Proceedings of the Standing Senate Committee on 
Foreign Affairs

Issue 14 - Evidence, April 8, 2003


OTTAWA, Tuesday, April 8, 2003

The Standing Senate Committee on Foreign Affairs met this day at 5 p.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.

Senator Peter A. Stollery (Chairman) in the Chair.

[English]

The Chairman: Honourable senators, as you know, the Senate is not sitting this week; however, I believe there are others who will be here shortly. It is five o'clock and we have quite a full schedule. It would be in order for us to start.

I would like to explain to our witnesses why we are dealing with Mexico in this fashion. As you know, our mandate from theSenate is to inquire about the Canada-United States and Canada-Mexico trade relationships and some of the impediments and problems. We have quite a lot of evidence, but it is all Canada-U.S.-based.

We were intending to go to Mexico in several weeks' time. However, the Mexican Congress is dissolving for elections and they are very busy at the end of this month. It just did not work. We will put that on the back burner, although not very far back. The steering committee of Senator DiNino, Senator Corbin and myself will try to arrange something after the elections, which makes more sense.

Nevertheless, we felt that it would be helpful to have information about the progress of the Mexican part of NAFTA. We are delighted that you were able to come. This is our 23rd meeting since February 1 and we have accumulated quite a lot of what we think will be important evidence that we hope to table in the form of a report next month.

For the information of our members, and others, we have Mr.Lortie, Mr.Clark and Mr.Rojas-Arbulú from the Department of Foreign Affairs and International Trade.

I think I have missed someone. I am looking at my list here. Would you like to introduce yourself?

Mr.Claudio Vallé, Director, Technical Barriers and Regulations, Department of Foreign Affairs and International Trade: I am the director of technical barriers to trade in the Department of Foreign Affairs and International Trade.

The Chairman: To make it simple, could you make a brief introduction, so that we will be able to get to questions sooner rather than later? We welcome you to our committee.

Mr.Marc Lortie, Assistant Deputy Minister (Americas), Department of Foreign Affairs and International Trade: It is an honour for my colleagues and me to appear before the committee this afternoon.

[Translation]

I have a document that was made available to the committee so that we can save time. It will be distributed and, of course, it contains a lot of detailed information about our relations with Mexico.

[English]

The Chairman: We will distribute the text. Please go ahead.

Mr.Lortie: I will try to summarize and highlight what is contained in my text. However, I would like to say from the start that the economic relationship between Canada and Mexico is a major success story. I will try to demonstrate that in the course of the next few minutes.

The progress that we have made in the last 10 years has been absolutely remarkable. I would say it was unforeseen in 1994, at the time of the signing of NAFTA.

Therefore, that will be the spirit of my declaration this afternoon. Since NAFTA, Mexico has emerged as a leading market for Canadian exports and investment. Although we still refer to Mexico as a Latin American country, and as Canada's number one Latin American market, the Mexican economy now behaves according to the North American business cycle.

Like Canada, Mexico also has the United States as its overwhelming main market, where it exports 88percent of its products.

[Translation]

In February of this year, the Prime Minister of Canada, the Right Honourable Jean Chrétien, went on an official visit to Mexico, for the third time since 1993.

The Prime Minister took the opportunity to participate in a signing ceremony with President Fox, about economic agreements amounting to nearly 500 million dollars.

During that visit, President Fox — I think it is important to say it here — expressed his satisfaction with the state of our bilateral relations. He referred to Canada as a great strategic partner for Mexico, which confirms both the quality and the intensity of our bilateral ties.

[English]

It was quite moving to see President Fox talking in such an intense way about Mexico's discovery of Canada as a strategic partner in the economic progress and political transformation of the country. It is rare, Mr.Chairman and senators, that we receive the message from a foreign country that they have, in their analysis, found Canada to be a strategic partner for the betterment of their people.

Our two-way trade since 1994 has increased fromCan.$5.6billion to $19billion. I am using a mixture of Canadian and Mexican statistics. You will not find this$19billion in Statistics Canada publications because we are still in the process of reconciling the data produced by our way of counting exports and the Mexican way.

Therefore, we arrive at$19billion, as both agencies in charge of statistical data feel it is the most realistic number today. They are doing a lot of work on that.

Senator Corbin: Is that Canadian dollars?

Mr.Lortie: Yes, Canadian dollars.

Senator Austin: Is that merchandise trade or merchandise and services?

Mr.Lortie: It is merchandise trade.

Senator Austin: Do you have a number for services? I imagine the deficit is much higher, given the tourist flow.

Mr.Lortie: Yes, there are over a million tourists per year.

Therefore, in this short period of time, our exports to Mexico grew nearly six-fold, from$1.1billion to$6.5billion in 2002, an average growth of 15percent annually. Mexico is now Canada's fourth most important export market overseas, ahead of a number of G8 countries. Canada is Mexico's second-largest export market after the United States. Through those figures, we can see the tremendous success of NAFTA for both countries. In addition, direct Canadian investment in Mexico has tripled since the signing of NAFTA. It is now overCan. $4billion, making Mexico the fourth-largest country of destination.

Our provinces, other government departments and our Crown corporations are joining in the effort to expand trade and general relations with Mexico. In our embassy, for instance, we have representatives of the Alberta government, the Department of Citizenship and Immigration, the Department of Agriculture, the Department of Natural Resources, the Department of National Defence, the RCMP and CSIS. We have offices — both in Monterrey and other parts of Mexico — of the Export Development Corporation, EDC; and in the last few years, we have established a new centre for education in Canada. There is an immense appetite in Mexico for sending children and students to Canada. There are now more than 10,000 young Mexicans coming to Canada to study.

[Translation]

Mr.Chairman, EDC has supported our Canadian companies by offering them a total of 2.7 billion Canadian dollars through its financial facilities. In 2002, EDC helped 404 Canadian companies to sell equipment and services to the Mexican industry. As I was saying earlier, EDC has just opened a second office in the State of Nuevo León, more specifically in our consulate offices in Monterrey.

[English]

Guadalajara and Monterrey will continue to gain in importance in Mexico. That is the reason the Canadian government has decided to establish commercial offices, although not full-fledged consulates, there in the last few years. Our trade with the Mexican state of Jalisco, for example, is currently greater than our trade with India. That shows the dynamism of a small part of an important Mexican state that took full advantage of the NAFTA process to embark on increasing its economic relationship with Canada.

We have signed nearly 120 bilateral agreements — letters of intent, MOUs in all kinds of sectors such as good governance, public service reform, access to information, cultural issues and so on and so forth. We are working with the Mexican government, through those series of agreements, in their political and economic transformation.

However, a relationship growing at such an intense pace also has some trade problems. We are encountering some trade problems at this moment in the field of agriculture. They are not irritants yet, but I want to flesh out some of them for you.

As you know, as of January1, 2003, Mexico was to reduce most of its agricultural tariffs to zero. This has created difficulties for some agriculture producers in Mexico and we are encountering the repercussions from those difficulties. There was a lot of tension in January and February resulting from small farmers in Mexico fearing competition in North America from Canada and, especially, the United States. Therefore, there was a lot of pressure on President Fox and his administration not to respect the commitments to NAFTA.

It was not an easy decision, but the Government of Mexico confirmed to the Prime Minister during his official visit at the end of February that Mexico will respect the full engagement under NAFTA, even if it is difficult in the agricultural field. There was a useful exchange of views between the Prime Minister and a group of senators and members of Congress during his visit. He explained what Canada has done in that field and how we have adjusted to the situation, as well as how difficult it was for our farmers also, given the Farm Bill in the United States.

Although the Mexicans have taken that political decision, we have witnessed that it is currently more difficult for some of our agricultural products to transit the border. We are in the process of discussing with the Mexican authorities some of the new impediments that have suddenly emerged. They are not of a tariff nature.

The Chairman: Can you tell me what kind of agricultural products we are talking about? In many areas, we do not grow the same things as they do.

Mr.Lortie: We are talking about beans, essentially. Beans have been delayed at the border, using health reasons or considerations of that nature. Rather than tariffs, health or sanitary reasons are being used to question and delay the entry of some of our products into the Mexican market.

The Chairman: Is it primarily beans?

Mr.Lortie: Essentially beans and potatoes.

Mr.Vallé: We had some restrictions on apples, which we solved, and there is some thinking in Mexico about enhancing their phyto-sanitary provisions with respect to meat products — pork and beef — about which we have made extensive representations, and they have backed off, at least for the time being.

The Chairman: Therefore is it beans rather than maize?

Mr.Vallé: Yes.

Mr.Lortie: We have witnessed in the last few years a remarkable growth in our economic relationship with Mexico. Certainly there is a greater emphasis since the election of President Fox, in July 2002, on making Canada a strategic partner in the North American context.

Continued market expansion and increased penetration potential will keep our export focus on priority sectors for this market. The new vision of President Fox to focus on the growth of the Mexican small and medium-sized enterprises matches well with Canada's industrial base, which is largely composed of SMEs. I am confident that this will expand our margins of business with Mexico.

[Translation]

As we are approaching the 10th anniversary of NAFTA and celebrating 60 years of diplomatic ties between our two countries, Canada and Mexico enjoy unprecedented levels of bilateral cooperation and trade. Mexicans increasingly see Canada as a preferred destination for their exports and a place of choice for education. That approach is important because the affinity created during a stay in Canada often generates a commercial potential.

[English]

I have more details in my written text, but as you mentioned at the start, for the benefit of engaging in a dialogue and answering questions of honourable senators, I will stop here, Mr.Chairman.

[Translation]

Senator Corbin: Are the new security procedures in the United States causing transit difficulties for merchandises between Canada and Mexico? Is the situation stable or is it getting more difficult?

Mr.Lortie: The situation is stable on that front. As part of our strategy, we keep a close watch on border traffic between Mexicoand the United States, as we do between Canada and the United States. We promised the Mexican government to report regularly on the way things are going on along our border. They are doing the same on their side. The Canadian government's 30-point strategy for modernizing our border has inspired the Mexicans. We have negotiated an agreement that was signed on December 12, 2001 during Governor Ridge's visit to Ottawa, where Minister Manley was also present. Our Mexican colleagues would have liked a trilateral alliance on border management. We had agreed a few weeks before, however, that it would be preferable to develop our strategies individually, while maintaining very close communications.

On March 22, 2002, Mexico and the United States signed a 22-point agreement similar to ours to modernize their border. That border is more rigid than ours and more difficult to cross. However, the volume of commercial and personal movement is equivalent to ours. More than 85percent of Canadian products going to Mexico cross the border by land. Our exporters have told us that there had been delays at the border crossings. It is still the case because of the orange state of alert declared off and on at the Mexican and Canadian borders. We keep a very watchful eye on that. Traffic now seems normal, except during certain periods when is gets more difficult.

To conclude, crossings are slower at the Mexican border, much slower that at the United States northern border.

Senator Corbin: Is it slower to get into Mexico as well as out of it?

Mr.Lortie: Absolutely.

Senator Corbin: My next question is about another aspect. In conclusion to your document, you indicate this:

[English]

Remarkable growth of our bilateral relations in the post-NAFTA period, and particularly since the Presidential elections in Mexico in July2000 allows me to be very optimistic about future prospects...

[Translation]

Is the current situation better because of a new policy or simply because we have now reached our cruising speed after a rather slow start? Is the current situation as adequate because of a new attitude from Mexico? Everyone knows Mexico has its ups and downs.

Mr.Lortie: It is the result of an evolution in Canada-Mexico relations. President Fox, at the beginning of his mandate in the second half of August 2000, came to Canada with a very clear message: Canada must become a strategic partner. He arrived at that time with a very bold North American vision, as well as a bilateral vision about our relations, saying ``I need Canada to transform and modernize my country's governance and to pursue its political transformation.''

In that sense, we realize the Fox administration, whose mandate will end in 2006, has maintained its approach in the last few years. Its vision is still to make Canada a strategic partner on the bilateral front, in order to modernize, to engage in good governance and to update its federalism, its justice system, its electoral system and its public service system.

We have embarked on a journey to modernize federalism with the Mexicans. We share a North American vision with them. On that point, we have listened very carefully to the Mexican proposals. Up until now, however, the Canadian government has not responded as boldly as Mexico would have liked. Mexico has an architecture similar to the European concept. Until now, our approach has not been as bold. But we are progressing together in a trilateral way.

[English]

Senator Carney: I have three fairly short questions. First, I notice that we are running a trade deficit with Mexico, and according to our excellent Library of Parliament notes, although the numbers are different, the trend is the same. It is a massive deficit. We ship very little to Mexico vis-à-vis what they ship to us. Could you provide us with a list of what those exports andimports are? Can you tell us a little more about the nature of that trade deficit? For example, why do they ship so much to us vis-à-vis what we ship to them? It is an asymmetrical trade relationship.

Mr.Carlos Rojas-Arbulú, Trade Commissioner, Mexico Division (NMX)-North American Bureau, Department of Foreign Affairs and International Trade: I believe we have been able to increase our exports in the last 10 years. If we go back to 1993, 1994, and the beginning of NAFTA, we were doing very little exporting to Mexico and we were buying much more from that region. Although we have quadrupled our exports to Mexico, we are still keen on buying Mexican products.

That has to be put into the perspective that we are closely linked with the U.S. Eighty-fivepercent of our exports go to the U.S., and we also buy a tremendous amount from the U.S.

Senator Carney: We ship a lot of auto parts. We ship auto parts from Ontario. We also ship beans and potatoes. What do they look to buy from us and what are we shipping them?

Mr.Rojas-Arbulú: Well, we ship auto parts. You are right. We also ship electrical equipment for automobiles. We also ship many agricultural products such as potatoes, beans, rice and corn to Mexico, and let us not forget the apples. We also have some shipments of machinery and equipment in the oil and gas sector, for example. That machinery serves to drill oil and gas wells in Mexico. Those are some examples of things that we are shipping.

We also buy complete automobiles and certain types of electrical equipment for the automotive sector from Mexico. We buy some products from the plastics and packaging industry.

With respect to the agricultural sector, I believe we also buy avocados.

Senator Carney: Could you give the committee an updated list?

The second question is do we have any border issues with Mexico about business people moving back and forth? Under the Free Trade Agreement and NAFTA, there are special arrangements regarding movement of people. Is that an issue between Mexico and Canada?

Mr.Lortie: Senator, it is not a major issue with Mexico. It is a growing problem with the United States. I have to say that our business community has not expressed any complaints about it.

However, the business community would like to see visa improvements when they travel to do business under NAFTA, especially for their families, and we are working on that. If we are able to find a solution through the United States, it will improve things with Mexico. It is not an irritant or a problem for our business community doing business there.

Senator Carney: The third question deals with energy. There is a lot of talk about a common North American energy policy. Canada has a de facto North American energy policy, but Mexico has always resisted it. Their oil industry— I do not know about their gas industry— has been controlled by the Mexican government, and they have shown no willingness to alter that. I am asking for a status report. What is the current situation, or is the President of the United States looking to Canada to supply that North American energy policy? What are the prospects of it becoming a true North American energy policy?

Mr.Lortie: Energy is a major subject of discussion between the three partners. When we completed the Summit of the Americas in Quebec City in April 2001, there was a trilateral meeting between the three leaders. President Fox, President Bush and the Prime Minister decided to create a working group on North American energy. This working group currently has a rather limited mandate to exchange information. The President of Mexico, when he came here in August 2000 and on a bilateral visit in April 2001, announced that he would embark on major energy reform in Mexico. That reform has not been completed because the President and Congress are not on the samepage.

Senator Carney: What is on these two pages?

Mr.Lortie: The President is trying to modernize and open up the energy sector to foreign investors — and I am simplifying here. The oil sector, as you know, is part of Mexican history. It was part of a major political development in 1938 and is still an extremely politically sensitive issue. President Fox has decided it is time for Mexico to take a modern view of the energy sector and to welcome foreign capital to develop, especially, the natural gas sector.

He has not been successful so far. He is trying, and is currently looking at how he could use the production of electricity to address some of the important issues in the energy sector.

The President made a major effort to connect with the Canadian energy sector. In July 2001, he invited the CEOs of our major energy corporations to Mexico to discuss with him where Mexico should go in the energy field, which was the engine of their economic development for many generations.

They are currently an importer of energy, especially in the field of natural gas. He knows that there is something institutionally wrong in the energy sector and he is trying to address it from a pragmatic point of view. However, he has not been able to address it yet from a political point of view and come to an agreement with his Congress to move forward.

Therefore, the Mexicans are always interested in welcoming Canadians, especially in the areas of new technologies, explorations and ways of doing things, such as the regulatory framework of a modern energy sector.

They will be very interested, Mr.Chairman, if you bring your group to Mexico City after the mid-term election, in hearing about the Canadian experience on energy. Our Minister of Natural Resources went to Mexico three times, and had most fruitful discussions at the political level with Congress, to explain the Canadian way of doing things. The Mexican policy-makers and lawmakers are very attracted to our approach and they are on the road to transformation. However, they are not there yet.

There is no doubt that energy remains a major card for Mexico in the North American context.

Senator Graham: I think that what Mr.Lortie, in particular, has said has been interesting.

One of the points you made in your presentation was that direct investment in Mexico has tripled since the signing of NAFTA.

That would be Canadian investment, presumably.

Mr.Graeme C. Clark, Acting Director, Mexico Division, Department of Foreign Affairs and International Trade: That is correct.

Senator Graham: It has increased to over $4 billion, making us Mexico's fourth-largest investor. Can you tell us what sectors of the Mexican economy Canadians are concentrating on most?

Mr.Lortie: We have investments in the field of auto parts and steel. We have investment in media and publications. We have investment in services, banking and railway cars. Those, I would say, are the highlights. Bombardier has a major investment in railway cars in Mexico and Scotiabank has invested in banking.

A few years ago, Scotiabank bought a medium-sized Mexican bank and they are expanding through Mexico under the name of Inverlat. In the media field, both Quebecor and Transcontinental Media have a presence in Mexico.

This is a brand-new phenomenon. They entered the Mexican market only in the last few years.

Senator Graham: Can you tell us which Canadian companies are big investors in Mexico in relation to auto parts and steel? You have mentioned Quebecor, Bombardier and the Bank of Nova Scotia.

Mr.Lortie: There is Magna, in the case of auto parts, and Dofasco in steel.

Senator DiNino: I think we can probably say that NAFTA has established a successful relationship between the three countries. I am particularly interested in our relationship with Mexico. The growth in trade is obviously quite impressive; although I share the concern that Senator Carney has expressed, which is the trade imbalance.

I would like to ask you two or three questions. Number one, where do you see the opportunities for Canadians and Canadian companies to increase export of goods and services to Mexico? Where are we missing the boat, if there is one?

Mr.Lortie: Senator, I would say that we are not missing the boat at this moment. We are waiting for the energy boat. Our energy corporations are extremely interested in entering the Mexican market, but they are waiting at the door just now. That will be a major source of greater, complex interdependence between us at some point. It will happen, but we are not there yet.

The Mexican economy is undergoing profound change in the service sector. Last year, the rate of growth was 1.9percent, which was too low. When population growth is 1.7percent, 1.9percent economic growth is not enough. It is almost stagnation.

This year they are forecasting threepercent. When President Fox was elected, he was forecasting sevenpercent per year. They really want to grow.

What does that mean, honourable senators? They want to take advantage of the opening-up of their economy to increase the level of prosperity, which is helping to develop a middle class in Mexico.

That has been the strategy of some of our corporations. In the banking sector, they are positioning themselves to take advantage of greater development of the middle class five or ten years down the line.

The strategy we offer to Canadian exporters or corporations interested in the Mexican market is twofold. First, enter the market with a Mexican partner. It is a foreign market and you will be more at ease with a partner. Second, look to the medium and long term, because there is a profound transformation of society occurring in Mexico. You will benefit down the road, because the middle class is increasing. There are major opportunities for our corporations in the field of services.

Therefore, our embassies receive delegation after delegation, sector by sector, from Canada on a regular basis. They want to discover Mexico and take advantage of the new opportunities.

Senator DiNino: Our main competition in the area of these opportunities, obviously, must be the U.S. However, there is also the relationship that has been established between Mexico and the EU.

Are we finding that the competition is a little tougher?

Mr.Lortie: The United States is the prime competitor because their presence is huge and NAFTA has accelerated the interdependence between the two countries.

However, the Mexicans did not want to confine themselves after signing NAFTA. They went to Europe and Asia, not to mention the rest of the Latin America, where they have a natural market. At this moment, our strongest competition would be the Americans. The Europeans are there; however, we have to remember that the Europeans have, in all fairness, neglected the Latin American market and Mexico.

They neglected it because they were concentrating on building and developing the European Union and Eastern Europe. Therefore, there will always be a sentiment throughout Latin America that the European business leaders, with the exception of the Spanish bankers, are not really there. For Canadian exporters entering the Mexican markets and looking for a foreign competitor, most of the time they will find Americans there.

Senator DiNino: Both Mexico and Canada have to live with this elephant next door. Do we have a relationship with the Mexicans whereby we cantry to influence issues a little more than we would as individual participants?

I hope you understand that I am trying to be diplomatic in my question.

Mr.Lortie: I will try to answer as diplomatically as you put your question, senator.

I would say it is a big challenge, but we do have a new phenomenon, which is that for the first time, our Canadian government has a mechanism to talk to Mexico City, to discuss issues with the Mexicans, to sit down with them and compare notes on relations with the United States. We have done it in the context of the border relationship, because the border is very important.

The Mexicans wanted to go a step further and have us all sit down together and solve our border problems. We were not prepared to go that far, but suddenly we had a mechanism that was not even there five years ago. We are multiplying the various sectors in which Mexico and Canada compare notes, not only vis-à-vis the United States, but also vis-à-vis other countries in Latin America. I include the Caribbean countries as well. We compare views on the situation in the Caribbean, Central America, Venezuela and down to South America, where the Mexicans have special arrangements with those countries.

In the last few years, we have embarked on a new kind of relationship with the Mexicans that President Fox eloquently described as a strategic partnership between those two countries in the Americas. When the time arrives to make improvements to NAFTA, we will need the Americans. We could consult together, but the Americans have to be there, because if we have a good strategy between Mexico and Canada we could advance our objective more effectively, which is not always easy.

Senator Austin: What is our experience in discussing chapter 11 and chapter 19 with Mexico? Have you had questions? Does it lead to a counterweight strategy, which is what the academics suggest the relationship amounts to?

Mr.Lortie: There were discussions on chapter 11 between Minister Pettigrew and the previous Minister of International Trade, Minister Derbez, who has now been appointed foreign minister. Both had agreed that indeed we need a better understanding of the workings of chapter 11. Canada and Mexico are very much on the same page on this issue.

Amendments have been given to the three NAFTA deputies, who meet on a regular basis, and the question of chapter 11 is addressed in that context. There was an exchange of views on chapter 19, but not to the same extent. Chapter 19 is not causing us any problems with Mexico at this stage; therefore, although we are always looking for improvements, it is not to the same degree as with chapter 11.

Senator Austin: I was not thinking of dual bilateralism, I was thinking of the trilateral relationship. Do we discuss one another's experiences vis-à-vis the United States on chapter 11 and chapter19? Do weshare points of view? Further, is there any attempt to build a tri-national institution in a NAFTA context?

Mr.Lortie: We always have to exchange views on a bilateral and trilateral basis vis-à-vis those two chapters. The community of trade policymakers, to which Mr.Vallé belongs, is always exchanging views and understands the challenges for the three countries.

We have very few trilateral institutions. We have two commissions, one on labour and one on environment. That is it. We are looking into that, but that is where the Mexicans have been more active, imaginative and innovative in proposing all kinds of things, from an annual trilateral summit to a framework similar to that of the Europeans. Reflection is taking place.

Your colleagues on the other side, on the Committee on Foreign Affairs, have issued a report in which you will see some suggestions for the creation of trilateral institutions.

The government is thinking about those things, and in the field of trade there is a way to improve how we do things from an institutional point of view. However, ministers of trade meet once a year. Deputies meet twice, if not three times, a year. They see each other on a regular basis. The NAFTA was supposed to create a trade secretariat, but to this date, 10 years later, that has not happened. There is a certain lack of appetite among the trade policy-makers for embarking on the creation of more institutions.

Senator Austin: Is that because we are not ready, or is it because the United States is not ready and we will not be ready until the United States is?

Mr.Lortie: That is a good way of putting it. The Americans are not very institutionally oriented. They are very pragmatic. If there is a problem, they want to try to resolve it. There is certainly little appetite in Washington for institution-building.

Senator De Bané: Honourable senators, it is a great pleasure to record in the minutes of the Standing Senate Committee on Foreign Affairs that ADM Marc Lortie was the recipient last year of the highest honour that our Department of Foreign Affairs bestows on its most deserving diplomat. Mr.Lortie was the recipient of the Award of Excellence.

Incidentally, Ms.Patricia Lortie, his wife, originally from Victoria, B.C., is also a renowned diplomat.

Thank you, Mr.Chairman, for allowing me to put that in the records of our committee.

The Chairman: I have been asked to reinforceour request forthe figures on trade in services with Mexico.

Mr.Clark: Mr.Chairman, we would be pleased to provide that in subsequent correspondence.

The Chairman: We will be following up on this issue at the appropriate time, and I want to thank you for what has been a most informative and interesting hour.

I am honoured to welcome Her Excellency, the Ambassador of Mexico. Your Excellency, I am sure you have an interesting statement for us. You know how we operate. If you can give us time for questions, as you just heard, the questions can sometimes be as interesting as the statement.

Her Excellency Maria Teresa Garcia Segovia de Madero, Ambassador of Mexico to Canada: Honourable members of the Senate, ladies and gentlemen, I feel extremely honoured to have been invited to share my comments and perspectives regarding the bilateral relationship and trade links between Mexico and Canada.

It is particularly pleasant to join you this afternoon because, as you know, in 2004 we will commemorate the 60th anniversary of diplomatic relations between our two countries. In that respect, I would like to acknowledge the fact that the Senate of Canada has played an important role in the process of strengthening these diplomatic ties.

In November 2000, in their role as entrepreneurs, two members of the Senate, Jack Austin and Trevor Eyton, were invested with the Order of the Aztec Eagle, the most important decoration awarded by Mexico. This was a public recognition of the vision, enthusiasm and dedication of two Canadian citizens who have promoted Canada-Mexico ties, which seem to grow stronger year after year.

When Canada and Mexico commemorated the 50th anniversary of their diplomatic relations, few people would have expected that in only 10 years, the world would look so different and we would be facing enormous challenges. Furthermore, at that time, few would have expected that Mexico and Canada would become closer in terms of foreign policy, expressing similar concerns about the structure of the international system.

The terrible events of September 11, 2001, as well as the current conflict in Iraq, have exacerbated the already difficult global economic situation; and we must find mechanisms to return to the path of growth. We believe that initiatives such as smart border accords will contribute to our efforts to strengthen our ties and continue thinking strategically.

However, what is the current state of the bilateral relationship? I am sure that Mr.Marc Lortie has already told you a lot about it, but let me tell you my point of view.

First, if this could be measured by counting the number of visitors and delegations travelling between our two countries, the answer would be extremely positive. Practically all the members of the Mexican cabinet have met their Canadian counterparts in the last two years. Canada was the first country that Vincente Fox visited as president elect, returning only a few months after his inauguration as head of state. In just two years, Prime Minister Chrétien has visited Mexico three times.

Let me bring to your attention that 2004 will also mark the 30th anniversary of the seasonal workers program. Mexicans have become an essential component of the growth of the Canadian economy. More than 10,000 seasonal workers come to Canada annually.

Compared with the Mexican community living in the United States, my fellow Mexicans living in Canada might not be as numerous, however, they are certainly shaping this country. They design Canadian banknotes, as well as set fashion trends in Montreal, develop important medical innovations and produce software.

Mexicans actually comprise the second-largest growing number of visitors to Canada, while one out of every thirty Canadians visits Mexico each year. Additionally, Canada receives more than 10,000 Mexican students every year.

In this regard, it is extremely important to note that the bilateral relationship flows in different channels. Societies, as is almost always the case, anticipate most government policies. Business people acknowledge the importance of Mexico for Canada to such an extent that in only two years, EDC has opened two offices in Mexico. In the meantime, several trade missions have taken place, and numerous Mexican delegations have visited the eastern and western regions of this country.

In December 2002, the House of Commons released a trilingual document entitled, ``Partners in North America, Advancing Canada's Relations with the United States and Mexico.'' Some of the main issues were related to NAFTA and trade affairs.

Distinguished members of the Senate, let me now express to you a few thoughts on Mexico's economic prospects for the future, in the context of NAFTA and the bilateral trade relations between Mexico and Canada.

The committee is already familiar with the role that NAFTA has played as an engine for growth in North America and its impact on trade flows among Canada, the United States and Mexico. Regional trade has increased 109percent since 1993, growing from$339billion to$603billion in 2002. This represents more than $1million per minute.

Our trade with Canada has increased from $4 billion to over$12billion in nine years. However, looking beyond trade figures, we see the great advantage of NAFTA in terms of its contribution to job creation and economic growth. Thanks to NAFTA and our network of free trade agreements, the export sector has become Mexico's main source of employment, accounting for more than half of all manufacturing jobs created between 1994 and 2002. These are jobs that pay almost 40percent more than those in other sectors of the economy.

NAFTA has also led to increased flows of foreign direct investment into Mexico. While the annual average of foreign direct investment prior to NAFTA was around$3billion, Mexico has received over$128billion in foreign direct investment since 1994. This represents an annual average of nearly$14billion.

Foreign direct investment is due to the establishment of a legal framework that provides certainty and transparency for business transactions. Directly and indirectly, improvements to Mexico's wealth represent business opportunities and new jobs for Canada, namely, a stronger market of 90million consumers.

Since NAFTA, Canada has become the fourth-largest foreign investor in Mexico at$4billion, behind only the United States, the Netherlands and Spain. At the end of 2002, 1,259 companies with Canadian capital were registered in Mexico.

Foreign direct investment acts as a catalyst for the growth of domestic enterprises and contributes towards increasing the competitiveness of Mexican firms. It also allows for knowledge and technology to flow into our country, helping businesses to modernize their production processes while providing the Mexican workforce with new skills needed to survive in the globalized economy.

Regarding NAFTA's future, one of the most important topics for Mexico is the significant challenge of expanding the benefits of free trade into all regions of our country. NAFTA has indeed brought great benefits to Mexico, but much remains to be done. There is a strong need to develop strategies and programs that allow for the poorest regions in Mexico to participate in the export sector, and to create higher-paying jobs.

Mexico has great competitive advantages that we must exploit in order to maximize the benefits NAFTA offers, and this must be done in conjunction with our NAFTA partners. In addition to our network of trade agreements, Mexico has two major strengths: first, a young population that averages 22 years old and an increasingly skilled workforce that has demonstrated its ability to compete successfully in the most contested markets in the world; and second, our geography, which places us as a natural bridge between Europe, Latin America and Asia.

It is imperative that we invest in our human capital, through education, worker training and health services, in order to exploit our competitive advantage. This is the highest-yielding investment that any government can make, because it lays the foundation for growth and provides the population with the skills needed to improve their quality of life.

Also, we must continue investing heavily in the development of the transportation infrastructure in order to fully take advantage of our geographic location. As North America competes heavily with Asia, both in the goods market and in the race to attract foreign direct investment, Mexico must become a country of logistics, where goods can reach their destinations in Canada, the U.S. and, of course, Mexico itself, more quickly, safely and cheaply.

Nevertheless, as we move towards a deeper and more mature relationship with our NAFTA partners, we have to explore new mechanisms of trilateral and bilateral cooperation that could contribute to the development of Mexico's poorest regions. In other words, we must come to understand that a developed Mexico translates into a healthier, more competitive North America.

Trade has proven to be a useful instrument to alleviate the effects of adverse economic conditions. The current slowdown in the world economy urges us to reaffirm our commitment towards cooperation, trade liberalization and integration of all countries into the global economy.

This year, NAFTA reached an important milestone in our trilateral relationship as 99percent of the goods traded by NAFTA partners now enter duty free. Having reached this stage, our challenge now as governments is to continue with the promotion and creation of a business environment that allows for greater economic integration and guarantees that the benefits of the agreement reach the entire population.

Honourable members of the Senate, one of the main challenges for the coming years will require our creativity and vision, that is, the future beyond NAFTA. Pragmatism, identification of common issues and shared objectives should lead the way in order to maintain our standing as the most dynamic and successful region in the world.

I should mention that there are already many discussions taking place on the future of the region. Other guests of the Senate can attest to this fact. Just to give you an example, this week, entrepreneurs of all three NAFTA countries are meeting in Washington to discuss the North American Security and Prosperity Initiative brought forth by the Canadian Council of Chief Executives.

Within the framework of these discussions, I am sure that the current study of Canada's trade relations with the United States and Mexico being conducted by the Foreign Affairs Committee will contribute important ideas and proposals on how our countries must face the future challenges of the region, particularly in light of the 10th anniversary of NAFTA.

Honourable senators, in these times of uncertainty and unrest in the world, let me assure you that the feelings of friendship from Mexico toward Canada are stronger than ever. That, dear members, is a fact.

The Chairman: Thank you very much.

Senator Grafstein: It is delightful to have you here and for us to be informed of this new vision of an aggressive and modern Mexico, which I think we all appreciate and admire.

I was interested in an earlier comment by our Assistant Deputy Minister, Mr.Lortie. I do not know if you were here or not. He talked about the new strategic partnership between Canada and Mexico.

I did not have an opportunity to explore that with him. However, I am interested in your comment that your government sees Mexico as the bridge between Europe, Latin America and Asia. I assume that you also mean a bridge to North America.

Tell me how Canada can play a useful role with Mexico in mutually exploiting the Latin American markets. Is there a way for Canada and Mexico to make common cause with respect to Europe? You have a free trade agreement now with the European Union and I believe you are involved in other negotiations?

Ms.de Madero: We believe that our relationship is a strategic one. I listened to what Mr.Lortie had to say to you. We can position ourselves first, before bringing some issues to the United States. That could result in common agreement and a better understanding with the United States.

In the area of taking advantage of the free trade agreements that Mexico has signed with 32 countries, I think that Canada could approach those places with which it has not had free trade agreements, if connected with Mexico.

We are offering our country as a springboard to connect with those other markets. We believe that, together with Canada, we can offer a market of many more millions of consumers.

Senator Carney: When we were negotiating NAFTA, after the Free Trade Agreement, there was concern about including Mexico because of the fear that Canada would be swamped by low-wage, low-cost imports, or that we would be displaced in the U.S. market by competition from Mexico. The argument against that was that trade relationships and improved trade would increase the standard of living in Mexico, increase skill levels and productivity, and in fact narrow any gap that existed between the two labour forces.

Obviously, that has happened, or is happening. You say that export activity is the main source of employment and the jobs pay 40percent more.

There are still some inequities in Mexico. It is not a country with which I am familiar; however, I know there are great disparities, as there are in Canada. Is there anything in our trade policy that we could look at that would help narrow those regional disparities?

I notice that Mr.Lortie said that President Fox's vision is to focus on the growth of Mexican small and medium- sized enterprises, because that matches Canada's situation.

Is there anything more we could do to use trade and investment as a social policy tool in Mexico?

Ms.de Madero: Yes. President Fox has talked about the medium and small enterprises and, let me tell you, that is already taking place. If any of you visited Montreal last week, there was a marvellous exhibition of many countries, to which Mexico also came with 12 of those medium-sized businesses. I am happy to say they had a very good reception in the Canadian market and sold whatever they had to sell here in Canada.

Further, President Fox has talked about the plan called Puebla Panama. That would be a way in which we could bring development to that region of our country and all the way down to Panama. He has talked about that plan here in Canada, because we wonder, if we can make the commitment as government, together with our civil society and other countries, to bring infrastructure to that area — which would be a way of generating progress in that region — how Canada could contribute to it? Look carefully at the proposals that Mexico has made and see whether you could, through different mechanisms or institutions that already exist in Canada, possibly finance some of that necessary infrastructure.

Senator Carney: Do you have a success story that you could tell us? You talked about the Montreal trade show, at which you sold out your goods and services in this market. Can you tell us of another success story?

Ms.de Madero: I can think of many success stories. You will never believe it, but in the part of Mexico where I live, there is a way of processing beef. We call it ``dry meat'' and we eat it for breakfast or in tacos or whatever. You possess a beautiful jerky here. My people have managed to process the meat, and I am sorry for saying this, in a better way than you process jerky. It was so much to the liking of Canadians that they managed to sell what they had and were asked for more.

That is a great success story, because they never thought that what we call carne seca in Mexico would sell so well in Canada.

Senator Austin: Ambassador, I would like to pursue with you the attempt to build a larger agenda around NAFTA than exists today.

I would be interested in the issues of trilateral consultation and trilateral institution-building, but my question to you relates to President Fox's proposal for a ``NAFTA-plus'' arrangement in North America.

Could you describe to us what the outlines of NAFTA-plus would look like from the Mexican point of view? The idea is to extend the relationship into other areas, something in which this committee is interested.

Ms.de Madero: President Fox saw that NAFTA was coming very successfully to its 10th year, and he thought, as we all do, that NAFTA should also benefit the poor regions of our country. He has therefore proposed extending NAFTA beyond trade to other areas. We will talk about the social areas, which are very important. These are things like education, culture, infrastructure, financing development, et cetera.

How will we manage that? I am not quite sure yet, but I can tell you that there have been discussions, and as I said previously, I think that societies, whether academics or businessmen, take these thing further than governments. They are the ones who are already discussing and debating these issues, and hopefully, we will come up with something soon.

I can say that for President Fox, NAFTA-plus means going beyond trade, and we think that it can be accomplished successfully.

Senator Corbin: Your Excellency, I am not sure if I should raise this with you, but I will take a diplomatic approach to what, I suppose, is basically an internal political situation.

Mr.Lortie talked about the opposition of small Mexican farmers to some components of NAFTA, and as you may expect, the plight of farmers, not only in Mexico but worldwide, and certainly in the broader context of WTO, would not leave Canadians indifferent. I fully appreciate what you have just said to Senator Austin about extending the benefits of NAFTA to the regions.

President Fox has decided, regardless of the opposition of the small producers in your country, to forge ahead with NAFTA as it exists. This is the political matter.

How will the problem of the small producers in your country be addressed within that context? Would there be an attempt to integrate them into a more industrialized economy? What forces are at play here? Perhaps you could elucidate?

Ms.de Madero: It is not an easy question, and there is not only one answer.

In the first place, yes, we have had problems with some people in the agricultural sector, but let me answer as your Prime Minister answered Mexicans who questioned him when he was in Mexico last month.

At that time, he said that the problems were the result of the subsidies that the United States was giving to their agricultural sector, and that neither the Mexican treasury nor the Canadian treasury could compete with the U.S. treasury. That is the framework of the problem facing Canada and Mexico: the enormous subsidies that the American agricultural sector is receiving, number one.

For us there are two parts to the problem. On one side, this is a political year in Mexico as mid-term elections are coming July 6. Of course, any issue that can be discussed in this context is important.

However, your question is how will we deal with these small producers and whether we will integrate them into theNAFTA mentality. Right now my government is sitting at the table with them, discussing how we will help them make their farms more efficient and make it easier for them to overcome the situation they are experiencing at present.

The Chairman: May I add, Senator Corbin, that I think many Canadians are unawareof the Mexican system. We know about the Congressional system in the U.S. Mexico also has a Congressional system and a long history of difficult regionalism. I suppose that some of those farmers have a lot more power with the state governments, which we do not have time to go into today, Your Excellency, but is a very interesting subject.

Senator Setlakwe: Senator Grafstein referred to part of my question, and it had to do with trade agreements with Europe, the Mercosur, and possibly also some Asian countries, certainly with Japan. I wonder to what extent your trade relations with Europe have improved since you signed a free trade agreement with them, and what are you trading more than before?

Ms.de Madero: Of course, they have been beneficial for Mexico. I told you that, for example, two main direct investors in Mexico are the Netherlands and Spain, after the United States. Last year, Japan was in third position. Now that has been taken by Spain. Asia and Europe have been investing directly in the country. As far as I can see, the greatest benefit we have had is direct investment. We have benefited from the direct investment in Mexico much more than from the exchange of goods. That is coming. It is not doing badly. We are working very well with all of them.

Senator Setlakwe: What is it that made you so successful in establishing that relationship with Europe, and why are we having so much difficulty doing the same thing?

Ms.de Madero: I do not know. I think at the time, number one, the EU thought that labour costs in Mexico would be cheap, which is not the case now. Labour in Mexico right now is not cheap.

Senator Day: We had a good session a year ago with the Canada-Mexico Interparliamentary Group and discussed a number of issues. Those types of exchanges are valuable, in addition to the business exchanges that we have been talking about.

It intrigues me that both you and Mr.Lortie talked about the 10,000 students per year coming from Mexico to Canada to further their studies. We have lots of universities in Canada, especially in the eastern part.

Has this developed through a particular effort? Have you analyzed it? Are they studying in a particular region or a particular subject? Is it an exchange?

Ms.de Madero: No, unfortunately, it is not both ways. We would like to have more Canadians come to Mexico to study, but it is more Mexicans coming to Canada.

I think Mexicans have lookedto Canada because of the great opportunities the universities in Canada are offering. There have been about 55 agreements signed with different universities. As you know, for example, Tecnológico de Monterrey even has a campus established with the University of British Columbia. It is marvellous how the relationship between institutions has grown.

After September 11, more Mexicans lookedto Canada for education rather than to the United States.

Senator Graham: Your Excellency, your enthusiasm is indeed infectious. You mentioned that 2004 would mark the 60th anniversary of relations between Canada and Mexico.

Are you planning any special celebrations or events? May I refer to another relationship, between Indonesia and Canada? Just about a month ago, Mr.Chairman, they marked the 50th anniversary of those relations. They are having a series of events, one of which was held — and in which I was invited to participate — in Ottawa. It involved diplomats, politicians, scholars and business people; and I thought it was extremely successful and useful.

If you wanted to consult your colleague, Ambassador Eki Syanchrudin, he would elucidate, perhaps even more favourably than I, on the value of such gatherings. A book is being published on Canadian-Indonesian relations, and I am suggesting that something similar, if not already underway, would be useful for both countries and the world.

Ms.de Madero: We are thinking of organizing quite an event, together with our Canadian friends. We are thinking of 10 days or a week of celebrations in order to make Canada aware of what our relationship with this marvellous country has been. We were thinking also of publishing a book, one on academic thinking.

You will all be welcome. You will receive invitations, senators.

The Chairman: Thank you, ambassador. We will adjourn for 15 minutes. It has been an honour for the committee to receive you.

The Chairman: I will now call on Professor Macdonald to make her presentation.

Ms.Laura Macdonald, Associate Professor, Carleton University, As an individual: I wish to thank you, Mr.Chairman, and honourable senators, for the invitation to appear before your committee. This is quite an honour for me.

I am the director of a research centre that was set up at Carleton University a couple of years ago called the Centre on North American Politics and Society. We set up the centre to encourage further research, thinking and public discussion about the North American relationship. I have had the rewarding and fascinating opportunity to observe the evolution of discussions about that relationship over the last three years.

I am a political scientist. I am not an economist, and I would not say I am a trade expert. I am interested in the politics of the relationship between the three countries, so I will focus particularly on the political dimensions of the relationship, but I do think these political aspects are extremely important for our trade relations.

I should first like to say that I urge the committee to support the deepening of the Canada-Mexico relationship. Mexico is important to Canada for direct and indirect reasons, and both are important. Of course, as has already been discussed, there are many direct benefits to Canada from increased contact with Mexico that flow from our growing trade and investment relations.

I would say also, following on the discussion earlier, there are numerous other kinds of social benefits coming out of this growing, deepening relationship, including, for me as an academic, the opportunity to host Mexican students coming to Canada and to send some of my students to Mexico. There is growing interest in student mobility, and there is in fact the important North American Mobility Program supported by the three governments.

This type of relationship is critical for developing a future generation of leaders, entrepreneurs, academics and citizens who are aware of the three countries and their importance to each other.

Regarding the indirect benefits of developing this relationship, Canada will not achieve a satisfactory relationship with the United States concerning, for example, security and border issues without encouraging and supporting a similar resolution of U.S. concerns about its Mexican partner and the U.S.-Mexican border region. It is in our interests to support better relationships between the U.S. and Mexico in order to improve the Canada-U.S. relationship.

As has been discussed, North America developed as a region without much thought being given to the nature of the relationship, the types of institutions we needed and so forth. The entry of Mexico into the relationship was greeted rather ambivalently at the time, both by the Canadian government and business actors. While on the one hand there was a tendency to say that we could benefit from increased trade and investment with Mexico, on the other hand, there was concern that Mexico would represent an unwanted competitor in the U.S. market. There has been some of that tension in the relationship between Canada and Mexico throughout the last 10 years of NAFTA. Therefore, the relationship was rather tepid, although certainly growing.

I would argue that this desire to return to our exclusive relationship with the United States is rather short-sighted. I do not believe we will get that special relationship back, and Mexico will be as or more important to the United States. Inevitably, this relationship is becoming trilateral. For example, Canada and the U.S. signed the Canada-U.S. Smart Border Declaration following September11. Very shortly afterwards, the U.S. and Mexico signed a smart border accord modelled on the Canada-U.S. one, although much more limited.

I think that, while it is natural for Canada to put most of our emphasis and interest in the U.S.-Canada relationship, it would be short-sighted not to recognize that the United States would want to treat its two borders somewhat symmetrically. We need to find solutions to the problems at both of the U.S. land borders, and together address tendencies in the United States to attempt to respond to its legitimate security concerns with what I would call ineffective measures. These include militarization of the borders or heavy entry and exit control systems that will impede legitimate trade and migration while doing little to stem terrorism.

I think Mexico does represent a possible useful counterpoint or counterweight to the United States. Mexicans share Canadians' concerns about sovereignty, and we have many commonalities in our foreign policy perspectives. While Canada has been experiencing a somewhat tense relationship with the U.S. recently over our position on the war in Iraq, Mexico has experienced much heavier pressure from the United States because it is on the Security Council. Its refusal to back the U.S. position has put it in quite a difficult position. Both countries have an interest in maintaining space for foreign policy autonomy within a North American region, and we have an interest in cooperating with each other on this.

While I focus largely on the need to deepen and build the relationship between these two countries, I should also like to highlight some concerns I would have as an analyst of Mexico. There are some specific aspects of political and domestic development in Mexico since NAFTA where I think Canada could play a productive role in supporting the consolidation of democracy and sustainable human development.

As has already been discussed by the other presenters, Mexico has reaped enormous benefits from NAFTA. However, I would argue that these benefits have not been well distributed and have tended to exacerbate already existing class, regional, ethnic, gender and other disparities within the country. In my brief, I highlight some areas of concern.

First, poverty has been identified by President Fox several times as the biggest problem confronting Mexico. The Mexican government estimates that 54million of the country's 100million people live in poverty. About 24million are classified as extremely poor. While Mexico has grown richer under NAFTA, problems of poverty have become more entrenched. The free market policies that accompany trade liberalization have not delivered on the promise of providing good jobs and improved wages to ordinary Mexicans.

Regional disparities are particularly pronounced and extremely concerning. In the poorest states of what is often called ``the other Mexico,'' the south-southeast, GDP per capita is only 40percent of the national average. Close to 50percent of the country's illiterate population lives in this region, as well as most of the indigenous population, who suffer the most poverty and lack of access to resources and education.

In the past, this disparity between the north and south has had political ramifications, such as the 1994 rebellion in Chiapas. Further political instability in the region is possible if these problems are not addressed.

As the ambassador discussed, the Mexican government has put forward an ambitious program to address the problems of this region. It is certainly not ignoring them. They developed this plan— Plan Puebla Panama, PPP — that the ambassador referred to; however, it has not received adequate financing so far. Also, indigenous and other civil society groups in the region have complained that they have not been adequately consulted in the design and implementation of the plan and are concerned that they will not reap the benefit of the heavy infrastructure development and investment that is supposed to be directed to the region as a result of this plan.

As already mentioned, agricultural liberalization under NAFTA has had a devastating impact on poor Mexican peasants, resulting in the huge demonstrations you have heard about. Mexican farmers argue that free trade does not really exist in NAFTA for them. Due to the heavy subsidies that the U.S. government is providing to its farmers, they are unable to compete in the marketplace. Therefore, they are going out of business rapidly.

This has a devastating impact on social development and social exclusion in Mexico. It also feeds the growing trend of migration from Mexico to the United States, which, in turn, exacerbates the U.S. concern about its borders. It sees hundreds of thousands of poor Mexicans supposedly pouring over its borders because of an inability to support themselves in their traditional way.

I also mention a couple of political challenges. Mexico has made enormous strides in building a democratic system of governance. We can only applaud and support the progress that has been made. However, it still is a fledgling democracy and the process of democratic consolidation deserves our support.

One problem that has been faced is that, because the governing party does not control the majority of the legislature, it is unable to get its initiatives through Congress. There is a risk that it will be perceived as unable to achieve its most important policy objectives, and disenchantment may set in with the process of democratization amongst the Mexican population. In fact, I think it probably has.

A study on human rights that was just released by the Montreal-based organization Rights and Democracy points out that there has been huge progress in democratization but that there are still concerns with regard to impunity under the law and unequal law enforcement as well as concerns in some areas of human rights such as the rights of workers, particularly women workers in the maquila industry, and the rights of indigenous people.

To conclude, I raise a few recommendations in my brief that I would be happy to discuss with you. I think it is important to think further about trilateral institutions — how we might develop and expand the institutions that do exist, such as the labour and environment institutions as well as the North American Development Bank, which Canada is not a member of so far, but which seems to be one of the few institutions available that might support further development in Mexico.

I also mention the need for further extension and broadening of the types of exchanges that have been going on between government departments in Canada and Mexico. I think there is great room to expand the student and professional mobility programs that do exist.

Regarding borders, I think Canada can play an important role in sharing technology and best practices for maintaining security and efficient trade at the U.S.-Mexican border.

Another important area for Mexico is the concern about immigration. I think Canada should promote dialogue between the three countries to address problems in existing policies in order to promote the movement of both skilled and unskilled labour to address the labour market requirements of the three economies. This is really an area that was not adequately addressed in the NAFTA. It needs to be addressed if Mexico is going to meet its promise in the North American region.

Finally, and rather self-servedly, I should like to urge the government to provide more support for research and education in the area of North American studies.

The Chairman: Thank you very much.

Senator DiNino: You began your comments by informing us that your focus is really the political dimension as opposed to the nuts and bolts of the agreement itself. Most of your discussion has been concerning Canada and Mexico, but I should like to switch gears and ask you several questions dealing with the political dimension, and the relationship between Canada and the U.S.

A number of witnesses over the past 24 or so meetings have suggested that we truly do not understand U.S. politics, particularly that we have not yet really grasped the local meaning of politics in the U.S. and as such have not been as successful as we could have been. Do you agree with that, or can you make any comment?

Ms.Macdonald: The Canadian government has tended to approach the U.S. government as if it were like the Canadian government, which it is not in many respects. In particular, the government is aware of but continues to struggle with the need to broadcast its message more broadly outside of merely focusing on the executive branch, which is where you would conduct your diplomacy if you were trying to influence Canada. They need to learn how to work Congress better. It is a difficult task and one with which I do not think our diplomats are exactly comfortable performing. They have tried to do so, to their credit, but I think there is much more need for lobbying, both by representatives of the Canadian government and by their counterparts in the United States, their business partners in the United States, for example, to try to harness our shared concerns in the U.S. Congress.

Furthermore, I do not think we have enough consulates in the United States in order to adequately, again, broadcast our interests and concerns outside of the Beltway, throughout the U.S. population.

Third, I do not think we spend enough money on lobbying. The Mexican government, for example during the NAFTA negotiations, spent huge amounts of money lobbying U.S. Congress, but Canada did not. If we take this relationship seriously, we have to spend some money on it.

Finally, there is the public opinion battle, which Canada is struggling with, namely, how to influence public opinion in the United States, how to allay ill-advised concerns about the Canada-U.S. border, for example, the impression that most Americans seem to have that the terrorists who committed the September11 attacks came through the Canada- U.S. border. Everyone seems to think that in the United States. It is completely false, as far as we know, but we do not know how to get our message across. There are many areas for concern.

Senator DiNino: You alluded to this a moment ago. Are the Mexicans doing a better job than us in recognizing the political system and approaching it in a more fruitful way?

Ms.Macdonald: I do think they take the relationship with the United States extremely seriously and have devoted a lot of resources to that relationship. Their resources are limited. They suffer from something that we do not, which is the fact that Canadians are taken for granted. No one is particularly concerned about Canadians in the United States. We are seen as a kind of boring versions of themselves, whereas Mexicans are viewed as dangerous and somehow scary. It is easier, because of that ill-deserved reputation, to influence the U.S. government's attention, whereas Canada has a huge amount of trouble trying to get the attention of the U.S. public and the U.S. government. It is not a great reputation to have in Washington but it does help you get attention.

Senator DiNino: In your comments, you referred to the ``tense relationships'' we are experiencing now with the Americans. I call it the Iraq factor. First, I should state that I am not one of those who believe there will be long-term effects. Certainly, in the short term, maybe even into the medium term, there will be some irritants to deal with. However, because we have not yet dealt with the local factors in the political system, the Iraq factor may be a more difficult one for us because of the influence that competitors to Canadian producers of products and services will place on their congressmen and on their local representatives, which may have an impact on those relationships.

Do you have some thoughts on that?

Ms.Macdonald: I am not overly concerned about the Iraq factor. Like you, I do not think there will be a huge impact, partly because Canadian goods are largely invisible in the United States as a result of our integration into the North American system of production. It is not hard to go out and try to buy Canadian goods. You will not find them on the shelves in the supermarket and labelled as such too easily.

I think the bigger impact on the Canadian economy will be the impact, whatever it will be, of the war on the U.S. economy. That is what we must pay attention to, namely, what will happen with the growing deficit in Washington, the stretching out of the war and the growing costs of the war. All of that is much more important in terms of our macroeconomic prospects than individual perceptions on the part of the U.S. buyers or the public in general about Canada.

The other thing that reassures me a little is that, as Andrew Reding just wrote in The Globe and Mail recently, it is the United States, in a sense, that is isolated, at least in the Americas. Virtually no other country except Colombia has supported the U.S. in its war. Nancy Hughes Anthony from the Canadian Chamber of Commerce raised the concern that investment will flee to Mexico if Canada takes this position. That will not happen because Mexico is also opposed to the war. There may be some countries out there, for example Spain or Italy, that may benefit a little from this, but I am not overly concerned about it.

The Chairman: I did not realize that they were still thinking about Pancho Villa and Columbus, New Mexico, and it still frightened them. However, it is an interesting idea.

Senator Grafstein: You sing the national anthem and you think of Pancho Villa.

The Chairman: He took Columbus, New Mexico. That is the only time that a city in the United States has been taken by another country in the 20thcentury.

Senator Grafstein: In earlier centuries, we took cities as well, you will recall.

Thank you for your insights. I am delighted that your university is working at what we consider to be a sort of large vacuum in this relationship. If you are filling that vacuum, I think you should be commended. We certainly commend you and are delighted that you are here.

I want to come at this a little differently from your approach. I wish to start by two quick questions and then lead into what our national interest is in this relationship. We have heard little in the last month or two about Canada's national interest. We have heard a lot about our multilateral interests, but we have not heard about our ``national interests,'' which has different connotations.

First, how many Mexicans with joint citizenships live in the United States?

Ms.Macdonald: Joint citizenship?

Senator Grafstein: Mexican Americans, either there with joint citizenship or in a migratory basis.

The Chairman: How many Mexicans live in the United States?

Ms.Macdonald: A million? I do not know. It is growing. Latinos now are the biggest majority group in the U.S.

The Chairman: We are talking about Mexicans.

Ms.Macdonald: Most of the Latinos are now Mexican-Americans.

Senator Grafstein: I believe the numbers are larger, but it is hard to get that information.

Ms.Macdonald: It is hard to get that information because many of them are there illegally.

Senator Grafstein: How many Canadians live in the United States?

Ms.Macdonald: I do not know.

Senator Grafstein: I find this very curious, because when you go around and talk about France, for example, France will tell you, to the last person, the Frenchman that lives in every area outside of continental Europe, in Canada and in the United States. They keep track. As a matter of fact, there is a Senate committee there that is directly responsible for external relations with Frenchmen living outside their country.

Senator DiNino: Italy does the same thing.

Senator Grafstein: I find it curious that we do not know. I say we do not know, because I discovered that there is a huge Canadian diaspora in the United States, and our government just does not know. If they do know, they are not prepared to expose that information. Unlike the Mexicans, who are more visible as a lobbying base in the United States, this leaves us at a disadvantage when dealing with the lobbying question.

Ms.Macdonald: I agree. The way the Mexican government has approached its own political system by targeting Mexicans as an important lobbying group in the United States has been a fascinating aspect of Mexican politics over the last little while.

Senator Grafstein: You mentioned they have set up far more consulates in the United States than they have in Canada. They have tended to do it in large pockets of Mexican populations. We have not done that.

Ms.Macdonald: Canadians tend to blend in, and do not need the support of their consulates as much as the Mexicans do in the United States. However, I agree with your analysis.

Senator Grafstein: That is another big vacuum. There is a lack of data to analyze our situation in the United States.

All the witnesses have told us, implicitly or explicitly, that it lies within our interests to foster this relationship with Mexico, for strategic purposes. However, when I look at the economics and your recommendations, it is very much Canada transferring and giving. I wonder what the reciprocity is. The only positive piece of reciprocity I have heard is that 10,000 Mexican students come here. That is the first positive item I have heard since Senator Carney elicited that currently we are in a major trade deficit with Mexico. Where we can we promote Canada's national interests? Remember, this is a trade committee, but with political connotations. What should be our objectives? How do we pursue our national interests? I have heard how we can help Mexico as a developing power, what about ourselves?

Ms.Macdonald: In terms of the trade relationship, the Canadian private sector has not adequately explored the opportunities that do exist for it in NAFTA, as a result of the fact that it tends to get obsessed with the huge U.S. market that lies between us. After NAFTA, we intensified our economic relationships with the United States and have decreased our trading relations with other parts of the world, including Mexico. We have traded more with Mexico, but we have not adequately addressed the quite large Mexican market that exists, because Canadian businessmen and women find it easier to travel to the United States. They speak the same language and have the same customs. We understand each other very well and it is easier to do that. I think there are large economic activities for Canada in Mexico, as well as tremendous goodwill towards Canada in Mexico, which we do not necessarily have in other markets.

There are ways that the government could work to promote more Canada-Mexico trade and try to overcome those cultural and linguistic barriers to trade.

Senator Grafstein: I conclude by asking you to specify the areas where we can do better. We are not interested in generic comments, but rather in specifics. Can you give us any help?

Ms.Macdonald: Somewhat ironically, our trade tends to be in primary products. We are supposed to be the more developed country; however, we are not sending them high-tech goods. There would be a market in technology, communications devices, transport and a whole bunch of sectors in which Canada is good; however, Canada has not made sufficient effort toward developing that relationship.

I was also trying to make the argument that it is not just trade that is the reason it is in our interests to develop this relationship. It is also the indirect ``Mexico effect,'' if you will, upon our relationship with the United States. We cannot ignore Mexico if we are going to develop a strong North American community and a better relationship with the United States. It is not in our interests to ignore Mexico, even if the economic payouts will not be huge. There are still very important political aspects of this relationship that we cannot afford to ignore.

The Chairman: Senator Carney, I want to correct one point about Latinos, or this business of Spanish-speaking people in the United States. It is a myth that they are all Mexicans; the Colombians go to Queens. Many different people go to Miami.Obviously, there are places where Mexicans go. I am Spanish-speaking, and the idea that 35 million people who speak Spanish in the United States are all Mexicans is not true.

Senator Cochrane: There are Puerto Ricans and Cubans.

Ms.Macdonald: It is the biggest single nationality of Latinos in the U.S.

The Chairman: If you are in New York City, where I go a lot, you will not meet many Mexicans, nor will you in Washington or Miami. If you go to California, along the Mexican border, the situation may be different. It is more complex. The Spanish-speaking people in the United States are a very complicated business.

Senator Carney: Thank you for that clarification, sir.

Senator Corbin: There is a twist to it, too.

Senator Carney: I meant that with all respect.

Senator Carney: You mentioned that we will not get the old, special relationship with the United States back and that Mexico is becoming more important to the U.S. than Canada. How would you support that argument? It is true that there are 30 million Canadians and 100 million Mexicans, but Canada and the U.S. have the world's largest trading relationship; we are each other's biggest and best customers. We have information before the committee that Canada is the number one market for 39states.

Given that huge economic dependency, which is a special relationship, would you elaborate on your statement that we are not going to get the special relationship back and that Mexico is becoming more important?

Ms.Macdonald: By special relationship, I mean the old assumptions of Canadian foreign policy. Canada and the U.S. had a very close relationship, in which Canada could approach the United States behind closed doors in Washington and get what we wanted. We had a kind of cozy relationship — which still exists in some ways.

Some people have said that, once the U.S. went off the gold standard in 1973 and did not consult Canada, that was the end of the old, cozy relationship that many people in Canada think we should try to get back to, because the U.S. is so special to us.

The U.S. is special to us, and I agree that the Canada-U.S. economic relationship is more important that the U.S.- Mexico relationship. However, I think the reality has changed. Partly, it gets back to this issue of changing politics in the United States, the growth and demographic shift towards the south-southwest of the United States, the growth of the Latino population in the south-southwest, et cetera. It has been argued that the political weight within the United States has been shifting to the south, away from the Canada-U.S. border towards the U.S.-Mexican border.

While I certainly would argue that Canada and the U.S. are very important to each other and that Canada is very important to the United States, the U.S. political system does not seem to be able to take into account very successfully the importance of Canada to the United States. We tend to get taken for granted and Mexico does not.

I am not saying that they are better friends than we are, and I would strongly argue against the idea that there is some kind of zero-sum relationship here, that if Mexico gets closer to the U.S. then we are less close to the United States and we lose from the strengthening of the Mexican relationship. The promise of the North American Free Trade Agreement is that we can all grow together and all benefit from each other's prosperity and closer ties, not that one partner will lose out at the expense of another if the other grows closer to Washington.

Senator Carney: I want to turn now to border measures. You say in your statement that it would be short-sighted not to recognize that the United States would want to treat its two borders somewhat symmetrically. It actually has three borders, because it also borders on Russia. We will take the two you specified.

Ms.Macdonald: We tend to ignore that one.

Senator Carney: I have sat on several border committees with Canadians and Americans, and my first point is that our border problems are quite different. We are involved heavily in transport, paperwork and agricultural problems, and we do not have anything like the obsessive focus of American politicians on the movement of people across the borders and the fact that California is now becoming heavily Spanish-speaking. We do not have anything like that.

You also say that the U.S. tends to adjust its security concerns with ineffective measures, such as militarization of the borders or entry and exit control systems. Obviously, the question is what you consider effective border measures, given the fact that the border issues are different. What would you suggest?

Ms.Macdonald: I certainly agree with that. I am not suggesting that we need the same measures, but we need to look at border issues regionally.

Senator Carney: That is not what you say here. You say it would be short-sighted not to recognize that the U.S. will want to treat its two borders somewhat symmetrically.

Ms.Macdonald: That is why we need a regional perspective on how the borders are organized. I am referring there to section 110 of the Illegal Immigration Reform and Immigrant Responsibility Act (IIRAIRA).

Senator Carney: That clarifies your text. You say we need to find solutions to problems at both of the United States land borders. You are not suggesting it is the same solution for both borders.

Ms.Macdonald: No, I think we need to coordinate our approaches, and where there are good practices that are being developed at the Canada-U.S. border, such as the FAST pass system, the NEXUS program, high-tech surveillance mechanisms, et cetera —

Senator Carney: Are those effective border issues? I am trying to get you to stipulate for the purposes of our report what you consider to be the more effectiveborder measures.

Ms.Macdonald: We can draw from the lessons of the U.S.-Mexican border where they have tried to stop people they do not want to cross from crossing and have been completely ineffective in doing that by building walls or patrolling heavily.

Senator Carney: I am asking for a fact. I do not know the answer. I know on our border with the U.S. that one of the issues is who carries guns and who does not. The U.S. customs people carry guns. Our customs people do not want to carry guns and have not up to now.

Senator Grafstein: There are 9 million guns in Canada.

Senator Carney: I am talking about the people you meet when you go to immigration and customs.

The Chairman: Go ahead. The question is clear to me.

Senator Carney: It is clear to you. Thank you.

That is a border issue about which I am asking you for information. Do Mexican border people carry guns?

Ms.Macdonald: No, they do not. On the Mexican side, there has been a tradition of not tending to stop people from coming in. It is very open. It is getting back into the United States where there is a problem with huge line-ups and so forth. Mexicans do not have a tradition of heavily patrolling the border. They also have similar concerns to those of Canada about the smuggling of guns into Mexico.

Senator Carney: What exactly are these agricultural crops that are being undercut in Mexico by U.S. subsidies? We tend to think of wheat and things like that.

Ms.Macdonald: That is what ``we'' think of.

Senator Carney: What is the small Mexican farmer being faced with that is putting him out of business?

Ms.Macdonald: Subsistence crops, mostly corn, which is a concern because that is a staple of the Mexican diet, and beans. However, corn is the main one.

The Chairman: How do you respond to the point that, to get into Canada, you either have to come across the Atlantic, the Pacific or over the U.S. border, that that is about the only way you can get here?

The difference between the Canada-U.S. border and the Mexican-U.S. border is that the people from the Western Hemisphere south of the Rio Grande — and I know many of them from Colombia and Peru — make their way to the United States through Mexico, by using that border. It is a difficult border to patrol. They have a river that you can wade across at certain times. On the Mexican side, they do not interfere that much. On the American side, as you said, they have been unsuccessful.

To patrol a borderof 1,500 miles, or whatever it is, with all kinds of people for all kinds of reasons, from escaping poverty or whatever they are doing, is it not a totally different situation than we have on the Canada-U.S. border? How can you possibly treat them the same?

Ms.Macdonald: I am not arguing to treat them the same. I am saying it would be short-sighted to ignore the problems the U.S. is thinking about at its southern border when we think about our southern border with the United States. The United States will have a regional perspective that will take into account both borders and, whether they do it rationally or not, will tend to apply the solutions they are adopting at the southern border to the northern border. We have to take that into account when we think about our border relationship, but not that we want to adopt the same measures.

The Chairman: Their problem is not with our border. Their problem is with their southern border.

Ms.Macdonald: That is not what the Americans will tell you. I heard on the CBC the other day an American Congressman saying that the northern border is the problem now.

The Chairman: People who do not understand the issue may say that, but anybody who knows anything about it would have to say, would he or she not, that the problem they have is with the southern border?

Ms.Macdonald: Their concern now is not migration; it is terrorism. Their belief is that somehow we have operated a Club Med for terrorists in Canada, and their belief now is that the Canada-U.S. border is some kind of a sieve.

Senator Corbin: I am glad you raised the farm problem. I listened to a Canadian professor who teaches at one of the universities in Mexico, and he identified that as a major problem for President Fox. Would you have any insights in terms of the impact of that on the mid-term bi-cameral elections coming up? Do you care to get involved in that area? Is it a sufficiently deep-seated problem that it could be obnoxious for the government in the short term or even longer run?

Ms.Macdonald: Yes, the current government is facing a wide range of challenges and concerns about its inability to deliver on the promises it made when it came to office in the first democratic elections Mexico had.

It promised economic growth. As was discussed earlier, it has seen considerable growth but that growth is slowing down dramatically and is virtually stagnant now. That economy is currently not doing well because of the decline in the U.S. economy. The agricultural crisis is adding to those problems. It is unable to get fiscal reform through Congress. It is facing a wide range of problems.

Senator Corbin: So the honeymoon is over?

Ms.Macdonald: The honeymoon is over. There is disenchantment. The whole debacle of informed policy in the inability of the Mexican government to deliver on its promise that it would get the United States to provide some kind of immigration reform policy, which got undermined by the attacks on September 11 — this is very destructive to the current government. It may hold on, but I think that it is facing rough times ahead.

Senator DiNino: Following up on the line of discussion we were having, in talking about trade between Canada and the U.S., you said something to the effect of Canadian products being invisible in the U.S.

Looking at it through the lens of September 11, we have seen a number of legislative initiatives by the Americans— the bioterrorism legislation, the new Farm Bill, et cetera. One of the things that your comment raised in my mind is that there is some discussion taking place about identifying countries of origin and labeling products to that effect much more so than they are now.

Have you had an opportunity to look at this?

Ms.Macdonald: No, I have not been followingthat close enough to comment on it.

Senator Day: Following up on Senator Corbin's question, and keeping in mind that part of the difficulty with the current government is its inability to spread the wealth and Mr.Fox's ``NAFTA plus,'' am I correct in reading your recommendations to be that one of the things that we could do as parliamentarians and Canadians to help improve the situation in Mexico is to encourage some of those trilateral organizations that help resolve programs? You also talked about bilateral contacts.

However, from the point of view of trying to help that country achieve its obvious necessary goal, am I interpreting you correctly?

Ms.Macdonald: Yes, and I think that is why the Mexican government has been so active in its visionary approach, because they have not seen what they hoped to see out of NAFTA, that being a narrowing of the gap between Mexico on the one hand and Canada and the U.S. on the other. That is why they are trying to put forward these proposals, which we should take seriously and examine carefully, about mechanisms by which we can support their development. Again, this is not a zero-sum game. If Mexico does better, Canada will do better. We will have more markets for our goods and we will have a more stable and predictable relationship with our North American partners.

Senator Day: Are there any obvious ones?

Ms.Macdonald: As I said, the North American Development Bank is something we should look at. The Canadian government has so far rejected signing on to that arrangement because it seems that it has so far been quite ineffective and inefficient. That is probably the case, but we could look at it seriously to see how reforms could be made and see how Canada could buy in.

One of our problems is that we do not give aid to Mexico because it is not one of the poorer developing countries. It is a middle-income developing country so we do not have real aid to Mexico, although we have some small funds out of the embassy.

It is hard to come up with other types of recommendations, but we should look at regional development funds similar to the European regional development funds that have been very successful in bringing up the standards of living in the poorer European countries over decades.

Immigration is another area that is of great interest to the Mexicans, because when Mexicans move to the United States or Canada and get jobs, they send money home to their communities and that money is often invested productively or directed toward supporting the families that are left behind. That is another mechanism that I mentioned in my recommendations because it is a kind of income-distribution mechanism.

Also, the Mexican government itself has to do more to redistribute income. The wealth that is going into Mexico must be better distributed. The policies of state cutbacks to social services and so forth, which were implemented along with NAFTA, have not succeeded in addressing those problems of in poverty to which I referred. Perhaps there is a role for us to advise Mexico on how to do social programs that work and on how to redistribute income within the country.

The Chairman: Honourable senators, on your behalf, I want to thank Professor Macdonald for staying so late.

The committee adjourned.