Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 18 - Evidence
OTTAWA, Tuesday, December 10, 1996
The Standing Senate Committee on Foreign Affairs, to which was referred Bill C-61, to implement the Canada-Israel Free Trade Agreement, met this day at 3:35 p.m. to give consideration to the bill and to examine and report on the growing importance of the Asia Pacific region for Canada, with emphasis on the upcoming Asia Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's year of the Asia Pacific.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have two topics to be dealt with this afternoon. The first is our reference relative to the Asia Pacific region, and the second our work on Bill C-61. We will start with the reference on the Asia Pacific region.
Our witnesses today are from the Canadian Chamber of Commerce. We have with us Mr. Timothy Reid, the president. I need hardly tell you that the Canadian Chamber of Commerce, with about 170,000 members, is Canada's largest and most representative national business association.
Mr. Reid is a full-time president. He holds degrees in economics and political science from three universities: the University of Toronto, Yale University and Oxford University. He completed the Advanced Management Program at Harvard. He has served with the Ontario Securities Commission and as Dean of the Faculty of Business at Ryerson.
Some of you will be interested to be reminded that he played professional football with the Hamilton Tiger Cats. Also, he was a member of the Ontario legislature, after which he went on to Paris where he worked as a principal administrator with the OECD. Upon his return to Canada, he served with the Treasury Board, the Office of the Comptroller General in the Department of Regional Industrial Expansion and Tourism Canada.
With him today is the senior policy analyst, Mr. David Hecnar. Mr. Hecnar did graduate work in international affairs at the Norman Paterson School of International Affairs at Carleton University, specializing in Canadian trade and investment policy. He joined the chamber of commerce in 1987 as a project coordinator. In 1993 he assumed responsibility for the chamber's international policy portfolio and, following an alliance between the chamber of commerce and the Canadian Council for International Business, in June 1995 he assumed the policy portfolio for the latter organization.
[Translation]
Mr. Tim Reid, President of the Canadian Chamber of Commerce: On behalf of the Canadian Chamber of Commerce, I wish to thank you for giving me this opportunity of discussing Canada's business priorities in the Asia Pacific region.
As president of the Canadian Chamber of Commerce, I am proud to represent an organization which provides the Canadian government with timely advice on business matters of crucial importance on a wide range of national and international issues.
[English]
Before I provide an overview of some of the specific areas of Asia Pacific priorities for the Canadian Chamber of Commerce and our members, I would like to turn the floor over to David Hecnar, who will provide a context for the more specific remarks which I will make. It is important for members to know the extent of our activities in the area and that we are working very closely with a number of other business organizations in Asia Pacific.
Mr. David Hecnar, Senior Policy Analyst, Canadian Chamber of Commerce: As was just mentioned by the chairman of the committee, the Canadian Chamber of Commerce is Canada's largest and most representative business association. Through our nation-wide network of 500 community chambers of commerce, we are representing a national business force of over 170,000 businesses in every federal constituency within Canada.
We believe your review of Canada and Asia Pacific is, indeed, extremely timely given that we are fast approaching 1997, which has been declared Canada's Year of the Asia Pacific. The Canadian chamber cannot over-emphasize the importance that we believe this region has to Canada and the Canadian business community. What we are witnessing through the chamber is a definite growing enthusiasm and interest on the part of Canadian companies right across the country, both large and small, in the markets of Asia Pacific.
We find incredibly encouraging the fact that Canadian companies tend to have expertise in the very areas currently in demand or potential demand by the Asia Pacific economies themselves. Canadian companies tend to be world-class leaders in areas related to transportation, telecommunications, forest products, power, energy and the environment, to name a few.
Increasingly, we are recognizing the incredible potential Asia Pacific has as a market for these types of Canadian companies. Our work at the chamber has evolved over the years to reflect this growing importance to the Canadian business community and the potential that lies there for them. As the current trends continue, it is predicted by the year 2000 Asia Pacific will account for 60 per cent of the world's population, 50 per cent of the world's GDP and 40 per cent of global consumption. It is predicted that by 2020 seven of the largest ten economies of the world will be found within Asia Pacific.
As Canada's Year of the Asia Pacific unfolds, both the Canadian government and the business community will have an unprecedented opportunity to raise awareness as to these emerging market opportunities for Canadian companies. Some of our plans for 1997 include our direct participation in an APEC business customs symposium that will take place in Montreal on May 7 and 9. We will be participating in organizing a small- and medium-sized enterprise business forum, to take place in Ottawa in September. Both of these events will provide important opportunities to bring together companies from across the 18 nation APEC region to discuss common issues facing them as they engage in APEC commerce.
In addition to these special events, the Canadian Chamber of Commerce will also be organizing meetings of the various trade councils that are under chamber management. As some of you may know, the chamber manages a number of these bilateral trade councils, and next year we will have meetings with the ASEAN-Canada Business Council, the Canada-Taiwan Business Association, and the Canada-Korea Business Council.
Mr. Reid: As some of you may know, I have been particularly active over the past several years as the Prime Minister's special Canadian business appointee on what was called the APEC's Business Forum. This forum and its successor, the APEC Business Advisory Council, have enabled us to engage in the important task of advising the Canadian government and its APEC partners on the specific needs and objectives of business throughout the region. The APEC business community has been fundamental in the generation of specific results-oriented recommendations to advance the ambitious APEC vision. This direct business involvement is absolutely critical because that is really what the game will be all about for the next decade or so.
Despite the growing potential of trade and investment opportunities in the region, also in existence is an array of barriers that limit a freer flow of both trade and investment among APEC members and inhibit the interaction between business people. Many Canadian companies complain of the regulatory nightmare they encounter upon trying to trade and invest in some of the APEC member economies. This is a particular barrier to Canadian small- and medium-sized enterprises. Such enterprises are often new to the region and are limited in resources available to overcome such barriers. That is why the direct involvement of business across the APEC region is so important; namely, to ensure that APEC is a pragmatic business-oriented forum, directed at overcoming the difficult realities of doing business in the region and simply not a political exercise among the leaders of the APEC countries or a bureaucratic exercise among the bureaucrats from those countries.
I would like to take a few minutes today to review a number of the major barriers in APEC of particular concern to the Canadian business community. These concerns have come to us through a number of surveys, direct contact with some of the CEOs and entrepreneurs, and it is based on a lot of input by companies in Canada.
We believe it is important to keep the attention of the APEC governments, at both the political level and the public service level, squarely placed on these kinds of barriers. More important, APEC governments must cooperate to remove these barriers over a time frame that facilitates a rapid movement towards an open APEC trade and investment arena.
There is an excellent reference document available that outlines the immediate and long-term goals of the APEC business community. This report was prepared last year, and copies have been made available to committee members. It really does represent the views of business people, as opposed to the political level or the public service level. The report was driven by the business people that are listed near the front, and I was very pleased to be able to participate and contribute to that effort. I believe it provides concrete advice and recommendations for moving the APEC work program forward. The critical theme of this report is the need for clear and agreed time lines for specific actions from now until the year 2020, when full trade and investment liberalization in the region is envisaged.
As the Canadian government prepares for its involvement, and more important its leadership, in 1997, when the Prime Minister of Canada will host the leaders of these other economies, we would ask that particular attention be placed on the following eight-item agenda in terms of your advice to the Prime Minister, to the trade minister and to the officials of the Government of Canada. Those eight items are: honouring Uruguay Round commitments, the areas of investment, intellectual property protection and the regulatory environment; the pragmatic issues of customs, business travel, business infrastructure and the whole issue of the small- and medium-sized enterprises.
Let me turn to the importance of honouring the Uruguay Round commitments within the context of the APEC and the leaders' meeting in Canada in 1997. We have found that our members across this country support APEC's long-term goal of regional free trade by the year 2020. That includes opening up the Canadian market. However, in the interim, there are a number of short to medium-term objectives that will foster this process. Of key importance is the continued work of Canada and its Asia Pacific partners through the Uruguay Round commitments, covering such areas as market access, intellectual property protection, government procurement, agriculture, textiles, and for Canada, we believe the service sector is important. Such interim progress would greatly liberalize trade within the region offering many new opportunities to businesses in Asia and in Canada. The accession of APEC countries not yet members of WTO should also be a priority.
We list investment as one of the key areas in this process, and we are disappointed that the proposals being submitted to the leaders in the leaders' report are not tough enough in pressing for more open doors on foreign investment. We have stated many times that the non-binding APEC investment code is weak and full of loopholes. The Canadian Chamber of Commerce believes that liberalizing investment rules must be a top priority. The longer term objective of Canadian companies remains a predictable and agreement-based investment regime with rigorous protection and investment rights built into a fully transparent investment code.
The principal investment barriers now facing Canadian companies in Asia Pacific include licensing or screening of certain sectors and markets; private and public monopolies and concessions; policy approaches indirectly discouraging investment such as high taxes and discriminatory subsidies; private practices excluding new entrants, that is, cartels and closed distribution systems; lack of full commitment to national treatment; lack of information which is linked to transparency; performance requirements and local content requirements.
Overall, the principles of non-discrimination and the removal of barriers to foreign investment throughout Asia Pacific would greatly benefit Canadian business interests and two-way commerce with the region. It is important to make the point that, with the key change that has taken place in the past 20 years whereby trade follows investment as opposed to investment following trade, it is in the best interests of host countries in the Asia Pacific to provide a receptive environment for foreign direct investment. Unilateral liberalization of investment regimes should be encouraged through Canada's APEC work as well.
I come now to intellectual property protection. I believe this committee has discussed this issue in a number of forums but it remains a significant concern to Canadian businesses trying to operate in partnership in many Asia Pacific countries. Brand-name products, music and manufacturing technologies, unless protected, inhibit and even prevent technological development and investment in the host country, while robbing businesses of billions of dollars in lost sales and revenues. While abuses in Asia Pacific are still occurring, policy-makers in some countries are beginning to see the beneficial results in terms of the national self-interest of subscribing to stronger intellectual property rights. For example, such protection is often a condition for attracting beneficial value-added foreign direct investment. Since that will be a very scarce commodity over the next couple of decades, those countries that move unilaterally fast and first will get a bigger share of that scarce source of economic growth. Canada should use every opportunity available to encourage such development and monitor the progress of specific countries.
As to the regulatory environment; again, I am sure you have discussed this issue in the context of other countries with which Canada wishes to increase their trade. However, Canadian businesses, small, medium and large, continue to face restrictions through a lack of administrative transparency with respect to a variety of rules and regulations applied in member countries of APEC. Often overly bureaucratic and inconsistent application of government standards in areas such as health and safety and environment are very restrictive and deter greater commerce, in the real sense of non-tariff barriers. Initiatives promoting mutual standards and the recognition of those standards leading to harmonization are desirable goals of the Canadian business community. Harmonization toward specific and agreed to benchmarks, high-level benchmarks, not the lowest common denominator, is desirable.
Customs is an area where Canada has played an outstanding leadership role in the Asia Pacific, as well as elsewhere, but the lack of common custom codes still remains a serious problem. Initiatives aimed at greater simplification of electronic tariff databases, harmonization of tariff classifications and further adoption of the Carnet System, the merchandise export passport of the international chamber of commerce and education and training of customs officials are all worthwhile goals to pursue that will benefit the ability of Canadian companies to do greater business in the region.
The APEC Customs Symposium being organized next year in Canada, a partnership between the Minister of National Revenue and the Canadian Chamber of Commerce, will be an important opportunity to highlight these impediments and to try to reach agreement on dealing with them in a concerted, practical, pragmatic and expeditious manner.
Business travel is another issue. If there is one issue that really irked the business people who participated for two years in the Pacific Business Forum, it was this issue of facilitating their movement to do business in the area. Commerce would be greatly facilitated through greater expedition of passengers, the use of smart cards perhaps, waiving temporary visa requirements, and more allowance for temporary work permits. Such streamlining will greatly facilitate commerce and also serve as an additional investment incentive. We support the new business council's call for the creation of an APEC business visa in this regard and the establishment of APEC business immigration lanes in APEC ports of entry.
Mr. Chairman, the next issue is infrastructure.The infrastructure is massive, and for those of you who have been in the region it is just breathtaking what is taking place in cities such as Shanghai, Jakarta and throughout the region. Infrastructure development should continue to be a priority in terms of the countries of Asia Pacific on both rims, including Canada, the U.S. and Chile. This kind of development offers profit opportunities for Canadian companies that are among the world's leaders in telecommunications, transportation and other infrastructure services. The further development of regional/global communications systems must be undertaken in a manner that is open and harmonized. We support the new business council's call for greater efforts by the APEC countries to examine the infrastructure needs of various host economies with a view to identifying and recommending corrections to remove impediments to private sector involvement in developing new infrastructures.
The one that I found fascinating when I was attending these meetings in Asia was the emphasis the countries on that rim put on small- and medium-sized enterprises, which brings me to the final issue. I would like to emphasize that in terms of Canada's interest small- and medium-sized enterprises or SMEs have an unparalleled opportunity in this region. However, they are often at a commercial disadvantage in terms of finance, technology, human resource development and, indeed, networking. The APEC small- and medium-sized Enterprise Business Forum that the Canadian Chamber of Commerce is co-hosting in partnership with the Department of Industry next September will be an opportunity to provide Canadian SMEs with practical advice on how to do business with potential Asia partners. It will also identify public policy issues impeding the capacity of the small and medium-sized enterprises to expand into the international arena.
Mr. Chairman, I hope these comments by Mr. Hecnar and myself provide you with a helpful overview of the priority business issues faced by Canadian businesses regarding the Asia Pacific. We would be happy to attempt to answer any of your questions.
Senator Whelan: Mr. Chairman, I would like to ask Mr. Reid when he was at OECD.
Mr. Reid: From 1972 to 1974.
Senator Whelan: Were you there when I was there?
Mr. Reid: I remember you being there, sir.
Senator Whelan: The Minister of Agriculture for France at that time was a man by the name of Chirac. The thing I remember about the OECD is that they had the news release for the third day all ready completed when we arrived on the first day. I was not very impressed. I held them up, if you remember, for about a day. They missed their trains and planes, because I did not agree with Canada being a rubber stamp to the OECD. Everything was arranged and we were just supposed to rubber stamp it. I said a rubber stamp from Canada was much cheaper to send than three officials and myself.
I want to ask you a couple of questions. I have been to the Middle East, Asia and different parts of the world in my career. You mentioned Jakarta and Shanghai, and I have been to these centres. However, I am most interested in Indonesia, and what we have been reading about gold mining there. Can you make a comment on what you think of these kinds of tactics? Is that the kind of world trading we will be involved in as we move along? To me it seems like a Mafia operation. That may be a little harsh, but the money involved is larger than some of the Mafia deals. It is so obvious, how the families are working this and -- you must do this and you must do something else or you will not do anything.
Mr. Reid: Mr. Chairman, I certainly do not even pretend to have the detailed knowledge of the working and business transactions in this case. However, I have found from meeting with these business leaders, including some from Indonesia, that they realize that they must be transparent, that rules must be clear and that people must feel that they are playing on a level playing field; in other words, the rules do not change in the middle of a negotiation. I am absolutely convinced that the vast majority of the business people with whom I associated from these 18 countries really see rules-based transparent investment regimes as being the only way that there can be private sector business development on that side of the rim over the next couple of decades. The reports for this year and the previous year make that thrust very clear. That is precisely why I think President Clinton said in 1993 that he wanted a group of business people appointed by the leaders and brought together, to firm up that point of view.
Senator Whelan: I do not know if Mr. Reid has answered my question, but a lot of Canadian money and Canadian companies are involved in that project, and it seems that when companies go into Asia or some other place they do business in a different fashion than they do in Canada.
Mr. Reid: Senator, if you take a look at the two reports by the business leaders, and they are supported by some of the top business leaders in Asia, you will find that they come out straight on, saying that the best way to encourage development and investment in their countries is through transparent investment codes, rules that are applied equally and are known. Therefore, if one is having a competition for a major infrastructure project, or in this case a mining project, there is the consensus that that is the only way there will be effective economic development over the next couple of decades in that region.
The Chairman: Would it be unreasonable for me to conclude from the fact that they made this comment that they felt there was really a very considerable need for that comment to be made?
Mr. Reid: There is no question. I mean, these people are trying to do business, they are competing. In terms of shareholder value, they are trying to do the best for their shareholders. They are saying in so many ways -- whether it is simply a lack of understanding some of the investment codes that have come out of the latest Uruguay Round, I do not know -- that they want to do business, and the way they want to do business is through transparency and investment codes. There is fundamental disagreement with the leader's position on a non-binding investment code. These business leaders want a binding investment code, and they have and are stating as much unequivocally. They want that code to be binding through domestic laws in each of the countries, whether it is Indonesia or another country.
If you are talking about the business leadership that the leaders and prime ministers appointed to advise them, they are very clear on their position.This is a consensus document, and this is the way to bring about the kind of development that is needed on infrastructure projects and other projects in the Asia Pacific.
Senator Whelan: Mr. Reid, do you approve of this kind of operation that is taking place at the present time in Indonesia? I think you have said no, but you have not really said yes or no. We read about it every day in the paper and it is becoming more and more alarming all the time. Is this the new world order of trading that we will be involved in, which is something that I do not think very many Canadian business people approve of?
Mr. Reid: All I can say, Mr. Chairman, is if you want a Canadian business view and an international business view of the economies in Asia, including the link with Canada, whether it is investment, exports or imports, this is the kind of approach to take and that is the kind of approach Canadian business wants taken. To ask me to comment on a specific case of which I have no direct knowledge is totally impossible.
Senator Whelan: Can I ask you to comment on the principle of the case?
Mr. Reid: As to the principle, I would come right back, senator, and say that these two documents, which represent the views of business people in Canada and the Asia Pacific, will tell you what principles are necessary in order to ensure the desired road map to realizing an APEC vision, which is a free trade area in APEC.
Senator Whelan: In what ways does Canada benefit from transferring technology, say, to East Asian countries if that knowledge is then used to compete against Canada or Canadian companies producing the same types of products?
Mr. Reid: That is one of the top recommendations of the business people representing both Canada and the Pacific Business Forum. They are saying there really must be protection of intellectual property rights because that is the way Canadian companies with technology will invest and become involved in co-ventures in these countries. They simply will not put in their money if they are too uncertain about the pirating, if you like, of the intellectual property rights.
A number of the Asian business people on the Pacific Business Forum made a point I made in my own remarks, but perhaps I was too gentle; that point being that the issue will be a shortage of capital. Some of the longer term studies on saving rates around the world show that over the next 20 years there will be a decrease in saving rates for a whole bunch of reasons and a tremendous increase in demand for those savings, particularly for direct investment. In our first report in 1994 we said, quite frankly, that it will be in the interests of individual countries, being prodded by their business people, to be the first out of the gate in terms of having transparent investment regimes because they will be the countries to which the money will go. What we have already seen over the past three years with the unilateral dropping of barriers, non-tariff barriers, and the firming up of investment codes and transparency provisions, is that more investors go to those countries than to other countries.
In a real sense governments are following what is happening in the marketplace and trying desperately to keep up. You may have seen some of the studies from the Deutsche Bank on the whole issue of savings and investment over the next couple of decades. From a business point of view, we are saying, in a real sense, that it is time for governments to catch up with what is happening in the marketplace and to ensure that government regulations, government investment codes and so forth are put in place so that the process can be much more orderly.
Senator Whelan: With regard to the code of ethics, in Nigeria, for instance, we have pretty near said, "No way, we will not deal with you." The code of ethics being applied with regard to Indonesia do not appear to be as high as those for Nigeria.
Mr. Reid: Senator, I am very pleased to say that the International Chamber of Commerce certainly does have a code of ethics, and the business community is very concerned with that area for precisely the reasons that you have stated.
Senator Andreychuk: You have indicated that harmonization of custom regulations and the removal of all barriers are key to trading and you have said, from a Canadian perspective, that governments should put more pressure or at least their energy into these countries and make it a top priority to remove barriers, harmonize and bring transparency. What in today's dealings by the companies that you represent gives you any optimism that the governments of those countries, particularly perhaps China and Indonesia, will respond to this pressure from Canada's government or, indeed, the United States, when in fact what we are seeing is a brinkmanship sort of arrangement where we continue to insist on these things? For example, China continues to insist on its own rules, for instance, at the first round on the WTO. It was not a compromise of varying cultures in varying ways, it was, "Here are our conditions or we will not enter." Now we are scrambling. "We need them in," we say. We would like them to play by the rules that you have identified and they seem not to be yielding. Where do you hold out that optimism that our pressure will be meaningful and accomplish the results that you claim we want.Indeed, you have gone one step further and claimed that their businesses want the same results.
Mr. Hecnar: We must realize as well that the intra-regional trade within APEC is increasing at phenomenal rates. Not only is China trading with Canada and the United States but also with its partners in Asia. As a result, there is a growing realization amongst these countries on how customs procedures, lack of transparency and administrative red tape can really impede trading with one another and because of that understanding there is a growing political will amongst the countries. It is not viewed necessarily as a developed world versus China issue per se but as a practical business level issue, that through greater cooperation, through groups such as the World Customs Organization, these countries can actually sit down and get rid of the burdens, many of which are not of a political nature but exist simply from the lack of administrative effectiveness and so forth.Through these increased trade dealings I think countries are starting to see that it is to their benefit to eliminate these barriers. It is not necessarily that they are giving up something to Canada or the United States.
Senator Andreychuk: The question is where is there a concrete example in any of the negotiations or in any of the fora that your companies deal in, that you can actually point to as positive proof of change, not just a growing awareness, a growing consensus? In other words, I think the rhetoric has been there for quite some time but can you give us one concrete example to give me some assurance?
Mr. Hecnar: One example I would bring to your attention is the International Chamber of Commerce, with which we are affiliated. It has a customs working group. In fact, the ICC, which has a working relationship with the World Customs Organization, has recently agreed upon a world customs model, in an attempt to try to coordinate and harmonize and bring countries together on this issue. The fact that the ICC, being such a wide group representing businesses from around the world, including those of APEC, has come up with this model I think shows that will within countries to move ahead on this issue.
I do not deny that we have a long way to go. We are really in the early stages internationally of customs harmonization, but I think we have laid the proper groundwork to engage these countries on the issue.
Mr. Reid: The Canadian Chamber of Commerce and broader business groups in Canada support strongly the position of the Minister of International Trade on this issue of China's accession to the World Trade Organization. It is certainly our position that the "two Chinas" should come in, but only on the basis of the proper criteria, and until China meets those criteria they will do not come in to the World Trade Organization.
Senator Andreychuk: I do not think anyone disagrees with you. I think if Canada could persuade them and if those countries could be seen to follow the rules, there would be no problem. You mentioned that you think the two Chinas should become members. China has already made it clear that that is a non-starter and I think those who work in the field know that it is a non-starter at this point. Where does that leave us and where do we go from there? There is a growing awareness that there are certain rules internationally that we should all play by and we would hope that China would be part of that process, but there is no readiness on the part of China to change its position. In other words, if you come into WTO there must be some compromise on both sides.
Where does your optimism that there will be some change come from? Personally I would say that the change will come with new leadership, not with this present leadership. Do you see the need of a political change in China before there will be some readiness to yield from its position? If you look to the proceedings of the United Nations, particularly the last five years, you will see that China has not yielded from its position on any issues, whereas all the other countries have. In other words, we cannot mention Tiananmen Square, we cannot mention Taiwan and we cannot mention Tibet. Although we say we will, strangely enough we do not. It has been a one-way negotiation. Where is your optimism if there is no political change?
Mr. Reid: I guess the optimism comes from the first report of the Pacific Business Forum, in October 1994. All I can do is say that this is a business view. It is a short paragraph on page ii.
As APEC enters its sixth year it must prove its value by making substantive and practical progress towards a predictable trade and investment environment in the Asia Pacific region. Businesses in the Asia Pacific region are moving faster than the rules of international economic relations and are bringing about an acceleration in market-induced movement towards freer trade. As a result, business will not and cannot wait for governments. Businesses will go where bureaucracy is minimal and procedures straightforward and transparent. Therefore, APEC must achieve pragmatic results.
I come back to the point I was trying to make before, and it really is a straightforward business proposition or an economist's proposition, that the countries that move to make their investment regimes transparent, facilitate their customs, are the ones that will get the investment, and in a sense the market will drive a lot of what you are talking about. If it is difficult to do business because of non-transparency in certain countries and easier in other countries nearby, that is where the investment will go.
I just spent an hour with two Korean newspaper people talking about our Team Canada mission that will go to Korea next month. The point there is that they are very interested in joint ventures with Canadian companies to go into other countries. There is this tremendous competition among these countries to be an investment hub using North American savings. Now, is that optimism? I guess in a sense it is but it is also a tough market response that I think will drive a lot of the political decisions, and if it does not then those countries will be worse off.
Senator Andreychuk: You were saying that you support the government initiatives, and I think they have been the correct ones to start with.However, what can we do beyond ask? Insist? Suggest? What should we do in this coming round of APEC talks, given that the leadership will come from Canada, to be more productive than what the past six years have produced? As you say, predictability is what businesses want, and that can only spring from stability. While we have been calling for such changes, our efforts have not translated into anything concrete. What can we as a committee recommend should be done, rather than more of the same?
Mr. Reid: What you ought to do, with great deference, Mr. Chairman, is invite the Minister of International Trade to appear and ask him to itemize what are called the deliverables and then determine whether or not, when you add up all those deliverables -- some of them unilateral <#0107> they answer your concerns by, for example, 2 per cent or 50 per cent. Things are really happening out there and Canada is playing quite a role through the Canadian government.
For example, customs is a specific area. The training of customs officials in some of these countries that have, if you like, transparent custom procedures, is absolutely critical, because they cannot implement those procedures without the right kind of training. My understanding is that the view of governments and business people on the other rim is that Canada is making a tremendous pragmatic, practical contribution to this kind of issue. One must ask when you add up all the little things, "Are they substantive or are they just a bunch of little things?"
Senator Grafstein: I am interested in dealing with Senator Whelan's question from a different perspective. There is no question that in some of these emerging countries special relationships with the ruling classes is helpful to fostering business deals, particularly large infrastructure projects. The question that we should perhaps look at is: To what extent can we foster through APEC the essence of moving towards a more transparent democratic business environment through autonomous business organizations? By "autonomous" I mean that, while they may be under the umbrella of the government, they tend to act in autonomous ways. That is the general issue and I want to come at it a little specifically, if I can.
I have seen two models of boards of trade or chambers of commerce. One is the European model, which is really the requirement that every business, large and small, join and be members of the chamber of commerce. On the other end of the pole there is the North American model, which is a volunteer sort of Rotary Club -- join it if you will or if you can, but there is no mandatory requirement to do so. Canada is somewhat in between those two models.
The question I have is: Laying aside Hong Kong, Singapore, Taiwan and Japan, all of which have relatively autonomous business communities; what is the nature of the autonomy of the business communities in places like Indonesia, Korea, Malaysia with respect to groupings such as yours? Also, is your organization working on a bilateral basis with those groups or you are working through the umbrella group of APEC? By the way, I would appreciate hearing any general comments you might have about that topic.
Mr. Reid: In terms of the business people appointed by the leaders in the countries on that rim of APEC, it was interesting as to just who were they, what were their business connections and so forth. Having met some of the members for 1995 -- jogged with them, played tennis and that kind of stuff -- there is no question there is quite a variation in the extent to which these people are associated with the people governing their countries. Some of them were much more perhaps "crown corporation types" in Canadian language. However, cutting through all that, they were certainly business people. I sat beside the two representatives from China, because Canada and China sort of go together, just before Chile came and joined us, and they were talking business language. They were from big investment houses and so forth. They had certainly the business sense as opposed to a political or public service sense, so in that sense they were business people.
Many of them were active in their chambers of commerce, primarily as business volunteers, and had been chair of the board of their national chambers of commerce. In many of these countries the national chambers of commerce might not be public law chambers as they are in Europe but they are certainly very powerful places where business people get together and some of them have roots in local communities.
As to the extent of the chamber network, the International Chamber of Commerce comprises over 100 national chambers. Canada is a member through the Canadian Council of International Business with whom we have a strategic alliance.
You went through a number of countries and I know that you want a certain focus. In Hong Kong, for example, there is a national chamber there, a series of them. There is also a Canadian-Hong Kong Chamber of Commerce that is very active. With Taiwan we have the Canada-China Business Association, again active. In Tokyo, Japan there is a Canadian Chamber of Commerce, again, led by Canadian business people living in Japan.
You asked me to put those countries aside, and to comment on some others. I will start with Korea. When the leader of Korea was here about 15 months ago there was a signing ceremony on an agreement between the Canadian Chamber of Commerce, the Canadian Chamber of Commerce in Korea and the National Korean Chamber of Commerce. In terms of the business program for Team Canada that will take place in Korea on January 10 and 11, that is very much a joint venture with a number of business associations in Korea.
When you get into Malaysia and these other countries, that is where things probably are quite different. There are not national chambers, there are business associations of various sorts, some of them very local, some of them national. Take Vietnam, for example. Over the next year or so we will be working with a national chamber of commerce in Vietnam to see what sort of arrangements we can make there for Canadian business people.
I am feeling quite inadequate, Senator Grafstein. The chamber movement world wide is very diverse. However, in terms of ethos and culture, it is very much business oriented as opposed to a political or bureaucratic culture.
The Chairman: From the question and from the answer I get the impression that what we would call the private sector is almost difficult to detect in some of these countries. Consequently, many of the things that you advocated, Mr. Reid, such as transparency, an assured set of ground rules for investment and the like, are not likely to emerge, politicians being as they are.
As a gross generalization is it fair to say that, outside the obvious exceptions of countries like Hong Kong and Singapore, the private sector is really very small and not very independent?
Mr. Reid: Mr. Chairman, I must say that I do not have the expertise that I think you and some of the other senators are looking for. I think you really do need to get some political analysts in to comment on that question.
The Chairman: Fair enough.
Mr. Reid: Again, I have not worked and travelled in one of these countries for five years, as have some of the Canadian business people, but certainly listening to them and participating in the Team Canada missions and having these links with some of the national chambers, I am convinced -- and I keep coming back to a response I know that is perhaps inadequate -- based on the outlook for saving ratios and the market dynamics over the next 20 years -- that the demand for investment will determine a great deal. I am not an economist but I must tell you that the power of market forces is just incredible.
If the politicians in country X and one of the countries that you are referring to want to build a new harbour, airport, railway line or infrastructure for roads, they must form consortium or put together a lot of partners to finance the project. It will involve a mixture of government money and private money, and such questions as whether one will simply charges a so-called rent or a fee for something that, after 20 years, will revert to a private company in the host country. They simply will not be able to get the funds to build that infrastructure unless they listen to the market, unless they realize that a lot of business people will not get involved unless there is transparency and clarity about getting their funds out. This is not the 1960s and 1970s when savings ratios were high and investment demand low world wide. Today you have to scramble for those funds.
Senator Grafstein: I am trying to discover whether there is any sort of a trade model on the things that we can do in a very cost-effective way to set up trade incubators that would benefit Canadian trade. I think the chamber of commerce is a good thing, I think government to government is a good thing, I think twinning between provinces is a good thing. I am just trying to get some assistance from you in terms of the types of cost-effective things we can do, say, in Vietnam or Malaysia where we know there is a rich, emerging market. How do we try to penetrate in a competitive way that particular marketplace.
I know the Germans, for instance, through the chamber of commerce usually, set up the Goethe Institute, they bring in their cultural institutions. The French tend to do the same thing. Hong Kong has a highly sophisticated database that is accessible to business. When they come in you can punch the database and you can find out what you want to do, where you want to go, it is very cost effective.
Do you have any advice you can give to the committee that we in turn can impart to our governments or others about how we can cost effectively establish, as I say incubate, trade models that will help Canadian businesses, small and large, particularly in areas where the culture is different, the government style is different and so on. Have you done any thinking about that?
Mr. Reid: What I can do here, Mr. Chairman, is talk about two programs in which we really have provided some leadership. The question of their effectiveness is still outstanding. About three years ago, in discussions with officials in three departments -- Human Resources Development as it is called now, External Affairs and Industry Canada -- it was absolutely clear that many medium-size companies and some smaller ones had the capacity to compete overseas, in other words outside of North America, but they did not have the skills or the people on their staffs who really understood international business.
We established something called the Forum for International Trade Training, and you may want to invite the executive director of that organization to come and talk to you, specifically to prepare business people if they wanted to go broad on a trade mission or to pursue new business. It has been a highly successful program, a unique partnership with the private sector. The Canadian Chamber of Commerce signed the contract for $5 or $6 million with the Department of Human Resources Development. I happen to chair the steering committee which is represented by seven different associations, including the Canadian Federation of Labour and the Association of Community Colleges, and it represents a new way of working in this country -- much closer, if you like, to a public law chamber but through kind of a negotiation and partnership arrangement. That to me has been a tremendous success. It is working, and it was in the Red Book. If I sign a contract in partnership, instead of having things done in-house they would have them done outside and then we would privatize it, which is the real market test. That is one example.
The other one is what we call SME Net, another very innovative program. Again, it was in the government's so called Red Book. We managed to convince the government that they should form a partnership with us on this endeavour. It is based on a program that came out of northern Italy, Denmark and Norway. You work with a group of small business people -- totally independent entrepreneurs, highly competitive -- to come up with a plan on how they might grab an international contract, for example. We are working very closely with the Honourable John Manley and his officials on this project. That is a partnership involving about 20 or 25 different business associations and local chambers of commerce. These are the kinds of partnerships that must evolve. This is a very interesting model that takes a business association like the Canadian chamber and put it in a partnership arrangement. It is all fee-for-service by the way, there is no subsidy in this thing. That is the way to go. Those are two concrete things.
I must tell you, having been on the first Team Canada mission to China, in which Senator Jack Austin and the Canada-China Business Council were very instrumental, that these missions are a tremendous innovation. As part of that effort, as some of you know from the Team Canada mission to India and Pakistan and other countries, the Canadian chamber was asked to actually issue the invitations on behalf of the government inviting business people to participate with the Prime Minister and the premiers. That, again, had never been done before in this country, that kind of innovation.
The January mission is also a partnership arrangement. Certainly we took some risks with our image, if you like, but we just went in there and said we will help the government make this one work, so we are organizing the business program in Korea, the Philippines and Thailand. We have private-sector sponsorships for those missions and they really seem to be working. I believe they are cost-effective.
What is their effectiveness in terms of real impact? There are I think two things. In terms of Team Canada, I suspect we have broken through a psychological barrier among many medium-size and small business people in Toronto and Montreal, where the awareness issue is most prominent. There is no lack of awareness in Vancouver, even Calgary on the opportunities in the Asia Pacific, it really is in this part of Canada.
I will stop with the Asia Pacific Foundation and the foreign student program that they are working on. I know it may be controversial to some people. One year ago I was in Osaka with the Prime Minister for the leaders conference. I went there because I was on this Pacific Business Forum. I met four young people who had been studying Japanese, teaching Japanese. They had put together a consulting company, and they made a deal with the B.C. trade office in Osaka. They had been given some office space in the trade office and were doing $5,000 marketing contracts for small businesses in B.C. They were not taking business away from the big Canadian companies, as they would not take these small contracts.
Those examples may seem inadequate, but they models of the kind of innovation that is needed. We all know the statistics, 100 companies in Canada account for over 75 per cent of our exports. I am a bit worried that the statistics do not show the service sector very well. We really must get in that medium-sized market and realize that different kinds of programs -- different strokes for different folks if you like -- are the way to go, then we must determine what those programs are.
Senator Grafstein: Being on the APEC business forum council, you see the diversity of what is happening and so on. Do you consider it as part of the chamber's terms of reference to sort of do twinning between companies in the Pacific Rim and the rich array of private organizations that we have in Canada; the Holstein Organization, the Wheat Growers Association, the Prepared Food Products Association, the Canadian Bar Association? We have a rich tapestry of specialized business organizations, and it is very hard for them to sit here in Canada and figure out what is going on in, for example, Malaysia, but is their anybody that is bringing that type of rich talent at the organizational level together so that it can then keep its members informed about the opportunities. Is that being done in a coherent fashion or is it just sort of an accidental thing?
The reason I ask is that in China I came across a horse breeders association from Canada. I wondered what the heck they were doing there. As well there were some people who were involved in the milk marketing board, and I ran across them accidentally. My point is are we doing it in a more coherent way and could the chamber spark that sort of initiative?
Mr. Reid: If you take a look at the last seven or eight years there is more of that kind of networking, sharing of information taking place than before. As to whether it is organized or simply happens when opportunities come up, I think it is much more the latter. The federal government is finally getting its act together in that the Minister for International Trade and the Minister of Industry have decided that they are really in the same business, and the current deputies believe that as well. I am quite hopeful, and also a bit worried that it is kind of personality based right now. However, for the most part, I am very hopeful that those four people within the federal government and the 16 departments involved in international business will be able to bring some coherence to their actions.
The SAGITs are working very well and they are much more specific as you know. I sit on the ITAC, which is more policy oriented. ITAC has a policy committee and a program committee. On those committees are a number of people from these kinds of specialized business associations. This took place, the SAGITs were set up, as you know, for the free trade agreement. That is still working. The system has been improved upon by both the previous Minister of International Trade and the current one and it is working very well.
The Canadian Chamber of Commerce has about 75 different business associations that are members. They are not voting members. They get our press releases, they get notices of Team Canada missions that we are involved in and we also use them, quite frankly, for our domestic policy advocacy stuff. For example, if we have a position relating to debt/deficit taxation we might ask them to sign on to our submission.
Again, we are market tested and if we are providing effective service or a perceived need to other business associations by involving some of the associations in the Forum for International Trade through, for example, the SME Net coalition, and they are totally open door, then trust builds, people get to know one another. In effect, we are trying to establish our own SME Net among associations. It takes time and it takes interest on the part of various organizations, but in the end it takes a desire to do exactly what I think you are saying, keep pushing it, the advantages of working together. Never underestimate the value of a specific business association where companies involved really feel they own it and it is responding to their specific interest.
A friend in Ontario back in the late 60s was a farmer and he produced bull sperm. It was the best in the world and he was selling it all over. There may be about 50 of those farmers and it is important they have their own association if they want to go in and compete in a big market like China and beat out some of the big companies from elsewhere. That is the kind of thing the SME Net is all about.
Senator Corbin: Is this action plan unanimously agreed to by all the players listed at the end; is it strongly supported by everyone including the U.S. representatives?
Mr. Reid: Yes. It was absolutely fascinating. I can say point-blank that neither the Canadian representative nor the American representatives perceived themselves to be there as government spokespeople. It was very interesting to see us reminding ourselves, time and time again that, yes, we probably know our government's position on many of these issues but that is not relevant.What is relevant is that we need to do more business out here.That was the consensus.
Senator Corbin: You spoke about some barriers to trade. It seems to me that, for years, the Americans have been the real players in terms of trade, the real go-getters. They do not actually need a lifting of these barriers, surely, to continue doing trade on the scale that they have been doing all this time. Canada is still very much a small player in the Pacific Rim, and we know that, to some extent, U.S. players can agree to the rules of the game and that they can also find ways of going around them when it pleases them, or at least they will try. We have had that experience in the free trade agreement between the two countries.
I wonder about the Australians. They have pretty well cornered the south-east Asian market. There are opportunities for Canadians there as well. You state that there are vast opportunities for growth in the business community, but how much can we improve our trade under this new banner? There are limits to growth, there are limits to the potential. Are we setting specific goals in terms of the eventual trade that we will want to do or that we can actually do with these Pacific nations? Or are we just overwhelmed by the sheer numbers, the sheer potential? How far are we at targeting real, honest-to-goodness, credible market opportunities?
Mr. Hecnar: If you look at the trade figures for Asia Pacific region just in the last five years alone, it has increased by 87 per cent. There is certainly no denying that opportunities exist. If you look at Canada's own trade figures within that group there is actually some worry because our share is diminishing. In an absolute sense, Canadian trade within the region is growing, but as a market share it is not. The ability of Canadian companies to reap the benefits of those opportunities will be brought about only by concerted efforts to get into the market. Canada must be a player at this table, and I think our active involvement in APEC is important in that regard.
We are looking at a real growth situation here, and we cannot sit back and wait for the opportunities to come to us. Tim Reid mentioned some of the specific programs that we have at the chamber to get Canadian companies out there and into these markets. Otherwise, we will lose market share to our own competitors within the region.
Mr. Reid: I am sure there are scholarly articles and surveys, but Canadians seem to be so welcomed out there. In terms of our history we were not a colonial power like the United Kingdom, or an occupying power such as Japan. They do not worry about our culture, but about penetration by the U.S. culture. Therefore, it is a wonderful opportunity for a country like Japan, which has good North American technology, good education and the ability, I think, to put together investment funds from all over the world. It is also advantageous to encourage subsidiaries of multinationals with majority ownership outside of Canada, from the U.S. for example, to do business out in Asia Pacific. I really feel that there is an opportunity here if we have the wit to really move on it.
The other thing involves a traditional Canadian sort of approach. You mentioned the U.S. and their unilateralism when it comes to trade issues, whether it be in a free trade arrangement or a bilateral arrangement with, for example, Japan and how it really distorts the level playing field there when it comes to pitting Canadian products and services against U.S. products and services. Traditionally we have tried to build alliances with other smaller countries to ensure that the big countries, in this case there are two big ones, the U.S. and Japan, have to play on a more level field. We build up partnerships in order to help our people do business. I certainly saw that even in this Pacific Business Forum.
It is funny because that is a political statement. Mexican business people and also representatives of some of the Asian countries, for example, would come over to me and sort of say, "Can we not get this anti-dumping thing worked into this agreement?" It is pointed at the U.S. We have anti-dumping in here because a number of the smaller countries decided they wanted to put it in the report. We had American business people that agreed it was a problem in terms of the U.S.
Is it a false goal? Is it optimism run wild? I do not know. I remember the trade mission to Taiwan about four years ago, headed by the CEO of Dofasco. We picked 13 companies that were matched to the five-year plan in Taiwan. Except for two they were medium-sized companies, and they walked a way with contracts. We were kind of way ahead of the game. That was an endeavour to match Canadian companies with Taiwan's five-year plan. So the opportunities are there for the asking, but how do you really get that message across. I do not know for sure, but we are trying.
I think the previous government tried and I think this government is trying to convince Canadians to get away from the immense attractiveness of doing business south of the border; kind of "lazy business" I call it. We have increased our market share in the U.S. under the NAFTA. We have proven we can compete against the best in the world. Some companies did not make it but the ones that have can do the same thing in Asia, if they see the rate of return over a reasonable period of time as being as good as what they can get by investing in Canada, the U.S. or elsewhere in the world.
Senator Corbin: You represent very much a national organization, the Canadian Chamber of Commerce. It is obvious that Western Canada has a natural advantage in terms of trade opportunities. Is the chamber doing anything to get people in the Atlantic area, Quebec, and Ontario to jump in on these opportunities?
Mr. Reid: Very much so. Representation on the Team Canada missions of business people from Quebec has been very good. For the Team Canada trade mission coming up in January there is excellent representation by business people from Quebec. I also happen to know that the vice-chairman of our board in New Brunswick will be going with the premier, and he is also the CEO of New Brunswick Tel.
Senator Bacon: On page 11 of the document entitled "The Osaka Action Plan: Roadmap to Realising the APEC Vision" it says that restrictive regulations should not be in the form of protection, and there is the example of New Zealand, where there has been an extensive program of liberalization for the past decade or so. The program has touched all sectors, and the New Zealand economy has grown substantially because of it, 17 per cent since 1991. Would you recommend the same program be implemented in Canada or would that be helpful in dealing with the Asia Pacific markets?
Mr. Reid: Our policy on regulation is very tough minded to the government sector. We do surveys of our members and we have actually got one out now which asks a very simple question: What is stopping you from hiring one more person next year? There has been a shift over the past three years. I have looked at some of the preliminary results, and three years ago when we did this there was no question that the debt issue the interest rate issue and generally getting government finances in order in this country were the major concerns. They are still top-of-the-mind issues but the debt is the issue not the deficit. However, more and more I am hearing this concern that with government downsizing we are getting more regulation, as well as fees. There is a real concern that we are going in the wrong direction on regulation as amongst the federal government, the provincial governments and the municipal governments. There is a public interest in regulation, there is no question about that, but we are very worried that when a government says to its public servants, "We are cutting your budget, but if you can recoup some of your costs through increasing fees you can keep your job", they take that approach, rather than means to become more efficient and effective. That has been a real concern of ours.
Regulation is very costly, so we need this discussion about how much regulation, what kind of regulation, do you tell business how to do things or do you tell them what the objectives are on environmental issues, measure them against those objectives and let them decide the best means to do it.
The short answer is we have a lot to do in this country. We are over-governed with too many politicians, too many public servants and too much regulation. It is time that they realized that what may have been appropriate back in the 1960s and 1970s is not appropriate now. When we are talking about productivity issues such as declining productivity in the North American economy, government does not have to get out of the way of business but become much more sensitive when business says that regulations are inhibiting them from expanding, from hiring more people.
Senator Bacon: That would be the kind of recommendation you would make to the government when dealing with APEC countries?
Mr. Reid: Yes, very much so.
Senator Bolduc: When you talk about small and medium corporations, you see them as having direct involvement in exporting goods and services and subcontracting to bigger business firms. In that respect, do you see the Export Development Corporation as a governmental agency that is doing its job fairly well? One of their problems is financing.
Mr. Reid: Yes. I was invited over to be briefed on their new SME program. I would like to see the statistics on the results of that program. It made sense, and certainly I was impressed with the professionalism of the staff who gave the presentation. I think the answer is that we really must find out what the statistics say. My understanding is they are reaching out in a much more coherent way to the small and medium-sized enterprises. What the impact has been at this point I just do not know.
Senator Bolduc: Would you say that when they subcontract for the big firms it is okay but when they do not it becomes a major problem?
Mr. Reid: There are always two sides of an issue.For example, is the company ready with a good business plan, and if they are not, will anyone be helping them form a good business plan? The other side of it is, are the criteria sensitive enough to an entrepreneur as opposed to an executive of a big company. Entrepreneurs are very different folk from the executives of big companies.
Senator Bolduc: Have you received any feedback from your own members?
Mr. Reid: Not yet but I think it would be a good idea to include that in our next survey.
Senator Bolduc: I think you should, because it is a topic among the models that Senator Grafstein was talking about, and it is very important. I have been involved in such business in the past, and when we did international work we always had that problem of getting sufficient financing for the initial period.
Mr. Reid:I was amazed at the first meetings I was at of the Pacific Business Forum two years ago when a number of the countries on the Asia rim kept bringing up the issue of SMEs. I thought this is really great, the chamber of commerce is basically an SME kind of movement in Canada, with the support of the big companies as well. However, in those countries the relationship between the big companies and SMEs is very different, I think. I gather that there are some down sides to those relationships as well as up sides, but they are certainly very concerned with the efficiency of the SMEs and their suppliers, and I guess the best model would be where they help with management training as well. You do get that kind of contract. I know that when SNC Lavalin, for example, signs an international contract they often pull in smaller companies in Canada, but it seems to be much more a dominant philosophy in some of these countries.
Senator Whelan: When I was in Indonesia on an official visit, we visited a research station that was supposed to be for sheep and goats. It was run by an Australian company that had sponsored it and built it. As we were going through, we were speedily ushered past three big boxed stalls and he did not want me to see what was there. I said, "Stop, what are these?" They were three beautiful red and white Holstein bulls. I asked what they were doing at this station. He finally told us that they were gifts from West Germany for the president of the country. These bulls were the answer to any good cow's prayers as they were just beautiful, but would Canada think of doing that kind of thing? Do you approve of that kind of trade? You can imagine the response when the West German representative went to sell something in that country, "Oh, I remember him, or his country. He helped us improve our dairy herd by the gift of three bulls." Do you believe in that kind of thing; does the chamber endorse that kind of thing?
The Chairman: Is that a policy and if so which clause of your policy supports this?
Mr. Reid: Where are the limits on this sort of thing is really your question. Some of you will know that an international organization is being set up to get at this kind of question that Senator Whelan is raising.
Senator Whelan: I found that very hard to compete in such situations because we were under such strict rules about not doing that kind of thing in trading. We would not get involved in that kind of thing at all.
Mr. Reid: I was in Indonesia with Raymond Chan when Mr. Bata opened a new shoe factory outside of Jakarta, and I was pleased to go to that opening. To me the statement that that factory made to the people of Indonesia was a much more powerful statement than a gift of three bulls. Bata created a good workplace for people in terms of the work stations, the ventilation, the cleanliness, and so on.That is the kind of thing that Tommy Bata does, and I was proud to be associated with the opening of that little plant.
Senator Whelan: I am very much aware of what Mr. Bata did there too, that he paid the best wages of any of his competitors and had the best working conditions too. I applaud that but I do not see any comparison between that and these outright gifts.
Mr. Reid: If you are talking about the impact of such gifts on decision makers, I would respectfully suggest that people like Tommy Bata putting in that kind of facility and listening to what the local community outside Jakarta would like has a much greater impact than wrapping up three bulls.
Senator Whelan: If you were selling Mercedes Benz or something else it might have a big impact too.
The Chairman: This has been an insightful presentation. It may well be that after we have digested what you have told us and have had the opportunity to do other forms of exploration that we will want to ask you back to check our reaction against your own.
We now turn to the second part of our agenda, which it relates to the Bill C-61, an act to implement the Canada-Israel Free Trade Agreement. I will tell you how I propose it proceed. The bill has 62 clauses and a schedule. I shall follow the usual procedure and set aside the title, the preamble and the short title. The first clause to which we will be directing our attention at this time is clause 2. I have been told that it is quite possible that two amendments will be offered; the first would be to clause 7 and the second would be a new clause to be numbered 41.1. I shall call clauses 2 through 6, and then I will call clause 7. Then I will call the clauses after clause 7 to the point at which the proposed new clause 41.1 would be inserted, if it carried, on page 21.
Is that procedure acceptable to members of the committee? If so, the question is: Shall clauses 2 through 6 stand as part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Carried. Shall clause 7 stand as part of the bill?
Senator De Bané?
Senator De Bané: Mr. Chairman, I have the honour of tabling an amendment to clause 7 that reads:
(a) by replacing line 25 on page 3 as follows:
7.(1) For greater certainty, nothing in this Act or the Agreement applies to territory not within the State of Israel on June 4, 1967;
(2) For greater certainty, nothing in this; and
(b) by renumbering subclause (2) as subclause (3).
If I may explain, Mr. Chairman, the Minister of Foreign Affairs has stated that the policy of the Canadian government is that those Jewish settlements in the Arab territories are illegal, and we still maintain that position. The minister said that our policy has not changed and that it is the same as all other countries except one. I submit that the bill, by extending the benefits of free trade to all territories under Israeli control -- to put it brutally frankly, "Israeli customs union" means that it is under Israeli control <#0107> creates three flaws.First, it goes against Canada's position that those Jewish settlements are illegal; second, it does not promote peace because Prime Minister Netanyahu will no longer be restrained from creating more settlements if Canada gives its blessing, and finally, it is unfair to Canadian businesses because businesses established in the occupied territories receive public assistance from the Government of Israel. They are heavily subsidized, making Canadian companies subject to unfair competition.
Senator Grafstein: I disagree with my learned colleague. The evidence before the committee is absolutely overwhelming in support of the bill going forward without amendment. The minister and his parliamentary secretary have advised us that of 22 Arab nations nobody has objected. They have had direct conversations with the Palestinian Authority, and no objections were raised. No objections or suggestions were made, other than a direct bilateral exchange of letters. The direct evidence is absolutely overwhelmingly in favour of the agreement as it stands.
I do not know what the impact of this amendment would have with respect to changing or slowing down the agreement. We know that we have a January 1 deadline. This bill must go back to the House of Commons, which is adjourning for Christmas either this week or next. This amendment would effectively stultify the agreement.
Finally, I think the minister pointed up a very important facet to this that I had not thought about, and that is that within the agreement itself are legal mechanisms to deal with disputes over trade between the territories and Israel. Until this bill, objections could be made but there was no distinct legal leverage that could be brought to bear. The agreement provides for a means for Canadian business with respect to subsidies or unfair trade practices within the territories, or intra the territories and Israel. They will have a legal leverage rule under existing and well-established trade patterns and trade rules. Mr. Chairman, I hear what my colleague is saying and I do not agree with him.
The Chairman: I would like some assistance from the draftsperson from the department. Will that person come to the table, please?
Is there in the bill a definition of the territory to which the agreement is to apply?
Ms Ellen Stensholt, Senior General Counsel, Department of Justice: Mr. Chairman, no. The agreement says that it applies where the customs laws of Israel are applied and the bill permits, I believe in clause 28, a CIFTA beneficiary to be defined by regulation.
The Chairman: You say there is no definition in the bill but that there is a specification in the agreement. I wonder what the effect of clause 4 is, the opening sentence:
The purpose of this act is to implement the agreement.
That would seem to give the agreement sort of indirect statutory status. The bill is to implement the agreement, consequently I would think that any definition in the agreement must be respected by any clause in the bill?
Ms Stensholt: As you know, Mr. Chairman, in Canada implementing a free trade agreement does not give the agreement itself the status of legislation. All it does is say that we have approved this deal we have struck with another country.
The Chairman: Yes, and I certainly did not say that it did, but the clause says the purpose of this act is to implement the agreement?
Ms Stensholt: Yes.
The Chairman: Consequently, consistency would require that any definition in the bill should be consistent with the definition in the agreement.
Ms Stensholt: You are entirely right, and that is where the regulation making scope is definitely limited, by that purpose clause.
The Chairman: My problem with Senator De Bané's amendment is that it seems to be inconsistent with the definition of "territory" in the agreement.
Ms Stensholt: You are entirely right.It is inconsistent, because we have said in the agreement itself that it applies where Israeli customs laws are applied. Pursuant to agreement between the Israelis and the Palestinian Authority, or the PLO on behalf of the Palestinian Authority, Israeli customs laws are applied in the West Bank and the Gaza Strip. The amendment proposed by the senator would in fact contradict the definition and would change the agreement we have negotiated.
Senator Andreychuk: To put it another way, what you are saying is that we can either accept or reject this bill but we cannot renegotiate the agreement by virtue of an amendment?
Ms Stensholt: That is right.
Senator De Bané: Mr. Chairman, we have here two documents, an agreement signed by the executive, and a bill. My amendment says, "nothing in this Act or the Agreement," and there is a not, so we are indicating notwithstanding the agreement or the act. In the same vein you have in paragraph 7 the words "For greater certainty, nothing in this Act or the Agreement ... applies to water." and so on. If I am being told that I cannot move an amendment to say that the Parliament of Canada limits that free trade to the territory of Israel proper because the agreement was signed by the executive and they cannot be limited by a law of Parliament, then I think that we are saying that the executive is supreme in relation to Parliament. Are we saying that the Parliament of Canada cannot amend an agreement proposed to it for consideration by the executive? I submit that the Parliament of Canada is supreme, and we can always amend something put to us by the executive.
Senator Bolduc: I think there is a difference between saying yes or no to the agreement and deciding to modify it.It becomes another ball game. However, we can say no to the agreement, if we wish.
Senator De Bané: The Government of Canada is saying, "I have signed an agreement with the Government of Israel, and here it is for your approval."I am suggesting that we should say to the government, "Fine, we approve of the agreement that you have signed with the Government of Israel but it should only apply to Israel proper and not to those areas that the Government of Canada, through the Minister of Foreign Affairs, and Parliament consider illegal."
Senator Bolduc: That involves changes to the wording.
Senator De Bané: What do I change?
Senator Bolduc: The agreement.
Senator Andreychuk: The agreement with Israel.
Senator De Bané: Yes, of course.
Senator Bolduc: That is the problem.
Senator Andreychuk: You cannot do it unilaterally.
Senator De Bané: Mr. Chairman, the issue is very simple: Are we just a rubber stamp to the Government of Canada in situations where they, on the one hand, tell us that the settlements are illegal and, on the other hand say, "The benefits of free trade will extend to them, and, as one witness said, hold your nose, close your eyes and pass it."
The Chairman: I do not know what benefit there is in prolonging this constitutional discussion. I know just a little bit about the relationship between a proposed statute and an agreement, and one is tempted to get involved but I cannot see what is to be gained by doing so.
Honourable senators, I am prepared to put the question on Senator De Bané's proposed amendment.
Senator Andreychuk: Then you are ruling that the amendment is allowable.
The Chairman: There is no question but that it is an allowable amendment. The question is a substantive one. As I understand it, he is proposing an amendment to the bill which would have the effect of changing the agreement. If the Senate wishes to make such an amendment then it can do so but it will have the effect of setting aside the agreement.
I rule that the amendment is in order and the question is shall the amendment carry.
Senator Andreychuk: Before we address the question, I find it rather curious that we are being asked to vote on something that seems to be procedure inconsistent with the end result we are trying to accomplish. I understand that we can amend sections that do not go to the heart of the agreement, but if we put in amendments that go to the heart of the agreement we should indicate that we either agree or disagree, not go by the indirect route of an amendment. My question to you procedurally is: Do we have the right as members of this committee to abstain from this vote?
Senator Grafstein: Sure.
Senator Andreychuk: I am not sure.
The Chairman: Yes.
Senator Andreychuk: It seems to me that it is not an allowable amendment. We are governed to some extent by international understandings and rules. Therefore, we have a right as a Parliament to say we disagree with this agreement but I do not think we have the right to pass an amendment that in essence re-opens negotiations on the agreement. That is the role of the executive, so I am abstaining from this one because I do not think we have had a full and fair discussion on the import of the amendment. I have some sympathy for what Senator De Bané is saying, and we have signalled it as an anomaly, but remaining mindful that to do something about it would mean renegotiating the agreement. Therefore, I would prefer to sound the warnings to the government that they had better be very careful in the implementation of this agreement and be respectful of all the political issues surrounding this issue. I would go one step further to say that I am very worried that an overall strategy for trading in the Middle East was not put forward first and question the approach of picking out one single country. Having sounded those warnings, I would not reject the agreement at this time.
Senator De Bané: To my colleague, Senator Andreychuk, there is no doubt that if my amendment is passed it indicates that Canada is ready to extend the benefits of free trade to Israel proper before 1967. This is what it means. Then it would be up to the Government of Israel to say, "Oh, if it does not apply also to the Arab territories and the rest of the territories that we control, we are not interested in having a free trade agreement with Canada." If that is so, let us have them say it. We cannot, in my humble opinion, say that those settlements are illegal and then extend benefits to those areas too, because it says, "If you want to continue to your heart's content to add more of those settlements, please do it because we know that reality will become irreversible" Then the rights of the Palestinians become a joke. Of course Israel must say at some point, "Oh, now that the Parliament of Canada has said that the agreement applies to Israel proper before 1967, we must decide whether we are ready to have those benefits apply only to Israel and not to the territories or to reject them." It would be up to them to decide that.
Senator Grafstein: We heard evidence that one of the major concerns was the restraint of trade between Israel and territories. However, Senator De Bané and others have said that one of the things they would like to see is increased trade as an objective of this particular agreement. The effect of this amendment would stultify that. I do not understand how, on the one hand, he can argue for fostering greater trade between the territories and Israel, so that the Palestinians can pull themselves out of their economic morass, and, at the same time, propose limits that in fact would inhibit free trade between the territories and Israel vis-à-vis Canada. It seems inconsistent and therefore I still oppose his amendment.
Senator Bacon: Our role is not to renegotiate the agreement. This was negotiated and accepted. Our role is to adopt the bill, and in adopting the amendment we would be changing the agreement. I cannot vote to change an agreement that was accepted by all parties.
The Chairman: Honourable senators, I propose now to put the question.
Senator Bacon: I totally agree with Senator Andreychuk, that the committee could send a signal to the government along the same lines as the amendment proposed by our colleague, but it should not approve an amendment to the agreement.
Senator De Bané: Just a brief point to my esteemed colleague, Senator Grafstein. I fail to see the logic of his argument, which is essentially: If you want free trade between the occupied territories and Israel proper, the way to do it is to have Canada sign a free trade agreement with Israel. Simply expressing his argument indicates a non sequitur. I rest my case.
The Chairman: All those in favour of Senator De Bané's amendment?
We have two.
All those contrary minded?
We must have a show of hands. All those in favour of Senator De Bané's amendment, please raise your hand.
Two.
All those opposed to the proposed amendment, please raise their hands.
Three.
Carried. The amendment is defeated three votes to two.
Senator Andreychuk: I want to make the point that I have some difficulty that the amendment was even allowed. I would like to have had somebody explain to me the procedural consequence of allowing this amendment. Since we did not have that benefit, I certainly want my concern noted.
Senator Bacon: Should we not send some signal of that concern?
Senator Andreychuk: I think we can do it through our speeches.
The Chairman: Yes, you can do it during third reading.
Then the question is in the draft bill shall clauses 7 through 41 carry? Shall clauses 7 through 41 stand part of the bill? Agreed?
Some Hon. Senators: Agreed.
The Chairman: Carried. Now Senator De Bané will propose a new clause be inserted after clause 41. Senator De Bané?
Senator De Bané: Mr. Chairman, I move:
That Bill C-61 be amended by adding a new clause 41.1 after line 13 on page 21 as follows:
41.1. The Act is amended by adding the following after section 2.2:
2.3 For the purposes of this Act, "Israel" means the territory of the State of Israel as it was on June 4, 1967 and does not include any external territory.
That being said, I will not repeat the same arguments, but I would like to leave one thought with Senator Andreychuk. The United States signs international treaties. If Congress wants to renounce its power to amend a proposed agreement, it must go through a fast-track procedure and the executive must make a deal with them that they will conclude that agreement before a certain date. Otherwise, Congress has the right to examine it clause by clause and to amend it. The honourable senator has said, "Oh, it is beyond my imagination that the legislature, the supreme institution of a country can amend a proposed trade agreement. I submit the example of our neighbour, and it demonstrates exactly the opposite. First, it takes an exceptional measure for the legislature to renounce in advance its right to amend a proposed trade deal, but we are just rubber stamps.
Senator Andreychuk: I did not say that we did not have a right and that we are rubber stamps. Quite the contrary, we have the right to say no. We do not have a parliamentary arrangement for executive fast-tracking, but perhaps we should, and perhaps we should have some other arrangements as we are getting into these international trade deals more and more. That is why I am abstaining. I am not certain how we go about entering into such debates, which perhaps we should be getting into. I leave it at that.
The Chairman: May I suggest that we all go home and have a look at the U.S. constitution because there is in that constitution a special provision with regard to treaties and the work of the Senate of the United States on treaties, but there is no such provision in the Constitution of Canada.
Senator Whelan: I have followed that fast-tracking process very closely on occasion, and what it means in the United States is a bypassing of the constitution.
Senator Bolduc: Not at all.
The Chairman: I do not think we ought to spend too much time examining the constitution of the United States, or the procedures that they follow.
Senator Stollery: I agree with you, Mr. Chairman. We do not want to rehash Woodrow Wilson and the League of Nations. However, I do not think it is that complicated. I mean, we have the bill here, and if you feel that you do not like the agreement, then you vote for Senator De Bané's motion. If you do not want to get rid of the agreement then you do not vote for Senator De Bané's motion. There is no great procedural mystery or maze about it. You just make up your mind, and you either vote for it or you vote against it.
Senator De Bané: With respect, I do not agree with the observation of my colleague Mr. Stollery. I am not against that agreement. I am against taking away the tiniest hope from the heart of Palestinians. I am not against free trade with Israel, but there must be some limit to a free trade agreement with a country that refuses to say what are its borders. By accepting this agreement, we are giving our blessing and saying, "Yes, it applies to any territory that you conquer in violation of any international law." I do not want to defeat the bill necessarily, but neither do I want to defeat the hope in the hearts of Palestinians, and that, in my opinion, is what we are doing.
As for the argument of my colleague, Senator Grafstein, that no formal objections were made by Arab countries, he is right. That was said to us by several witnesses, and I remember Mr. Ron MacDonald saying we have not received formal objections. That is true. To that I will say only one thing. It is not because the Jewish people did not protest openly for over 20 centuries that one would deny that they were persecuted. However, there is a difference between not having received formal objections and saying that the bill is fair to the Arab people living in the Arab territories. They are in such a weak position that they are not in a position to protest this agreement with Canada, which has been so generous to them over the years. However, we should not construe from that lack of protestation that they are in favour of the bill.
Senator Grafstein: Perhaps Senator De Bané has information that we do not have, but according to testimony by witnesses, including both the minister and the parliamentary secretary, it was not a question of their not objecting. They had extensive discussions with the Palestinian authorities, who said that they had no objections to the agreement. However, they did have a requirement, and the requirement was to have an exchange of letters so they would end up with a bilateral relationship with Canada. That is my understanding of what the minister, the parliamentary secretary and the officials said on the record, it was their intention to facilitate that requirement as quickly as possible. I certainly have no objection to that proposal. I think that it would be good for Canada, good for the Palestinian Authority and good for Israel.
Mr. Chairman, I think the evidence is clear-cut on this issue. Again, if this amendment is passed then, effectively, we are saying no to this agreement. If that is the choice of the committee that is the choice of the committee. It is certainly not my choice. I do not think it is the choice of Canada, Canadian business, businessmen in Israel, nor is it the choice of the Palestinian authorities or businessmen in Palestine.
Senator Whelan: My concern in voting on Senator De Bané's amendment is the evidence that I have heard here to the effect that this is not a fair agreement.
The Chairman: The question is on Senator De Bané's proposed amendment. His amendment is:
That Bill c-61 be amended by adding a new clause 41.1 after line 13 on page 21 as follows:
41.1. The Act is amended by adding the following after section 2.2:
2.3 For the purpose of this Act "Israel" means the territory of the State of Israel as it was on June 4, 1967 and does not include any external territory.
All those in favour of the amendment please show their hands.
Senator De Bané and Senator Whelan.
All those opposed to the amendment please show their hands. There are three.
The amendment is defeated three votes to two.
The question then is shall clauses 41 through 62 of the proposed bill stand part of the bill?
Some Hon. Senators: Agreed.
Senator De Bané: On division.
The Chairman: Carried, on division. Shall the schedule to the bill stand?
Some Hon. Senators: Agreed.
The Chairman: Shall the title of the bill carry?
Some Hon. Senators: Agreed.
The Chairman: Shall the preamble to the bill carry?
Some Hon. Senators: Agreed.
The Chairman: Carried. Shall the short title, clause 1, stand part of the bill?
Some Hon. Senators: Agreed.
The Chairman: Carried. Shall I report the bill as adopted by the committee?
Senator De Bané: On division.
The Chairman: Carried, on division?
The committee adjourned.