[Recorded by Electronic Apparatus]

Tuesday, June 18, 1996

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[English]

The Chairman: I call this meeting to order.

We've very pleased to have with us three of our eminent ambassadors, Mr. Garrett Lambert, the high commissioner in Hong Kong; Mr. Jeremy Kinsman, our ambassador to Russia; and Mr. Howard Balloch, our ambassador to China.

Gentlemen, I understand you're here in town for a conference. We very much appreciate you taking time to come and speak to us. We look forward to sharing our views with you.

The suggestion was - and I think it's a correct one - that maybe Ambassador Balloch could go before Mr. Lambert. It might be best if we go China first and Hong Kong second rather than the other way around. Then we'll go to Russia.

Thank you very much.

Mr. Howard Balloch (Canadian Ambassador to China): Thank you very much,Mr. Chairman.

[Translation]

I should start by saying that I have given staff a summary of the current situation in China and a summary of our human rights policy. I believe that is the issue the committee is focusing on. Since I have distributed the document, I will simply make a few comments. I am prepared to answer questions on human rights and on other issues relating to China.

[English]

I should begin by saying that human rights in China can only be viewed in the context of very significant change that's taking place today in China. We are now in the eighteenth year of the longest period of policy continuity in China since the beginning of the opium wars 150 or 160 years ago. It is the longest period of stability the Chinese people have known since that time.

The reform that began in December of 1978 was largely, on the economic side of things, to begin dismantling the communist regime and to begin opening up the economy to the markets and to the international community.

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Today, almost a generation after it began, the benefits of reform are evident everywhere in China and extremely widespread. For the first time in a very long time, the lot of the ordinary Chinese person is getting better day by day. The state's capacity to control its people has withered. It hasn't died entirely, but the structures established in the 1950s after the formation of the People's Republic are no longer in place, and people are free to choose their own economic future. They're free to choose where they wish to study. They are free to obtain the employment they wish in terms of competing for positions in either the state sector, the government, or the private sector. These are freedoms Chinese people have not known until recently.

Many freedoms are much greater today than they ever have been before in terms of freedom of intellectual expression, freedom of association, freedom of movement and other non-threatening freedoms, if you will, from the standpoint of the state.

Reform has brought deep societal change built on economic improvement. We have begun to see of late some changes on the political side to suggest that maybe the seeds of civil society have begun to be sown. We saw last year during the National People's Congress in March the introduction of changes to Chinese criminal law that bring into place, for the first time in Chinese history, the presumption of innocence and the right of legal counsel, barring arbitrary detention or arrest. Although we do not yet have evidence of how these legal changes are going to affect Chinese society and Chinese jurisprudence, these could be very significant changes in terms of the kind of society China is.

At the same time, we've seen a certain fragmenting of political power in China, with the party losing some power, state institutions gaining power and provinces gaining power relative to the state. We are seeing today a much more balanced system of power among central ministries in Beijing, a much better balance between provinces and the centre, where decision-making is increasingly made by consensus rather than simply by dicta.

Perhaps partially because of the widespread impact of economic reform on the lot of average people, there is no significant dissident movement, no intellectual foment that should be viewed as regime-threatening at the present time. Nonetheless, when the state, the party or the PLA feels its legitimacy is being undermined or threatened, or the unity of the country is being put in question, the state continues to react with repressive actions and a degree of brutality that used to mark a great amount of the interactions between the state and the individual. Those are now really reserved for moments or times when the state feels its legitimacy is being threatened or the unity of the country is being threatened.

There are weaknesses - many, obviously - in Chinese society. Many of these the Chinese government is well aware of. There are disparities between rich and poor. There are disparities between the coast and the hinterland. There are big and growing disparities between the market sector, the private sector and the state sector that have to be dealt with in the coming years if they are not to begin destabilizing Chinese society. Corruption and crime are increasingly widespread, although corruption is now the focus of a very major campaign, a ``strike hard'' campaign, by the Chinese regime.

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That's the context against which our human rights policy is played out. Human rights is one of the priorities we pursue in our relationship with China. In the document I circulated I have highlighted the instruments of engagement, as we call them, of how we engage with China on the human rights question.

We have a dialogue with China on human rights that is pursued at all levels. When the Prime Minister has met with Premier Li Peng or with the President, he has raised both individual and generic concerns about human rights. We have decided that the best way to raise these concerns is, for the most part, to do so quietly rather than simply to make speeches about them.

We also have, very importantly, a series of projects we pursue with China to try to help the systemic change that we believe is under way in China and that will improve human rights over the longer term. We have been engaged in assisting the Chinese in their criminal law reform. We are engaged in the training of prosecutors, lawyers, judges. We are engaged in projects to improve governance at the local and regional level. We are engaged in a project to improve the implementation of what is quite a forward-looking women's law. We have exchanges with groups in China, universities here in Canada, the Royal Society of Canada, the bar associations here in Canada, the Canadian Human Rights Commission here in Canada. We've assisted in developing systems in China for election monitoring at the local level. At the local level and only at the local level, there are free and fair elections in China. Above the local level there are not.

As we approach the human rights situation in China we recognize that systemic change is slow. We believe there is change going on at the current time, and that we can through our engagement assist in that change. As I said before, this is an important part of what we are trying to pursue in our policy with respect to China.

[Translation]

I think that is all for now. I am ready to answer your questions if you have any, Mr. Chairman.

The Chairman: Thank you very much, Mr. Balloch.

[English]

We will go now to Mr. Lambert to discuss a tie-in with Hong Kong. As you know, Mr. Patten was recently through Ottawa and some members of the committee had an opportunity to meet him. Martin Lee was also in and met with some members of the committee individually as well.

Mr. Lambert.

Mr. Garrett Lambert (Canadian Commissioner to Hong Kong): Thank you,Mr. Chairman. I have tabled an opening statement, which in the interest of time I won't read. I will just mention a couple of the highlights.

Sitting on the bottom right-hand corner of this vast continent of China, the geographic size of Canada with 21% of the world's population, is little Hong Kong with its 6.2 million people. But it generates a GDP that's almost a quarter of China's. It's the third largest financial centre in the world.

For us it's an important economic partner. The two-way investment flows are not insignificant. There are billions of dollars of Hong Kong investment in Canada, capital investment that is working and generating jobs. There are also billions of dollars of Canadian investment in Hong Kong generating profits. Hong Kong, after Tokyo, is the largest holder of Canadian debt in Asia, with about $23 billion in Canadian debt instruments. It's also a good partner because it's a very stable holder of that debt.

Everybody in Hong Kong is a refugee from China and that's what makes the transition next year so difficult and causes such great concern to its inhabitants. Everybody who is there fled something in China. They either fled repression or fled to some kind of better economic future. Hong Kong has traditionally been viewed by most of the Chinese who live there as a refugee camp, a transit camp, a place you go to, park for a while, earn some money and move on.

In the last couple of generations that phenomenon has changed. There are people who would like to continue to live in Hong Kong and make their futures there, and the futures of their children and grandchildren, but they are very nervous about what the future holds for them.

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As a consequence, and in particular as a consequence of the events of 1989 in Tiananmen Square, there was an enormous surge of interest in Canada as a place to go. We received something on the order of 20,000 family applications to emigrate to Canada in the immediate aftermath of Tiananmen, and it took us the better part of five years to process that backlog, which we completed in the summer of 1994. Having said that, the flow continues, and last year people from Hong Kong represented 30% of all the immigrants into Canada.

Another interesting statistic that isn't in the paper is that last year 86% of all the immigrants into Canada came from Asia. It would have been over 90% had it not been for refugees from Bosnia-Herzegovina. The Asianization of Canada is a very interesting social phenomenon that's having an enormous impact. It's having an even greater impact than the simple figures indicate because of the concentration of locations. Something like 30% of the Vancouver area is now Asian, mostly Chinese, and there are more than 350,000 Chinese in Toronto alone.

The flow continues. I expect that this year we will have about what we had last year, and that will be something on the order of 30,000 to 31,000 people.

What is also interesting about the flow is that it is changing in nature: there are fewer people who are joining families and more people who are coming as independents qualified with skills, education, and language, and certainly equipped with cash. They're immigrants of the highest possible quality.

About 500,000 of them have come to Canada in the last 15 years, and the fact that we have been able to absorb them with such relative ease and with so few disruptions and so few unpleasantries is indicative of the fact that they've been able to blend into Canadian society, impacting on us in a way that I think has been positive, but also changing in their own ways to adopt what is good that we have to offer them. The connections are such that they look to us for assistance. They look to Canada specifically.

Mr. Chairman, you mentioned the two visits that have just taken place. The Prime Minister has been to Hong Kong. I would say that half of the Canadian cabinet has been to Hong Kong.Mr. Axworthy is going in the next few weeks. There are other visits scheduled. Hong Kong is a very important matter on the Canadian foreign policy agenda and 500,000 Hong Kong Canadians are going to see that it stays that way.

We are trying to determine how things will go, and the best answer I can give to you is that if the people of Hong Kong take their destiny into their own hands and exercise the autonomy that has been granted to them under the joint declaration, which was the treaty signed between China and Britain in 1984 and then codified in Chinese law, they should be all right. But we, as part of an international community and more specifically as a very close bilateral partner of Hong Kong, will be asked to be vigilant and to be diligent in ensuring that the rights that have been granted to them are sustained.

The Chairman: Thank you very much, High Commissioner.

Speaking of all the people who go to Hong Kong, I must say that the president of the university from which I am presently detached seems to spend more time in Hong Kong than in many other places, too.

Mr. Lambert: They're very generous.

The Chairman: I suspect it's not just cabinet ministers who are going to Hong Kong from Canada. Fund-raisers generally seem to be beating a path there.

We now have Ambassador Kinsman from Moscow. I must say, Ambassador, you probably get more traffic in terms of letters from members of Parliament than most ambassadors do. I know we're all grateful to you for the help you've given our various offices. Personally, I know you were very helpful in the human rights case of Semyon Lipshits and various other issues, where I think you've been able to make some difference in a very difficult climate.

Welcome, and we look forward to hearing what you have to say.

Mr. Jeremy Kinsman (Canadian Ambassador to Russia): Thanks, Mr. Chairman.

[Translation]

The committee asked me to talk about the Arctic Council, which I will do later on. I'm going to start by talking about the elections which were held in Russia on Sunday. I am, of course, speaking in a personal capacity, and I am sharing my personal impressions with you.

Two things must be pointed out regarding these elections: the Canadian point of view and the world point of view. First of all, the elections were held and they were clean. There was no fraud. Secondly, the Communists did not win, and in my view, they will not win in the second ballot. This is excellent news.

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However, I do not know if that does much to clarify the future of Russia. That does not necessarily mean that everything will go well eternally in Russia. As you know, the situation is extremely complicated. It is a society that has undertaken an economic, political and psychological transformation all at once. It is probably the transformation the most complex ever undertaken willingly by a society in times of world peace.

I think they deserve some respect for their courage in this undertaking. Moreover, I must remind you that as a people, they were recently traumatized by successive shocks. I'm thinking about the coup d'État on Gorbatchev. I very clearly remember the violence against their Parliament and inside Parliament, in October 1993, and the outright carnage in the streets of Moscow. I'm also thinking about the very cruel and humiliating war for the Russians in Tchechnya.

In addition, millions of individuals from among the most vulnerable people in society have suffered shocks because of the shock therapy of economic reform.

[English]

There's good news and there's bad news.

If you have a minute, I'd like to tell the story about my wife and me at the market in Moscow. I had nothing to do that afternoon. I was standing there wearing a suit. I was the only person wearing a suit. A guy came up to me with a gun, put it in my stomach and began to mumble to me in Russian. I didn't understand it very well. My wife, whose Russian is fluent - it's certainly better than mine - was looking at peaches. She turned around, smiled at the guy and said ``No, thank you, we don't want to buy a gun today.''

Some hon. members: Oh, oh!

Mr. Kinsman: My point to you is that it is constantly good news and bad news. On the one hand, it's a market economy now, but on the other hand, what are they selling?

Some hon. members: Oh, oh!

Mr. Kinsman: So it goes in Russia, Mr. Chairman. They've done some astonishing things, like de-control of power, freedom of the press, freedom of speech, and empowerment of people, businesses, and individuals. Seventy percent of the economy is now in private hands. I think that's more than in Italy. By and large, they're fiscally responsible. They've cut inflation down from thousands of percentage points a year to about 3% a month, in current terms. There have been an awful lot of fundamentally good things. The military is no longer a threat.

The downside of that is that the GNP has dropped 30%. The personal savings of honest people were wiped out by inflation in 1992-93. Everywhere honest people see dishonest people getting rich. Services are awful. Life expectancy is down, and for a male in Russia it's now 57 years. It used to be 63 years. That's an unprecedented drop for any industrialized society. The cost of funerals, I may say, is vastly higher. The elderly are destitute. Crime is rampant. Chechnya... You know it all.

In December there were elections. Some of your colleagues have observed elections in Russia. They were elections in which there was a deep protest vote on the basis that there was too much shock and not enough therapy. Since December, Yeltsin has understood that basic message.

Yeltsin stands for three very fundamental things. He stands for elections. Ever since I've been there - four years - at every election people say he's going to cancel it, and he never does. He believes in elections, in that basic point. He stands for freedom of the press and freedom of speech. There's a question about freedom of TV media, but basically he stands for that, and he stands for private property, in the sense that it's up to an individual to own his place and the individual has the right to work autonomously for himself. And across the board, Russians agree with that.

But it's a very awkward transition, and because of the awkwardness of the transition, and because of the costs, those affected - elderly people and those in one-company towns across the country - need transitional assistance. The election was about that. It was about the pace of change, the impact of change, and the by-products of change, like crime.

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It was not about the lost empire. It wasn't about Russia. Sure, there's a sense of regret, but it wasn't about putting the Soviet Union together, even though the communists sometimes made it sound like it was. They were wrong about the mood of the people. They were right about widespread discontent. They tapped into serious issues. A lot of people had serious reasons to vote for them. Zyuganov had some real advantages. He has great political strength at the retail level - door to door - and he had a very unpopular opponent.

Over the last few years Yeltsin had been isolated. I speak personally, of course. He was seen to be disobeyed, disinformed, ill, and sometimes not in great personal shape publicly. He turned it around. He judged one thing correctly: the communists could not expand their electoral core support past that group of elderly people who wanted the communists to use state intervention on their behalf to mitigate the negative impacts of change. In other words, Zyuganov couldn't broaden his movement into a social democratic movement.

And Yeltsin judged that if he could get his own act together and neutralize Chechnya as a losing issue, he could probably win. He preached stability, reassurance and an improved continuity, rather humbling himself in illustrating his own ability to change. He expressed confidence in the future. The communists were the opposite. They were mired in the past, and their campaign was negative.

His judgment was that a dislike of him, however great, was going to be less than the fear of giving the communists power again, on the one hand, and fear that they represented counterchange, which would be further trauma for the people, on the other hand.

He regrouped himself, got his act together and got some previously fired reformers to run his campaign. I can tell you about that. He used TV brilliantly. He used modern political techniques of the kind you're familiar with. He used focus groups and all of that stuff and cut his schedule down to three events a day. He turned television into a news forum, not just a talking heads forum, whereas Zyuganov didn't know how to use television, despised television, and was awful on it. It's said that he didn't have access to it, but since he was so bad on it, if he had had more access, I can't see how it could have helped.

Yeltsin came in first, which is what he wanted to do. Now if you've seen the news today, he's incorporated General Lebed into his government as president of the security council, and since Lebed's principal theme is anti-corruption, anti-crime and straight-arrow, this will certainly help Yeltsin enormously in getting over 50%.

My personal concern in the future would be over whether this, the good Yeltsin, is the President of Russia who's sustained by the coming months and years or whether he's apt to revert from the honest, straightforward advisers back into cronyism and into another form of governance that we saw a little while ago.

I think our job, the job of the west, is to sustain our engagement in Russia, to keep them engaged. Their choices several years ago changed our world, hopefully forever. Russia is not the U.S.S.R. Russians are now, I think, not in favour of the past. We have to get out of the past. They're going to do it their way, like the old Sinatra doctrine. They won't do it our way, and their way is going to take some time. It's rough, it's not always pretty, but probably - let's hope - it's going to work.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Ambassador.

Maybe I could lead off the questioning by asking you about a specific matter that came before the committee recently. There was a report that Mr. Alexander Nikitin, who was or is, as we understand it, a former military officer interested in environmental issues and particularly in the disposal of nuclear waste in the Arctic - which we are particularly interested in because of our study - had sought to emigrate to Canada and is now being held in jail.

There's some suggestion that in fact the interview he had at the embassy with the immigration officer found its way into the hands of the very secret police who arrested him. I don't know if you have any comment on that case. This committee was thinking of adopting a motion to write to the Russian ambassador and to the Russian leaders to urge the release of Mr. Nikitin. Perhaps you could help us with any information you have about that case.

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Mr. Kinsman: Sure. If you don't mind, I'll just speak personally.

I admire Alexander Nikitin. He was a submarine commander in the Russian navy and as such he was a participant in a military program of the utmost secrecy, by Soviet standards. That's their business, and so it goes.

He quit. Whether out of personal conviction that this is how he wanted to spend the rest of his life on these issues or whether because it was a useful job, he found employment with a Norwegian ecology group, which is very activist, right on the edge. It does good work, and its principal concern, as you say, is the environment between Norway and Russia in the very far north near Murmansk, where there are submarine bases. Their principal concerns are the deteriorating nuclear reactors of the tied-up nuclear subs.

Applications to emigrate to Canada are covered by the Privacy Act, so I can't really talk about him, except that I am aware that Mrs. Nikitin has told the press that of course he did apply for emigration to Canada. I think he would make a great immigrant. I don't think that application had anything to do with the Russian security service picking him up.

As to whether the interview was somehow overheard or made available to Russian authorities, obviously I don't know that. Like you, I've read Mrs. Nikitin's suggestions to that effect.

The fact is that according to his organization, he didn't break any laws in his work. His trial is upcoming. We are going to watch that trial like hawks. We are going to try to ensure that it's fair, of course. If there is evidence against him that he has in some way broken their secrecy act, which is what they maintain, they're going to have to prove it. If they don't prove it, then certainly it would seem that there is an absolutely valid basis for real, vivid protest on straight humanitarian and political grounds.

The Chairman: Thank you.

Mr. Mills.

Mr. Mills (Red Deer): I have several short questions.

In terms of China, the position of the family and unemployment seem to be two areas that were becoming more and more dominant in the country. Is it still the case now that unemployment is becoming a serious concern for the country and that the family as the unit that made everything hold together was seeming to break down with the growth rate, etc.?

Mr. Balloch: I have two comments, because they're really quite separate issues.

First of all, on unemployment, there has been an enormous employment growth in China in the last 10 or 15 years. At the same time, there have been significant numbers of people who have left the land as the agricultural sector has insisted upon higher levels of efficiency as it's been put to the market test. This has led large numbers of people, perhaps somewhere in the neighbourhood of60 million to 80 million, to move from the land to the urban areas of China, where they work in construction and they work part-time. There is some unemployment, but largely speaking, for the moment at least, the economy manages that level.

The big unemployment challenge looms if they put the whole state sector, the huge, heavy industrial sector built up during the 1950s and 1960s, to the market test. It would mean vast numbers of unemployed and it worries the Chinese regime enormously. Similarly, there are state organizations that, if put to the market test, would disgorge significant numbers of workers.

An example of this is that there are three million people who work on a railway system which, in terms of its freight spread, is only a little bit bigger than Canada's. If it were put to the market test, one million or more of them would be unemployed. It is a big worry.

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For the moment, because of rapid economic expansion, this is not a huge problem. There are economists who say the point at which the Chinese economy can't sustain employment growth with the amount of unemployment being created is somewhere in the neighbourhood of 6% or 7%. The economy is growing at roughly 8% to 10% a year now, so it's staying ahead of that. But if it slips down - and we would think 5% economic growth was high - as low as 5%, then the unemployment problem would start to become extreme.

On the issue of the family, the family unit was really crushed, in many ways, in the 1950s with collectivization and the communalization of the social system. Children were often raised outside their families. Since reform, the family unit has gotten back together. The reality is that the family unit in China has changed with the introduction of the one child policy. So the family unit, which in traditional China was very important - large families and extended families - certainly no longer exists today. What you're seeing emerge in more modern China is very small family units. They're still extended, up to grandparents.

The change will have social consequences I can't possibly predict here, but I would say the family unit hasn't broken down in the sense I think you're suggesting.

Mr. Mills: I have two other very short questions. Hong Kong after the changeover: will there be free movement? Do you know the answer to that? Will there be free movement either way between China and Hong Kong?

Mr. Lambert: There will continue to be free passage of visitors and people doing business, but the Chinese have indicated quite clearly that they intend to maintain the border. There will be no possibility of mass migration from China into Hong Kong.

Mr. Mills: I was in Russia in 1992 and then in 1994. I could hardly believe the changes, how much more serious the law and order problem had become. Is there an end in sight? It almost seemed to be law and order by mafia and by pay-offs.

Mr. Lambert: It's a very murky topic. Personally, I think it's peaked. At one point, in 1993, I would have said the police were outgunned. They were certainly outpaid and certainly outperformed. I think that's been sorted out. Street crime is way down compared with that time. The amount of violent crime associated with hits and so on still seems fairly frightening.

Honestly, Mr. Mills, I can't compare it with the amount of violent crime involved in the drug trade in American ghettos, for example. I think the problem is that it's just happening to a different kind of person.

What I would be most worried about is straight corruption. That is the most difficult thing to quantify. Again, people in Russia are fed up with it. Actually, there's just petty corruption. To get a house built you have to go... You know. They're fed up with it.

Yeltsin realized that. He realized he wouldn't be re-elected unless he showed some serious, earnest effort to get rid of it. The guy he's brought into his government, Lebed, that's his thing. That's what he's in politics for. I think that's going to have a big impact. It has to, or Russia will remain a bad news story on TV for as long as it goes on.

Mr. Mills: Thank you.

The Chairman: Mr. Assadourian has gone. Go ahead, Mr. Flis.

Mr. Flis (Parkdale - High Park): I have a brief question about Tibet. His Holiness was here in Canada a few times. He's lobbying in a very peaceful manner, I would say, around the world for the independence of Tibet.

I notice, Mr. Balloch, that in your paper you express this is still a Canadian concern. What's the future of Tibet? Is there anything in sight in the next 20 years in terms of their ever achieving independence? Would the same rules apply to Taiwan? Where do you see Taiwan in the whole scheme of things?

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Mr. Balloch: First of all, Tibet. I should first say that when we recognized the People's Republic of China, we recognized that Tibet was part of China. So it is not part of government policy to argue that Tibet should be independent. We do argue that the human rights of people who live in Tibet should be respected, and we argue that in the longer term those rights should be full political rights as well. If that has implications for the integrity of China, well, that wouldn't be for us to judge. That would be for the people themselves to judge.

For the moment, China is absolutely firm on the issue of Tibet and reacts very strongly to any implications that it should become independent. There have been efforts inside Tibet, even lately, of very small - as far as we can tell - groups who are trying to fight for the independence of Tibet. They are dealt with very firmly, very harshly. There are also, I guess I could add, a couple of small independent movements in other parts of China, in the far west, in Xinjiang, where the same is true.

So I don't think there is much prospect for greater political autonomy in Tibet until there is significant change in the political nature of China.

On the issue of Taiwan, it's somewhat separate, as there you have the nationalists, who left in 1949 and who still maintain, although with ever greater subtlety to their arguments, that there should only be one China, that they are not arguing for a full independent status even though by most measures Taiwan is a separate independent actor on the international stage. Taiwan is a spoiler issue for China. It is one of the issues on which it perhaps would act irrationally, or what we would judge not to be rational, from an economic or political point of view if leaders in Taiwan declared independence today. The argument that Taiwan is an integral part of China has been integral to the legitimacy of the Chinese government since it was formed in 1949. It would take a very major change politically for them to accept that Taiwan is an independent country.

I might point out that the one-country, two-systems approach being applied to Hong Kong was in fact perhaps initially designed to deal with the Taiwan issue. To try to argue that you could bring Taiwan into the motherland and it could have considerable autonomy to be a capitalistic, different kind of entity but within the larger China... There is at the moment absolutely no support whatsoever in Taiwan to try to negotiate an arrangement that would see them brought into the fold of China with whatever guarantees of autonomy the Chinese government might offer.

Mr. Flis: Thank you.

The Chairman: Mr. Assadourian.

Mr. Assadourian (Don Valley North): Thank you very much.

One of my questions was about Taiwan, but I have two more questions. China is one of the last communist countries in the world. I count four. Am I right? There's North Korea, Vietnam, China and Cuba. So you have the distinct honour of being one of the last ambassadors to communist China - I hope.

Can you describe the relationship China has with North Korea, Vietnam and Cuba in both the ideological and economic sense? That will be my first question.

Second, Ambassador Kinsman, you presented us with the political aspect of your political field, but you did not mention anything about the trade links between us and Russia. If you could take a few minutes to explain our trade relationship with Russia I would appreciate it.

Mr. Balloch: To begin with the question of communism, I think the Chinese would say I might be an ambassador to one of the few remaining communist countries, but I don't think they would believe I'd be one of the last ambassadors to a communist China.

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Mr. Assadourian: Well, we hope so anyway.

Mr. Balloch: The system in China is totalitarian in the sense that it is a single party that runs the country, but it has lost its ideological roots, its communist roots. It does not preach the tenets of communism and it doesn't practise communism on the economic side at all.

As I tried to explain in the paper, a lot of what's going on politically and socially in China is changing it as well. Because of that, it doesn't share any ideology with North Korea. Obviously, it sustained a close relationship with North Korea at the time of the Korean War and for two or three decades thereafter. It maintains a cordial relationship with North Korea, but it is not a close relationship.

Quite frankly, when we talk to them about North Korea and our worries about North Korea, more often than not they share our worries and try to encourage, to the extent they can - but they point out that they too have limited influence in Pyongyang - what we would consider to be good international behaviour, whether that deals with adventurism on the border or the nuclear program or whatever. The relationship is not close.

In terms of Vietnam, in fact there has been a lot more hostility between Vietnam and China in the past 20 years, since the end of the Vietnam War and even before that. It's an historical enmity that exists between the two. There are fair relations between them right now, but it is a relatively tense and well controlled border. They both have substantial military on the border. There have been skirmishes in the past; it's really been a local war in the past.

They are trying to get along a little better, but I would have to say that Chinese relations with a lot of the Southeast Asian countries are a lot better than they are with Vietnam. They also have territorial disputes off the coast on Spratly Island, where China has taken a very aggressive position on where its offshore border lies. It has a territorial dispute not only with Vietnam, but with the Philippines and others.

With respect to Cuba, they have a very good, very long-distance relationship. When he came to Canada in April, Qiao Shi, the head of the National People's Congress, had been to Cuba just before that. They use Cuba in their relationship with the United States, to a certain extent. But because of the situation in Cuba, there's very little trade and very little economic relationship. They've been a supporter of Mr. Castro politically and internationally, but it's a pretty distant relationship.

Mr. Assadourian: Thank you.

Mr. Kinsman: Mr. Assadourian, I'd prefer to talk about economic relations rather than just trade. Trade is just a little part of it.

We used to sell over $1 billion worth a year to Russia in the days of the great wheat sales. They're not buying wheat now, even though they've just had their worst harvest in 30 years, because they're trying to economize on hard currency expenditures. They also got up to the ceiling of$1.5 billion of Wheat Board credits with Canada, beyond which we wouldn't finance. But they've actually very scrupulously paid and drawn that down quite considerably, so they may come on the market again for wheat sales.

Our sales to Russia now are probably in the order of $350 million to $400 million a year, increasingly of value-added products, which are quite interesting: equipment in the oil and gas sector, engineering components, increasingly telecom and machinery associated with telecom enterprises. We're actually doing a lot of meats. It's become a major market for pork.

In economic relations down the road, Russia's going to be a powerhouse. Its natural resource base is the biggest in the world. Its labour force is the most educated in the world. In 20 years they're going to be gigantic. The Germans, the Japanese, the Chinese in the east, and the Nordics are getting in there in a major way. I hope we will too.

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We have to construct arrangements that are going to work for investment. The Russians are way behind in developing private enterprise law, property law and tax laws, the things that provide the sort of predictability and transparency an investor needs. They're also very short on understanding the extent to which prospects for Canadian investors and the environment for Canadian investors are going to be better in Asia or Latin America. They have to have a reality check about where they're situated vis-à-vis the rest of the world, but that's coming.

In terms of engineering services, we're actually doing very well. In terms of other forms of economic relations, I believe a Canadian company is the biggest foreign exporter of oil from Russia. It doesn't show up in our trade statistics, but Canadian Fracmaster is doing something like 40% or 45% of their overall business in Russia.

So in terms of economic relations, we're doing quite well. There are two large law firms from Canada in Moscow servicing Canadian business, so I think the prospects are good.

But it requires this self-analysis on the part of the Russians - which the reformers were prepared to do - and it's hoped that is going to happen now. I think that if President Yeltsin wins again, a lot of foreign investment that's parked now will come in and change the environment to some extent.

The Chairman: Mr. Penson is next, and as a Reformer no doubt he's going to offer to leave for Russia shortly.

Mr. Penson (Peace River): I was happy to hear about all the reforms that are taking place throughout the world, Mr. Chairman.

Some hon. members: Oh, oh!

Mr. Penson: Mr. Chairman, I have two questions, one for Ambassador Balloch, and one for Ambassador Kinsman.

In regard to China, I'd like to know the status of China's application to the World Trade Organization, how you see that progressing, and if they're ready for a full market economy in order to qualify.

And Ambassador Kinsman, I'd like to ask you about land reform in terms of privatization of their agricultural land base there. Is that taking place?

And while I have the opportunity, I don't have a question for Commissioner Lambert but I'd like to welcome him back here. He must have some interesting times in Hong Kong as well.

I'll just leave it there and wait for responses.

Mr. Balloch: Mr. Penson, China in fact began negotiating access to the World Trade Organization before the World Trade Organization came into effect. Canada and other countries already part of the GATT formed a working party to negotiate with China and insisted from the beginning that the Chinese trade regime be modernized in a way that would make it ready for WTO status.

China argued that they should be a founding member because of the size and importance of their economy and argued that there should be some special arrangements made for China to allow it to come in even before it made all of the reforms necessary to be a full member.

We and others insisted that while we were willing to discuss transitional periods whereby they would have a period of time to bring their currency to full convertibility and to bring transparency to their tariff and non-tariff barrier regimes, we would not grant any special status in perpetuity to it.

Those discussions proceeded and are a good way along, but at the moment, quite frankly, I think they are stalled. It's the perception of the Chinese that - and I won't comment on whether this is right or wrong - it is unlikely they will be able to conclude those negotiations until sometime in 1997 at the earliest. They feel that the United States is taking a very hard line on some issues within the WTO negotiations that are unlikely to be negotiable at least until after the presidential election in November of this year.

They are making significant strides in terms of bringing transparency and fairness to their trading regime. They've brought in significant tariff cuts that were announced last December. They have done away with a hodgepodge of special exemptions and special deals for this, which has made the incoming investment regime much fairer. They are trying to bring some order - and they are being encouraged very hard to bring some order - to their intellectual property protection, an important element of the negotiations. It's coming. It's slow going. It's slow in both negotiating and seeing those reforms instituted.

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Mr. Kinsman: It's a huge topic, Mr. Penson. It has defied millions of great minds.

Russian agriculture is the one part of the economy that lags terribly, terribly behind, in part for psychological or traditional reasons as well as for actual economic reasons. The Russian agricultural sector is characterized by extremely large collective farms. Sometimes we have 15,000 people on them. Of course, the number of actual farmers in that group is very small. You're going to have nurses and teachers and cooks and drivers and mechanics and everything else. The question then becomes who gets the land, and how are the others going to be employed?

Second, the problem, of course, is that not all land is equally good. It would be great to be on a collective in black-earth country, where you're producing a set of products near an urban market, with good roads. That would be a great one to be privatized. Unfortunately, the others very often are on much less fertile soil. The problems of infrastructure, of transport and of storage in agriculture, not to mention all the technical problems to do with fertilization and everything else, are really defying it. There's no agribusiness, in our sense, for packaging and marketing. It's very ragged.

I will say this: farms that have been privatized do show significantly higher yields. If one wants proof of whether private agriculture is more efficient, there's no question about it. Nobody denies it. It's just that agricultural people are the most conservative in the country. They voted heavily communist. They have their own party, the Agrarian Party, which is associated with the communists.

On the other hand, the government's committed to it. There are some model pilot projects going on. Your government is helping to finance some. Some of the projects haven't been great, I confess, but you learn from them, and you move on. Others have been great. In Nizhniy-Novgorod, a centre of reform, it's going very well. South of Moscow, it hasn't been going that well. The farms are really dispiriting.

It will happen. They'll get it together. But, my gosh, it's very, very tough. It's a real shame to seem them importing. I'm for trade, particularly for selling Canadian goods, but to see them having to import everything when they actually have what ought to be a productive agricultural economy... I keep telling their parliamentarians they should come and talk to you people and see the type of work you do, the way you work toward getting consensus in the community, and the way you represent rural communities. I hope they'll do that through the parliamentary centre and parliamentary exchanges.

The Chairman: We're now well over our time, and we have our other three ambassadors here. We only have one hour for them.

On behalf of the committee, Mr. Kinsman, just very quickly, you offered to speak on the Arctic Council. Do you see Russia as being a positive player on the Arctic Council?

Mr. Kinsman: Yes, very positive, Mr. Chairman. Their foreign minister, Mr. Primakov, was going to be here next month. That meeting, I gather, has been put off until the end of August because of declaration negotiation changes. But they're keen. Their north is a huge part of their identity and their culture. It also includes their east, which is very important for Canada, by the way - the Pacific Ocean. It's much more settled by non-indigenous people than is ours. They have large communities.

I must say, this is an opportunity for us because it's a market for some of our technologies.Mr. Axworthy was talking to them about offshore oil drilling stuff, about housing technologies, transport technologies.

At the same time, I do have to underline that their participation in the council and in the corresponding environmental arm is also an opportunity environmentally. Their rivers flow south to north. They dump into the Arctic an enormous amount of stuff you don't want. It then moves eastward toward us. We have several projects with them on oil spills and ecological data centres, stuff that's defensive but cooperative, and really ought to work.

In our Arctic Council work we have stressed the participation - as full participants, you'll notice from the material - of Canadian native indigenous groups rather just having them be observers. That's kind of innovative for them, but they're getting past their worries. They've agreed to go along with that with their own group, AIM. They're learning from this. It's the first time they've enabled an indigenous group of that kind to participate as a full participant in an international organization. It's really very positive.

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So they're among the keener participants of the eight member countries. Particularly for us, I think, there's a bilateral kick to it that makes a lot of sense.

The Chairman: As you may know, the committee recently visited our own Arctic in connection with our work. We have the intention to try to go to the Russian north in the fall. No doubt we'll have an opportunity to consult with you at that time.

Thank you.

Mr. Kinsman: Make it early in the fall, Mr. Chairman. You'll see something.

The Chairman: Very well. Is this something to do with your schedule or is this something to do with the weather?

Mr. Kinsman: It's weather I'm talking about.

The Chairman: Thank you for that good advice.

Gentlemen, we appreciate your time. We're very glad to have had the opportunity to see you while you're in town.

We'll now take a short break.

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.1641

[Translation]

The Chairman: We will now hear from Mr. Raymond Chrétien, Ambassador to the United States; Mr. Marc Perron, Ambassador to Mexico; and Mr. Marc Lortie, Ambassador to Chili.

Ambassadors, especially Mr. Chrétien, we apologize if our meeting rooms are not as elegant as yours in Washington. At any rate, it is Parliament. Last year we had the privilege of sitting onMr. Chrétien's balcony. Our committee went to Washington to discuss international financial institutions. Mr. Chrétien kindly welcomed us. So I would like to thank him for his hospitality. Perhaps we will have the chance to visit his counterparts some day.

I would suggest that you each take five minutes to speak and then we will move on to questions. Mr. Perron.

Mr. Marc Perron (Canadian Ambassador to Mexico): Mr. Chairman, I am very honoured to have the opportunity to address the Standing Committee on Foreign Affairs and International Trade.

I have been asked to address the peso crisis, the outlook for long term economic stability in Mexico and its implications for Canada.

Last week, you heard from President Zedillo, and several other Canadians also had the chance to talk to him and to members of his delegation. This visit made a major contribution to improving the level of understanding among Canadians and Mexicans. That is very important because, for many Canadians, the peso crisis altered the image that we have of our new partner in NAFTA, and in my view, we have to establish a more in-depth level of understanding of what is happening in Mexico.

One of the most unfortunate assumptions that I found in certain newspaper articles is that NAFTA is to blame for the crisis, or that the crisis shows that NAFTA does not work. There is no proof to support that assumption.

The peso crisis was primarily the result of poor macroeconomic management. The Salinas government was not prepared to devalue the peso and was too willing to believe that foreign capital would continue to flow into the country, despite the political developments in 1994. These errors in macroeconomic policy have, after getting off to a shaky start, been remedied by the current government; the exchange rate is free of all government control and the sharp increase in inflation caused by the devaluation is on the decline thanks to strict fiscal and monetary policies.

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The Tesobonos, or the government debt indexed in dollars, which was the source of so much vulnerability in 1994, has now been repaid and replaced by a more long term public debt. The majority of this debt is held by the International Monetary Fund, but Mexico has also been able to return to international capital markets. The trade deficit, which rose during the Salinas administration, has been transformed into a surplus and the current account balances more or less.

The resounding success that President Zedillo has achieved by implementing these macroeconomic policies, combined with the support program in which Canada participated, has helped renew confidence in the Mexican economy, and with it, has led to a return in inflows of capital. Economic stability is being restored, although it is concentrated in the external sector and has not yet brought the standard of living of Mexicans to the level it was before the crisis.

But now that Mexico is being closely scrutinized, observers have noted that sound macroeconomic policy is not the only challenge facing President Zedillo. He must also manage completing the transition to a market economy which was undertaken by his two predecessors, hence the debates on the privatization of the railways and the petrochemical companies as well as on the demonopolization of natural gas, electricity and telecommunications, and hence the difficulties with the banking system which started to lend indiscriminately after it was privatized by the previous administration.

[English]

As if it was not enough, President Zedillo has also launched his country on the path of political transition with multi-party democracy as the ultimate goal. The significance of the changes looming on the horizon have not been fully grasped by Mexico's partners: it is the divorce of the party and state, which have been one for the better part of this century.

Finally, President Zedillo has committed himself to combating poverty, poverty exacerbated by the crisis. This is a long-term project depending upon improved education and health systems and upon high levels of economic growth that can support a growing population. Yet through all of this past year and a half, through all the crisis management, through all the controversial political reform initiatives, through all the calls for deficit spending, President Zedillo has stuck to his guns. Mexico has complied with its agreement with the IMF and also complied with its NAFTA obligations. Why?

Is this a suicidal commitment to international obligations at any cost? On the contrary, I believe it is because the Mexican government is fully convinced these policies are the only route to a stronger, more competitive economy. What is perhaps even more telling is the government's critics have offered no real alternatives.

With incipient recovery and declining inflation and unemployment, it appears the government's approach is showing results. Supporters of NAFTA have been vindicated by the fact that the recovery has begun in the export sector, which has had the double benefit of a more competitive exchange range and improved access to the American and Canadian markets. NAFTA has been a source of recovery, not the cause of crisis.

What we must draw from this, as Canadians, is that in Mexico we have a committed partner in a landmark free trade and investment agreement. Furthermore, the opportunities in the Mexican economy for Canadian business will continue to increase as tariffs come down and as key sectors are opened to foreign investment.

There is already evidence of the fruits of NAFTA for Canada. Our exports continue to grow. In 1995, while everyone else fell, we are now almost 40% above pre-NAFTA levels. Our investors are also noticing these opportunities. Canada ranked fourth among sources of direct investment in Mexico in 1995.

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We must therefore hold on to our front-row seats through what may at times be a bewildering performance in Mexico. We could see another peso roller-coaster, as we saw last fall. We may doubt that the recovery will be sustained. We may become frustrated with delays in the privatization process. We may despair at the twists and turns in the political transition. But we must evaluate all of this in light of the central question: is Mexico on the right path to a better Mexico? And to this my answer is definitely yes.

I thank you. I would also like to take this opportunity to thank the House for the warm welcome that was given to President Zedillo while he was here in Canada. I can tell you this has been very much noticed by the president and by all his delegation. Thank you very much.

The Chairman: Thank you, Mr. Perron.

[Translation]

The Ambassador to Chili, Mr. Lortie.

Mr. Marc Lortie (Canadian Ambassador to Chile): Mr. Chairman, members of the committee, like my colleagues, I too am very happy to appear today before the Standing Committee on Foreign Affairs and International Trade.

Last April, we had the pleasure and honour to welcome to Santiago and Valparaiso the Speaker of the House of Commons, the Honourable Gilbert Parent, who was accompanied by a parliamentary delegation which was representative of our political parties and which included some of the members who are present here today.

I'm of the understanding that the Honourable Mr. Parent had the opportunity to report on his visit to Chile to Parliament, and that his report contained a comprehensive summary of the state of relations that currently exist between Canada and Chile.

Today, I would like to focus my opening remarks on the status of the negotiations for Chile's accession to NAFTA. But before achieving that, while waiting for action on the American side, Canada has taken the initiative to launch bilateral negotiations with Chile. It took this initiative on December 29, 1995. The four way negotiations were paralyzed, and the government decided to proceed.

Last week in Ottawa the fifth series of negotiations were completed and the work is progressing well. The sixth meeting is scheduled to be held in Santiago during the week of July 8. So things are running smoothly, and it will not be until the end of the sixth meeting that we will be in a position to determine what remains to be covered before signing our bilateral agreement. The objective of the two governments is to wrap up the negotiations in 1996.

The work which is being done at present by Canadian and Chilean negotiators will help facilitate Chile's full incorporation in NAFTA, once the Americans have obtained authorization to fast track the negotiations. This will surely not be before the next American election.

As for the Mexicans, they have had a bilateral agreement with Chile for a number of years and it is producing excellent results. President Zedillo said so very clearly before the Canadian Parliament last week: Mexico fully supports Chile's accession to NAFTA and has stated its willingness to resume trade talks as soon as the time is right.

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The negotiations are well under way. Negotiators are working on a detailed draft. The work is not yet finished but it is coming on in all areas of negotiation, including: tariff reduction, reciprocal access to markets, investments, services, dispute settlement mechanisms and, finally, the two annexes which are part and parcel of the NAFTA text and which deal with labour and environmental issues.

You know the content of NAFTA. The time has now come to apply it through bilateral negotiations and for an interim period, to Chile's integration into NAFTA.

Mr. Chairman, I would like to conclude by saying that, ever since Chile has renewed with democracy, Canada's private sector has been extremely active and vigourous as an investor in the natural resource industries of mining, energy, petrochemicals and forests.

Our substantial investments in Chile act as a engine for Canadian trade and spearhead the introduction into the chilean market of Canadian services, Canadian banks and Canadian engineering firms. Our heavy equipment dealers and our small and medium-sized companies servicing the mining and forest industries are very active and vigorous.

In 1995, our bilateral trade rose to $665 million, an increase of 21% over the preceding year, and it has been growing at a rate of 20% per year over the last five years.

On the investment side, our achievements are absolutely outstanding. Canadian investments in Chile have now reached over $7 billion. In 1995, Canada was the number one investing country in Chile, a feat unparalleled in the history of our private sector.

I would like to limit my comments to these few words and answer any questions following my colleague's presentation.

The Chairman: Thank your Mr. Lortie.

Mr. Chrétien.

Mr. Raymond Chrétien (Canada's ambassador to the United States): Thank you very much, Mr. Chairman. I am pleased to appear once again before members of this committee. I have had the opportunity to do so on a number of occasions over the years.

I have been asked to give a brief overview of the present state of our relations with our powerful neighbour. I will take a few minutes to do so and perhaps we can later respond to questions on more heated topics such as, for example, what is going on these days with regard to Cuba and the Helms-Burton law, the future of NAFTA, the agreement we just concluded with the Americans on softwood lumber, etc.

First of all, a few words on the present state of our relations with the Americans. These relations are excellent. Ever since the signing of the bilateral free trade agreement with the Americans in 1989 and the coming into force of NAFTA in 1994, our trade relations with the Americans have developed tremendously. Last year, we reached the astounding figure of $1 billion a day. I believe that no other relationship between any two countries in the world can compare to this one.

And not only are our trade relations unique, but some 85% of our overall exports go to the United States. These exports account for 25% of our gross national product and contribute for a good part to the welfare of Canadians right across the country.

In terms of the environment,

[English]

we have a very healthy relationship. As you know, we have negotiated throughout the years very significant agreements. You remember the Clean Air Act and the Great Lakes Water Quality Agreement. These are absolutely significant at a time when there might be a decrease in interest on the part of our American friends in financing some of those agreements.

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We'll have to watch very carefully in the context of this presidential year that their commitment remains very strong. Not only do we have the longest border in the world, but we also share the co-management of 40% of the world's reserves of fresh water. So this responsibility in the centuries to come will be as important as the management of oil in our present time.

Foreign policy is also very important. We have worked closely with the Americans in recent months on files like Haiti. We have agreed to take over their leadership role there. We have worked closely with them in ex-Yugoslavia. We are working closely with them on the Middle East process.

Mr. Axworthy and his counterpart, Warren Christopher, have a very good relationship. It's true, by the way, for all our ministers. What makes this relationship unique is that each and every minister of the crown has a slice of the interest in this relationship. It's so broad. There are 230 agreements, going from the one on the co-management of the caribou herds between the Yukon and Alaska to NAFTA, and everything in between.

We still have a number of irritants on our table. When you look at a trade relationship of that magnitude, we're bound to have a few. At the moment we have to watch very carefully the NAFTA panel on our supply management system in the weeks and months to come. As you know, it's a very sticky, very hot issue. It involves thousands of farmers on both sides of the border.

We just concluded a significant agreement on softwood lumber. Ten billion dollars was at stake in that negotiation. Some of you around the table might not think it is the greatest or a very glorious moment in the history of Canada-U.S. relations. We can come back to this if you want.

At the moment, all those irritants represent less than 1% of our total trade. When I arrived in Washington two years ago, it was around 5% of our trade, so I'm very proud of having eliminated a great number of those with my colleagues, of course, at the embassy.

Where we now have a very difficult issue is of course on the issue of Cuba, with Helms-Burton. You have seen what our government has decided to implement. The announcement was made yesterday by Ministers Axworthy and Eggleton. I can go a little deeper into it later on if you want, but I think the the stance taken by our government is totally appropriate.

Here is an issue where I think we have the high road, but it's a difficult issue in the States because it's not only a foreign policy issue, it also has a great deal of domestic politics involved in it. When it comes to this issue in the States, it's almost a psychological issue. I'm always struck, wherever I go in the States, by how deeply the Americans have been affected by the Cuban missile crisis, and of course I respect this. They all remember where they were at the time of this nuclear threat. Cuba has therefore taken all kinds of shapes and forms that might not be evident here in Canada.

Where is this relationship likely to go?

[Translation]

I believe that it will continue, and by far, to be the most important for our country.

[English]

Those who have talked about the decline of the American empire over the last two decades were wrong, and I think they are wrong now. It's amazing to see how the American economy has already repositioned itself to face the information age.

As a Canadian living in Washington, I'm always amazed by the extraordinary vitality and energy of the American people. Their economy is an extraordinary engine. It's really a V-12 in a world of V-4s, V-6s and V-8s. There's nothing comparable to it at the moment.

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Whatever my colleague from China, Howard Balloch, might have told you about China emerging as the superpower somewhere around the year 2020, I think it's far from evident. There are all kinds of massive internal contradictions in China that, in my view, will allow the U.S. to keep a dominant economic and military role in the years to come. This is good news for Canada. We have a strong partnership with the Americans. We can help them to lead the world. We can tell them when they're wrong.

By the way, they like it when we tell them if they're wrong. It's a unique role that's allowed us because of our closeness and because of the fact that we have pulled our weight in the recent past. We will have to make sure that as a country we keep pulling our weight with them. They are worried about some of the signs they are seeing in Canada. They are worried about the state of our armed forces. This point might have been made to you when you came to Washington. We have to watch this very carefully in order to be perceived to remain a strong and dynamic partner in this unique relationship.

I'll stop here, Mr. Chairman, and answer whatever questions you might have.

The Chairman: Ambassador, I wish you'd been present with us when we discussed west coast fishing practices with Senator Murkowski of Alaska. His delight at us telling him not to steal our fish was not exactly palpable. Sometimes the joy of being told they're wrong is not exactly too evident.

Some hon. members: Oh, oh!

Mr. Chrétien: If you want, we can discuss this issue. It's going to be a very hot one.

The Chairman: Well, you're as big as he is, so maybe you can get away with it, but the rest of us aren't as tall.

Perhaps I'd better go to our list. We have Mr. Bergeron, Mr. Dupuy, and Mr. Morrison.

[Translation]

Mr. Bergeron (Verchères): I always say that being an ambassador is the greatest job in the world because you always see everything through rose-coloured glasses. Everything always seems quite extraordinary. We listened earlier to our ambassadors to China and Russia and they were presenting everything in a positive fashion.

I agree with ambassador Chrétien when he says that we must see our relations with the United States as very positive. In fact we defended that point of view during the foreign policy review. In our dissenting report, we said that the government always seemed to think that relations with the United States were a problem, and relations with Asian countries a challenge. We said that we also should consider our relations with the United States as a challenge.

That being said, I would like to ask several questions which any of our witnesses could answer - I don't think it's a coincidence that our three witnesses appear as a group; these questions deal with our hemispheric relations, if I may use that term.

You will remember that the Liberals campaigned against the Free Trade Agreement and once in power, they changed their minds. However, so they would not look too much out of step with their election platform, they said that Canada would only sign the agreement if working groups on countervailing duties and antidumping measures were created. These working groups should have tabled their findings by December 31 last, but it didn't happen.

I would like to know if at the embassy in Washington they think that these working groups will ever come to a conclusion. What is the position of our Mexican partner regarding these working groups.

Obviously, you will tell me that working groups, given the current state of affairs between Canada and the United States, are not of paramount importance, because the issue we have to deal with now is the Helms-Burton Act and its possible impact on Canada.

I read in the newspapers recently that you were quite optimistic regarding the possible impact of this act on Canada because you seem to say that there could be some adjustments.

I would like you to tell us more about it, about the type of adjustments that could be made by the American government, regarding the implementation of the Helms-Burton Act; I would like you to tell us more about the possible impacts on Canada and on Mexico. To what extent would the measures announced by the Canadian government yesterday encourage the American government to make adjustments beneficial to Canada?

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I would have a last question to ask later on to our colleague from Chile.

I'm asking all my questions at once so we won't have to go back and forth.

The Chairman: You won't have enough time because we only have two minutes left for answers.

Mr. Bergeron: The ambassador to Chile has mentioned it briefly, but I would like to know what is happening with the bilateral negotiations. I would also like to know if the Americans will ever truly consider Chile's accession to NAFTA.

Mr. Chrétien: Mr. Chair, will I at least have as much time to answer the question?

[English]

The Chairman: I don't wish to interrupt your response. These are very important questions. It's just that we have a vote at 5:45, so we can maybe drift a few minutes beyond 5:30, but not much. There are other questioners and we're trying to keep it to five-minute sections. So if you could make them fairly short answers, we'd appreciate it.

[Translation]

Mr. Chrétien: You've asked a very important question regarding countervailing duties and antidumping measures. These are the two issues that prevented us from having an irritant-free trade with the United States.

When this government came to power in 1993, it agreed to sign the Free Trade Agreement if working groups were set up to try to move along these dossiers.

As you know, these working groups met several times. They have helped move things forward slightly, and I think that a first report should be tabled very soon. I cannot tell you exactly when it will be made public, but I can assure you that these questions are of paramount importance to us.

Will these problems be completely solved with that report? Let us wait and see. If they are not, our country, our government, will have to work closely with its American and Mexican friends to arrive at a better definition of subsidies, and, if possible, to agree on the harmonization of countervailing duties.

You asked a question on the Helms-Burton Act. Could there be some arrangements with the Americans so that Canadian companies would not be too greatly affected? Can we influence the Americans?

The measures our government announced yesterday have not gone unnoticed in Washington. I do not know if you are aware of the media coverage that the announcement made yesterday in Ottawa received in all parts of the world. The Canadian government was the first to announce very specific retaliation measures. They will certainly have an impact in Washington, because it will convey to our American friends the clear message that on such a fundamental matter of principle, we have no choice. We had to take a stand to prevent this extraterritoriality of American laws, if I can put it that way.

The American President has some very clear choices; he has some discretion. For example, he has the power to suspend the application of Title III of the Helms-Burton Act. When American courts are able to start considering lawsuits filed by Americans, the President will, if he so wishes, be able to suspend the application of that title by up to six months, I believe. I hope that the measures that we announced yesterday will lead him to make this kind of decision.

In closing, will Canada's example be followed by other countries? I think that by our government's leadership on that issue could lead other countries to follow suit.

The Europeans also have important commercial interests in Cuba. So I think that Europe, Mexico and several Latin American countries could be following our leadership.

That being said, one should not think that these measures are an unfriendly gesture because, all being said and done, our goals are the same as the United States regarding Cuba. Canada and the United States have exactly the same objectives, that is the return of democracy and of market economy in Cuba. The only disagree on the means to reach that goal. The Americans think that the best way to go about it is to impose an embargo on Cuba, whereas Canada thinks that these changes will be brought about in Cuba through an involvement policy.

I always tell our American friends that we are on the same wavelength, but that we simply do not agree on the means to use to reach that goal.

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The Chairman: Ambassador, I had the privilege to spend 40 minutes with the President of Mexico, in his car on the way from the airport, in Toronto. We talked at length and almost exclusively of the Helms-Burton Act, which greatly concerns the Mexican people. I suppose that some similar measures will be taken by Mexico. But the ambassador probably knows more about it than I do.

Mr. Perron: It is obvious that we have a lot of consultations with Mexico. I think we have inspired that country. I must also say that Canadian Members of Parliament have also inspired Mexican parliamentarians when they recently visited Canada.

After meeting and talking with a lot of you when they came to Canada last month, they went back to Mexico with a program aimed at speeding up their government's response to the Helms-Burton Act. They said to their government: "See what the Canadians have already done!"

During the visit of the Mexican President, Mr. Zedillo, when we discussed the new U.S. legislation, the President said that he would look to the Canadian act in his drafting of the Mexican act, but it will be up to parliamentarians to speed up things.

We also have discussions with Mexico regarding countervailing duties. We even discussed informally the possibility for Canada and Mexico to enter into an agreement to avoid that kind of problem, which might in fact inspire our American friends to move more quickly.

We do not have too many problems in that regard. Why not agree and say: "If we act now we won't have to worry if there ever is a problem?" We have had those discussions over the past few months, and more specifically during President Zedillo's visit; there were discussions betweenMr. Eggleton and the Secretary Mr. Blanco. They have agreed to continue this dialogue to determine if things could move more quickly if they proceeded bilaterally.

Mr. Lortie: As for Chile, the bilateral negotiations are going very well. We are more than halfway through. We will start our sixth meeting during the week of July 8 and we hope to finish everything before the end of 1996. The official American position has always been and still is to have Chile as a full partner in NAFTA; this position is regularly reiterated in Santiago by the Americans or through statements, in Washington, by the President or his Secretary of State. It has always been stated that the American policy is to extend NAFTA to Chile. That's where we're at.

The Chairman: Thank you.

Mr. Dupuy.

Mr. Dupuy (Laval West): Ambassador Chrétien, you have rightly pointed out the important role that free trade with the United States plays in the spectacular growth of our trade. We decided to become part of this free trade zone even though the negotiations were not quite over. That is what Mr. Bergeron was pointing out. It is because we had not quite finished the negotiations that we still have problems with countervailing duties.

I believe that there are three ways of dealing with the problem. The first would be to harmonize competition rules, that is to find a way to eliminate the dumping and subsidies problem in the countries involved. That is one way of dealing with it.

The second way would be to codify the countervailing duties or antidumping system. There could also be some type of harmonization.

The third way would be to create a dispute settlement mechanism that would be very efficient and would be at arm's length from the economic policies of partners. The reason I raise this issue is that our committee is going to be studying these questions.

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We have a subcommittee on trade disputes. We have already identified the dispute settlement mechanism as being a theme that we will study; we will also study the Canadian legislation on countervailing duties, the Special Import Measures Act.

Do you think that we can hope that over the next few years - I'm not talking in the short term given the presidential election - we will start a negotiation process with the Americans on these issues? Which conclusions would you like our committee and the Standing Committee on Finance to reach at the end of their joint meetings?

Mr. Chrétien: You have asked a lot of questions at once. I will try to be brief.

Given the American political scene today, I do not think that it will be possible to deal with these problems between now and the election in November, or between now and early 1997. Everything is slowing down and coming to a stop because of the American presidential election.

As for NAFTA 1994, which is still quite recent, I think that we will have to wait still a few more years before we can come to a more global appraisal of what this agreement represents for Canada and for its two partners, of what its weaknesses and strengths are, and of what we could amend or improve.

I have already become aware in Washington that in spite of agreements that we might have signed with our American friends, all problems are not getting solved. For example, we have seen what happened with the Canadian wheat export on the American market, a crisis which could have been solved normally by using NAFTA rules. These rules were not quite properly applied because our massive exports to the American market created a political problem that had to be solved.

The American system is quite different from ours. Americans react quite quickly to the invasion of their market by products from other countries. It doesn't matter what kind of agreements we have with the Americans, since they are stronger, since they are the greatest power in the world, they have little interest in respecting to the letter the agreements they have signed. If the agreements don't suit them, they can simply get them changed or change their own internal laws in order to solve their problems.

There is also the cultural exemption which is a new dispute. As you know, the whole cultural sector is currently an irritant for our American friends: the Sports Illustrated case, which was sent to the World Health Organization, and the repercussions of the new copyright act that we want to pass.

We still need a few more years to see how NAFTA will work. So far, I think that the central element of NAFTA, the dispute settlement mechanism, has not been questioned. Early in the Republican primaries, we have heard some of the candidates, such as Pat Buchanan and even Senator Dole, say that they were not too happy with the dispute settlement mechanism with Canada. But in the past few months, nothing was said. In fact, in the current electoral campaign, NAFTA has not really been an issue.

To answer your question quickly, we'll have to wait a few more years before deciding if we want to embark in another general and broad negotiation with the Americans and, if we do, what it should involve.

[English]

The Chairman: Mr. Morrison.

Mr. Morrison (Swift Current - Maple Creek - Assiniboia): My first question is for Ambassador Lortie, with respect to the bilateral trade negotiations. I understand that the ultimate objective is to create a deal that can be piggybacked into NAFTA at some later date. I'm wondering what is being done within these negotiations or how you are approaching the question of the piggyback agreements we already have with Mexico on NAFTA, the environmental provision and the labour provision. Is it going to be possible to put something in the Chile bilateral deal that will potentially be acceptable to the U.S. and Mexico at a later date on those two subjects?

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Mr. Lortie: On this very last point, we are going to mirror the existing NAFTA. The idea is not to change the pattern of the NAFTA; it's to use the same pattern and negotiate Chile in bilaterally. Therefore the two annexes on labour and environment are going to remain annexes. They are not going to be brought back in. We want to use this bilateral treaty as, to use your expression, piggybacking or the fer de lance, the entry to prepare the groundwork for a full accession of Chile in NAFTA, which remains the objective of all. The annexes are going to remain annexes, and for the main chapters it's a way to bring them in.

When our partners, the Americans and the Mexicans, see the final product they will recognize the work. They will recognize where we are, what we have done, what the Chilean offer was on various aspects, what the list of exceptions was, what the approach to NAFTA is. That's the way we have conceived this negotiation.

Mr. Morrison: My second question is also to Ambassador Lortie. It concerns our balance of trade with Chile. You mentioned the huge Canadian investments taking place there. They are actually draining our capital market in this country in the resource field. Do you have at hand any numbers as to the amount of Canadian money flowing into Chile annually, and also the total Canadian equity investment in Chile at this point?

Mr. Lortie: At this very moment, in concrete investment, $2.4 billion was invested by Canadian corporations, basically in the fields of mining and energy. Of that, $5 billion is committed to long-term projects. It's a commitment of 12, 15 or 18 years. Therefore $5 billion is committed for future projects, but it's real in a sense.

In Santiago we have all our major mining companies represented. They consider Santiago their headquarters for South America. We have precisely 33 Canadian mining companies headquartered in Santiago. Of those, 25 are operating mines and the rest are exploring, concentrating on South America even as far as Panama, which I should mention also. Some of the companies are running their operations, and especially their exploration operations, from Santiago. It means we have a lot of engineering firms, geologists, services, all types of sectors. We had the occasion to visit them with Mr. Penson and some of his colleagues in April. It was rather remarkable.

When you say draining the capital market, our companies are extremely competitive. The Chilean market is open, but it has not been open very long. The ore body was there 10, 15, 20 years ago, but nobody from Canada was prepared to go there under the Pinochet regime. The green light was given in 1989-90, and this green light was heard loud and clear by Canadian corporations.

There is a tremendous rush at the moment. The fundamental reason is that the ore body in Chile is five to seven times more concentrated in copper than what you will find in North America, including Canada. Therefore, it's a unique opportunity that our companies are taking advantage of in a positive sense. And when I talk of taking advantage, we're not alone; we're competing against the Australians, Americans, South Africans and the Chileans themselves.

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Mr. Morrison: Would you like to comment on NOVA's problems that have required so much press lately?

Mr. Lortie: With pleasure.

Mr. Morrison: Had these people ever worked in a foreign country before, for God's sake?

Mr. Lortie: Oh, yes, absolutely. NOVA has great experience in South America, Argentina, Canada and Chile.

What they are doing at this moment is an extremely innovative project, which is building a pipeline 463 kilometres long across the Andes. The reason they are building it is because Santiago doesn't have any natural gas. Santiago is suffering from a tremendous pollution problem, tremendous smog. The only solution that will bring down this problem of pollution is to bring natural gas from Argentina.

In the last 20 years a lot of companies have tried to do that. The only successful company at this moment that has been able to do it is NOVA Corporation of Calgary.

NOVA Corporation of Calgary is facing one problem. They are coming across a small valley coming down from the Andes, and Santiago is a city of five million people. Therefore, some people are very perturbed by the fact that a gasaducto, a pipeline, is going to come into their backyard. Therefore, they are protesting the presence of this pipeline, as there is no gas culture in Chile. There's no gas in Chile; therefore the population there seems to be fearful that the pipeline could explode, it is not secure, and that our companies have no experience with earthquakes and the high mountains and all that. But it is the contrary.

Having said that, the company has been extremely present, willing, and close to the various communities. They are facing a problem with four very lively owners who are very able to organize their demonstrations and their protestations, but negotiations are taking place as we speak.

NOVA has offered an alternative to the routing for which they have a legal concession. They have the rights of way, which they obtained from the government, including an environmental impact. But there are those who are are not prepared... They would like to have NOVA go this way, but Santiago is there. The five million people are there, and they want to have the gas to reduce the problem of pollution. Second, if not more importantly, they want to reduce the cost of electricity, because the cost of electricity in this country is very high.

The Chairman: We have only ten minutes left. Do you have a very quick question,Mr. Speller?

Mr. Speller (Haldimand - Norfolk): Thank you, Mr. Chairman. Yes, I have a very quick question and probably a very quick answer.

I'll ask Mr. Chrétien this. What else are we to expect from the Americans in this election year in terms of trade problems? Also, given the Helms-Burton situation, maybe Mr. Perron can answer this. Is there any plan by the Americans to compensate Mexico for the expropriation of Texas, New Mexico and California? Maybe Mr. Chrétien shouldn't answer that one. I'll give that one toMr. Perron.

Mr. Chrétien: Very quickly, what can we expect in the months to come with trade in the context of the election? So far, there's surprisingly very little. It was an issue earlier on in the Republican primaries, but now that we have the two main candidates getting ready for the last portion of their fight, NAFTA has not even been part of the discussion.

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It will be interesting to see if President Clinton will claim it as a victory or a success, or whether he will want to be very careful with the left wing of his party, not willing to antagonize them. So far, he has not said much. So the big question for us is how will NAFTA play in the weeks and months to come.

As for Helms-Burton, we will see. This is more delicate. This is definitely a very delicate issue because of the electoral component of the issue and because the Cuban Americans are concentrated in a very few states, essentially Florida and Pennsylvania. It will have to be very carefully handled. I cannot tell you exactly how it will play between now and November, but it's likely to be an issue.

The Chairman: I have a couple of quick housekeeping items. Mr. Lortie, I wonder if you could answer one question for me just with a yes or no.

Does the negotiation by Chile with us on NAFTA mean they have given up all attempts to get into Mercosur?

Mr. Lortie: No.

The Chairman: Well, they can't do both, can they?

Mr. Lortie: Yes.

The Chairman: Oh, that would surprise me.

Mr. Lortie: They are negotiating an association with Mercosur at this moment. They don't want to enter as a full-fledged member in Mercosur, but they want to negotiate their association's stature.

The Chairman: Okay. Thank you very much. That's helpful to us.

We have a circumpolar cooperation, which some of you may have received. There's a group we're going to meet tomorrow. Would the members of the committee be willing to approve $80 of our budget for juice and coffee and the usual thing for the northern encounters meeting tomorrow?

[Translation]

Has everybody received the brief? You didn't get it?

[English]

Mr. Morrison: No unanimous consent.

The Chairman: Okay. We won't offer them any juice then.

Before we adjourn, I just want to announce that Mr. LeBlanc will be tabling a motion with respect to Nigeria. We will probably try to discuss it during Haiti. We'll try to get it translated for everybody and get it distributed. Maybe we could even get an agreement so we could just pass it quickly when Haiti comes up.

Thank you very much.

The meeting is adjourned.

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