population, ever achieving human rights as we perceive them to be?
Mr. Walls: When 22.5 per cent of humanity is struggling to better its livelihood on one-twentieth of humanity's soil, half of which is wasteland, so it is one-fortieth of the soil, there is not the elbow room to allow the liberty to the degree that we can have it when you consider the population of Canada vis-à-vis our livable space.
When we talk about human rights we mean individual rights. When the Chinese talk about human rights you must remember that the word "individual" was untranslatable in Chinese, Japanese and Korean just 100 years ago when they started feverishly translating western literature into their languages in the late 19th century. There was no existing word into which they could translate this inscrutable Occidental notion of the individual, because the smallest unit of humanity was always the family. Beyond one generation there is no more humanity.
Senator Austin: I would ask you to take a look at Chinese attitudes towards their emerging international role and particularly the relationship with the United States. I will add, as a footnote, the continuing advice that I get from Chinese leadership which is that the United States is following a policy of containment of China. It is endeavouring to repress and channel Chinese growth in the world. One of the illustrations is the resolution of the United States Congress urging the international Olympic committee not to award the Olympics to China. This still rankles people today. Do you think a clash between those two countries is inevitable? A Huntington-style clash. Do you feel that cooperation is possible because they can use the same language?
What do you think is emerging in the relationship between China in its international role and the United States in its international role?
Mr. Walls: I am not terribly worried about future relations between the United States and China for the few years that I am capable of envisioning because, as long as the GNP of China continues to increase anywhere near even half of what it has been increasing in the past decade or two, China is going to constitute such an important market and potential market not only for United States products but for joint ventures and collaborative interests and co-production that it would not be in the commercial, economic or industrial self-interest of the United States to allow the one issue of human rights -- because that is usually the one Congress will latch on to -- to do so much damage to the relationship that they would go back to where they were before the late 1970s.
To a certain extent, it is healthy that they should disagree on a few issues because, if there were no pressure on the Chinese leadership, they probably would not move in our direction of respecting what we call individual liberties anywhere near as quickly as we would like.
The question is, how should it be done? Should it be done in a public, confrontative, mass-media, Congressional motion, or in a behind-the-scenes manner? When we are here we can talk about it publicly amongst ourselves, but when we meet with them we do not try to make a big public issue. Again, that gets into the matter of loss of face. One's dignity is diminished when that is made into a major public issue and you get into a win-lose situation. To engage in a win-lose battle, is not necessarily the smoothest, the quickest and the most effective way to get to where we want to be.
To return to the original question, I am not too concerned, because I do not think the United States leadership will see it is in their economic interest. Economic interest prevails in the United States. It certainly does in their relationship with us, and I see no reason why it would not in their relationship with the Chinese as well.
Having said that, I will not come out and say that, therefore, they should not talk about human rights. It should be talked about, but in such a way that both of sides can achieve their goals. A mass-media, public confrontative stance is not the only way. It is fine here because that is the way our tradition works, but we should not be saying that is the only way to deal with it.
Senator Austin: We tend to treat trade issues in North America as if they were a basketball game, winners, losers, points scored, and open to the public so you can see who is the winner and who is the loser, whereas in these international transactions what you are arguing for is a dialogue.
Mr. Walls: A dialogue and mutuality of benefit.
Senator Austin: Negotiation, but conducted in a way which achieves results rather than atmospherics.
Mr. Walls: You have put it better than I could put it.
The Chairman: With that agreement being achieved, perhaps we should conclude our session. Thank you very much, Dr. Walls. Your evidence has been very interesting and enlightening.
The committee adjourned.