Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 21 - Evidence - Afternoon sitting
VANCOUVER, Friday, February 7, 1997
The Standing Senate Committee on Foreign Affairs met this day at 2:10 p.m. to examine and report on the growing importance of the Asia Pacific region for Canada, with emphasis on the upcoming Asia Pacific Economic Cooperation (APEC) conference to be held in Vancouver in the fall of 1997, Canada's year of the Asia Pacific.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, this afternoon, during the last session of our meetings here in Vancouver, we will hear first from the civic authorities of the city. Our witness is His Worship, Philip Owen. He is the forty-second Mayor of the City of Vancouver. He has had extensive participation in business. He was born in Vancouver. His father was the late Lieutenant Governor Walter Owen. The Mayor's business experience started with the retail business for Eatons and he became a store manager at Park Royal. He spent time in Toronto and New York City and he returned to Vancouver in the early 1970s and became involved in various civic organizations. In 1993 he became Mayor of Vancouver.
Before I ask His Worship to introduce those whom he has brought, I wish to say to him that the committee is most appreciative of the hospitality we have enjoyed here. I was going to thank you for the splendid weather, but I am told that the type of weather we had was normal for this city, consequently no thanks need be tendered. We did enjoy the weather even though it was not especially arranged for our benefit. The sun and warm air at this time of year is especially appreciated by those of us who have to endure the icy streets and the harsh winds that blow through Ottawa.
We have the benefit of having on the committee Senator Bacon, Chairman of the Standing Senate Committee on Transportation and Communications. It may well be that there will be things that you will want to say that will be of a special relevance to her committee, as well as things that you will want to say relevant to the work of this committee.
With that introduction, Your Worship, I will turn the microphone over to you and invite you to proceed as you think best.
Mr. Philip Owen, Mayor of Vancouver: It is a great pleasure to be here and I thank you for giving us the opportunity to talk to you about this important subject. I am accompanied today by Captain Norman Stark, who is president and CEO of Vancouver Port Corporation and a member of the Vancouver Economic Development Commission. Mr. Bob Thompson is a principal of MTR Consultants Limited and member of the Vancouver Economic Development Commission. Mr. John Hansen, who was here this morning, is from the Vancouver Board of Trade and Mr. Kuzmick is a chartered accountant and a senior officer of the City of Vancouver in the Department of Finance.
I should like to start with a little visual effect. Captain Norman Stark and I have come directly from Vanterm terminal, at the Port of Vancouver, where we welcomed the Lu He, the largest containership that has ever been to Vancouver. It is owned by Costco Corporation. We were given these little hats to promote the port corporation.
The container business in Vancouver last year increased 24 per cent from the previous year. The Lu He can handle 5,200 teu, a teu being the equivalent of a 20-foot container. Costco is building six of these ships and they will regularly visit Vancouver. The ship is 1,000 feet long and it travels at 25 knots. It is difficult to imagine a ship with a capacity of 5,200 containers, travelling at 25 knots with a crew of 24 people. It is unbelievable. It costs over $200 million per ship. They are built in Japan in six and a half to seven months. The keel is laid and away it goes. It is unbelievable to see the size of this ship.
In comparison, the largest containership that can visit Montreal is half that size, 2,700 teu because of the river. The river could be dredged, but that would be very expensive.
I understand that some are being built with a capacity of 6,000 to 8,000 teu. I believe Captain Stark will confirm that we could handle up to 8,000 in the Port of Vancouver. That is what is going on in the Asia Pacific Rim. It is incredible.
There are two cranes that are unloading and loading the ship. Both of them were built in China and brought over here and assembled. Each crane costs $9 million. The ships are built in Japan for over $200 million each. The trend is toward larger and larger ships, smaller and smaller crews, more and more automation at a faster speed. The Port of Vancouver is well equipped to handle this increased growth.
We also have the airport. We are well positioned here with the port and airport to work in the world of trade well into the next century. There are very few ports in the world that have that capacity at this early stage. Without a lot of expenditure of money we have got it and we can do it. I wish that to be kept in mind as we go through this presentation.
From the perspective of the City of Vancouver there are three critical areas that need to be addressed. One is recognizing Vancouver as Canada's transportation gateway to the Asia Pacific. The second is providing an attractive investment climate. The third is developing Vancouver as an international city.
We do not have to make many changes to meet those three criteria. Vancouver is presently an international city. We are attracting a lot of international investment. We are at the moment the gateway to the Pacific and have huge capacity as the market changes, and we are ready for it. Recognizing Vancouver as Canada's transportation gateway to the Asia Pacific is the first thing I would like to talk about.
The Greater Vancouver ports and transportation gateway generates about 28,000 person-years of work, pays $850 million of taxes each year and has tremendous growth potential. Captain Stark will be able to give you more details on that.
The gateway is Canada's main trade route with the Asia Pacific economies. The federal government is an important stakeholder in the gateway, particularly in view of the fact that the gateway's cost competitiveness directly impacts the price competitiveness of a large segment of Canada's export trade in international markets. The city believes that the federal government must recognize the importance of this gateway and align public policy with private initiative to ensure that the transportation community has the ability to innovate and to compete. Vancouver's investment climate must be attractive to Asia Pacific entrepreneurs.
The recent asset reporting requirements have resulted in a substantial negative reaction from recent immigrants and potential investors. Depressed property prices, capital flight, and less investment are consequences of this reaction. This has the potential, if it has not already done so, of severely limiting foreign interest in Canada, and it impacts specifically on Vancouver where many immigrant investors settle. Policy decisions by senior governments must be carefully considered, because unintended consequences can send a negative message to our potential partners in the Asia Pacific. Regarding developing Vancouver as an international city, trade and tourism are Vancouver's life-blood.
Five years ago approximately 200,000 people a year used the cruise ship facilities travelling from Vancouver to Alaska and back in the season from April to October. That has grown substantially and it is now pushing 700,000 a year. The growth has been phenomenal. These people come from all over the world and spend time and leave and return to Vancouver. It is a one-week turnaround time. It is imperative that the federal government support the development of the critical mass of international activities and institutions that will enable Vancouver to establish itself as one of the key players on the Pacific Rim. Locating federal Asia Pacific institutions in Vancouver, and thus ensuring that a legacy is left in Vancouver after the APEC meetings have ended, are examples of how the federal government can help with this supportive objective. We are looking very much forward to the APEC conference and want to express our sincere thanks to Ottawa and the elected officials and all the employees who have worked so hard to get that here. We are looking forward to it and working hard to make sure it is a great success. Not only will it reflect on Vancouver, the region and the province, but it will put Canada on the stage, and we want to ensure we are proud of what we do.
Overall, there are costs and benefits associated with being Canada's gateway to the Asia Pacific region. Since all share in the benefits there also needs to be a sharing of the efforts and costs of developing and sustaining Vancouver's presence in the Asia Pacific. That concludes my remarks.
Captain Norman Stark, Chairman of the Greater Vancouver Gateway Council, President & CEO, Vancouver Port Corporation and member of the Vancouver Economic Development Commission: Mr. Chairman, I would like to address the committee as chairman of the Greater Vancouver Gateway Council. This council represents the major airlines, Air Canada, Canadian Airlines, B.C. Maritime Employers Association, B.C. Rail, CP Rail, CN, The Chamber of Shipping, the Fraser River Harbour Commission, the Vancouver Airport Authority, and Vancouver Port Corporation. We have resource members from the western provinces of Manitoba, Saskatchewan, Alberta and British Columbia, and also from the federal government through the Department of Transport. Our vision is to see the Greater Vancouver Gateway become the gateway of choice for North America. This council was formed back in 1994. The Minister of Transport at the time jointly made the announcement with the members the of gateway council. I should also add that we do have representation from labour on our gateway council.
The submission that I would like to make addresses a number of recommendations to the government by the Greater Vancouver Gateway Council designed to meet the challenges and capitalize on the opportunities in front of the gateway which will improve Canada's international trade competitiveness, strengthen links with the Asia Pacific economies and boost tourism.
As the mayor noted, the Greater Vancouver Gateway Council generates some 28,000 person-years of work and pays over $850 million in taxes.
As a matter of interest, every time a containership comes into Vancouver harbour it creates four person-years of work; every time a 747 lands at Vancouver airport, it creates one person-year of work.
Through expanding Asia Pacific trade the gateway has the potential in terms of jobs and growth to increase its contribution to the national, regional and local economies by at least 5,000 direct jobs and $150 million in additional taxes in the next decade.
To achieve this growth the gateway has to continue to improve its competitiveness, particularly against U.S. gateways such as Seattle-Tacoma or Los Angeles. Transportation taxation and capital recovery costs in Canada, and an increasing congestion of existing infrastructure are the main barriers to improving the gateway's competitiveness.
The private sector in the gateway is doing its utmost to overcome these barriers. It has put $1.3 billion into new infrastructure investment since the early 1990s, has made continual productivity improvements, has increased investment and training in new technology, has made concerted and effective international marketing programs and established a common vision for the future of the Greater Vancouver Gateway and its strengthening of links with the Asia Pacific economies. These actions would assist the gateway to realize its potential to generate jobs and growth and reduce the vulnerability of Canada's export commodities to foreign competition.
I would like to run through six different recommendations. The first concerns infrastructure investment. We would like to see investments made in a number of specific areas, including roads and rail infrastructure improvements in the gateway to deal with the current and future congestion points at both seaports and airports.
In terms of infrastructure financing, the gateway council has recommended that ports be empowered to finance general improvements on new infrastructure and terminal improvements through specific types of tax-exempt bond financing. In the ports of Seattle and Tacoma, and all of the U.S. ports that we compete with, the port authorities are able to issue tax-exempt bonds thereby raising revenue to create new infrastructure.
In terms of the third recommendation, foreign trade zones, we would like to see a number of specific regulatory changes that would encourage overseas business to establish logistics and distribution resupply centres for servicing North American economies under the provisions of the new Canada Customs Act. There are a number of provisions we would like to see amended, and I do have copies of those for you, so I will not go through each and every one of them.
In terms of commercialization services, the Greater Vancouver Gateway Council recommends the adoption of a number of specific criteria for cost recovery of government services based on the principles of "user pay" and "user say"; it also recommends a minimum cost for safe services which take into account the cumulative impact of cost-recovery measures planned by various departments on the current and future cargo and passenger throughputs and the gateway's competitiveness.
We would like to see a harmonization of departmental priorities within the federal government to improve competitiveness to ensure that the departments of finance and revenue, trade, tourism, supply and services give a higher priority in their own departmental planning and priorities towards transportation. We would like to see federal-provincial-municipal policies and priorities that would favour trade and transportation competitiveness. In the interests of Canada's trade competitiveness, government policies and programs should encourage the provincial and municipal governments to give higher priority to cargo and international passenger transportation, and policies and priorities should be developed with regard to transportation taxation, taxation of land and the infrastructure used to support international trade, as well as for land use planning.
We believe that if these initiatives were undertaken it would allow the gateway to compete effectively for identified new market opportunities and make an even greater contribution to the economy through jobs and growth. It would reduce the vulnerability of western Canadian bulk exports to foreign competition and would protect Canadian jobs. Furthermore, it would reduce the potential for diversion of international cargo from this gateway to the U.S. Pacific Northwest gateways of Seattle, Tacoma, and Portland and would help maintain this gateway's vital contribution to Canada's employment and economic growth.
Senator Stollery: What is the displaced tonnage of those ships? You stated that the ship was 1,000 feet long. I am old fashioned and can only think in displaced tonnage.
Captain Stark: The Lu He vessel is 70,000 dead weight tonnes. We have coal ships coming into Vancouver at 250,000 tonnes with a 67-foot draft.
Mr. John Hansen, Assistant Managing Director and Chief Economist, Vancouver Board of Trade: Mr. Chairman, it is a pleasure to return a second time today to meet with you and your colleagues. This morning we covered a number of the issues that relate to investment climate and perhaps I can briefly summarize some of the things we talked about.
Much of the creation of a positive investment climate has to do with action by the provincial and municipal governments and also by regional districts. In this province at a provincial level we have the highest marginal income tax rate of any province in Canada, and perhaps even the highest in North America. That is something we think has to be dealt with at the provincial level. The tax rate is extremely high here and that is not good for the creation of a positive investment climate.
At the national level we are looking for your support in dealing with one issue. The regulations that are being proposed for the declaration of offshore assets creates the wrong signal for investment in Canada. It is bad public policy from the standpoint of being a huge net that is cast on many Canadians who are now honest taxpaying people who will be required to start to fill in extensive forms, add to the cost of their operations, and signal yet another incursion into what people consider to be their private business in the property they own. It is the wrong signal to send, not only for investment purposes but also in terms of taxation policy across the country.
As was mentioned briefly this morning, if such a data base is established on the property that people own outside Canada, it would be an easy step at some stage, if some future government found it attractive, to start to apply a capital tax. Some provinces are already applying a tax on capital inside Canada. We believe that it is not good public tax policy to be implementing this, so we look for your support in helping turn that back.
Mr. Bob Thompson, Vice Chair of the Vancouver Economic Development Commission and Principal of MTR Consultants Ltd.: Mr. Chairman, I am delighted to be here. I am a little overwhelmed being asked to speak on developing Vancouver as an international city, but I should give you a little background of why we are here and why we are saying that. When I say "we" I refer to the Vancouver Economic Development Commission, a new entity in this community which was appointed last year. As a commission, we are 15 individuals involved in business who are volunteering our time on the board of directors and setting up an agency to assist the city in making this a better place to do business.
We started our first contract with the city in order to provide these services on January 1, so we are quite new at this game, shall we say, as a commission. However, one thing that is consistent among all of the commission members, and I speak on all their behalf -- and Norman Stark sits on the commission with me as well -- is that we believe that Vancouver can become a great place to do business. We do do business here already and we think it can become a great international city and certainly the commission supports anything that can pursue that objective.
Vancouver already is a major regional centre, and Captain Stark has already spoken about its role as a gateway centre. It is a very important place in Canada. We think it can become a very important place in the world. I will read to you what the commission stated in its founding document: "Vancouver is at a crossroads of commerce and trade. It is a gateway to the North American hinterland. It is a window on Asia, it is a cultural mecca, and it is part of an emerging network of great global cities."
To review the advantages that we have here in Vancouver. We know and are well aware of the geographic advantages of our location. We also are very sensitive to our multicultural orientation. We have tremendous cultural contacts throughout the Asia Pacific. As you heard, Mr. Chairman, when we were queried, we come from all around the Asia Pacific and other areas of the world.
Vancouver is a new city. There are only a few of us who claim to be native sons, such as our Mayor. We are growing. We are proud and delighted to be here. We have a sophisticated transportation system and an excellent communication system within the city. Our emerging neighbourhood downtown is completely wired with fibre-optic cable for all residents in all dwelling units, a tremendous advantage for communications. There are a number of fibre-optic cables leading out of downtown and we see that as the coming way to communicate. We are a centre of trade and commerce, a fact which Captain Stark addressed.
One of the other areas is the emerging service sector. Vancouver and the urban area is very much a centre of knowledge-based industries. We see this as a definite area where the city can grow, and we ask your support for that. Many of our knowledge-based industries were earlier developed in the resource sector, and the exporting of our expertise in mining, engineering, environmental design and forestry is now going world-wide and we look forward to increased investment there.
Another area of advantage is our emerging role in tourism. Since Expo 86, which put the City of Vancouver on the map in terms of tourism, hotel occupancy rates and the number of cruise ship passengers have exploded in this town. Surprisingly, not only are our tourists coming from Asia Pacific. They are also coming from Europe, South America and other areas of the world. Vancouver is now seen as a great place to visit.
We do have some disadvantages, however, and it is those that the commission wishes to address. We are a small city on the West Coast and, with respect to the Asia Pacific regions, we are competing with other cities on the West Coast that are much larger than we are, so our own natural market is limited. Another disadvantage relates to our relationship to the hinterland.
The Open Skies policy has given tremendous advantages and benefits to our tourism industry. Speaking as a business person, I think it has also made a tremendous impact on the ability to do business elsewhere and on exporting our expertise out of Vancouver. What we are now looking for is a commitment to a global city. That may not be something that people, other than the commission and the City of Vancouver, would think was vitally necessary.
What can the federal government do to respond to that? We have touched on several things. Changes in policy will encourage business and encourage Vancouver to become more of a global city. There is support for federal institutions. We already have a number of those and certainly such initiatives as Canada's Year of the Asia Pacific in conjunction with the APEC conference that will be held here are wonderful opportunities and we encourage the federal government to support more of these endeavours.
We also requested that the federal government have the will to change those things that require changing, and some of those have been addressed by my colleagues Captain Stark and John Hansen. I do not wish to go through those, but I think the first and foremost of all of that is that we ask that the federal government be global in its thinking and that it look at the world-wide impact and help us determine the best way to address the world on this issue. We believe your policy should do that.
We have touched on infrastructure and environment and the tax on the cost of doing business. Tourism is another area where we can be supported.
In closing, I would simply point out that in recent articles and books having to do with cities in a global society the common thread is that becoming a global city is basically a matter of self-selection, vision and initiative. I can assure you that Vancouver has selected itself as a global city; we certainly have the local vision to become one, and we invite the federal government to join us in the initiative to ensure that this comes about.
The Chairman: Thank you, Your Worship. We are most appreciative of your remarks and the remarks of your colleagues.
I wish to mention a recently published book entitled, The Asia Pacific Region in the Global Economy: A Canadian perspective. The general editor is Professor Richard G. Harris, Simon Fraser University. I have not read all of the book yet, but I think I can assure you that it will be worthy of attention. It covers various matters which would be of specific interest to people from Vancouver as well as the whole question of Canada's place in the global economy. In the latter connection, for example, there is a chapter on rivalry for Japanese investment in North America, rating the various provinces as places for green field investment.
I have a question prompted by the comment made earlier about the size of ships that can be serviced in this port relative to another port. I am from Nova Scotia. People in Halifax are very concerned about the future of their port. One of the problems is access. Halifax is away off at the end of a long railway line. My experience every time I have come to Vancouver is that I am impressed by the mountain barrier that seems to be right east of the city. What about access across and through that mountain barrier? Are the correct things being done? For example, are the railway lines providing a good artery both to and from the city eastward?
Mr. Owen: Prairie grain and coal, of course, are busy. We also have Roberts Bank. Perhaps Norman Stark might be able to field that question a little better than I can. He is operating in that area on a daily basis.
The Chairman: I know there are those arteries. The question is, are they getting clogged?
Captain Stark: I do not believe so. The railways are spending many millions of dollars. They have done a lot of work in the tunnels. They have recently made a huge commitment in heightening the tunnels so we can take double-stacked rail cars. No doubt some of the question may be spurred by what is going on in the grain business. We have had a very bad winter out this way with lots of avalanches. Once things start to back up it is not easy to catch up. We have many grain ships waiting. There are 25 at anchor, three alongside and another nine expected.
Getting the grain through once things back up takes a long time. A lot of contracts have been awarded at this time. There is a lot of coal moving. It was an exceptional year last year for coal and many of our commodities. It was a record year or pretty close to a record year in the port; although I have not seen the final numbers, it was probably close to 72 million tonnes of cargo, which is about 23 per cent of all Canada's waterborne export trade around the world.
The railroads do continue to make improvements; they are becoming more and more competitive. They are certainly doing their very best in putting in new infrastructure, as are many of other private sector players in and around the gateway.
Senator St. Germain: I thank you for your excellent presentations. Your Worship, you and Mr. Hansen made some comments with regard to the question of the declaration of offshore investments. How do we handle this? It has done a lot of damage, the fact that a statement was made that there was a possibility that these would have to be reported. Is there anything that we could recommend as a committee, or the committee could recommend to the federal government, because it will have severe implications on the economy of our area.
We have received various presentations from industry representatives who go offshore to make investments, in the same manner as we want to attract investments over here. I am certain if I were going to make an offshore investment and I had to choose between a country to where this was not a threat and another where it was a threat, there would be no choice. I would go where I would not have to go through a maze of bureaucracy and a major amount of reporting and a possible future threat of being taxed. I believe it was Gerald Ford who stated that a government that is big enough to give you everything you want is big enough to take everything you have. This is not partisan, this is strictly government in Ottawa, regardless of who is at the helm.
Do you have any recommendations to us as to how we could deal with this in the future so that we would not be so negatively impacted?
Mr. Owen: Mr. Hansen may wish to comment on that. One can understand the motives: tax avoidance and money laundering were things the public were concerned about and anxious to have addressed. On an international level, knowing about the drug trade, we were perhaps vulnerable; so that was the motivation and it was good to move on it. I do not think anyone predicted that there would be such an uprising and so many who are offended by it. There must be some solution to it where both aspects can be responded to, because it has become a very big issue. People who have had money in family trusts for 50 or 100 years who recently come here and have to reveal all of this are horrified. That is one extreme. The motive for doing it is a good one and I am one who says we should be protecting that. We do not want to be an international deposit centre for illicit or ill-gotten gains. If people are living the great life in Canada who are up to all sorts of other activities, the government should know about it. Then again that is infringing on individual rights. I do not have a solution, but there must be something that could be done to find a common ground.
Mr. Hansen might have some thoughts, because the Vancouver Board of Trade has done a lot of work on that and has some strong opinions.
Mr. Hansen: I do have some thoughts on that, senator. The solution is really easy. There is a two-part solution to the problem created here. One is to abandon the plan for this broad disclosure. That is the first part of the solution. The second part of the solution is to use the provisions that already exist under the tax laws for random audit, and if people are suspected of laundering money or hiding income on which they ought to be paying taxes, by all means the tax department ought to go after them aggressively. But to spread this huge net in a fishing expedition is not necessary. The provisions are already available under the tax act to do whatever detailed auditing is necessary.
If persons are suspected of holding assets outside the country that generate revenue that they should be paying taxes on, they can go after that now without putting everybody under the same umbrella.
Senator St. Germain: I wish to amplify how important this is to our economy in Langley, where I live. A particular realtor was selling to legitimate Taiwanese business people who wanted to invest in Canada with legitimate investments. He had sold six properties to various individuals and had excellent contacts and knew who the people were. He had four deals in the mill when the announcement came through and the four deals were killed immediately and he has not seen hide nor hair of them or heard from them since. I am sure Mr. Hansen could tell us of several other incidents.
The committee should know that when a statement such that is made, even though it is still in the thought stage, it terrifies the most nervous dollars in the world, which are investment dollars. If you can give a little more impetus to this, sir, it would be a great deal of help. I would certainly like Ottawa, or whoever made that announcement, to realize the impact it has had on our economy.
Mr. Hansen: Mr. Chairman, we have worked very closely with the boards of trade of Montreal, Toronto and other places and they share our concern, so it is not only a British Columbia issue.
Senator Carney: I wish to let my Senate colleagues know that there is a lot of support in some areas for this measure on the grounds that Canadians are expected to declare their income and pay taxes on it, and that people in Vancouver feel that Canadians who have offshore resources or be working or resident offshore should be in the same position. There is a fear that there will be a two-tiered taxation system, one for people who are living and working in Canada and paying taxes and one for people who have acquired Canadian citizenship, but who work offshore and whose assets are offshore and who do not pay Canadian taxes but are consuming Canadian services, social services, city services, and education services.
There may be a better way of doing it. I certainly understand John Hansen's "drift net" metaphor, because the problem with the drift net is that it picks up a whole lot of other species of fish than the one you are looking for. Perhaps the issue here is how to implement the notion of equitable taxation without disclosure of every given piece of property.
There is a lot of support for the idea that if you are consuming Canadian services as a Canadian citizen you should pay your share of the taxes, whether it is 59 per cent or 17 per cent. As someone in the higher bracket, not the lower bracket, I know that there is a lot of support for that. Perhaps the issue here is to determine how the objective is achieved. Perhaps what is proposed is not the best way, because it could lead to a wealth tax. There is enough tension in this town on the issue of immigration and driving habits, et cetera, and adding a two-tiered tax system would not aid.
The Chairman: I am sure Mr. Hansen has taken this argument into consideration and has a rebuttal.
Senator Carney: He is such a good economist that he would have a rebuttal.
Mr. Hansen: The provisions under the tax act do require that all Canadian residents who earned profits or revenue in Canada and offshore pay taxes on that. The provisions are there; it is a matter of enforcing those provisions, and that is the answer.
Senator Andreychuk: The intervention of Senator Carney confused me. Was this tax recommendation as a result of money laundering, or was it because of a need seen by some people to have an equitable tax system? Which drove the change? As for money laundering, there are many ways to attack that situation. We are doing some internationally; it can be done through the criminal courts or through taxation, if that is the objective. But is it to get around the issue Senator Carney spoke of?
Mr. Hansen: I believe what drove it was the concern that there were Canadian residents who were not paying their taxes, taxes generated or revenues generated by capital investments offshore.
Senator Andreychuk: It is not money laundering?
Mr. Hansen: It is a way for the tax department to get a window on what you own and what you potentially have out there that could be generating revenues that you ought to be paying taxes on.
Mr. Kuzmick, C.A., Senior Officer, Department of Finance, City of Vancouver: Mr. Chairman, John Hansen is quite correct. The tax act sweeps up world-wide income. You are required to report that if you are a resident in Canada. The issue is compliance with the tax act. If they are not complying with reporting world-wide income, why would they comply with reporting world-wide assets? To me, it seems like it is a useless provision.
Senator St. Germain: Many people think that incomes are not reported, but they are legally required to be reported and it is strictly assets that are the issue -- foreign-held assets not foreign income. You have to report your world income and that is what is misleading. It is another way of big brother knowing exactly what you own everywhere and it terrifies people. Some of us, and I am not saying all of us, but some of us believe it is detrimental to the job opportunities and the investment that will take place in this country, and that is what is key.
Senator Carney: The Chairman is being quite discrete; he has not given you some of those figures that are in Dr. Harris's book, which show that we do not do very well competitively compared to other areas.
In view of our study, which is Canada's relations with the Pacific, is it realistic to think that in Vancouver -- do not shoot me here, because you know my feelings on this -- we are competing with Seattle, Portland, San Francisco, and Los Angeles as a gateway to the Pacific? Where is our greatest threat? Let me put it that way. We want to be and are a gateway to the Pacific; it is Canada's window of opportunity on the Pacific. What is the greatest threat to us for achieving that objective?
Mr. Owen: Seattle and Portland are a huge threat and the Pacific Coast ports are a big threat. There are all sorts of things: the possibility of having strikes interrupt the movement of goods across the country, the cost of moving goods across the country from the midwest and eastern United States through Seattle and Portland and moving through Vancouver. There is a whole series of things that we did a number of years ago, such as the destuffing of containers, which was required here but not in Seattle. They have worked hard to overcome that. I do not know what the current situation is, but they are constantly under threat and constantly worried about losing business through the Pacific Northwest ports, particularly Seattle-Tacoma.
Perhaps Captain Stark can advise if that is correct.
Captain Stark: One of our biggest challenges is in taxation. When I mention taxation, I am talking about all levels of taxation. I will provide to the committee the gateway study that shows those figures. The Port of Seattle is a taxing authority and last year it raised $40 million U.S. in taxes. When you pay your house taxes in Kings County $300 goes to the port. They have programs for the railroads and give tax grants for the railroads.
When you pay your property taxes in the Port of Seattle you pay leasehold taxes. If your lease costs are $100,000 you pay your taxes based on $100,000. In Canada you pay taxes based on the value of the assets. Alberta Wheat Pool, a $300 million asset, pays based on the taxes on the assets. There is also a B.C. capital tax. We have many levels of taxation. There are fuel taxes by the provinces and by the federal government on railroads. When all those taxes are put together the Port of Vancouver is at a tax differential of some $45 per container compared to Seattle or $2.50 a tonne on bulk cargo.
To move bulk cargo through the Port of Vancouver, such as potash, sulphur or coal, costs approximately $7.50 a tonne so you have to overcome a $2.50 differential. To move a container through the Port of Vancouver is approximately $200. That includes the pilotage, the tugboats, the port and terminal charges. We are at a differential that we have to overcome of $45 per container.
Where we are competitive, I believe, is that our labour rates are a lot lower. When comparing Canadian labour rates in the Port of Vancouver to rates in Seattle or Tacoma, Seattle is approximately $66 U.S. per hour charge-out rates for longshoremen. In the port of Vancouver the charge-out rates are $37 an hour. Our Canadian dollar is very favourable. But when you talk about moving cargo at $200 per container, a 10 per cent swing in the Canadian dollar right away makes us uncompetitive. We are on a teeter-totter.
All levels of taxation are one of our largest challenges today. We have been trying to bring that home to all levels of government. We will lose 1 million tonnes of potash this year to the Port of Portland. Saskatchewan potash will go to Portland. When comparing the various tax incentives that they had to build facilities there, and the competitiveness, they were able to swing it and move that 1 million tonnes of Canadian potash through Portland this year.
Mr. Owen: In the United Kingdom 15 years ago the tax rate was somewhere around 80 per cent. After Margaret Thatcher was elected she reduced it to 37 per cent and their economy took off. In the United States, I remember when President Clinton was moving the maximum tax rate up from something like 34 per cent to 37 per cent and there was a great hue and cry. That is the commercial end of it. At the personal end of it the individual is paying 54 per cent, 56 per cent.
Head offices are encouraged to move here, people move here with their families and it adds to that situation. We have the corporate problem and the personal problem and it makes it tough.
Mr. Thompson: We have been talking about the movement of goods and trade through the Port of Vancouver as the gateway. Vancouver is an international city with head offices or regional offices of world-wide companies. Our cost of housing is very high when compared on a competitive basis to places such as Calgary, and other Canadian cities or other North American cities on the West Coast. Our attractiveness lies in the livability and the physical attractiveness of what is here. We need to address the high cost of living in Vancouver to attract people here.
Senator Carney: One of the reasons why Calgary has so many offices outside of Toronto is that the tax rates are significantly lower for Albertans than they are for British Columbians.
Mr. Owen: There is no sales tax in Alberta. We have 7 per cent PST and 7 per cent GST which amounts to 14 per cent.
The Chairman: That has something to do with oil and gas revenues.
Senator Carney: It has a lot to do with Albertans.
Senator Perrault: I have a question relating to our port, which is one of the great ports in the world. Even with the greatest freedom and more options open to the shipper of western Canadian agricultural products, do we still face some danger of losing some of that traffic to Seattle, Tacoma and Portland? I have heard some ominous threats recently.
Captain Stark: We are already losing approximately 100,000 Canadian containers through Seattle and Tacoma. Every container contributes $1,000 to the Canadian economy so there is $100,000 million that the Canadian economy is losing in transportation alone. We are bringing a lot of that back. Last year we brought in six new container lines, and there was a lot of hard work by the labour force and the terminal operators. However, now that the Western Grain Transportation Act is gone, or with the major changes to that so that Canadian grains are not captive to Canadian ports, yes, we could lose that traffic to ports south of the border.
Senator Perrault: What would persuade a Saskatchewan barley farmer to ship those products through a U.S. port.
Senator Andreychuk: Costs and time.
Captain Stark: Costs and service.
Senator Perrault: I would like to know how competitive we are and why we should be at a disadvantage.
Captain Stark: In terms of the costs, if they are cost competitive, yes, they will get it. I mentioned earlier that one of big issues is taxation. Let me give you an example of the railroad costs. Moving containers from Tacoma to Toronto versus from Vancouver to Toronto, for fuel taxes alone, it costs $10,000 more to go through Canada. That is equivalent to approximately $40 per container.
Our labour rates are competitive now, but service, as the senator mentioned, is certainly a big challenge for us. If we are not giving good service we can lose, because it is just as easy to move it south.
Senator Perrault: Would you say that our cruise ship industry is at risk at all? There is an active lobby in Washington, D.C. attempting to get all that business for them in Washington State.
Captain Stark: I think it is always going to be a challenge, because the Americans see that we are successful in the cruise ship business, and have been for many years, and since it is a $200 million business in Vancouver in this region they will continue, I am sure, year after year to try taking it away. Last year they tried with the Unsoeld bill and I am sure they will be back again. Our position here in Vancouver is that there is not a lot we can do about that. As they say, when two dogs are fighting over a bone the third one runs away with it. We are keeping our eye on the bone; we are giving good service; we are competitive. The major lines say they like Vancouver.
Senator Perrault: We agree with all of that. As you know, we have opportunities to meet from time to time with our American counterparts, and for those who serve in the national Parliament one of their responsibilities is to assist this country in its relations with other nations. If there is help you need, I am sure it will be an all-party attitude we have towards it. We want to support you.
Captain Stark: I can guarantee that they will be back again with another attempt.
Senator Perrault: You have not seen the text of any bill in recent weeks.
Captain Stark: No, I have not seen anything, but the American Association of Port Authorities is hot to trot.
Senator Perrault: We would appreciate any information that you may have about moves on that business. I am sure we will all work together to try to prevent it.
Mr. Owen: Open Skies has helped us a lot. It has made a huge difference.
Senator Perrault: I understand that we are going to build 14 new bays at Vancouver Airport in the new arrangement. That is incredible.
Senator Andreychuk: Speaking as one from Saskatchewan, there has to be a bit of an attitude or mind shift out here, if you will permit me to give a bit of advice. Someone used the term "hinterland". Every hackle I have rose up when you referred to us as the hinterland, rather than as partnering or being in a common venture. I cannot think of the last time that I heard anyone involved in a conference, seminar, or meetings in any public way talk about the "joint venture" or our vested interests being "joint", with the exception, I must say, of the airport authorities. The airlines are doing a magnificent job of explaining why we should travel through Vancouver, and more of that needs to take place so that the inclination is to overcome obstacles in an effort to use British Columbia as opposed to somewhere else on the coast. There is still some homework to be done.
Captain Stark: If I could make a comment, senator, we are bringing representatives of the Port of Vancouver to Regina in April. Our board, labour force, terminal operators and the railroads will all be in Regina in April for a major conference.
Senator Andreychuk: I trust that that translates itself into public awareness. Some of these things come and, as I say, they are sector to sector, profession to profession, which, while it gets some play in the public eye, may not be good enough, because for small businesses, small economies, many of the businesses I talk to simply say that, when they need to move something, they follow whatever course of action will look out for their costing. I would hope that they would be encouraged to have an inclination to come to you first before they look at the other options; a little PR in the press is needed, I guess.
The Chairman: Your Worship, I think we have probably covered most of the mountain peaks. Unless there is something I have overlooked, I suspect that the time has come to bring in a new set of witnesses. Is there anything that we have overlooked?
Mr. Owen: I do not think so. It has been a very a good exchange. It is very interesting to do this; you have given us a whole hour and we appreciate that. We have learned something, and what you are doing is productive. I hope we have been able to answer your questions properly and give you a little food for thought. There has to be a lot of finger pointing at other governments and down-loading, off-loading. We are all Canadians and we all have to pull together in a non-partisan way and go forward together collectively.
The Chairman: Thank you very much, not only for your presentation but for the constructive attitude which you convey. We appreciate it greatly.
Mr. Owen: Thank you for APEC. You will be proud of us. We will make Canada look good.
The Chairman: Honourable senators, we come now to the last of our panels. We have three witnesses, Dr. Ralph W. Huenemann, the Director of the Centre of Asia-Pacific Initiatives at the University of British Columbia. Dr. Huenemann is a professor of economic relations with China. He is a graduate of Harvard University in economics. We also have Professor Peggy Falkenheim Meyer, Associate Professor and Graduate Chair in the Department of Political Science at Simon Fraser University. Professor Meyer is a graduate of a very distinguished university, Columbia University in the City of New York. The third witness is Dr. Scott MacLeod who has a doctorate degree from the University of British Columbia. He has worked in East Africa, the Middle East, India, Southeast Asia and China. He has been an instructor of economic geography and applied Asia studies at the University of British Columbia and at Capilano College. He has been a research associate at the Institute for Asia Research at the University of British Columbia.
Perhaps I have omitted specific curriculum vitae details for one or all of the witnesses, items that are important to the witnesses here today; if so, please do not hesitate to supplement or to correct what I have already said.
I gather that Dr. Huenemann will be our first spokesperson.
Dr. Ralph W. Huenemann, Professor, School of Public Administration, University of Victoria: Mr. Chairman, honourable senators, I am very happy to be here today and to have this opportunity. I was able to sit in on the session this morning and I came away from that, as always when I listen to Pitman Potter and others of that ilk, feeling challenged myself, and also very pleased with the sophistication and the nuances of the questions that were asked by the senators around the table.
I would like to go to a format that lets you get to questions fairly quickly, so I shall attempt to be rather brief and perhaps a little provocative and then take my lumps in the questioning session.
Because it is the first day of the new year, let me wish you all a happy new year, gongxi facai, xinnian kuaile, wanshi ruyi, welcome to the Year of the Ox.
I have to make one small point and that is that although I was on the faculty at the university of British Columbia and I am very fond of UBC, in point of fact I am from the University of Victoria. I do not care about that very much, but I have to tell you my boss cares about it intensely. I am in the School of Public Administration at the University of Victoria. There is sometimes a sense of western alienation that central Canada is not aware of British Columbia. There is sometimes an island sense of alienation of being invisible from the mainland. As a famous line to the Supreme Court of the United States said, "She's a small college, sir, but there are those who love her." That was in reference to Dartmouth, and I have to say the same about the University of Victoria.
I have six points in two groups of three. I have done this in a little handout and I have three charts, but they are also in the handouts, so you can mark them up and look at them and ask about them.
Let me make three quick points about China's overall growth, which I think is important to our understanding of Canadian economic relations to China, and then three quick points about the more specifically bilateral trade pattern, and then when we get to them we can have questions.
First of all, let me make the three points about China's overall growth pattern, and this is to reinforce some things that were said this morning and I dare say were said to you over the last three days. I must say that it is admirable that at the end of three days of intensive hearings you are still bright-eyed and bushy-tailed. That is terrific.
Since the reforms of 1978-79 China has had very ambitious growth targets. The way the Chinese characterized this originally in 1980 was the goal of doubling and redoubling the GNP by the end of the century, which is a goal of doubling the GNP every decade, which translates into a 7.2 per cent rate of growth a year, real, and they have more than done that. They recently announced their goal for the year 2010, which is another doubling. Over three decades that is an eight-fold increase in GNP.
Ken Courtis, a colleague of mine at the Deutsche Bank in Tokyo, has stated, and I share his view, that the Chinese are condemned to continued rapid growth. They are going to succeed at this. That is the good news, but of course it is also the bad news in the sense that that kind of rapid growth poses some very real problems, and there are two I would like to zero in on. One is energy needs and the other is food supplies.
On the point of energy needs, a modern economy gobbles electricity. However, the Chinese in fact have been very successful at something I predicted they would not be able to do, and I have egg on my face. They said, "We are going to have GNP growth twice as fast as our growth of utilization of energy. So that if we have 7 per cent growth of GNP we will only have 3.5 per cent growth of energy." I said they could not do that, and they have done it.
They have done it partly because their original industrial structure was so terribly fuel inefficient that there was lots of room for improvement, but nonetheless it is a remarkable achievement to have economic growth twice as fast as energy growth, because it is not easy to do. Nevertheless, even at that rate, they still have a huge appetite for electricity, and of course that will grow. Right now they have 214 gigawatts of electrical capacity, generating capacity. They are looking at a projected 490 gigawatts in the year 2010. That is a huge construction activity in power; most of it will be in thermal power. Of the 490 gigawatts only about 20 gigawatts will be nuclear, as currently projected.
Senator Austin rightly talks about how important the two CANDU reactors are. It is worth noting, though, that two 700 megawatt CANDU reactors are a spit in the bucket. On 490 gigawatts 1.4 gigawatts is peanuts. So in that sense, the Canadian participation at that level is very minor.
On the food grains side, the Chinese had a bad crop year two years ago in 1994. Partly because of that and partly for other reasons there has been a lot of discussion of whether China can feed itself. Lester R. Brown wrote a famous book about that a year or two ago. I am interested in two things: one is the answer to the question; the other is the Chinese reaction to the fact that the question was asked, and that is almost more interesting and more important.
The population of China is not growing very rapidly any longer and it is not too difficult for agriculture to keep up with 1 per cent growth. It is not easy, but it is not a stretch, so the food grains supplies have more or less kept up with the population growth, and I predict that they will continue to do so. The problem is, as incomes rise you shift from grain as a primary human food to grain as an animal feed to give meat to humans and that uses grain very differently and much less efficiently in terms of per capita consumption.
We all recall Professor Lin talking about eating meat once a month. The Chinese diet has improved dramatically and there is lots of pork, chicken and ducks that we love to eat, but it means grain consumption goes up very dramatically.
One of the paradoxes of that is that, as we talk about whether China can feed itself, we encourage some very longstanding Chinese anxieties about vulnerability on food supplies. I want to come back to that point in a minute, when we talk about the bilateral trade pattern because it has implications for the Canadian Wheat Board. At this point I will put one transparency on the board. These are courtesy of Statistics Canada, some detailed data about what China sells to us and what we sell to China. Let us start at the top with what China sells to us. The "HS" is United Nations jargon for harmonized system. It is a standard way of categorizing different commodities to keep track of them.
At two digit categories the kinds of things China sells to Canada are virtually all labour-intensive, light manufacturing. It is running shoes, T-shirts, boom boxes and consumer electronics, and toys and sports equipment, except for HS categories 84 and 85, which I called "M&E" because I could not fit the long words in. It is machinery and equipment. There has been a very interesting pattern of the Chinese succeeding at becoming suppliers of machinery and equipment to the world, sometimes quite sophisticated machinery, including, for example, large turbines for hydroelectric projects. That is a pattern, and the growth on that side has been steady growth based on light, labour-intensive manufactured products, exactly what you would have predicted.
On the Canadian side our traditional exports are up there. You will see there is wheat, fertilizers, wood pulp. They are all primary products; they are relatively unprocessed. They all are subject to substantial year-by-year fluctuations. We have good years, bad years, years of crop failure in the prairies, years of avalanche in the Roger's Pass when the trains cannot get through. You heard about the ships waiting in the harbour at the present time. That will always be a fluctuating trade pattern. It is in the nature of Mother Nature.
The interesting thing to me is that there is HS 84 and 85 again, M&E, machinery and equipment. That has been the change in the pattern in the last five years. Canada now sells to China a very substantial amount of machinery and equipment, and that is very heavily telecommunications equipment. It is Northern Telecom's success story. The CANDU reactors will also end up in HS 84 and 85. That is a $4 billion sale over five years. That will be $8 million a year added on to this.
On this graph in summary is what has happened over the last 10 years or so in trade with China. If you had a picture that went back 30 years instead of 10 years what you would see for the first 20 years of that 30-year period is Canadian sales of wheat, Chinese sales of not much of anything, and Canadian bilateral trade surpluses year after year. Finally, beginning in 1984, the economic reforms in China begin to kick in and they begin to become successful exporters of all these light manufactures.
Thirty years ago my Adidas or Nike running shoes came from West Germany. Fifteen years ago they came from South Korea. At the moment my running shoes come from China. That is that solid black line creeping up year after year.
As we get to about 1992, and for the first time in 25 years, China sells more to Canada than Canada sells to China. For the last five years or so consistently China runs a surplus. The fluctuations in the Canadian line, which is the dotted line, are driven by the fluctuations in wheat sales and other things which are driven by natural kinds of phenomena. It is not easy to have steady year-on-year wheat sales. That is never going to be the nature of the beast. We will go up and down, but the last upswing you see by that dotted line is the telecommunications sales, and the CANDU reactors will add to that.
The goal announced by the federal government is $20 billion total trade by the year 2000. On current trends that will just about happen. It might be a little short, might be a little long, but it will more or less happen. My prediction is that the Chinese will continue to have a surplus all the way up to the year 2000. The gap will narrow, partly because our machinery and equipment sales will be increasingly successful, partly because the Chinese success at selling us light manufactured goods is going to start to tail off. They have displaced the South Koreans as the manufacturers of running shoes and they cannot succeed at that any more. Our market for running shoes is not growing. Their expansion will slow down. Nevertheless, I expect them to have a surplus for the foreseeable future.
For years, when we ran all those surpluses because we sold them wheat and did not buy much in return, my Chinese colleagues said that this was a problem and we needed to look at the problem of the trade imbalance. They bought wheat from us and we did not buy very much from them. It needed to be looked at seriously, meaning we should fix this. I said to them, "It is not a problem. It is not broken and we do not need to fix it. Bilateral balances ought to be out of balance."
In the aggregate it matters a great deal whether Canada is an exporter or an importer on the world markets, but country by country we should be in surplus with some and in deficit with others. The alternative is that we only trade bilaterally, and some of the most productive trading patterns in the world are triangular, rectangular, pentagonal or whatever geography you want to use. To say we have to be balanced country by country is to say we give up all these advantageous bilateral deals, and that is silly.
All these years I said to them the fact that we have a surplus is not a problem, it does not need fixing. Now they have the surplus and I start hearing Canadians saying we should be looking at this. It is fed, in part, by the fact that south of the border the Americans are in a mood of China-bashing and are saying, "Look at this terrible trade deficit that we have with China." It feeds over from the previous deficit with the Japanese in terms of mind-set.
The answer is exactly the same, it has not changed. It is not a problem, it does not need fixing. They will have a surplus for a while. We had the surplus for an awfully long time and it is a bit ungracious after five years to say to them, "What about this deficit?"
Canada runs a merchandise surplus with the world and has done so for five years and more. That is the number you want to pay attention to, and within that pattern if we have a deficit with China and a surplus with somebody else it is not a problem.
Professor Peggy Falkenheim Meyer, Associate Professor and Graduate Chair, Department of Political Science, Simon Fraser University: Mr. Chairman, instead of focusing on just one issue I will make brief comments on three. The first is about Canada's role in the Asia Pacific region, the second would be a few comments about China and, finally, some brief comments about Russia.
Regarding Canada's role, we should keep in mind the importance of two things; one is public relations and the other is the importance of building long-term personal relations of trust. Canada has a very good reputation in the Asia Pacific region because of the constructive role it has played over the years, but nevertheless there is often a tendency for other Asia Pacific nations to forget about Canada or to lump us with the United States. That is one reason why I believe what I would call public relations are important. By that I mean taking high profile actions that attract favourable attention in other Asia Pacific countries. Two very clear examples would be the APEC summit and the Team Canada missions.
Valuable as these public relations are, it is more important for Canadians to build long-term personal relations of trust with influential government officials and business people in the Asia Pacific region. Some people say that personal relations are vital in the Asia Pacific region. They are important all over the globe, but it is essential for us to build personal relations in the Asia Pacific region because of that region's growing importance. One way to do this is by continuing to encourage and welcome immigrants from the Asia Pacific region. After all, these immigrants already have long-standing personal relations in their countries of origin which can help other Canadians.
One good example of this would be a former student of mine from China and her husband, also from China, who now are landed immigrants and live here. They have established a highly successful consulting firm which helps Canadians do business in China.
Another way to build long-standing personal relations of trust with influential people in the Asia Pacific region is to attract foreign students from that region. They may not be influential at the time they are students but very often they later become influential. Again, a former student of mine is a good example. He is now in the diplomatic service of an important Southeast Asian country. Besides helping us build personal ties in the Asia Pacific region immigrants and foreign students from that region enrich the educational experience of other Canadians by bringing new and different perspectives to the classroom. They help other Canadians understand better the global economy and culture in which they will have to operate in the future. The presence of foreign students gives Canadian students an opportunity to establish friendships. I still have useful professional ties with Asians with whom I went to school more than 30 years ago. That is also very important.
By their very nature efforts to establish long-term personal relations do not always bring obvious immediate benefits, but they can be of enormous importance in the medium and long term. Members of this committee and other political leaders should bear in mind -- and keep reminding Canadians about them -- the benefits which immigrants and foreign students bring to this country. You should tell Canadians that immigrants from Asia are not a net drain on our economy.
Research by my colleague Professor Don Devoretz has revealed that immigrants from Asia pay more in taxes than they use in services, create more jobs than they absorb, and have a neutral impact on the wages of other Canadians. I have read elsewhere that foreign students also are a net asset to our economy. Besides these economic gains, immigrants and foreign students bring many other tangible and intangible benefits.
My second brief comment will be about China. I, in common with many other Canadians, abhor China's human rights practices. However, noisy over-pressure at the governmental level is not an effective way of influencing China. More effective are programs designed to have a long-term positive impact on the Chinese judicial system and human rights policies. One good example would be the CIDA-funded project in which the Canadian Bar Association has been trying to help the All China Lawyers' Federation establish its independence and proper ethical standards.
Despite our differences, and the differences in our values, Canada needs to maintain cooperative relations with China on a wide range of issues. China has a permanent seat on the Security Council; it has nuclear weapons and has and will continue to have an important impact on the global environment and on world trade. It also has the ability to influence a number of important regional issues that matter to us -- for example, what happens on the Korean Peninsula. It would be unwise and, indeed, counterproductive to treat China overtly as an adversary or potential adversary.
At the same time, we should keep in mind that China's future foreign policy direction is uncertain. It is clear that nationalism is growing in importance in China, but it is not yet clear whether this nationalism will take the form of what some analysts have called open and inclusive nationalism, or whether it will take the form of a more aggressive and assertive nationalism, which could lead China to adopt policies inimical to our interests.
Canadian leaders should not talk publicly about China as a potential future threat, since such statements could increase the likelihood of that happening, but they should keep the possibility in mind when they make policy decisions.
My last point will be the briefest, and this is one I will make about Russia. Just because it is the briefest does not mean it is any less important than the others. I want to argue quite strongly that it is a big mistake to ignore Russia or to exclude Russia from important bodies in the Asia Pacific region, in particular, from APEC. While Russia may not be as powerful as it once was, it does, like China, have a permanent seat on the UN Security Council, and it has nuclear weapons, a large territory, and a highly educated population -- actually, it is unlike China in that last characteristic -- and it also an ability to influence the resolution of many global and regional security and economic issues.
Russia also is suffering from what one observer has called injured national pride. Some analysts have compared Russia's situation today to the situation of Weimar, Germany after its defeat in World War I. While the analogy may not be exact, nevertheless, we should keep in mind what was the end result of efforts to isolate or exclude Weimar, Germany.
Russians are well aware of the importance of APEC in the Asia Pacific region and would like to join it. It is not a good idea to injure Russia's national pride any further by continuing to exclude her from APEC.When the question of expanding APEC membership is addressed I would urge you to support Russia's membership.
Dr. Scott MacLeod, Program Manager, Asia Pacific Management Cooperative Program, Capilano College: Mr. Chairman, although my colleague Bob Bagshaw is the founder of the program that I am currently managing, he will simply be doing the slide presentation; he has always tended to work behind the scenes. There is also some material we have dropped off with the clerk of the committee that describes our program.
Our presentation will be quite a bit different from the others, because it is not so macro; it is about a very small program that we manage over on the North Shore. It is quite a happy story about Canada's success in Asia. It is a story that the federal government should be proud of, because it has been supported by CIDA and federal moneys. We are here as much to say thank you for that support as to ask for any policy shifts. The second basic theme, besides telling you a happy story, is to emphasize the importance of human resources.
We are in the training business, we are a college, and it is through building our links to Asia, person by person, that a great deal of success can be achieved in the region as a whole. I will try to illustrate that to you by setting it within the large perspective, or by sweeping the region as a whole.
The third theme that we will try to illustrate today is that in Canada we have a great number of well-educated, bright, entrepreneurial, hard-working younger people, and there are not necessarily enough opportunities for them in the job place. In Asia we have a deficit in those same categories. Our program is about bridging younger Canadians into the Asia Pacific region and giving them some opportunities there.
I will briefly introduce you to the program and what we do. We are a national program. It is a two-year program for graduate students generally between the ages of 25 and 35. We provide them with the training and resources to thrive in Asia.
As a result of the program, there is now a network of nearly 300 alumni located throughout 14 Asian countries and Europe and Canada. It is a very tight network, and Mr. Bagshaw or I could tell you where all of the 280 people who have so far graduated from our program are located, and whether they have children and what they are up to these days. What we are trying to create is a community network just like Chinese networks and Southeast Asian networks doing business in the region. That is our goal.
The first year of the program seems to be a real mix of courses. It is a business school, but the business courses occupy only 34 per cent of the time the students spend with us. There are also context courses, such as regional history, economic geography, and the legal systems of Asia. We have an art history module on Asia in this business school to help the students increase their awareness. Language courses take about 25 per cent of the students' time. We teach five different Asian languages on our campus. Some of the student-teacher ratios are down to three to one. It is a very effective process and is the key to our success.
In the second year of the program the students graduate; that is a major grind and we make people sweat for it. We then work with the students to place them in job opportunities in Asia, in one of the 14 different countries. The next slide illustrates the countries where last year's class went. We have a 100 per cent placement rate for everyone who completes the first year of the program. We have had a 100 per cent placement rate now for about four years, and you can see that it is pretty well all around the region as a whole that we place the students.
One of the things we are beginning to realize now is that the average length of stay of our associates in the field is about five years. They are beginning to come back to Canada in increasing numbers and about half are now back in Canada. The interesting data that we have managed to discover from an outcome survey we just completed is that 81 per cent of those students said that their Asian experience was important to them finding the type of job they are going to find when they return to Canada. They also estimated that their incomes are about $28,000 higher than they would have been had they not had the experience that the APMC had given them.
Just to give you our achievements to date, we have won the ACCC award -- ACCC stands for the Association of Canadian Community Colleges; we have a 100 per cent placement rate, and we truly are the national program of first choice for young, well-trained Canadians who want to access Asian opportunities and want to do so in a fairly organized manner.
As you can see, we have been successful by bringing partners on board. These are the sectors in which individuals work. You can see the range of the types of jobs that people do in their co-op year: management consulting, manufacturing, and public administration with embassies, for example. We thank the Department of Foreign Affairs for supporting our students in internships in the embassies. That is a key part of our success.
Who are the partners? The federal government, the provincial government, employers, the college and the associates. From the federal government we have been supported by CIDA and Foreign Affairs through positions in embassies. You can see in the revenue sources that make our program tick that about 71 per cent of the money is private-sector money in the form of salaries for co-op placements and other direct subsidies for the program. CIDA gives us 12 per cent of our total program throughput, but that generates the rest, because it is the nuts and bolts that brought the provincial government on side and then the private sector on side.
Capilano College is also very supportive of the program and it is a unique niche that our college is trying to establish postgraduate programs that universities cannot seem to deliver. We are market sensitive; we are light on our feet; we re-write the curriculum every year for our program; we are in constant touch with our employers and we act like a small business even though we are a public-sector educational institution.
The fifth group that makes our program work are the associates, and they come from all across Canada. Most of our success has been through word of mouth, but 98 per cent of the surveyed students said they would recommend the program to a friend. You can see that a preponderance of them are in British Columbia, because that happens to be where we are and we have a higher profile here; however, 11 per cent of our students come from the prairies, 31 per cent come from Ontario, and 18 per cent come from Quebec. We only started pushing into Quebec in the last three years in a very concerted manner.
I apologize to the maritimes. I am going to Halifax this year to try to get some people out there to come and join us. The associates are the key. About 90 per cent say they passed their personal goals in enrolling in the program and they are the ones who live in Ho Chi Minh City, Phnom Penh and Tokyo. They are the ones who are building this network of young Canadians in the region and they are very tight and close friends.
We are now in our 10th year in the APEC activities and we have a number of initiatives that we are going to be establishing that might be of some interest to you. The first one is that we are starting a program for Latin America based on the Asia Pacific model. We believe that the Asia Pacific region is maturing and is no longer a ground-floor economy for people to run over to in order to begin their careers. We think Latin America will be the next Asia; so we are establishing a Latin American program based on the same model as the APMCP. We are also beginning to take well-placed graduates from Asian countries, and next year we will take two students from Mexico and two from Chile into our program and train them on Asia.
That is a good export for Canada. We have some expertise on Asia and we can sell that to other countries in the APEC region as a whole.
We are doing a number of presentations with the Conference Board of Canada. We are involved with the SME conference in Ottawa and also with the CCBC, that is the Canada-China Business Council meeting in Vancouver, and the Vancouver APEC, and we have close links to PEBEC.
This year is our 10th anniversary and it is also Canada's year of the Asia Pacific, and there are various youth and Asia themes, so it seems to me that our time has come after all our toiling in the trenches, and we are celebrating that. In Bali in six weeks we are having a conference with all of the alumni still based in Asia; we expect 160 people to meet in Indonesia to celebrate the fact that they are young Canadians living and working in Asia. We hope from that to be able to send back lessons on the realities for the new expatriate, on the new experiences that individuals are having in the field. This is very different from what traditional business schools might mention.
The second major thing we will be doing this year is a Team Asia tour. We are taking a tour to a set of institutes across Canada, including Halifax, and Winnipeg and places where, typically, news and information about the Asia Pacific is not particularly well circulated. We will take six of our alumni who have been successful working in the region and have them give seminars for younger Canadians around the region. That is part of an outreach program that we are working on right now. The private sector will fund it, to send our graduates and our current students into high schools and tell kids the realities of what they need to do, because it is a very competitive environment that they find themselves in, but they can have opportunities in that environment.
In trying to speed through the presentation, we managed to skip over a graph that is rather telling and important. We just completed a quantitative outcome analysis of our program and what the actual impact is. If you look at the bottom three bars of the graph, that is the investment flows between Canada and Asia. The next one below that is exports to Asia and then comes Canadian business development in relationship to Asia. This is the amount of business that our alumni and the current associates have been involved with in the Asia Pacific relations with Canada. You can see that the grand total of those three sectors is almost $3 billion dollars.
CIDA's investment which was implicated in that $3 billion worth of economic activity was $2.5 million. Even if you say maybe only 10 per cent of that business was new business as a result of our program, the result is that the economic activity generated by those young students in the field is 100 times the investment of the Canadian government in their training and support.
In summary, I wish to thank the government of Canada for supporting us and to thank the people at CIDA. We are going to carry on with both this program and the Latin American program. We would like specifically to thank Senator Perrault, who has been a great friend of our program, for helping us out a great deal in Ottawa. We would remind you that there have been a lot of positive stories about our program, and these new expatriates, these younger people, have a competitive edge and an opportunity which really seems to make them succeed and thrive in Asia.
Senator De Bané: I would like to express to Dr. Huenemann my surprise at what he said about our trade deficit with China. I understand the theoretical argument that, if overall we have a surplus, that is the important point. On the other hand, Canada did enjoy a trade surplus in the 1960s with that part of the world; then, in the 1970s, we started to have a trade deficit with the Four Tigers. Early in the 1980s we began to have a trade deficit with Japan, and now it is with China and in a few years it will be all over those countries. We also now have a trade deficit with Europe. In fact we have a surplus only with the United States. Would you not agree then that surely there is more to it than what you have said? Collectively, there is going to be a shift of wealth from the West to the East, and Canada, whose exports essentially are resource-based goods, will suffer.
Dr. Huenemann: I agree with you. My first thrust was simply to say that as we look at the question of who trades with whom and who has surpluses and who has deficits and where that is all going, we have to avoid being protectionist. I fight constantly against people who think the answer to trade imbalances is to be protectionist. That is not the answer. At the same time by all means let us be as competitive as we can be in exporting to the world and let us do the strategic things that we need to do to shift from simply being an exporter of wood, pulp, wheat and fertilizers to being an exporter of very serious telecommunications, telephone switching equipment and the like. That is an important change and a desirable change.
It is good that governments talk about needing to get into high-tech. That awareness is good. At the end of the day what is going to make us successful is not that kind of sloganeering, but serious investment in the kinds of resources that we need to invest in and particularly in education.
If I can be personal about this, my son is gainfully employed because he works for an outfit called Northern Telecom. That is because he got very good training at UBC in computer sciences. It is that long-term investment and that strategic thinking that will drive the exports of the future. I am all in favour of doing all these things.
I did not mean to suggest that that was not an important issue or that we do not have to think about it. We do. The solution is not to pull in upon ourselves and be protectionist and say that we have to stop buying Chinese running shoes. That is very much the wrong answer.
Senator De Bané: What are we going to do to stop the slide of our deficit with those countries, whether it is the classical countries, like Japan, Singapore and the Four Tigers, or the emerging countries, like Bangladesh, China or the Philippines?
Dr. Huenemann: There are two parts to that. This slide shows the situation from country to country, and I referred to that when I said my running shoes used to come from South Korea but now come from China. I tell my Chinese colleagues not to get very comfortable, because 10 years from now my running shoes are going to come from Vietnam, Bangladesh or the Philippines. They are riding the crest only temporarily too. In a sense that is part of what is happening and that is their headache. Whether we buy our running shoes from the Philippines, China or North Korea, it is an import in any event. In that sense the pattern is not changing from our point of view.
What is true, and this is part of the Northern Telecom story as well and goes back to a point Senator Austin was making this morning, is that trade used to follow the flag but now trade follows investment. A very significant part of the reason that Northern Telecom sells a lot to China is that Northern Telecom makes stuff in China and has been willing to make that commitment. It has a very sophisticated chip factory outside Shanghai that I went to see in November. Increasingly, it is hard to say who trades with whom. Northern Telecom south of the border pretends to be American with considerable success, because it is not at all obvious which country one of the multinationals belongs to. In that sense the old idea that we could actually tell who traded with whom is already becoming obscure, but we will stay on top of that, if we are agile.
I have to give enormously high marks to Capilano College for what they are doing in this regard. I wish the University of Victoria were half as agile and half as imaginative in what it is doing. Canada needs that kind of agility and capacity to shift and capacity to say it is necessary to train. People should not be studying Mandarin. I have spent my life studying it and it is important to me, but we have all kinds of Canadians who can speak Chinese. We need to be putting our young people into programs in Bahasa Indonesian, Thai and Tagalog. That is what Capilano College is doing so successfully, and they really deserve praise for that.
I am an optimist. We will stay agile and we will continue to find niches and we will continue to have our success stories, but not by going to sleep and not by taking anything for granted.
Senator Perrault: Mr. Chairman, many of these speakers who have given testimony during our hearings have emphasized the need to learn more about the languages, culture and history of those nations in the Pacific Rim. We have heard stories of harassed businessmen from Toronto and Vancouver who have gone to Indonesia and hoped to put a deal together in 48 hours and have come back totally defeated and devastated. The Asia Pacific Management Cooperative Program is in my region. I have never seen a program where its participants have greater enthusiasm for what they are doing and optimism about the future. It is most heartening to see these people in operation.
I had an opportunity to meet with some of the young people in the program. Their individual enthusiasm and commitment was startling to a jaded old politician. They are learning all of the languages of the Rim. They come from every part of our country, as we have seen on the slide. This program needs further enhancement and support and perhaps the context should be brought to other parts of the country. Here are these young people, who have an opportunity to make a positive contribution to this nation. Most of their funding money comes from the private sector. They are not riding on the backs of governments. They have a choice of things they can do abroad, working for a private company in the Pacific Rim or working with the Canadian consulates or embassies down there.
I cannot express more support for a program than this one. Mr. Chairman, I hope the idea is carried to other parts of the country, because it fully meets the criteria that have been discussed here in recent days about the importance of the coming competitiveness by having people who know the language and the culture. I cannot endorse it more highly.
Senator Corbin: I have not asked many questions, because this whole three-day exercise has been very much a learning experience for me. We have been fortunate in the quality of witnesses and certainly in their enriching testimony. Nevertheless, I think we have unduly focused -- and we might have an opportunity to get out of that in future meetings back in Ottawa or elsewhere -- on the potential for the Canada-China segment of trade and relations generally.
A comment made by Dr. Paul Lin this morning caught my attention and I want to put the question to Dr. Huenemann. He alluded to the resurgence of the old Silk Road and he emphatically said that that road goes through the Middle East, the Balkans and back to Europe. We have not touched at all on Europe as a concurrent competitor in this rich potential Northeast Asian market.
According to some figures I pulled out of Senator Austin's report this morning, the European Union currently enjoys some 14.4 per cent of world trade with China. The United States is slightly above that, at around 14.5 per cent. Japan has 20 per cent. That is 50 per cent of world trade among those three blocs. Canada has a very small wedge of the pie. Canada has lost and continues to lose market shares in the European bloc as a result of their getting together, and it is a natural phenomenon that they are protecting their own home front. I suspect that as willing as we are and as open as we are to the potential offered to us by these new Pacific opportunities, being good people, not overly aggressive, we will in the short run be overwhelmed by the initiatives on the European front.
Would you care to comment, if you have had an opportunity to look into this matter?
Dr. Huenemann: I will try to answer that at several levels. One is that, for me, although I have devoted my life to the study of Asia and primarily China, I have never thought that Asia is more important than Europe. We specialize because we have to become knowledgeable. I have never thought that being actively involved in Asia is in any way a denial of the importance of Europe, the United States, Latin America or the Middle East. I have always been a bit uneasy about enthusiasm for the Asia Pacific. What we ought to be enthusiastic about is the world. It is a wonderful place and it is highly complex and it is a measure of that that I spent my honeymoon in Europe, hiking in the Austrian Alps. For me it has never been an exclusive thing. Arguing that we should pay attention to Asia, I have never meant to say that we should pay less attention to anybody else. I have never felt that way. I suspect that my colleagues would share that feeling.
In terms of where we are likely to succeed more or less, especially in competition with the Europeans, I must say that the European Union, by coming together, does make itself stronger. There is no question about that. As a stronger economy, a collective economy will be more successful around the world, including Asia, than it would have been had it stayed fragmented. That is bound to happen. More power to them, in a way, I say. Good for them. Certainly, as I look at activities in China, that is what is occurring. I taught three summers ago at a university in Shanghai; right across the street a large, fancy new building was going up, which was the German Institute Management Training School. They had a whole lot more money that our little CIDA project that was going into the University of Shanghai. In many cases they will succeed. I take your point.
On the other hand, if the United States has 20 per cent and we are one-tenth that large, then 2 per cent is a reasonable achievement. It is the thin wedge of the pie, but considering who we are and how big we are it is not a bad achievement. What we must do is work on making it grow and work on making it successful.
Everyone has to pay attention to Asia because it is where so much of the economic growth of the next couple of decades is going to be; but that does not mean we should ignore Europe or any other place. It does not mean we should not be well aware that they are going to compete with us. The very success of the European Union ought to make us think long and hard about the importance of keeping Canada as a single economic entity. I worry very much about a Canada that fragments. We would pay an enormous price in many, many ways, and I, for one, would be very sad to see that happen. As Europe is busy trying to overcome its differences and trying to join together, for us to be marching steadfastly in the opposite direction strikes me as being not a very wise thing. Our parade is headed in the wrong direction. There is that side of the issue as well. That does, in very direct ways, affect our capacity to invest in Asia. People say, "Are you stable? Are you going to be in for the long haul?" For Asians that means three decades, four decades, five decades. It does not mean six months or a year. They look at such things as whether we have a long-term prospect of stability and growth.
Senator Corbin: The Europeans are asking the same question.
Dr. Huenemann: Yes. I am not sure I answered any of your questions.
Dr. MacLeod: It is a very interesting response and the truth of the matter is it is a very sad story. Canada's trade is pathetically small if Japan is taken out of the picture. We are very small, almost insignificant players in the region, and that is the macro-level reality of the situation. Europeans have much more presence. If we take our trade with Japan out of the mix we are not really players at all.
One reason that the Europeans might have an advantage is that they were colonial powers in Asia, so they have a longer history there. That is often a negative, however, as most countries do not like their original colonial masters, so there could be an advantage there for us. Europeans have brands. That is the key that the Europeans have that we do not. They sell things that are branded, like Cognac. We do not sell trees that are branded or wheat that is branded. That is why Canada needs to get its voice together and actually project an image of Canadian products and brand-labels. Brands are extremely important in Asia, and Europe has had brands long ahead of us.
The third thing that we should think about in terms of our success in Asia is that many European economies are not based on exporting goods directly out of the home economy. They are really based on running services around the world. A classic example is Nestlé, which really sells very little chocolate out of Switzerland, but draws a lot of wealth back to Switzerland because its corporate headquarters are there. One thing that Canada should do, and we are trying to do it, is to get involved with the Asian boom. That does not necessarily mean selling timber to Japan, which we do in the hundreds of millions of dollars; it means, for example, brokering between the Taiwanese and Singaporeans and taking advantage of the boom that is going on in the region in order to sell Canadian services into the region and sell the quality of Canadian services and Canadian knowledge.
The European model in many ways is to make money off other people's activities. Canada has not done that as much as it could. That is a good niche for us to compete with the Europeans on.
The Chairman: We talk about what Canada should be doing. Let us start off by saying that what we are really talking about in this context is Canada minus the time and attention we give to our economic relationship with the United States. We are talking about 20 per cent of the Canadian foreign activity.
Let me proceed in an anecdotal manner. I was talking with an ambassador from a major South American country not so long ago and he said, "Canada and my country are natural allies. You should be giving us more attention." I was in Cape Town, South Africa, in November and I heard exactly the same story. "You Canadians have a lot of experience in mining and transportation; you should be giving us more attention." We also heard that in Europe.
I came to the conclusion that once you take out the time and attention we give to our American activity we are expected to do an awful lot with what is left. There seem to be more demands or opportunities than we have hands to meet. That is an observation that may not be very sophisticated, but it may be accurate.
Senator Corbin: If I may be allowed more of a comment than a question, although it may solicit a response, you talked about Russia and the frightening situation there, the post-World War I syndrome in terms of Germany. I am not sure that as Canadians we can do much more than we are doing now considering our involvement on many other fronts. I wonder if you have not slightly displaced the problem. I look at the crisis in Russia as one of internal leadership more than anything else, beginning with the top. That is what is scary, and unless you ride in there on a white horse and start putting some order to things, not much is going to happen. How do you see that political situation evolving? Is there any hope in the coming years?
Professor Meyer: Are we overlooking Russia as a role of regional security in dealing with China and Asia? The main problem in Russia is domestic and the main solution will have to be what happens there. There is a mind-set that these are people who are used to being a part of a powerful country. I have heard Russians at conferences talking about Asia Pacific issues and saying that Papua New Guinea was put into APEC ahead of Russia. They understand well the significance and symbolism of that. They are a very minor player in the economic relations of the Asia Pacific region. I do not know if that necessarily means that they should be excluded from this body because of the negative symbolic implications and impact on them.
As far as security relations are concerned, their military was probably always exaggerated. Even when the USSR still existed they had enormous problems between the officers, who were Russian, and the troops, who were often from Central Asia. They had problems in training and maintenance. Their military strength even in the past was exaggerated. Certainly it has greatly deteriorated since the USSR fell apart.
On the other hand they are selling arms and making some military technology available to China. In that regard they are still important in the Asia Pacific region, because that has implications that go beyond what they, themselves, can do.
The Chairman: Professor, you are the second person to draw to the attention of the committee, at these meetings in Vancouver, the whole question of Russia's maritime province and the Vladivostok area. It is a new facet of the topic for me. Can you tell us, in a nutshell, how important, economically, that may be? I am not talking about the symbolic impact of exclusion from APEC, which might be very great. How important, economically, is that part of Russia either to Russia or to the Asia Pacific area?
Professor Meyer: In the past there were highly subsidized trade flows between Vladivostok and other parts of the USSR because of the very great distances involved. I am not an economist, but my understanding is that these flows were not rational in any economic or market sense, but they were subsidized. There is less and less money for that purpose within Russia. Vladivostok is being forced to develop economic, political and other ties with its neighbours in the Asia Pacific region. In percentage terms it is still a very small player. I am not sure I would even believe any published statistics, because I have been told by economists who are studying it up close that there is a great deal more economic activity going on than is reflected in the statistics. That is because, for taxes, people do not want to report it, and it involves what is called the Russian Mafia. I am told the trade flows are under-reported. It is still a very small player.
The Chairman: What about the natural resources of the area: wood, coal, and hydroelectric possibilities.
Professor Meyer: There are natural resources. One of the problems, not necessarily on the Pacific Coast but in Eastern Siberia, is that there is a very poor social and physical infrastructure. There are foreign companies interested in them, but they are not going to be all that easy to exploit.
The Chairman: Thank you for commenting on that aspect, because it really is new, at least for me.
Senator Andreychuk: Starting Monday, Senator Perrault and I will be sitting on another committee and we will have a chance to get into Dr. MacLeod's area, so I will leave that to that committee.
You are saying that, although Canada is a global player, the bulk of its activity is skewed to the United States with the rest of it being spread thin. You have made the point that we cannot exclude ourselves. The Chairman went on to say that we have had invitations from everywhere. We have heard from businesses that, while the invitations are there, the impediments quickly follow if the invitations are taken up. What can Canada do differently? What should it be doing differently? Is it simply a matter of being more consistent and more patient for the rewards to come? Do we simply continue as business and as government to plod on and to do the best we can and find our niche markets?
One thing that is notable, and which seems to be coming through as a threat from so many sources -- business people, academics and government officials at all levels -- is that the system of educating young Canadians has to change. There seems to have been a great emphasis on education. Would you agree that that is where the emphasis can be made differently and should be made differently?
Professor Meyer: This is something that I just began to think about yesterday so my thoughts are not very well developed, but I was wondering what could be done so that our immigrants from Asia could be more helpful to other Canadians who wish to do business in the Asia Pacific region. Certainly we have those two groups here, but the question is, how much do they interact and how much help do the Asian immigrants really provide to small and medium-sized Canadian enterprises who want to become more active there. Right now there probably is very little interaction.
One thought I have, which is very early in my thinking and I have not developed it much, is that maybe some mechanism can be established to encourage this kind of interaction. What would I do if I wished to start to trade in Vietnam and I was in a Canadian business and had no personal relations there, but I knew there were people from there here? I could think of some ways in which one could build important personal relations with the community here by doing things that they would find valuable, such as offering tutoring in English. After developing some real trust and friendship, one could then take advantage of that to deal with their relatives or contacts in their home country.
I have not thought through this very much and I think someone could come up with a more practical variant of this kind of thinking.
The Chairman: Honourable Senators, our witnesses have been generous with their thoughts and their time; I know that you will want me to express to them, on behalf of the committee, our great appreciation.
Honourable senators, we have had three splendid days here. We will have to assess all we have learned and draw some conclusions. We will adjourn to the call of the Chair.
The committee adjourned.