Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 5 - Evidence - Meeting of February 6, 2014
OTTAWA, Thursday, February 6, 2014
The Standing Senate Committee on Foreign Affairs and International Trade met
this day at 10:35 a.m. to study security conditions and economic developments in
the Asia-Pacific region, the implications for Canadian policy and interests in
the region, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
The Chair: The Senate Standing Committee on Foreign Affairs and
International Trade is studying the security conditions and economic
developments in the Asia-Pacific region, the implications for Canadian policy
and interests in the region and other related matters.
We have before us this morning Mr. Patrick McGuinness, President of the
Fisheries Council of Canada; and by video conference we have Peter A. Petri,
Carl J. Shapiro Professor of International Finance, Brandeis University.
I trust the video conferencing technical issues are solved and you can hear
Peter A. Petri, Carl J. Shapiro Professor of International Finance,
Brandeis University, as an individual: Yes, thank you.
The Chair: Our committee generally accepts opening statements from our
witnesses and then we like to go to a question and answer period. I understand
it has been agreed, Professor Petri, that you will go first, followed then by
Mr. McGuinness. We will then go to questions and answers. Welcome to the
Mr. Petri: Thank you very much for inviting me. Ever since my PhD
thesis in the 1970s, I have had a very fortunate career, having a ringside view
of the astonishing progress that Asia has made. I worked in virtually all of the
countries in the region and have often participated in the trade and development
policies as they unfolded.
At this point, colleagues and I have a large project on the major trade
initiatives in the region, the Trans-Pacific Partnership, which includes Canada
as well as the United States; and the Regional Comprehensive Economic
Partnership, a 16-country negotiation consisting of Asian economies.
These are critical building blocks of what I hope will become solid
trans-Pacific policy architecture in the region. Much of our results are on our
website, which is called asiapacifictrade.org. I'm sure our discussions will
address the details of these issues later.
I would like to start not with today's events — not with slowing Chinese
growth, the "three arrows'' of Abenomics, tensions on the seas — but, rather,
with fundamentals. We know that one half of the world's population is now in the
mainstream of economic progress. No one worries anymore, as people did when I
began my studies, about jump- starting development in Asia. Asian economies have
doubled their output regularly every 15 years or so and some countries have done
Asia's income relative to ours is rising at a rate that doubles it in every
generation. The gap is still large enough so that continued progress is highly
It doesn't depend on particular leaders or particular policy directions. It
is really driven by billions of very energetic, entrepreneurial, talented and
well-educated people. It is not ephemeral.
By 2030, we estimate that Asia will account for about half of world
investment. Its middle class will expand by about 2 billion people, becoming
much larger than that of North America and Europe combined. In turn, Asia's
emissions of greenhouse gases will mostly determine the fate of our planet's
In another generation or so, Asia will appear at least twice as large on our
policy horizon as it does now in trade, investments, security, environment and
all areas of economic and security policy, and yet Asia still often winds up on
the back burner of policy today. President Clinton intensified U.S. engagement
with Asia through APEC, but over the next two decades, the focus of U.S. policy
shifted back to the Middle East.
The Obama Administration began by advocating a pivot to Asia, but the
president has since cancelled several trips there. The Trans-Pacific
Partnership, the centrepiece of his economic engagement in Asia, now faces
widespread attacks within his own party in the U.S. Congress. Meanwhile,
concerns about the reliability of the United States are becoming pervasive and,
I think, contribute to rising tensions in the region.
The United States needs to refocus its attention on Asia and keep it there.
Good foundations are plentiful, deep business and social ties, massive flows of
students, migrants, tourists, reasonably compatible views of economic policy and
advanced initiatives like the Trans-Pacific Partnership. China and Japan have
reformist leaders, and so do many other countries.
ASEAN, the 10 Southeast Asian economies, are running the world's most
ambitious regional experiment today. Most Asian countries are democracies, and
even those that aren't pay a lot of attention to the well-being of their
Between 1990 and 2010, Asia cut the incidence of extreme poverty by more than
a half and is on track to eradicating extreme poverty altogether in another 15
The glass isn't full of course. There are trouble spots ranging from North
Korea now to Thailand, and the uncertainties generated by China's military rise.
All that is even more reason for us to keep our eyes on the ball.
Canada, you need to help us do this. As our most important trade partner,
Canada is integral to building a vibrant Asia-Pacific economy. Canada's direct
ties with Asia are strong, as I learned again at last year's Pacific Economic
Cooperation Council forum in Vancouver. It was an energetic and really inspiring
Canada has leverage to deepen North American presence in Asia and to help
bring the TPP to conclusion. Canada's own efforts to conclude free trade
agreements with Korea, Japan and even China would provide welcome stimulus for
our joint initiatives.
Our ties with Asia are, fortunately, still strong, but there is urgent work
ahead. We need to sign and pass the TPP. We need to engage China in the next
stage of the TPP. We need to give Asia's emerging economies a greater role in
global policy and in the IMF. More generally, we need to find cooperative
solutions to the great challenges of the 21st century. These are plentiful and
shared with our Asian partners: innovation, intellectual property,
cybersecurity, macroeconomic and financial stability, the environment and
widening income gaps. Most importantly, we need to overcome the shadows that
history still casts over the region's security.
This is a daunting agenda and, frankly, cohesive functional politics on our
side will be a critical requirement for progress.
Thank you very much. I look forward to discussing these issues in more detail
The Chair: Thank you, professor.
We will now turn to Mr. McGuinness. Welcome.
Patrick McGuiness, President, Fisheries Council of Canada: Thank you
very much. I will start with a short description of the Fisheries Council of
Canada and then our industry.
The Fisheries Council of Canada is a national association going from British
Columbia to Nunavut. We focus on the wild fishery. We are a $6 billion industry,
and we employ about 83,000 people.
The members of the Fisheries Council of Canada produce most of that
production in exports. We have significant harvesting activity, particularly in
British Columbia, where most of the vessels are members of our BC Seafood
Alliance. In Atlantic Canada, we predominate in shrimp, groundfish, scallops and
The main players in our council are basically what we call integrated
companies. These are companies that own their vessels, have their own processing
facilities and participate in terms of the export and marketing of their
The fishing industry of Canada is an export industry. Sixty per cent of what
we produce, we export, and of those exports, 60 per cent go to the United
States. Obviously, we're relatively dependent on the United States, but if you
look across Canada's industrial sectors, you will find that in terms of their
exports, about 70 to 75 per cent go to the United States.
In our case, we have been focusing on diversification. We're down to 60 per
cent dependence on the United States, but we have a way to go.
In terms of our diversification strategy, we did focus quite a bit on the
Asia-Pacific. There a couple reasons for that, I would say, internally. The
European Union wasn't that strong of an attraction, notwithstanding that it is
the largest seafood market in the world. The problem we had is that they have
high tariffs, anywhere from 7, 15 to 20 per cent, and our competitors, the
Scandinavian countries, basically get in there at 0 per cent. Also, the
arrangement the European Union has with developing countries, their products get
in there roughly at about 0 per cent.
Another reason, I guess internally, is in terms of British Columbia. In
British Columbia, we harvest fairly unique type of species that are more
oriented to Asia-Pacific types of palates as opposed to North Americans or
Europeans, products such as geoducks, salted herring roe, sea cucumbers, sea
urchins and sablefish.
Why we focused on Asia-Pacific is, one, Asia-Pacific has a very high per
capita consumption of fish and seafood. In North America, Canada and the
Americas, we consume maybe about 7 kilograms per capita per year. In
Asia-Pacific, it is basically running from 15 kilograms to about 30 kilograms
now in China.
Also, what we saw was a changing landscape in Asia-Pacific. We saw an
increasing middle class pretty well spreading in most of the countries.
For example, in terms of the protein business, fish and seafood is usually
more expensive than chicken and so forth. So we very much depend on basically
high-end seafood restaurants. What we find in terms of any country that is
increasing in its middle class, we see a movement to upscale restaurants, and
upscale restaurants focus quite a bit on being able to present seafood.
At the same time, what that does for us in Canada in the sense of our
high-end species such as lobsters, sockeye salmon and scallops, it gives us an
opportunity to target that market there, and it has been very receptive.
The other thing that happens when you have an emerging middle class, and we
have seen it in China, Russia and so on, is the fact that they are developing
Western-style supermarkets, whether it is Carrefour from France, Asda or
Walmart. They see that, and they move into those countries. That again is very
helpful for us. We target those types of developments because what happens there
is that the middle class, particularly in developing countries, is really drawn
to these western-style supermarkets. It is primarily because of food safety
concerns. What they want is to move out of purchasing their shrimp and whatever
in the wet markets on the street and move into these western supermarkets
wherein they have a sense there's food safety concerns. They're concerned about
pesticides, aquaculture drug residues and so on.
It has been a number of years that we have been working on that, and it has
generally been successful. I can say that in 2012, of our five top country
markets, three of them are Asia-Pacific. The United States is number one; Canada
is number two; China is number three at 440 million; Japan is number four at 260
million; and Hong Kong is number five at 130 million. Other important
Asia-Pacific markets for us are Korea, Vietnam and Thailand.
Just looking at the growth we have had in Asia-Pacific, you look at a growth
of our exports into China and Hong Kong; from 2006 to 2012, exports in each of
those areas has increased 59 per cent.
So what is the way forward for us? As Dr. Petri indicated, we still see a lot
of development, progress and opportunities for our Canadian seafood industry in
Asia-Pacific as it continues its economic development.
There is no question that we're looking forward to the conclusion of the TPP,
which, in terms of our interest, is basically Japan and Vietnam.
One area that Dr. Petri commented on is a need to re-engage Korea. Canada
started trade negotiations with Korea. They floundered and basically were on the
side track. The United States came in behind us, and they signed a deal. So the
free trade agreement is between Korea and the United States. What is happening
there is the import tariffs for American exports to Korea are ratcheting down to
zero. So we are already losing markets in Korea in terms of live lobsters to our
American competitors, simply on the tariff reductions.
There's no question that some sectors in Canada have a problem with a
Canada-Korean free trade agreement. I understand the three American auto
assemblies have a problem with that. The bottom line is the United States has
the same type of issues, but they saw that Korea is the fourteenth largest
economy in the world. We're number 10. They're number 14. There are long-term
opportunities for Korea. Hopefully, there will be some returned interest in
terms of getting free trade with Korea.
Thank you very much.
The Chair: Thank you. That is very interesting. You brought us up to
date in an actual segment of the economy, the fisheries, which we didn't have
Senator Johnson: Mr. McGuinness, I'm very interested in the fishery
globally. Can you tell me, please, how you would compare fisheries stewardship
and processing practices among nations that are major exporters of fish and
seafood products in that region, such as Vietnam, Thailand and China?
Mr. McGuinness: That's a very good question. The bottom line is that
in terms of fish and seafood, sustainability has become a big, big issue over
the last six or seven years. If you are going to be, for example, selling to
retail in North America and Europe, you have to demonstrate your sustainability
criteria. What you see is that fishing industries such as those in Canada,
United States, Scandinavia, Europe and so forth get it. They get it. You have to
do that; you have to be part of that to be part of the market.
There have been efforts to try to communicate that more directly with seafood
industries in terms of developing countries and advancing countries such as
Asia-Pacific. That is something that they certainly will have to continue to
Certainly, there's no question Japan gets it, but we need to see more
progress in a number of those countries. The Marine Stewardship Council, which
is a sustainability certification, non-profit organization that has basically
become predominant in the seafood area with respect to sustainability, has now
opened up offices in Asia-Pacific, so I think the message is going.
As you say, once you get more and more of the western-style supermarkets
playing in those markets, that drives it, no question. Retailers very much drive
the sustainability train.
Senator Johnson: You would then say that there are increasing concerns
and care given to quality and even safety in these regions, these countries.
Mr. McGuinness: Most definitely. They see the same things we see in
the sense that they see an emerging middle class of people who are very
concerned about food safety.
Senator Johnson: What about overfishing, though? I don't think Japan
has a stellar record there, nor do many nations in Europe. How would you assess
it there now?
Mr. McGuinness: Overfishing in terms of internal waters is a function
of responsible fisheries management. For example, in Canada there's significant
investment in the Department of Fisheries and Oceans. Its budget right now I
think is about $1 billion. That type of investment in your agency responsible
for fisheries can then bring you controls with respect to regulations,
surveillance at sea and so forth.
That's the problem. The problem in many of these countries is that they
really haven't invested that much in their fisheries management regimes. They
have to do that.
In terms of the code of conduct of responsible fisheries, there's an FAO code
of conduct. A group of six international scientists looked at 56 countries
around the world in terms of how well they are performing against this FAO
standard. In fact, only six countries got a good mark. Most of them were
failures. That study was done maybe six or seven years ago. I'm happy to report
that Canada was one of the ones that passed.
Senator Johnson: I think I knew that. That was very positive.
Mr. McGuinness: The only developing country that actually got good
marks was Namibia, on the east coast of Africa. Here again, Namibia is a country
that came into the fisheries quite late. There was quite a bit of effort in
terms of the FAO going down there, working with the country in terms of setting
up its infrastructure, its fisheries department, and there were considerable
investments from overseas in terms of getting that fishery going.
Senator Fortin-Duplessis: Mr. McGuinness, are there any other measures
the Government of Canada could implement to facilitate the delivery of Canadian
seafood products to Asia-Pacific?
Mr. McGuinness: Thank you for your question.
The Government of Canada has quite a bit of investment in terms of major
trade shows in which we participate where they do develop a Canadian booth and
work with exporters, and that's at the North American seafood exposition in
Boston, and also the European Seafood Exposition in Brussels.
More recently, in the last three or four years, they have had a significant
presence in the major fish and seafood show in China. These investments are made
through Agriculture and Agri-Food Canada. If I looked at the investments they
are making in those three shows, I think, right now, the largest amount of money
is actually helping the Canadian industry in the major China show, which is
basically an Asia-Pacific show but also becoming a global show. That's only
right because, to a certain extent, the seafood show in North America is very
much becoming a U.S. show. The bottom line is that if you're in the fish and
seafood business and don't know how to export to the United States, you should
be out of the business.
Of course, in terms of Europe, they've picked up the game quite a bit there.
That's interesting because Europe, over the years, has gone from 13 countries to
28 countries. What we're looking at — it will be in May — is really trying to
get in there and communicate, with the CETA, that these 20 and 15 per cent
tariffs will go down to zero.
It's interesting that in terms of the Soviet Union, when it broke up,
countries such as Poland, the Czechs and so forth basically became independent,
and their fish and seafood tariffs were basically zero. We developed quite a bit
of market in those countries with respect to low-cost species such as herring
and mackerel. As the EU has expanded, it has brought those countries into the
European Union. There's no question that they economically benefited quite
substantially. Nevertheless, those countries had to adopt the EU tariff
schedule. Instead of us getting to export at 0 per cent into countries such as
Poland, the Czech Republic, Lithuania and so forth, when they joined the EU, we
went back into 15, 20 per cent. It's a good opportunity, with CETA, of getting
back into those markets of Eastern Europe. That's an important issue in terms of
trying to get those communications out to those markets.
Senator Fortin-Duplessis: I am very concerned. I am wondering whether
Canada has ways to address the overfishing of tuna by the Japanese. The media
have been reporting that, over the last few months, the Japanese have been seen
fishing tuna in territorial waters, thereby jeopardizing the survival of the
resource. China is also fishing sharks for their fins.
Do you know what kind of measures Canada could take to prevent that? Some
European countries are also fishing cod in Canadian waters, off the coast of
Newfoundland. What can the Canadian government do in these cases?
Mr. McGuinness: One thing I can say in terms of tuna, for example, the
canned tuna industry has come together and formed the International Seafood
Sustainability Foundation, and you have big players there. For example, in terms
of the Canadian industry, we have Canfisco, Clover Leaf and Bumble Bee . They
now are basically coming together and forming their own organization. For canned
tuna, you're looking at maybe six companies that really control the business
around the world. The companies, recognizing the type of comments you're making
and people perhaps going away from canned tuna because of that concern, are
taking strategic and aggressive measures with respect to overfishing. They've
come together as a group and said, "If in fact it's determined that vessel A or
fishing company B is overfishing, not playing by the rules, we agree that we
won't buy those products.'' That's probably more direct in terms of trying to
address this issue business to business with respect to getting results.
In terms of overfishing on the high seas, you have the Law of the Sea and the
United Nations Fish Stocks Agreement. Those are the parameters under which
Canada has to operate. Generally, as a country, you make complaints with respect
to something that's impacting your own species.
We have albacore tuna on our West Coast that is in good shape. It's being
basically harvested for sushi restaurants and so forth, and then we have a tuna
that comes up on the East Coast, basically transboundary. They're coming up from
the southern areas, through the United States and up through Canada, and they're
harvested in P.E.I. and then go directly to the wholesale markets in Japan.
Off of Atlantic Canada, since 1992, the amount of overfishing has declined
quite considerably. It may be just that the amount of the resource has itself
declined. It would be interesting, if we do get a resurgence of Atlantic cod,
whether the relatively good record we see now maintains itself.
Senator Downe: Dr. Petri, you mentioned in your presentation the
Trans-Pacific Partnership trade deal and the importance of that deal. Do you
have any concern that Harry Reid, the U.S. Senate Majority Leader, announced a
few days ago that he's refusing to fast-track this deal in the American Senate
for the President.
Mr. Petri: Yes, I am concerned. As you know, the fast-track
legislation would make it possible for the negotiators for the president's team
to come up with an agreement, which Congress, in its full constitutional rights,
would then have the ability to examine and to vote on but not to take apart or
redo the very carefully crafted details of such a complicated agreement.
Fast-track is important in finishing the deal, and it's very close. Our
negotiating partners — and I'm sure Canada is among them — have told us that, in
order to make the difficult decisions that they have to make, they need to have
the confidence that fast-track legislation is in place.
Whether this is the end of fast-track during the present pre-election
Congress, we don't know yet. As you know, this tends to be a bipartisan piece of
legislation, and there's strong Republican support for it, as well as support
among some members of the president's party. It's certainly a setback, and I
wonder if our government fully appreciates the implications of this, the very
long-run implications, which reach far beyond the election, to have these
I am concerned. I am still hopeful that a congressional compromise will be
forthcoming. If not, it's possible, after the election, to make many of these
things happen after all, but each postponement raises the danger that this very
important strategy to connect the countries of the Asia-Pacific will fall by the
Senator Downe: You would know far more about this than I would, but I
understand that part of the problem in the United States is that 20 or 25 years
ago, when NAFTA was being developed, there was a lot of support from the
Democrats, particularly in the farm community, where the agricultural community
was advised that the trade deal would be a great benefit for them. That has
flipped completely now. They've seen that that didn't work. They can't count on
that core base of Democrats, and this could very well be what Reid is reflecting
on in his decision. Is there anything, in your opinion, that the U.S. government
can do to reassure that community about future deals?
Mr. Petri: As you know, the NAFTA agreement has been very
controversial in the United States, even at the time that it was passed. It was
not an easy agreement to pass, and there was a great deal of opposition to it,
to a large extent coming from labour. That opposition persists today, and I
think it's fair enough that there should be a lot of concern about this, given
the high level of unemployment in the United States and our inability to address
that problem in the immediate or short term.
One has to remember that trade agreements are not about what's going to
happen next year or even in the next three or four years. They're really about
the foundations set in place for economic growth, for productivity increases,
over a five-, ten-, fifteen-year time horizon. In that period of time, the
United States will, we hope, reach full employment again. Trade historically has
not affected the level of employment. It has affected the composition of
employment, and its effects on the composition of employment tend to be very
positive. We know that export jobs pay anywhere from 10 to 20 per cent more than
the jobs that import-competing firms give up when trade intensifies.
The effect of trade is to raise wages, to raise the quality of jobs that the
U.S. and Canadian economies offer, and the opposition is often short-sighted
Nevertheless, it's extremely important for congressional action on trade to
be complemented by actions that address the cost of transitions, which will be
significant for a few workers. That's a critical part of a sensible trade
policy: to have adjustment assistance that goes along with strong trade.
Senator Downe: I wonder if you could address the ongoing concern about
the erosion of manufacturing and the linkage of that in the United States to
trade. Now we see the recovery, particularly in the southern U.S.A., of a lot of
manufacturing moving back to the United States from offshore, in many cases from
Mr. Petri: As you probably know, the United States, over the decade
from 2000 to 2010, lost some 5.6 million manufacturing jobs: close to one third
of all manufacturing jobs in the United States. Although manufacturing
employment has been rising again slowly since the depth of the recession, it is
unlikely to contribute a large number of new jobs. Manufacturing now accounts
for roughly 10 per cent of U.S. jobs. The jobs that are coming back in in
manufacturing are sophisticated, high-skilled jobs, accompanied by a lot of
equipment, robotics and machinery. I think this is a critical sector, but the
attention that we pay to it in the policy dialogue is sometimes out of
proportion with its significance.
The main point I want to make is that manufacturing will be certainly helped
by the trade agreements we are now negotiating. But manufacturing is not the
major source of new jobs in the United States. It's now quite a small sector.
What our results do show is a strong intensification under new trade agreements,
in two-way trade in manufacturing, in the most innovative and most advanced
sectors of the American economy. But, at the same time, many standardized
products would continue to be imported from Asia. The intensification of this
two-way trade is what tends to raise the quality of jobs by increasing the
number of higher-quality jobs, which then replace the lower-quality jobs at the
other end of the manufacturing spectrum.
I'm optimistic about manufacturing, but I think the attention that it gets in
the public policy debate may exceed its real importance in the economic
restructuring that is on the way.
The Chair: I take it, then, you say it's more a political issue that
can be used in the United States than a reality.
Mr. Petri: Yes, senator. I think it is a political issue, but it does
have a very important, real component, and that is the adjustments that workers
experience as the manufacturing sector continues to strengthen. These are very
real and need to be addressed by policy. That means adjustment assistance and
support for communities that have focused on single manufacturing industries in
the past. It means a lot of things, and it means a sophisticated complementarity
between trade policy and other types of support to help workers adjust to the
jobs of the future.
Senator Oh: I was in the city of Shanghai last year on a seafood
promotion trade show. There was only one trade show going on in a seafood
restaurant that has seven outlets, and they're promoting Canadian seafood. My
question is that I don't think we've done enough in China on seafood promotion.
That's only one city, one chain, that's doing the promotion.
The market is huge. In Asia-Pacific, including China, seafood consumption is
so high that almost every night you have a dish of some kind of seafood on the
table. If you have a guest from overseas visiting China, that is more critical.
You have to have fish on the table.
The Maple Leaf logo is a critical selling trademark in China, due to the
coastal pollution problem. To them, local seafood is not considered safe seafood
anymore to be on the table. It might take a few years before the problem can be
rectified. I think we should take advantage of this seafood promotion in China.
There's a huge market there.
Mr. McGuinness: China is absolutely amazing. Look at the country in
terms of the cities that have populations over, say, 4 million, which for
Canada, that's Toronto. I can't remember the number of cities with a population
over 4 million, but it's about 10, 15 or 20 cities.
You're quite right. If we had a real initiative for China, not just going to
trade shows but really starting to target those cities with populations of 5
million or more, in terms of restaurants, that could be extremely successful. It
takes some time and strategy, but, as you say, the per capita consumption of
fish in China has risen from about 25 kilograms not that long ago to now 32
kilograms per person. It's an amazing opportunity. I thank you for bringing that
to my attention.
Senator Demers: Thank you, both, for your great presentations. I have
two small questions.
What impact will rising income have on the demand for imported fish and
seafood products in the Asia-Pacific region? And how can Canadian fish and
seafood exporters capitalize on the opportunity in the Asia-Pacific region?
Mr. McGuinness: There is no question about what's happening in the
Asia-Pacific. That seafood market is increasing, and it's increasing in terms of
imports. There is no question that the prices are higher than from the
traditional fisheries. These imports are targeting a new segment of the market.
They're targeting the segment of the market that in fact can afford these higher
prices. Even though there are higher prices, we don't see that as a handicap or
hindrance. We see that, as the previous senator mentioned, as just the fact that
the populations are increasing in terms of income, and they want to have fish
and seafood that they are confident is not only tasteful but that generally has
a high level of food safety. That's what we're playing into.
We're also introducing somewhat new species in terms of lobsters and large
sea scallops right now. They are terribly expensive, but we can't harvest them
enough, because that becomes a bit of a symbol in terms of taking a family to a
restaurant and treating them as family and demonstrating your high regard for
these people by having lobsters or scallops and so forth.
It's an issue, but it hasn't come up yet. As Dr. Petri said, in terms of this
burgeoning, we've just seen the beginning of this transition. Fortunately, as he
says also, in most of those countries, you have a system where, for example,
their government officials are reasonable people to deal with. They're trying to
encourage business and entrepreneurship. Most of Asia-Pacific is quite good.
I'll say the difference between Asia-Pacific and Russia is quite dramatic.
Russia right now is a very big market for us, and it's expanding substantially,
but it's a high-risk market because market access for a company can be stopped
almost immediately, without almost any recourse. Sometimes you may see that in
China, but most of the other Asia- Pacific countries, such as Vietnam, Thailand
and Singapore, in particular, are generally adhering to Codex and the
international rules of market access.
Senator D. Smith: I have a supplemental question on exactly what you
said about Russia. Am I reading between the lines? When you saying it can be
stopped in Russia, is this basically officials being paid off, which is pretty
well recognized as a real problem in Russia?
Mr. McGuinness: It's a significant problem. For example, in terms of
our shell-on shrimp, Russia is probably our best market right now. It's $60
million or $90 million just for that particular species.
What we have there is basically at-sea harvesting and processing vessels,
minimum processing, and send it into Russia. Most of those vessels right now are
either "on ban'' or have a high-inspection requirement.
The Soviet Union used to have barriers in terms of allowable levels of
various types of contaminants, extremely low, and they used that to protect
their own industry. Of course, two years ago, they joined onto the WTO. In
joining the WTO, you're supposed to adopt the rules and regulations with respect
to Codex. It's been a struggle to get them to move in that direction.
Senator D. Smith: You're talking bureaucratic corruption, though,
Mr. McGuinness: There is no question that that's part of it.
The Chair: Professor Petri, when we study any economic issue, whether
it's Asia-Pacific or elsewhere, we have to factor in the United States in many
of our cases, not only because of NAFTA but because as leaders and close
neighbours, they have a significant effect on our capabilities. TPP, for
example, was one example where the United States was lukewarm to start with,
before they became more enthusiastic to have Canada join.
Could you give us more insights into the operations and views of the United
States towards Asia-Pacific? Are they tending now to utilize more multilateral
instruments to further their trade and economic issues, or is the preferred
route for them still bilateral?
Mr. Petri: Senator, as you know, the United States is many things,
many people and a lot of divergent views. The United States, as any big country
and, I think, other big countries in the world have a similar problem, tends to
be preoccupied with its domestic political issues in the intermediate term.
Now, what we need in the Asia-Pacific is a different kind of perspective, a
much more forward-looking and probably, as you put it, a more international
perspective than a series of bilateral relationships driven by domestic
If the architecture of the Trans-Pacific Partnership continues to expand —
remember, it has grown from 4 to 12, countries, and our projections include an
expansion that will include Korea, Thailand, the Philippines and Indonesia,
probably in a future round — it will provide a much firmer basis for regional
trade and economic relationships than the bilateral methods now do.
The Chair: Could you expand on the international financial
institutions and how the United States uses them as a lever into Asia-Pacific?
Mr. Petri: As you know, the real concern with the international
financial institutions now is that they do not have a membership or a voting
membership representative of the real structure of the international economy
today, and, in particular, the Asian economies tend to be underrepresented.
Now, it is not the United States, it turns out, that is overrepresented but
rather Europe, due to its membership through several different countries rather
than as the European Union as a whole.
In any case, it would make a big difference, if we could make the
international financial institutions, the International Monetary Fund,
primarily, more forceful. We face difficult problems in a new world in which
capital flows are immense, exchange rates move and where some countries even
manipulate exchange rates to achieve development objectives.
It would make a very big difference in this world if you could make the IMF
more functional. An important step in that direction would be to give
Asia-Pacific countries a larger role and greater ownership in the IMF.
The Chair: To follow up on that, we have studied Brazil and Turkey. We
have noticed the political shifts and, therefore, the financial shifts with the
so-called BRIC and the expansion of BRIC and other alternatives.
We noticed China's move, particularly, into Brazil and into Africa. I would
like your opinion about where you see the Asia-Pacific putting its mark, other
than the United States. Do you see them looking to markets in the developing
south world, or are they still predominantly looking to the European market?
Mr. Petri: I think they have multiple interests. Certainly, in terms
of final product markets, there's no replacement yet for the European and North
American markets in terms of wealth and diversity of products that are required.
But more and more, a larger share of the exports of Asia Pacific countries go to
the region itself.
Part of this is explained by the growth of production networks within Asia,
where companies send intermediate products back and forth across borders. But
the other part has to do very much with the phenomenon that Mr. McGuinness was
describing — wealth and a tremendous growth in consuming power.
In addition to that, they have resource interests. They're looking,
obviously, to Africa, Canada, and many other countries in order to try to
develop resources that they will need in the future. So they have very diverse
What I don't see coming from the Asia-Pacific is any kind of disruptive
influence on the global system. That is, they tend, by and large, to accept the
global system as it is. As any country, they probably manage the fringes of
rules to their own advantage, but, by and large, Asia has not had a disruptive
influence in terms of the international institutions that we have built over the
last 50 years.
The Chair: We are studying the security of those nations as well as
the economics. There was great angst when President Obama coined the phrase
"pivot to Asia Pacific,'' which had a reverberating effect, particularly through
NATO and Europe.
It hasn't seemed to have produced much yet. In the security factor, is this
"pivot'' something we should consider, and what would it mean in security terms
vis-à-vis economics, how we handle goods in the Pacific as opposed to how we
handle goods crossing the Atlantic? Can you comment on that?
Mr. Petri: As you know, we don't call it "pivot'' anymore. We call it
"rebalancing,'' and it has had from the beginning two very important and
independent objectives. One was the strengthening of economic linkages with the
Asia-Pacific, and the other, a kind of reorientation of a shrinking military, to
make sure that U.S. interests in trade routes and allies in the Asia-Pacific had
a sufficient military backing in place.
I am not sure that one would have expected very quick results from this
reorientation of America's long-term policy focus. I think that the real payoff
will come as the U.S. manages to get these new institutions and this new policy
architecture in place. By that I mean the TPP, but the TPP more broadly to also
include China, which is obviously the region's largest economy now. These steps
will help establish a long-term architecture of cooperative economic relations.
The Chair: Thank you. Some people still call it "pivot.'' I use that.
I think "rebalancing'' is a better term.
Do you think we're getting sufficiently ready from the North American side to
look at new concepts of how manufacturing, goods and services relate to each
other? Countries of origin is becoming a very difficult issue when you have
something with Canadian input, American input, Brazilian input or Chinese input.
Are we addressing the new flows and new technologies within our economic
Mr. Petri: The answer to that is yes, but by no means as much as we
should be. As you know, APEC, the Asia Pacific Economic Cooperation forum,
initially envisioned by some leaders as a way to create legally binding
agreements, is now basically a cooperation forum where very important issues
such as trade facilitation are addressed. We know that for business it makes a
very big difference how quickly goods cross borders and how predictably they
cross borders, especially in an economy where almost everything consists of
components made in many countries.
So this new dimension of interdependence, which is to make sure that trade is
seamless and economies are seamlessly connected, both in terms of border
barriers such as low tariffs as well as good transport linkages, is now
critical. There is attention paid to it certainly in the United States but also
within Asian discussions as well.
The Chair: Thank you.
Senator Johnson: Mr. Petri, there have been some reports on a possible
banking crisis in China due to shadow banking. Could you give us your take on
this issue and how it could impact growth across the Asia-Pacific region?
Mr. Petri: The transition from a government-led and closely held
banking system to a more market-oriented one has taken place in virtually every
Asian economy over the last several decades. At times it has been quite
traumatic. For example, it was very traumatic during the Asian financial crisis
in Korea, in Thailand and in Indonesia.
That's the background against which I think we should try to understand what
is going on in China now. It has had a fairly closely held government-led
banking system, and it is trying to make that transition now to more market-
oriented, more open financial mechanisms. That's tough.
Now, the advantage that the Chinese have is they own so much capital and have
such high levels of reserves. They can bail out institutions that are in
trouble. They just did that with a set of shadow banking commitments in the past
week. They have much greater resources to make sure that the transition happens
with minimum negative effects on the economy.
This government seems quite committed to doing that, so over the last few
months, they have been steadily raising interest rates, deregulating parts of
the sector and moving forward.
It is bound to lead to some slowdown in economic growth, but I don't think we
can see anything there yet that would suggest a deeper crisis.
Senator Johnson: That's good news. How does the United States view
Mr. Petri: I think the United States is hopeful that the good news
will continue, insofar as the Chinese economy is now a very important part of
the global system. We always used to say that when the United States catches
cold, others catch pneumonia. It is becoming a little like that with China, and
you can see, for example, stock markets reacting to adverse news coming out of
China across the world.
It is a very big economy, a very large part of our global system, and it is
important for everyone that the transition there to more market-oriented, more
stable, secure financial systems take place in a favourable way.
Senator Johnson: I recently read the latest edition of the foreign
affairs magazine out of the States talking about the American socio-democratic
future. One of the lead articles was about Indonesia and the Philippines and how
these economies are thrusting forward, what's happening and how it's affecting
the Chinese markets that you were just talking about. Did you see this latest
article from January?
Mr. Petri: Sorry, I have not.
Senator Johnson: It is fascinating about Indonesia and the
Philippines. I was surprised about it. Could you comment on that particular
Mr. Petri: Southeast Asia is very important. The Philippines is now
one of the fastest growing economies in the region. Indonesia, for several
years, has been the fastest-growing economy in Southeast Asia. It seems to be
slowing a bit. There is a presidential transition coming; policy is somewhat in
flux, but there is a great deal of kind of indigenous momentum in the
development of all of these countries. Southeast Asia, as a whole, has 600
million people. It is a large cluster of countries that is increasingly
integrated, with strong relationships with North America, with the United
States. As one turns one's eyes towards the Pacific, one cannot ignore Southeast
Asia — or India, for that matter — as important components of this region.
There are a lot of challenges in all of those countries, and Thailand, of
course, is the one that we know the most about over the last few weeks, but they
share a fundamental momentum due to their hardworking people.
Senator Johnson: I found it incredible, because there are 10 countries
and 620 million people. It is something we haven't really addressed much in our
Mr. Petri: That's right.
Senator Johnson: Thank you very much.
Senator Fortin-Duplessis: Professor Petri, you said that economic
growth in Asia will continue for a long time. Our committee would like to know
whether some Southeast Asian countries will stand out more than others in the
coming years when it comes to economic growth and development.
Mr. Petri: Yes, senator. Obviously one cannot answer this question
without mentioning China, which is the largest and, at this point, the most
rapidly growing of the economies. It is likely to continue to grow rapidly — not
as fast as it has in the past; certainly there will be periods of slowdown.
The key point that I want to make is China is not the whole region. There is
Japan, a very innovative, very sophisticated country. It is not growing as fast,
but is an important market certainly for fish, as Mr. McGuinness mentioned
earlier; for agricultural products and for technology.
Then there is Southeast Asia, as we just discussed, which is probably growing
nearly as fast as China over the next decade or two. They have, again, lots of
resources; lots of indigenous sources of growth.
Then there is India. India is as big as China and will be bigger in terms of
population, eventually, in another decade or two. India is also growing very
solidly — not as fast as China, but when you look around this region, and you
ask yourself in another 10, 20 years, what it will look like, it will be huge,
and it will be a lot more prosperous. This is where these 2 billion middle-class
people are going to come and eat a lot of fish, as Mr. McGuinness was explaining
Senator Fortin-Duplessis: We have already submitted reports on China
and India. We know that those two economies are doing very well. However, we are
currently interested in the other countries.
In your opinion, what other countries from Southeast Asia are most likely to
have a really powerful economy?
Mr. Petri: Let me single out two, and one of them is Vietnam. It is an
extraordinarily energetic place with lots of good connections and is very
ambitious. Their role in the TPP, I think, has been quite amazing. They're
willing to consider very fundamental changes in laws and social institutions in
order to have better access to international markets. I suspect that they will
now benefit very strongly from industries leaving China because of high wages
The other country, also large, is Myanmar. We don't know really that much
about its future yet because it is still very early stages of entering global
markets, but it has a history of making important contributions to the world. It
has been well connected to markets in Europe and elsewhere. With good policies,
I suspect that that is another country to watch very closely.
The point here is that participating in the global economy and adapting your
policy to be successful is contagious, and it has been contagious in Asia for
quite some time — for most of the past 50 years. There are fewer and fewer
countries left that have not yet caught this "disease,'' and I think Myanmar is
one of them.
Southeast Asia, as a whole, particularly due to its integration, and due to
the important role that it plays between China, the West and India, is a very
important place to watch.
Senator Fortin-Duplessis: This will be my last question. Some Asian
countries have a very poor record in terms of human rights. Should Canada still
make an effort to do business with those countries or should we instead be
rather disinterested when human rights are clearly being violated?
Mr. Petri: You know, I am an economist, so I have a peculiar
professional bias on this question, but I think the best way to get people to
govern themselves in a humane and democratically confirmed way is by engaging
them, by talking with them, by doing business with them, and by helping them
develop. It is development itself that often puts pressure on governments to
serve their citizens.
The activity in China, for example, of the communications through
Twitter-like Chinese media, puts an enormous amount of pressure on government.
It results in people being fired, in policies being reversed, in saving people
who would be otherwise in deep trouble. That is, I think, where you can
ultimately see long-term progress. To the extent that one's harsh reactions to
events or policies in the short run impedes that kind of long-term communication
and long-term progress, I don't think it is helpful.
The Chair: Professor Petri, thank you very much for your insights on
economic issues. Particularly from your point in the United States, it is
extremely helpful in our focusing in on what areas may be of up-and-coming
interest, but also concern within Canada's foreign policy. We appreciate your
Mr. McGuinness, I hope we have underscored to you how important fish is to
Canada. It has certainly been underscored by the questions and the interest from
Hopefully something will resonate from both of your inputs in our report. We
thank you for being with us.
(The committee continued in camera.)