Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 5 - Evidence, February 18, 2003 - Afternoon
VANCOUVER, Tuesday, February 18, 2003
The Standing Senate Committee on Foreign Affairs met this day at 1:35 p.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I am delighted to welcome to our hearing this afternoon Mr. Fred McMahon, Director of the Centre for Globalization Studies at the Fraser Institute.
Please proceed.
Mr. Fred McMahon, Director, Centre for Globalization Studies, Fraser Institute: Mr. Chairman, today I really want to address Canada's economic vulnerability to security issues and what I see as our failure to meet those concerns other than on an ad hoc basis. We really need forward-looking thinking in this regard.
It is clear that in October the United States will put into place measures that could have serious deleterious effects on Canadian trade to the United States. It is clear the United States is serious about protecting its borders. It is also clear that under both international law and morally the United States has a right to do so, and will do so, no matter how much we scream, unless we take their legitimate security concerns into consideration.
One of the elements that has been used to back Canadian screaming about the United States is the perception that the U.S. is a huge trade bully that uses its weight to tilt the trade field to its advantage and beats trade panels into submission. Both statements, both common in the Canadian media and generally accepted, are simply false. Canada's 2001 trade surplus with the United States was over $130 billion, representing more than 12 per cent of our GDP. That is the trade surplus alone. Our sales into the United States represented one third of our GDP. Clearly, if the United States were a trade bully, it would not tolerate that $100-billion-plus surplus that we have been running with the United States. As senators know, the United States has been experiencing a bit of economic difficulty itself. A $100- billion stimulus to the U.S. economy, which would represent our trade surplus, would be enough to pull them out of their temporary problems. We have economic vulnerabilities there, too.
NAFTA is the reason we have done relatively well at trade panels. Both Europe and Japan have suffered considerably more trade actions than Canada, with a much higher level of success. A number of studies of NAFTA panels suggest everything from the idea that they are fair to the idea that Canada and Mexico have disproportionately won on them. There is absolutely no evidence of the standard nostrum that the United States dominates these panels.
We must also understand, again contrary to much-received wisdom, that we are not hewers of wood and drawers of water in relation to the United States. As I show in chart 3, the vast majority of our exports to the United States are either in industrial or manufactured goods and products, or in — and this was a much lesser category — semi- processed materials. The actual raw materials we send to the United States form quite a small part of our trade. We run a trade deficit with every other major trading block. It is our trade with the United States that keeps us stocked with French wine, Pakistani textiles, South Korean electronics, and so on, because we run large trade deficits with Asia and Europe. Protecting the border is now key to the U.S. administration.
It is no exaggeration to say that George Bush and his administration wake up every morning fearing their personal responsibilities, fearing an attack on New York or Los Angeles or Dallas, which would claim tens of thousands of lives or, in the worst-case scenario, which is highly unlikely, hundreds of thousands of people. By October, the United States will want advance notice of the contents of all commercial shipments. Four hours for truck shipments, 12 for rail and air shipments and 24 for marine shipments. In an era of just-in-time deliveries and planned integration on both sides of the border, it is difficult to predict how serious the impact will be, but the Canadian Trucking Alliance has already warned us that it could shut us out of the U.S. supply chain. To give senators an idea of how serious a situation this is, the bill of lading, which in the past has always been a statement of what is in a container or on a truck, will be changed from a statement of what is there to a prediction of what will be there.
The Chairman: I have to confess, I did not quite understand that concept.
Mr. McMahon: A bill of lading is filled in as a ship is loaded with containers, for example. It is a statement of what is on the ship itself. With this advance notification requirement, the bill of lading becomes a prediction of what will be in that container or will be on that ship the next day. It very much changes the way the supply chain works. I am not an expert on supply chains or things like bills of lading. However, in the next six weeks or so, the Fraser Institute will produce a major paper on developing supply chain security. It will discuss things such as the changing nature of the bill of lading and so on.
Many people argue or seem to believe that Canada's dependence on the United States is due to our free trade and NAFTA agreements. As I note in chart 4, the United States supplied about two thirds of our imports well before the NAFTA agreement. It supplies about the same percentage of our imports today. If these trade agreements have had an effect on Canadian trade, they have had an effect on our ability to export into the United States market and create jobs in Canada. In 1981, the United States represented about two thirds of our imports and about two thirds of our exports. Today, it represents about two thirds of our imports and 90 per cent of our exports. These are massive benefits for Canada, which, unless we act in a farsighted way, we will lose.
In my recommendations, I address four areas. One is supply chain security. This is something that various countries are now moving toward in a halting manner. It is not really foreseen in the various agreements Canada now has with the United States to improve security, but it is something that we should be looking at over the much longer term and that Canada should be a leader in developing because we are so dependent on this one border.
My second recommendation deals with human security. Our refugee system clearly lets in a higher percentage of people than the average for folks around the world. Many of them come from safe third nations. Of course, the possibility of entry specifically with the United States will change, but still many are coming from safe third nations. If Canada really had a concern with humanitarian issues, this is not the way we would admit refugees. We would admit refugees directly from refugee camps, the really desperate people who do not have the contacts and the money to show up on Canada's shores, often via another nation and often through contacts with criminal or terrorist networks. To repeat, if we really were concerned about the humanitarian issue of refugees, we would change the way we admit refugees. To say that there is a humanitarian justification for a refugee process is hypocrisy of the highest degree, given that we can do much better by recruiting in refugee camps.
My third recommendation relates to defence issues. We have had a free ride with the United States for a long period of time. I think the United States is getting increasingly antsy about that, given various economic and security pressures. I think that should be viewed as part of the package of our various relationships with the United States.
Finally, there are perimeter issues. When we talk about developing a North American perimeter, it is often seen as a threat to sovereignty. Nothing could be further from the truth. The greatest sovereign duty of any nation is to provide economic and physical security to its citizens. By ignoring these sovereign duties in the name of sovereignty, we risk Canada's physical and economic security.
It is also false to say that other powers will erode. This is like claiming Italians have become Irish because there is a European Union. As a matter of fact, one of the things that is frequently talked about in this regard is fiscal policy. The EU contains a far broader range of fiscal policy than we have in North America. Ireland and Great Britain tax and spend at about the U.S. level; the Netherlands is roughly at the Canadian level; France and Germany are well above anything we see in North America. It is hard to fathom how a common perimeter and common security would have an adverse effect on Canada's ability to set its own policy considering the huge divergence within the European Union.
The conclusion that we must act more aggressively in dealing with security and defence issues is transparently obvious.
Senator Di Nino: Mr. McMahon, we have heard a variety of opinions on the issue of our trade relations with the U.S. Some people have suggested that we should work on a negotiated agreement, which would give us some assurance over a long-term if not permanent free trade of goods. I do not think services are quite as affected, but they may be, as well, in an effort to stabilize the relationship. Some people have said that such an agreement is really not in the cards and that it is the worst thing we could do. Could you give us your thoughts on that matter?
Mr. McMahon: The key issue right now is not a deeper trade agreement, which I will talk about in a moment. I think we are really dealing with a threat to our current trade. The key issues are security issues, which we can handle without any agreement with the United States, by which I mean dealing with terrorist threats better, particularly the refugee immigration portfolio. Actually, I misspoke. For the supply chain itself, we do need to work more closely with the United States, but that is more of a security agreement than a trade issue.
I agree wholeheartedly that we must build another trade agreement with the United States that is deeper and better, one with a more certain and speedier dispute-settlement mechanism. I would hope that it might involve negotiations through the Free Trade Area of the Americas. However, it is fair to say that the United States is distracted on other issues right now. They will be focusing on the security aspects of trade. I think we can move on that issue without creating a new trade agreement, that being a longer-term goal and a worthy goal.
Senator Di Nino: Then let us talk about security for a moment. The issue that has come to the fore relates to the parameters of the NAFTA geographical region. Let us look at this issue from the standpoint of a trade relationship and the transport of goods between the two countries or between the three countries if we include Mexico. There are ways of eliminating security risks at the border. Activities could be undertaken at the point of manufacture, at the point of distribution or at some geographical point two, three, five or ten miles away, with the proper assurances and the securing of merchandise in trucks and in rail cars. Are we really talking about the issue of the transport of people or the movement of people? I cannot see how the need to ensure the proper flow of goods across the border really needs to be that involved.
Mr. McMahon: Of course, the people issue is important, and we will come back to that.
You are quite right: Point-to-point checks can help with some of those problems — where shipments are checked, when goods are loaded in and off-loaded. Of course, Canada also is a transhipment point for a lot of goods into the United States. We probably need better information up and down about where containers originate within Canada and from outside Canada. Canadian containers will be emptied and then reused. Do we completely search containers every time they are emptied and then reused? There would be plenty of ways to put goods into an apparently empty container.
I foresee us ultimately moving toward global supply chain security. I really do not think it is too early to talk about this. To see the difference between, say, what occurs in the aviation sector and what occurs in the container transportation sector, within minutes of the first attack on September 11, the highest officials were able to know about every airplane that was in the air, where it was going and where it came from. They had complete control of the system and were able to divert aircraft. None of that information is now available for container movement. Let us say the United States gets information that somewhere in Malaysia a container is loaded with biological weapons, which can be very difficult to detect. We would not know to which port in North America it is going; we would not know where it is. There would be a big temptation, depending on the reliability of the information, to shut down the American borders. On the other hand, we could build in full supply chain security. This is obviously not feasible by fall. We are talking about a 10-year project that Canada should be actively engaged in now so that we would have that information, just as there is information about airplanes.
Nor is there any real problem with computing power or security measures, if they are done well. If someone is travelling and puts their bank card into a bank machine in Spain, for example, it communicates with their bank and yet does not give out crucial information about that person. A similar system could be devised for containers worldwide. I am talking about a future system built on what we are doing now. However, we are not aggressively pushing toward such a system, even though it is the only way ultimately to guarantee our supply chains and thus our exports.
Senator Di Nino: Certainly we are talking about technology that exists, tracking systems and so forth. I do not think that is the issue. I think we are talking about a mindset here. What do you think of the 30-point plan that the two nations are looking to implement by October? Is it working toward what you are recommending?
Mr. McMahon: Yes, I think it is. It does not look far enough into the future and is not ambitious enough, but I do think that the Canadian government can be congratulated for moving in this direction. You will always have credit. I am here to say you should be moving faster and in a further-looking way, but I think it is a good start.
The Chairman: I understand the security perimeter, the security questions. I understand what is being discussed. I agree totally that the Americans are faced with a big threat and that it will get worse. It will not go away. However, it seems to me that when we talk about a perimeter, everyone is thinking about NORAD and that we are part of the U.S. perimeter. That was all because Russia was over there on the other side of the North Pole. However, the Americans have another border that seems to be much more porous than the Canadian-U.S. border, and that is the Mexican border, which is so out of control that scores of illegal workers cross it every year. We have heard some pretty enormous figures.
Senator Di Nino: They are leaving.
The Chairman: Yes, but the point is that with a massive U.S. operation to stop illegal immigrants at the border, they cannot stop them. When you talk about a perimeter for the U.S., everyone seems to talk about us, but it seems to me that we are a very secure country. You cannot get here unless you come across either the Atlantic Ocean, the Pacific Ocean, the North Pole or from the U.S.; whereas the southern border of the U.S. is exposed to, by my estimation, maybe three countries that have horrific civil wars going on, without controllable borders between them. People will give you all kinds of stories about the Mexican disorder. Is that not the problem? I have come across the border from southern countries maybe 100 times over the past many years. I know the people; I see them. It is chaos. Everywhere I look, I see lineups. Is that not the problem?
Mr. McMahon: I think all of that is correct. I certainly hope the Mexicans are engaging in their own discussion.
That the United States has other problems does not mean that we are not a problem. To say that Mexico is worse does not mean the United States will forget the security threat at this border. Although I have not really examined U.S.-Mexican relations, my guess is that there is a considerable amount of pressure and work going on to make that situation better. I think you are dead right: The Mexican border now appears to be more porous on any number of fronts, but the United States is working to lower risks on all their borders, not just the Mexican one.
The Chairman: I want to remind everyone that the only place in the United States that was attacked in the 20th century was Columbus, New Mexico. It was captured by Pancho Villa. General Pershing was totally unsuccessful. The Pershing expedition where he chased after Pancho Villa went on for months, and he never got anywhere. In fact, it ruined his career. I do not know that a great deal has changed since.
Senator Setlakwe: We have been here for a few days now listening to British Columbians who are very worried about the softwood lumber dispute. You just said that it is not all that important in relation to the total trade between Canada and the United States, but it does create a lot of aggravation for at least four Canadian provinces. There is a sense out there that the Americans are not being fair, and you seem to reproach Canada more than you do the United States in this regard. If we had a trade perimeter or a security perimeter with the Americans, perhaps their attitude toward us would improve.
Mr. McMahon: The way the Congress works in the United States, there is no way that we will ever end aggravation. I think that trade agreements have substantially reduced the aggravation. It did not occur to me before I came here to make a list of trade disputes prior to the FTA and then after of the FTA, but from the literature I have read, I think you would be quite astonished by how many more trade problems we had prior to the FTA than after the FTA.
I am also in the uncomfortable position of more or less agreeing with the U.S. point on softwood lumber. It is clear that market mechanisms obviously do not set lumber prices. It appears from comparative data that the lumber prices set by government are below market prices. I also think the economic management surrounding logs and harvesting rights ultimately damages the B.C. economy more than it helps it, and that is true of other provinces. That said, this is a continuing dispute.
As for Canada being unfair with the United States, I do not really think that is the case. I think we are fair traders. The continued devaluation of the Canadian dollar, almost continuously over the last 25 years, with ups and downs like when John Crow was fighting inflation, has made us competitive in the United States and is the key cause for a huge trade surplus. The United States has gone after other nations when they felt exchange rates were not fair, and they really have not come after Canada.
No, I would not level criticism at Canada being an unfair trader, nor would I level criticism against the United States being an unfair trader overall.
Senator Setlakwe: If you look at what we have done in the last few years, the Canada Customs and Revenue Agency as an example, we have instituted CanPass and facilitated personal movement across borders. We are doing it with merchandise. The volume of trade that goes across the border every day is phenomenal, and we have not had any problems with the Americans. September 11 was not due to terrorists crossing over from the Canadian border into the United States; they got there some other way.
Mr. McMahon: We are in the midst of a world of problems right now, with the new advance notice requirements coming into effect in October — four hours for truck shipments, 12 for air and rail shipments and 24 for container shipments. Container shipments are obviously a worldwide thing; Canada and Mexico obviously with rail and truck shipments. That could be a serious problem for plants and shippers on this side of the border. I do not think we can assume that by September 12 the United States had put into effect all the security measures it was going to take. Security is clearly building to ever-increasing levels. I doubt very much, particularly if there is another terrorist attack, that the advance notification requirements will be the last thing we hear from the United States on the security issue.
I am arguing that we should be proactive and look ahead. As I said before, yes, I think in many ways Canada has done well in this portfolio. I do not think we have been as far-reaching and as proactive as we could be, but I think Canada has made some good progress. We still suffer real difficulties in the immigration and defence areas. I do not think that we have fully sorted out how we will deal with border shipments, and I think this requirement for advance notice means that we still have a lot of thinking to do.
Senator Setlakwe: When you talk about immigration, we just lifted the moratorium with Algeria, which means that if we find undesirables within Canada, we can send them back without any fear that they will be persecuted in their own country. That is a positive move, and there are a lot of others being made at the same time. We are being proactive, even in immigration issues. We are not attempting to receive immigrants in Canada who are undesirable either to us or to the Americans.
Mr. McMahon: With all due respect, senator, from what I have read and from the discussions I have had, there is still a problem with people coming into Canada without papers and being released quickly with our ability to track people after they have been released. By the way, the United States has had all of these problems, too, and is trying to address them. In fact, in many ways, our system was not much worse or much better — different — than the United States prior to September 11, but I think they have taken these issues more seriously than we have.
The Chairman: I guess the only difference is one cannot get here by land, other than coming through the United States.
Senator Austin: A lot of interesting things have been said, and I want to tell Mr. McMahon where I agree with him and then explore some questions that I have.
I believe that the U.S. is in a structural change with respect to its sense of security in the world, and I believe we have to address that structural change. It is not business as usual since September 11. Today, in the international community, there are major events of which all of us are familiar with respect to Iraq, with respect to other countries, and a degree of confrontation that makes the world very uncomfortable. Because we share such a large community of interest with the United States, we in Canada must learn to share their worries as well as their markets. That is where I agree with you.
The question I would like to examine is the same one that Senator Setlakwe asked, but in a somewhat different way, and that is the difference between substance and perception. I read the U.S. press extensively. It is my view that the American concern has two parents. One is the events that we have seen taking place, and the other is an attitudinal question that was brought into public debate with the onset of the Bush administration, a very different attitude toward multilateralism than previous administrations.
On the question of multilateralism, Canada is a devotee. The United States, seeing itself with a different role in the world and a different kind of leverage, is likely to take more unilateral positions. In the first year of the Bush administration, we saw the missile defence treaty and the proposed international criminal court not move in tandem with the world community but move in their own directions. We have seen the Bush declaration with respect to the way in which the United States will behave toward third countries that threaten it and where the decision-making will lie. It lies not in the multilateral consensus; it is when the administration believes the United States is at risk. I make those statements just to colour the story, not to say they are right or wrong.
We have a circumstance where the role of Canada seems to have been defined by the Bush administration for political reasons. The President's first visit was to Mexico. There was a visit to Canada, the first visit by President Bush, in May of this year. Did the U.S. set a tone with respect to its relationship to Canada before September 11 and has that tone been added to by September 11? That is one set of questions.
My perception is that there is one consistent focus on the part of the Bush administration. This is not my original perception. This is clear beyond any doubt to us all; that is, whatever policies are adopted, they relate to a second term for the Bush administration. Therefore, our trade issues are caught up in the local politics, according to Tip O'Neill and every other observer of American politics. We are drawing a picture of events that are not Canada-based and Canada-originated, but we have to live with the reality that they are there.
We come to your presentation under perimeter issues, where your recommendation to us is that we need to move to a European type of border system. Now, a European border system is a common-entry policy, a single-entry policy. Coordinated policies on product shipments are a lot easier, quite frankly. With respect to immigration, we are almost there. We are almost there — and I am using your list — on refugee issues. We are almost there in terms of a coordinated defence policy. We are not there in terms of the outreach of U.S. policy in the world's community, which I would not call defence policy. I would call that strategic foreign policy. You have not raised the issue of a common currency, and we certainly are far from there.
Coming to the more precise question, a protection perimeter as a series of sectoral events is quite comfortable by way of principle. However, we have heard advocates for a customs union of a European type. Given the environment in which we are operating, do you have a view on whether Canada is really ``guilty as charged'' or whether we are dealing with a United States that is reacting in unilateral ways for which we have very little remedy for the time being?
Mr. McMahon: I used the phrase ``European type.'' I think those are the words. I did not want to box the idea into the exact model of the European Union. Obviously, it is a model that could be tugged here and tugged there.
Many of your concerns are shared by me, particularly on the foreign policy front, which we have not talked about. My focus has been entirely on economics, defence and security vis-à-vis our bilateral relationship rather than the broader multinational, foreign affairs type of relationship.
That was really a large piece of meat. It is too bad I cannot suggest we go to a bar for a beer or two to discuss all this. It would be much more enjoyable.
Senator Austin: I will buy.
Mr. McMahon: I do not think we are being unfairly targeted. If you watch and read the U.S. media, they are going after anyone they think created a problem that might have contributed to September 11 or may contribute to another September 11. Canada has been let off light compared to some of the things that have been said about the FBI, some of the things that have been said about the CIA. You have obviously read some of the U.S. press about their immigration services.
No, I do not think we are being unfairly targeted. The U.S. media is targeting us like they have targeted their own defence agencies.
The United States is a funny nation. When they are attacked, they really react. Let me give you an example that might not particularly appear relevant.
After Pearl Harbor, the United States had a huge military success a few months later — the Midway victory. That was a damn stupid thing for the United States to do. Their fleet was limping, and they went after the huge Japanese fleet, risking all the assets they have left in place. It would be like someone getting hit by a truck and deciding to go after the truck driver while he still had two broken arms and two broken legs. The sensible course of action for the U.S. was not to go after a victory at Midway, but to sit back, build up their fleet and wait for the inevitable victory. They went after Midway. When attacked, the U.S. has a tendency to react more aggressively than perhaps they should. We see that now, both in relation to the news stories targeting Canada, the FBI, the U.S. Immigration Service, all that set.
That leads me to your comments about multilateralism and Canada's role in the world. I am no foreign policies expert. I think we have to walk a very careful line. Many of the things the United States is doing now, which are not really the focus here, worry me a great deal. Canada has lacked clarity and courage in this situation, and I think blunt advice from a friend who is able to handle its share of security and defence issues would actually be welcomed in the United States. I think our failure in other areas, such as the hate language about the United States, is really disturbing folks in the United States. You have got to remember that Canada stood against the United States during Vietnam, but it did not create either anti-Canadian sentiments in the United States or real repercussions for Canada. There is a different tone to the anti-Americanism today, combined with what I see is our weakness, not our total failure. Senators have pointed out that we have moved well in some areas, but we have been weak in responding to some of these key issues.
With respect to politics, all politicians try to get re-elected, and of course that is going to play.
Senator Austin: Unfortunately.
Mr. McMahon: It enables the Senate to be the more interesting chamber of the two chambers of Parliament, in my view.
I am ambivalent on the issue of a common currency. I think it is probably a good idea.
You presented a whole list of topics, senator, and I am not sure I managed to hit everything on the way down.
Senator Austin: I gave you a menu. I appreciate your response.
I would ask you to develop one key point that you made. You have detected anti-American sentiments in Canada which you believe the Americans are reacting to. Could you give us examples of what you think are Canadian anti- American sentiments?
Mr. McMahon: Sure. In fact, if I had known the question was coming, I would probably have prepared a list.
Let me put the issue in context. I do not think it is a big thing in the United States, but every once in a while we hear about or encounter an American who for the first time is seeing Newsworld and is absolutely stunned by what they see. Look, the person who came in second in the leadership race for one of Canada's major parties said that George Bush spends every waking moment trying to figure out how to kill Iraqi children. It is startling that Bill Blaikie said that and that there was almost no reaction from anyone else condemning such a statement. A few voices said that that comment was over the top. We are just talking about one party here, but what he said in that debate was matched by an equally fervent anti-American rhetoric from the other leadership candidates. It was just astonishing. I was watching the debate, and I frankly could not believe it. We see a Liberal MP talking about Saddam's great humanitarian reforms and George Bush's war on children.
The Chairman: I have not heard anyone say that Saddam Hussein has been a great reformer. That would be news to me.
Senator Di Nino: Carolyn Parrish.
Senator Austin: These are examples of how the U.S. embassy understands the Canadian political system very well, who is where and who speaks for Canada and who does not. In my experience in dealing the embassy and Ambassador Cellucci, I find it asymmetrical that there are not any apprehensions about Canadian collegiality with the United States. Where we have differences, they are differences of degree and differences of interest that are within the normal chain of differences, and the Americans have many differences with us, in many ways.
The softwood lumber issue, as grievous as it is to British Columbia, has not created any anti-Americanism that I am aware of in British Columbia. We do not have our industry, our workers, our employers, our provincial government calling down the Americans. We are working with a close relative, if you like, on a problem where the family has a big disagreement, but we are not calling down the family.
With respect to this whole question of anti-Americanism, it may be true as a political community that we need to be much more aggressive in putting down Americans. To do that, we should no doubt make sure that our real interests are expressed aggressively.
Senator Carney: Mr. McMahon, I found your presentation to be very long on generalizations and very short on specifics, and I want to address some of the specifics.
The opening paragraph states that ``Canada's refusal to take U.S. security concerns seriously threatens devastating consequences for Canadians....'' I have no evidence that we are not taking the U.S. security concerns seriously. We live close to a border and most of us know how intensely the border security issues are being treated. Those of us who fly in airplanes certainly know how responsive Canadians have been in that regard. I think that relates to John Manley's measures. The fact that we cannot really react to issues that have not been created and the fact that the 9/11 terrorists did not come through Canada speaks more to the U.S. security than to ours. I am just pointing out that if you have evidence that we are not taking U.S. security concerns seriously, you could give it to us.
Second, you have not given us evidence to support your views. You have given us two references, Alan Rugman's paper and Patrick Macroy's paper on chapter 11.
You refer to Canadian bullying tactics. Well, both in the softwood lumber and in the B.C. salmon disputes with the United States, there is a lot of evidence that the U.S. has failed to live up to its commitments and has refused to follow international law in some of these areas.
In terms of your charts, they are very confusing. Chart 1 shows Canada's 2001 trade surplus with the U.S., just ours. I would suggest that quite possibly you have mislabelled these charts because they do not make sense to me. If you say that Canada's trade surplus in chart 1 exceeded 12 per cent of our economy, the 12 per cent seems to refer, according to your markings on the chart, to the U.S. trade surplus.
Mr. McMahon: I am sorry, that is mislabelled.
Senator Carney: You also have U.S. exports at 35 per cent of the Canadian economy. I am not sure.
Mr. McMahon: Those are simply mislabelled, senator, and I apologize. It should be fairly obvious that the chart refers to Canadian exports and Canadian trade surplus.
Senator Carney: Chart 2 outlines Canada's 2001 trade balance. You seem to suggest that we are in a deficit position with every other country or group of countries. This is a problem with the way you have aggregated.
Mr. McMahon: I used the Stats Canada aggregation there.
Senator Carney: Are you suggesting that we are not in a surplus position with any other part of the world?
Mr. McMahon: As I said, we did not have a surplus with these blocks as set forth by Stats Canada. I am sure that we had a surplus with some nations. I have not gone through the 170-odd nations in the world. We run a trade deficit with Asia; we run a trade deficit with OECD nations; we run a trade deficit with Europe; we run a trade deficit with the other Americas. Perhaps we run a surplus with Africa. I really cannot remember.
Senator Carney: I would suggest that the aggregation shown here is skewed and not very helpful.
Then we come to chart 3, which indicates the U.S. share of Canada's imports and exports. You make the point that it is not true — and you call it another major trade myth — that we send raw materials like oil or gas or semi-process materials like lumber. You say that manufactured products comprise by far the biggest category of our exports to the United States.
First, chart 3 does not relate to this. Do you understand this, honourable senators? Chart 3 has nothing to do with the subject matter as listed in the text, but assume that the witness is referring to chart 4. He points out that Canada's exports to the United States include ``machinery, equipment, household goods, and other end products.'' He has not mentioned automobiles as part of that last column because by far the biggest item in that column is Canadian automobiles. I suggest that it is not useful to drop them. The census category may be machinery, equipment, household goods and other end products. If you were to extrapolate out the automobile segment and automobile trades, which benefit basically Ontario, and you looked at our overall trade pattern with the United States, oil and gas, semi- processed materials and ``other end products'' are much bigger factors than you suggest.
You have not given us any evidence for your statement that Canada's refugee policy is almost certainly the world's most hypocritical. A lot of us are proud of our refugee policy. Some of us think it is too generous and some of us think that it is abused. However, given the fact that other nations, such as Japan, do not allow people into their country at all, I would say that is probably more hypocritical than what is being presented to us here.
You mention the failure of British Columbia to adopt market systems for softwood. While you say it has probably cost us more than it has gained us, I would dispute that. Having some historical background on this subject, our resources were, as a matter of public policy, directed at the developing social and economic fabric of British Columbia. In the mid-1950s, the market economies brought us the ghost town of Swanson Bay and other failed communities on the coast. The tenure system that developed in the last century in British Columbia brought us Kitimat, which otherwise would have been a one-industry town. These are just random examples: Prince Rupert, our biggest port. It created Houston; it created Prince George. We have three pulp mills there in what was basically a small beehive lumber town. It took Cranbrook from a few hundred people to around 20,000. It created Mackenzie in the Peace; it created Gold River; it created Port MacNeil, which was a logging town when I first knew it. It certainly assisted Port Alice; it certainly assisted Squamish; it certainly assisted Kamloops and the entire interior and coastal fabric of British Columbia. In the hypothetical economists' world of ``what might have been,'' if you have information to support your statement that the social and economic policy followed by the government to this time retarded the growth of British Columbia, I would be very interested in that information.
I have been very general in my treatment of your paper, but I find that it is insubstantial. In my view, it does not contain accurate information and does not substantiate the points you have made. If I sound harsh, we have spent several weeks dealing with people who are bleeding because of trade policy issues. Communities have been seriously affected across the board. We have heard from people who have very real concerns about the direction of trade policy. We heard this morning from two professors, including John Helliwell, who argues that we probably have got most of the benefits out of integration with the United States and that there is probably not much more to get.
I will leave it there. If you have information to substantiate the generalizations you make in this paper, I am sure that the committee would benefit from it. I can make sweeping generalizations, as can every member of this committee, but generalizations are of limited help to us in trying to deal with the very serious issues before us.
Mr. McMahon: Senator, I doubt that I will be able to address all of your comments, in part because I was not able to keep up.
I used the divisions those charts to avoid the very charge that you are making. I used Stats Canada divisions. If you have a problem with them, I do hope you will take them up with Stats Canada. That includes chart 4, ``Exports to the United States, 2001.''
Given that this is a presentation to senators, it never occurred to me that anyone would accuse me of trying to hide something from senators by not explicitly listing automobiles. I would have assumed that senators would realize that automobiles are part of machinery, equipment, household goods and other end products. It is true that the automobile sector is a very significant sector, but you will also find consumer end products and communication equipment in that sector, which we have produced quite a bit of, and various other manufacturers. True, a lot of it is automobiles.
Senator, I did not accuse Canada of having the least generous refugee policy in the world. I used a word that has a meaning. The word is ``hypocritical.'' The Japanese do not claim to have an extraordinary refugee system. We do. If we wanted to be generous, we would not collect refugees the way we do now. It is extraordinarily hypocritical to say that we have a really generous refugee system when in fact the vast majority of refugees are those who come across the borders rather than going through refugee camps. That is where the United Nations recommends we can pick up refugees.
It has been a busy two weeks, and I apologize profusely for mislabelling Canada and the U.S. in chart 1.
As to the benefits for Canada, which you say are unsubstantiated, if you think that a trade surplus worth 12 per cent of our GDP is petty stuff —
Senator Carney: I did not say that. I am talking about benefits that were understated on marketing timber. As a matter of fact, you so mislabelled the charts that they are not representative of anything, and I would hardly be in a position to comment on them.
Mr. McMahon: Senator, with all due respect, the exports and the trade surplus, with the exception of the labelling problem, are pretty clear. I find it difficult to believe that the chart is hard to interpret. If it is difficult to interpret our trade surplus and deficit the using the Stats Canada division, I apologize. It does not seem to me that the U.S. share of overall Canadian trade, which is chart 3, is very difficult to understand.
Senator Carney: I do challenge that on the basis that we are inundated with statistics that show that Canada is the United States' biggest market. I mean we all give speeches on this; we are both each other's biggest market for imports and exports. In terms of transborder trade in both directions, we are each other's biggest customer, and I do not think that is adequately reflected in the charts.
Mr. McMahon: Once again, Senator Carney, if you have a problem with those numbers, I suggest you do not take it up with me but with Statistics Canada. We run a huge trade surplus with the United States, and of course that will be reflected in the relative shares of imports and exports.
I do agree with one of the things you said, that being that there are a number of generalities in these charts. I came here planning to give an overview of the various issues that I see affecting Canada-U.S. trade. You challenged me to point out the economic benefits Canada gets from our trade with the United States, particularly the industrial sector. I do hope that you do not want to dismiss the auto industry as somehow being Ontario and therefore not part of our exports. The auto industry is clearly part of our industrial exports and is clearly important, not just to Ontario but to all of Canada.
I think we do have a genuine disagreement on forestry policy. I do believe market forces would produce a better forestry sector in British Columbia than the current system, but that is not what we are here to discuss.
Senator Carney: That is not what I said. You presented it as in the past. You said that it has caused — past tense — more damage than it has contributed. I am saying that historically that is not the case.
I am not here to pick holes in your argument. I am just saying that if you have evidence to support the statements you make, including the opening sentence in your brief that Canada refuses ``to take U.S. security concerns seriously,'' we would be pleased to entertain it. That would include the study that you referred to but have not elaborated upon.
Mr. McMahon: That is forthcoming, as you will notice from the tense in that sentence, and we do disagree about the past history. I am sorry for getting that tense wrong.
The Chairman: I cannot let the discussion on refugee policy pass, having in another life been Chairman of the House of Commons Committee on Immigration. If we followed the policy of allowing into Canada only refugees from refugee camps, none of the Ugandan Asians, for example, who have made such a contribution to Canada, and I believe particularly to British Columbia, would have been able to come to Canada because they did not come from refugee camps. There was an emergency we all remember in Uganda. In fact, we sent immigration officers to Kampala to bring people to Canada, who I think, by anyone's measurement, have made a great contribution to this country. I do not want to get into any arguments, but I think that would be an unwise policy for us to follow.
Mr. McMahon, we thank you very much for coming here today to make your presentation. This is a most important subject. We certainly all agree on one thing, and that is that we have a very sensitive situation on the Canada-U.S. border.
The committee adjourned.