[Recorded by Electronic Apparatus]

Tuesday, February 11, 1997

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[English]

The Chairman: Order, please.

We have with us this morning Mr. van der Linden and Mr. Cem, both of whom are members of Parliament from their respective countries, Turkey and the Netherlands, but who are joining us this morning to describe for us some of the work of the Council of Europe. You will recall we have now been given observer status at the council and we've been told that will enable us to have some parliamentary presence there. They have quite an active work schedule at the Council of Europe, and I think it's important for us to understand some of their work and to try to understand to what extent we could incorporate some of our work with that of the Council of Europe.

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I'm not going to spend any more time by way of introduction. We're very grateful to you for having come. I'll practise the only word I have in Turkish, teçekkur ederim, which had better mean ``thank you'' and not something else. In Dutch I can say uitsmyter, which means ``bouncer''. So there you are, we have a nod to multi-lingualism.

Thank you very much, both of you, for coming. Why don't I turn it over to you. You might wish to speak to the members for a few moments. Then I'm sure they will have some questions for you.

Mr. René van der Linden (Council of Europe): Thank you very much, Mr. Chairman. It's a great pleasure for us to have the opportunity to meet you and the Standing Committee on Foreign Affairs and to say a few words on our work in the Council of Europe.

As you were already told, we are also members of our national parliaments. I'm a member of the Dutch parliament, coming from the south. It's about 50 kilometres from the German border and 50 kilometres from the Belgian border. It means about 10 minutes by car. It's close to Maastricht. You certainly have heard about the Maastricht Treaty. It's well known in the world. Some people are very pleased with the Maastricht Treaty. Other people are quite displeased. In any case -

The Chairman: We don't fly through Maastricht airspace when we fly to Europe.

Mr. van der Linden: Yes. In any case, for the future of the European Union and also for the future of the Council of Europe it's very important that we have this treaty. We want to ameliorate the Maastricht Treaty next June.

The Council of Europe is one of the first European institutions after the Second World War to have as a main goal peacekeeping by peaceful means. ``Peacekeeping'' means to implement democratic rule, the rule of law, human rights, the rights of minorities. Those are the main targets of the Council of Europe.

In the last five years we have enlarged the Council of Europe to forty members. It's true that not even all the members are as democratic as we would like them to be. For this reason we have implemented and installed a new committee in the Council of Europe, the so-called monitoring committee, which will monitor the situation in the member states. New members have accepted commitments about their own situations, development in their countries, to implement the rule of human rights and the rule of law, and at this moment we are very much involved in controlling these implementations.

We are very pleased that you have asked for observer status in the Council of Europe. In this way you have the opportunity to take part in discussions in the Council of Europe, in the plenary sessions but also in the various committees.

We have a lot of committees, as you may have read in the papers. In my view the most important committees are the political affairs committee, the legal affairs committee, and certainly in the future the monitoring committee. We also have an economic committee, a cultural committee, and other committees involved in matters such as trade, fisheries, and landscape.

We would like to know what kind of interest you attach to observer status. How do you see the future working? How would you like to follow these activities?

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Also, there's the number of seats. According to the OECD databank, you are entitled to have 12 seats, but we have to discuss this in the bureau of the Council of Europe. I'm not sure that it will be 12 seats, but in any case, there must be a certain link between the number of seats and the number in the population. There must be an equal treatment of all observers. I hope we can have a session in the next standing committee in March, in April in any case, to look at the number of seats.

The second question in this sense deals with whether you want to have members who will be nominated each meeting according to the agenda or whether you nominate members who are fixed for a certain period.

I would like to hear from you on the question of how many sessions you would attend in the future. Are you interested in certain committees? Would you also like to put on the agenda questions in which you are more involved?

This is the last point. If you want, and if we have time, we can also discuss the situation especially in Bosnia-Herzegovina, Serbia and Albania. We had quite a large debate in the Council of Europe's last plenary session. We also had a hearing with the opposition in Serbia and we had a hearing with all the representatives of all the parties in Bosnia-Herzegovina: Serbs, Croats and Muslims. If you also want also to discuss these points, it's up to you. We are able to take note of your interest and discuss these points.

The Chairman: Thank you very, Mr. van der Linden. Mr. Cem?

Mr. Ismail Cem (Council of Europe): Thank you, Mr. Chairman. I want to thank the members of your committee for their hospitality.

I would just like to add a few words on the mission of the Council of Europe.

While the council has had a mission of democracy, especially for the last five years, it has been a workshop for democracy. We have gone from about 20 members to about 40 members during the last five or six years. This is largely due to the fact of the new countries in Europe that wanted to move toward a sense of democracy.

In that process, which is actually taking shape, one characteristic might be the enlargement of the Council of Europe. The second one - this isn't very clear yet, but it seems to be crucial - is that the definition of Europe is changing. Of course, the terminology or the definition used to be a geographic one; if one spoke of Europe, it had a certain geography. Now at the council, when we speak of Europe it means a set of values rather than a geographic term. For example, we have both Armenia and Azerbaijan, which are in the process of becoming new members in the Council of Europe.

We are really pleased to have more contact with Canada. I believe that Canada has a democratic experience richer than that of most of us in the Council of Europe. Plus, the actual problems we have as members of the Council of Europe are related to the new multicultural societies that are emerging. We have lots of problems to solve with the ethnic characteristics of the emerging members of our Council of Europe.

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I think that in all these new problems and opportunities, Canada has set an experience that will contribute much to our work at the Council of Europe. Plus, of course, it's a new experience that's much younger, therefore it's much more dynamic than that of most of us at the Council of Europe. We are very pleased to have new and stronger ties than the ones we already have with Canada.

I thank you again, Mr. Chairman, for this opportunity.

The Chairman: Thank you both very much for coming.

Of course members will recall that last week we had the secretary general of the council here as well, so we're obviously interested in building links with the council.

I'll just open it up to other questions or observations from members.

Maybe I could start with a question concerning the fact that the Council of Europe is responsible for overseeing the European Convention for the Protection of Human Rights and Fundamental Freedoms. It has struck many of us from the outside that one of the successes of the European Convention for the Protection of Human Rights and Fundamental Freedoms is that it brings like-minded states together, as you said, with a set of values, whereas the more universal United Nations convention isn't as applicable and doesn't work as well.

As the council expands wider and wider, are you worried about diluting the nature of the human rights values, particularly the judicial application? I look at some of those old cases, like the Belgian and British ones that go to the Council of Europe court. Do you see a court in Vladivostok being as receptive to orders coming from Strasbourg as courts in the U.K. or Belgium? How are you going to integrate the systems from Turkey, Russia, and Azerbaijan, both legally and politically, without diluting the values you just spoke of? I suppose that would be of interest for us as outsiders.

Mr. Cem: Of course it's a very major problem. It's not only a problem with the new countries and members, but in some of our old countries, mine included, we have from time to time some problems as to the human rights and the adjustments of our systems to the general values of the Council of Europe.

This is something of which we at the council are very conscious. We know the problem, and we try not to be really tolerant. We try to be strict with the values. As my colleague was just mentioning, we have now this monitoring committee or monitoring mechanism we're about to build up. Through that mechanism, we'll be continually monitoring all our member states so that we can keep them all within the correct set-up of the Council of Europe.

As to the court of human rights, there is one objective system applied in that court. It doesn't really matter if it's a case that's brought up in Turkey, Ireland, or France, the same mechanism and criteria are applied.

We have had - we still do - some problems with some of the countries of eastern Europe that are new to the democratic process. We have lately had some problems with Albania, which is in the process of becoming a member. We have had some problems with other states as well, but we do try to be as helpful as possible without really going away from the basic principles of the council.

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The Chairman: But the political process is part of that. The members of Parliament went out and talked to other members of Parliament.

Mr. van der Linden: We discussed this question also at the beginning of the process, when the new members entered in the Council of Europe. There were, at that moment, two streams. One opinion was that they could only become a member if they fulfilled the criteria of the Council of Europe. The other part said no, the process or the development in that country must be in the right way.

To encourage this process, we can take them in, but on the condition that they fulfil a lot of commitments afterward. We have to control it. Therefore, we created this multi-committee. We had to control the way in which they fulfilled their commitments. If they didn't fulfil their commitments, the Council of Europe could give punishment. This could be in the sense that we wouldn't accept the credentials of the members of that country. That would be a very strong international punishment.

The Chairman: Mr. Speller is chairman of our Commonwealth Parliamentary Association. I imagine that the same sorts of sets of discussions have to go on at some point, such as when Nigeria was up, and things like that. You go through the same thing, I imagine.

Mr. Speller (Haldimand - Norfolk): Yes. I find this interesting actually, because I'm trying to figure out what role Canada could play with an observer status in this. I guess we would be free to dialogue on any of these issues with the different countries. I'm not sure what observer status actually gives us.

Now as for the 12 members you talked about, does that mean we could have 12 observer members of Parliament? Is that the idea? I know you've talked with Charles about this, but the information hasn't been passed down.

Mr. van der Linden: It's not sure if you will be 12 members, but in any case -

Mr. Speller: Or somewhere around that.

Mr. van der Linden: - those members can participate in the discussions of a plenary session and take part in the activities of the committees. The committees are much more important than the plenary sessions, because in the plenary session each speaker has only a few minutes, a maximum of five minutes.

Mr. Speller: How many do the Americans send over now?

Mr. van der Linden: The Americans don't have observer status. We are in discussions with the Americans.

Mr. Speller: Oh, they're still in discussion. Oh, I'm sorry, I thought -

Mr. Cem: At the moment, the only observer country we have is Israel.

Mr. van der Linden: There are discussions with the Americans and Japanese. You are an observer in the committee of ministers, but you are not yet an observer of the parliament in session in the assembly.

Mr. Speller: And when will that decision be made?

Mr. van der Linden: Now we have to decide on the way in which we will implement the new service in the activities of the Council of Europe.

The Chairman: Probably in April.

Mr. van der Linden: Therefore it would be very helpful if we could decide in the plenary session in April. If your Prime Minister will be there to address the assembly, it would give also a certain political impetus to the observer status.

Mr. Speller: What if it was in the middle of an election?

The Chairman: You might be interested in knowing that there is a Canadian judge on the European Court. He's the judge for Liechtenstein, but he's a law professor from Toronto.

Mr. English, then Mrs. Gaffney had a question.

Mr. English (Kitchener): Thank you very much, Mr. Chairman.

I think we all agree that it's a great honour for Canada to be considered for observer status in the Council of Europe. I just had a few specific questions.

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I am one of the delegates to the OSCE parliamentary assembly. Japan and I think Israel have observer status there, but they send a single delegate. They don't send a delegation based on population. As observers, if I recall correctly, they do take part in plenary... Usually there's a statement, but it's normally a statement with a rather more limited degree of participation than is the case with the full-fledged members. It seems to me you're thinking of something quite different. It would be observer status, but with members roughly equal to those of the normal members?

Mr. van der Linden: In fact, you have the same rights as full members, but you cannot vote.

Mr. English: Oh, I see.

Secondly, how often does the parliamentary assembly meet, and do the committees meet separately from the parliamentary assembly?

Mr. van der Linden: There are four plenary sessions a year - January, April, June, September - four times a week, and then every committee makes its own schedule for the year.

In any case, during these plenary sessions there are also committees in the morning or in the afternoon. For example, the political committee had four meetings during the last plenary session. We have a political committee meeting about once every two months. It depends.

Mr. English: What kind of relationship does the parliamentary assembly have with the Council of Europe? In terms of, say, resolutions, is it by consensus, consensus minus one, or how does it operate?

Mr. van der Linden: Majority. A few times we have had very contentious votes. For example, the admission of Russia was a very political one.

Mr. English: The OSCE has 54 members; you have 40. What are the 14 that are missing, besides Canada and the United States?

Mr. van der Linden: The Asian republics.

Mr. English: Thank you very much.

The Chairman: That's a good question, because for non-Europeans, by the time you look at the OSCE, the WEU, the Council for Europe, NATO, it gets a little...

Mrs. Gaffney.

Mrs. Gaffney (Nepean): I wanted to ask a question further to the chairman's excellent question and to your good response as well.

Getting back to the statement just made, Mr. Chair, the fact that there are so many organizations in Europe that there seems to be an overlap... When we visited Europe with regard to the Arctic Council, the Barents Sea Council, and I don't know what other councils there were, we found there was a lot of overlap between countries there.

I am pleased to hear that within the Council of Europe you do have a human rights... What was your committee called?

Mr. Cem: There is the monitoring committee and the legal and human rights committee.

Mrs. Gaffney: How many member states would be on these committees?

Mr. Cem: All member states have their representatives on the committees - one or two parliamentarians as their representatives.

Mrs. Gaffney: I think that's an appropriate way to go. What you're doing is monitoring each other. You have certain standards and yet you're monitoring each other. I think rather than excluding a country because they have terrible human rights records, it's better to bring them in and try to reform them. Is that correct?

Mr. Cem: That's the general approach we have.

Mrs. Gaffney: I can think of several countries that do have human rights abuses, and one just recently where... You visit one country and another person who hates that country phones and says, I'll never vote for you again because you've gone to that country; how dare you do this? You're faced with that kind of situation. I think it's important that we do that.

Canada has always played a major role worldwide in human rights. I think if we were there,Mr. Chair, as observers, we would have something further to bring to the table.

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I don't really have any questions. I encourage you to probably work more actively on the human rights side of it, because I think it's something we're all concerned with, and not just make it something that's there for the world to see and we're being good boys and girls and trying to do what we should be doing yet not really doing anything. I hope you are actively pursuing that. Do you feel you are?

Mr. van der Linden: I can give you an example. I was rapporteur for Croatia, and three times I postponed the discussions on the admission of Croatia in the Council of Europe.

We visited Croatia many times, and we had conversations with all of the organizations, like the Helsinki committee, the opposition to Serbian minorities, and so on. Every time I asked them how we could help them, by admission to the Council of Europe or by postponement. And every organization asked us to please let Croatia in as soon as possible, because it gives support to the democratization process in that country.

We had a lot of interventions, for example, for free media, free press, and we made interventions to the president and the minister for foreign affairs, and not without success. We were successful in putting pressure on the government to fulfil criteria that are our main goals. And you can see the same in other new member states with the opposition and the media. I spoke to about ten students from the student movement in Serbia last week, and one of the most important issues for them was for the Council of Europe to come in and monitor the situation and also the elections, give support to the free media, and give continued pressure to the process on the government.

Mrs. Gaffney: I have a question that's really going to show my lack of knowledge. Are the European Union and the Council of Europe different, or are you the same thing?

Mr. van der Linden: The European Union has 15 members and it started as an economic union, the European Economic Union. After the events in 1989 it has also a political dimension, but the main target at this moment is to realize the European economic and monetary union. But economics and politics you can't separate.

Mrs. Gaffney: Okay.

Mr. van der Linden: And the Council of Europe has 40 members and is especially involved in, as we said, democratic rules of law, minorities, human rights, free media, social and cultural activities.

Mrs. Gaffney: Thank you very much.

[Translation]

The Chairman: Mr. Sauvageau.

Mr. Sauvageau (Terrebonne): Good morning, gentlemen, and thank you for being here this morning. You asked a number of questions about the number of members we would like to have and on which commissions we would like to have a representative.

With regard to the number of members, that is something we wonder about, but there is some standard. If you say that member countries can have up to 18 members at the parliamentary assembly and up to 2 members for smaller countries, I think that Canada should be entitled to between 2 to 18 in proportion to its population.

Secondly, since we would be a non-European country, an observer country, we would be entitled to 12 members if you use simple math, but it could be less. It could be 8, 9 or 10. That is about what Canada could expect.

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However, as members of the Bloc Québécois, we would hope that in your recommendation you would stipulate that all recognized parties in the House of Commons should be represented within the delegation. Though our friends from the Reform Party may be conspicuous by their absence, I hope they will also have the great privilege of participating in the deliberations of the parliamentary assembly.

As for the parliamentary assembly committees we would like to be involved in, since Canada has already been involved in a number of multilateral councils and several international organizations, and since it would be a new member of the parliamentary assembly, could you leave our options open?

There are currently ten commissions, and Canada would no doubt like to be involved in all of them. However, at the beginning, perhaps we could have just one seat on them so that we can see where our interests lie and then we could make certain committees our priorities and put some of the others aside, not for lack of interest, but so that we can participate more fully, be more involved and become more knowledgeable about the parliamentary assembly.

So, with regard to the number of members we would like to have, I think we should have a representation which is proportional to our population. As for the commissions or committees, perhaps we could have a phase-in period. That way, Canadian parliamentarians can become more familiar with the issues.

Mr. van der Linden: First of all, as I said earlier, we still haven't made a decision on the number. We think an observer status, whereby every country can be involved by having one participant, is not enough.

Does the number of observers have to be the same as the number of assembly members? There has to be a proportional system, which does not necessarily mean 12; it could be 12, 6 or 8. However, if you have 6 for Canada, the United States must have 9, because the number of members for the largest countries such as Germany, France, etc. is 18. An observer cannot have more than 18 members, including the United States. That means that if the number of observers is the same as the number of members, you would have 6 members and the United States, 9. That decision is made by the Bureau. We can't tell you whether you should have 12 or 6.

You can participate in all commissions except, in accordance with article 55, the Extended Joint Committee, the Standing Orders Committee and the Committee responsible for the Budget and Intergovernmental Activities. The purpose of those committees is to organize the work; they are rather technical.

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You asked whether all parties could be represented, and that is a matter you will have to discuss among yourselves.

Ms Lalonde, whom you know well, has already worked with the Council of Europe on the OECD report. Every member country has its own rules regarding the composition of its delegation.

In my country, the Netherlands, all political parties are represented. The breakdown is as follows: two thirds, or 150 members, sit in Parliament and the other third, or 75 members, sit in the Senate. That is the breakdown for my own country.

Mr. Sauvageau: Thank you.

The Chairman: Go ahead.

[English]

Mr. Cem: I just wanted to go back briefly to the committees and to the work that is accomplished at the committees, because really the main thing at the council is the work that is accomplished in the committees. And an observer member is just like any other member, because at the committees it is rarely a matter of voting on something; it is really a matter of discussion and of mutual work, of convincing each other and of learning from each other's experience. So as an observer member, it would be almost the same as a full member.

I would suggest that the work that is accomplished at the committees might be something interesting and also something toward which you would contribute a lot. The council has a unique characteristic of being, in a sense, the political think-tank of Europe. The work that is accomplished is enormous. It is really of great value, and it helps all the member countries and member parliamentarians in their work at their own constituencies.

Mr. van der Linden: The last point is very important - to use the resolution in your own parliament.

Mr. Sauvageau: Okay, thank you.

The Chairman: How often would the legal and human rights committee meet per year?

Mr. van der Linden: Nine times per year.

The Chairman: So the political and legal affairs committee meets nine times a year. Suppose one of us were a member of that committee. How realistic would it be...? How many meetings would we ever get to if we had a member or two? This is a serious problem for us just in terms of travel time, domestic political constraints, and Mrs. Gaffney can't go because her constituents won't vote for her because she'll be talking to the wrong people and this sort of thing.

Mr. van der Linden: That's true. Every member of the Council of Europe has the same problems.

The Chairman: Yes, exactly, but you're a little closer to it than we are. The flight isn't as long.

Mr. van der Linden: Yes, but not so much closer than Canada. Canada is about a six-hour or eight-hour flight, and there are people who travel more than eight hours in Europe.

The most important political activities are of course at the four-week plenary session. And during the plenary session there are a lot of committee meetings. Perhaps we can fax you the agenda of the last plenary session and the schedule of committee meetings.

The Chairman: That would be helpful.

Mr. van der Linden: You can get it on the Internet, if you can use the Internet. I can't use it, but those people who have...

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The Chairman: We have more educated members in our offices. Speaking personally, I don't know how to get there, but somebody does.

Mr. van der Linden: Me too.

[Translation]

The Chairman: Ms Debien had a question, I think.

Ms Debien (Laval East): Good morning, gentlemen, and welcome to our committee. At the beginning, you asked a question which I think is the fundamental one.

You asked why Canada would be interested in participating in the Council of Europe. If Canada wants to make the most of its involvement with the Council of Europe, before talking about the number of seats or meetings we should attend, perhaps we should first clearly define our objectives and then decide on the particular areas of interest. I don't know whether the Standing Committee on External Affairs and International Trade will be asked to partake in that discussion. In any case, we the members of the Bloc Québécois, certainly hope so. Those are matters that should be raised with Mr. Graham and the Canadian government rather than with you, gentlemen.

Earlier on, the question of human rights was raised. That is a subject that is - or was - very close to Canada's heart.

There are also some bones of contention with Europe, such as sustaining fish stocks, the fur industry and forestry development. Those are subjects which the Canadian government should focus on immediately.

Those topics are perhaps being discussed internally, but I felt it was important to mention them, because I think that is the fundamental question we must answer before thinking about the number of seats, number of meetings and technical organization. The Canadian government must first define its objectives and fields of interest.

The Chairman: I think that any contact we have might help us in that regard. For instance,Mr. Bergeron and I went to Germany, where we were able to discuss the fisheries problem with the chairman of the German Foreign Affairs Committee. I presume that if you are a member of the Council of Europe, you would have the opportunity to meet the chairman of the Foreign Affairs Committee.

Meeting parliamentarians in person brings us closer together and allows us to make contacts to settle other political issues, don't you agree?

Ms Debien: I have another question these gentlemen might be able to answer. It has to do with the European Court of Human Rights. What powers does the Council of Europe or the European Court of Human Rights have if there are disputes between countries involved in the Council of Europe?

Do you have any decision-making powers? Are you able to impose sanctions? Do you have powers of reparation?

Mr. van der Linden: Yes.

Ms Debien: I would like you to answer that question as well.

Mr. van der Linden: Yes. Like any other court, the European Court of Human Rights has full decision-making power, power to impose sanctions, etc.

Ms Debien: They are enforced by the countries?

Mr. van der Linden: Yes, of course.

The Chairman: If the country does not abide by the Court's decision, the only sanction is expulsion.

Ms Debien: Fine.

The Chairman: For example, at one point, Greece was expelled when...

Ms Debien: Greece, Turkey, the Netherlands...

The Chairman: So there are clear cases of countries who were sanctioned when they did not abide by the Court's decisions.

Ms Debien: Thank you.

Mr. van der Linden: I am the Dutch Parliament's spokesperson on European affairs, international affairs and agriculture. Bilateral contacts with colleagues during the plenary session or during committee meetings are very helpful and useful for my own work in the Dutch parliament. I am sure that gives me an advantage over my other colleagues, because I am better informed and am more familiar with the position of other countries.

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The Chairman: Mr. Bergeron.

Mr. Bergeron (Verchères): Good morning, gentlemen. It is now my turn to welcome you to our committee.

The question you asked right at the start and which Ms Debien referred to earlier is very pertinent. Before talking about the logistics of Canada's involvement, perhaps we should first determine whether there is any point in Canada getting involved in the Council of Europe's activities. It has already been decided that it would be worthwhile, which led to Canada being admitted as an observer to the Council of Europe itself, at the government level.

Now we have to decide why we have to be admitted at the parliamentary level. That is a very important question, and I think Mr. Graham answered it. Any Parliament, regardless of the country it represents, can get more information, get to know another country better and get better known when he or she can discuss matters with colleagues.

As Ms Debien said, we know full well there are some points of disagreement, but there are also a number of things we agree on and historical reasons that have made Canada very tied to Europe. Most Canadians and Quebeckers are of European origin, especially from the United Kingdom and France, but also from many other origins, and we have established a number of ties with Europe over time.

On a number of occasions, Canada was asked to intervene in Europe to keep the peace at various times, which strengthened our ties.

But there are also a number of points of disagreement. Ms Debien mentioned the fur industry and the fisheries. But those disagreements often start within European parliamentary bodies, especially on issues relating to fur, trapping and seal hunting.

So it is important to have direct contact with European parliamentarians so that we can give them our version of the facts, so that they can better understand our views.

Nowadays, there is a lot of talk of governments not acting democratically. For that same reason, I think we have to make up for that democratic shortfall in our relations with Europe, especially between the Council of Europe and Canada, by having Canadian parliamentarians directly involved in the Council of Europe's parliamentary assembly.

That is what I wanted to say in response to the initial question you asked us and that was repeated by my colleague, Ms Debien.

The Chairman: Thank you, Mr. Bergeron. Perhaps you would like to react to Mr. Bergeron's comments?

Mr. van der Linden: No. I fully agree with him.

[English]

Mr. Cem: It's really interesting and helpful, maybe more than we have been saying and more than we have been explaining. For example, for me it was very interesting to have a big discussion with Zhirinovsky. We had some difficulties with his party and my country, misunderstandings, and so on and so forth. It's not only in Zhirinovsky's case. It is really impossible to have a large contact. Personally, I have been a member of the Council of Europe for ten years, and I profit from it; I learn from different experiences. It's really unique. I think it would be very good for Canada and us to be together at the parliamentary assembly.

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[Translation]

Mr. van der Linden: I would like to add one thing, Mr. Chairman. Even if there is something on the Council of Europe's agenda that I am not aware of, I do take the resolutions and give them to my colleagues from the Christian democratic group for future discussion with the government. It is very important.

Let me give you an example: bioethics. That is a very touchy issue. We have very heated discussions, at the Council of Europe, with all sorts of people of various political stripes, and we can use that in our national Parliament. I think that being a member of the Council of Europe gives us a tremendous advantage in our national Parliament.

[English]

The Chairman: Merci.

On behalf of the members of the committee, I'd like to thank you both very much for joining us this morning. I hope that having you here with us rather than the witness worked out well. Thank you, gentlemen. Good return to Europe.

We will adjourn for two minutes. I see Mr. Labbé is here, so we can move right into the next session in the next two minutes. We're going to move on to a session where we're going to discuss small and medium-sized businesses and the Export Development Corporation. Thank you very much.

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The Chairman: Members, could we reconvene?

Mr. Labbé, thank you very much for coming. I understand it's an opportunity for us this morning to follow up with you the report we did on small and medium-sized businessess and export development and what the Export Development Corporation is doing in that field. Thank you very much for coming this morning, and we look forward to hearing what you have to say.

Mr. Paul Labbé (President, Export Development Corporation): Thank you very much,Mr. Chairman. You're right, it's a follow-up on your committee. It's been 18 months since we've been here. We've certainly read with a lot of interest your committee report, and a lot of the things we've done since then are very germane to the report.

I have with me today Mr. John Hutchison, who is our vice-president in charge of the small and medium-sized enterprise services, and Michael Neals, who is our director of marketing.

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[Translation]

We are very happy to be here today to give you an overview of what we have done since we last appeared 18 months ago.

[English]

We certainly know that the export sector is the driver of the Canadian economy, and every time we look at the figures we get somewhat blown away. The growth over the last five years has gone from $138 billion to $270 billion, virtually doubling. During that same period, EDC's business has grown three times. So we have a good story to tell.

[Translation]

We are very pleased to be able to tell you what we have done. This morning, I will cover three points, if you don't mind. The first is obviously the results for 1996. Secondly, I would like to talk about our annual client satisfaction survey, which is a determining factor in what we do, and finally, the progress made in the services we offer to small and medium-size business.

[English]

There are a number of new members on the committee, Mr. Chairman, so I thought we might update very quickly what EDC is all about. As you know, we're a crown corporation. We're Canada's official export credit agency. We have a mandate from the government to be self-sustaining, which we try to do. But more importantly, we have helped Canadian businesses of any size and in any sector export to the world.

[Translation]

We are represented in 200 countries and last year we supported exports to 137 countries. We are active in more countries than any other Canadian financial institution.

[English]

We compete directly with other export credit agencies. I think that's an important thing to recognize: that we are in competition with other people when we are trying to export Canadian exports. And because we have to be self-sustaining, whereas others tend to subsidize, we have to be much more creative. We have to be fast on our feet. We have to be reactive, and we have to really understand what our customers want. I must say that's been one of the driving forces of the Export Development Corporation, and we like to believe that we are continually improving our service as a result of the feedback we get from those customers.

[Translation]

The Canadian government has invested $983 million in the Corporation in the past 50 years.

[English]

That money is still there. It's the equity of the corporation. It's been enhanced by retained earnings, and it's there to position us to service Canadian exporters in the future.

In the last five years alone, we've supported $71 billion worth of Canadian exports on that capital base. And I must say that we've been profitable every year except one year in our 52-year history.

[Translation]

We offer four major services to exporters. The most important one in terms of volume is short-term credit insurance.

[English]

Short-term credit insurance in effect protects the Canadian exporters against non-payment for either political or commercial reasons by foreign buyers.

Now, the short-term credit insurance business is really that - short term. It covers receivables that are out for anywhere from one month to a year - moins de 360 jours. It applies especially to commodities like wheat and agricultural products generally, fertilizers, pulp and paper, minerals, lumber, and also consumer goods - clothing, toys, tools, the parts that people sell that are normally repaid within a shorter period of time.

[Translation]

It is short-term credit insurance.

We also provide long-term loans for equipment sold from Canada.

[English]

We support capital equipment sales by our financing services, and these are basically loans to foreign buyers.

[Translation]

So the debtor is a foreign buyer.

[English]

We supply the loan to the foreign buyers to enable them to buy Canadian goods and services. That's a large part of our business as well.

We have other services, which include foreign investment insurance.

[Translation]

Over the past five years, the number of Canadians who have set up offshore offices has increased tremendously. In many cases, we insure these investments.

[English]

against the inability to repatriate the capital or the profits or the dividends on those investments. That's a growing part of our business as well, and very important for the security of the Canadian investments that are made in those countries.

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We also do a variety of other things, such as performance bonds, guarantees, and domestic credit insurance for our customers that are major exporters and also want to be able to cover the domestic insurers at the same time.

[Translation]

Now let's move quickly to the 1996 results.

[English]

We've continued to grow very fast. We've been growing at a very fast rate, as I mentioned earlier, for the last five years. As a matter of fact, we've gone from $6.5 billion of exports supported in 1991 to $22 billion of exports supported last year. That's a tremendous growth: 3.3 times over that period of time.

We served 2,965 customers last year alone, 85% of which were small and medium-sized enterprises. That was an increase of 17% over 1995.

We estimate that those exports that we supported also helped some 18,000 Canadian sub-suppliers. So while we deal basically with the exporter of record who is actually selling the goods, whether it be a Bombardier or a small manufacturer, all of those manufacturers in effect buy their goods from a whole lot of other enterprises in Canada. We estimate that there are about 18,000 of those enterprises that feed into that export flow that is handled by our 3,000 exporters.

I think that's a very important point to remember, because manufacturing actually is changing fundamentally. Whereas people used to do everything within their own plant, today they buy from all over and they feed that in. We had a net income of $112 million, which may seem high for some, but really the return on investment, given the exposures and the risks we take, is not all that much. Also, given the growing need for us to be able to support exporters, it is being reinvested into the corporation to support additional exports in future years.

We also pay a lot of attention to our customers. To the satisfaction of our customers, we've polled them regularly. We'll talk about that in part of this presentation. That basically has been one of the driving forces of the corporation: to really understand what the corporations want, what they expect of us, how well they value and measure what it is we're doing to them and where we have to improve our service.

We do that every year. But last year, we're very proud to be able to announce, our satisfaction increased from 8.5 out of 10 to 8.8. That becomes more and more difficult year after year, because our customers get more and more demanding. That was a great success for us and our people, and we'll be talking more about that in a few minutes.

We didn't achieve those results by sitting still. EDC increased its country risk appetite, with 24% of EDC's business volume last year being done in high-risk markets. That's an increase of 27% over 1995.

When we talk about high-risk markets, we talk about markets that are classified as such by the institutional investor, which is sort of an independent rating agency that looks at countries and looks at the politics of the countries and the economics of the countries and says this is a riskier area to land into. That's how we judge the countries as well.

We've put together a $1.5 billion high-risk pool for 50 markets. That was supported by the $50 million injection of equity the government gave to the corporation in the last budget. We opened for short-term insurance in 33 additional emerging markets, such as Ecuador, Peru, Slovenia, Lebanon, Croatia, and a number of others.

We're building and strengthening our relationship with other financial institutions,

[Translation]

not only with banks, but also with organizations such as the Caisse de dépôt and

[English]

the Alberta treasury operations. We're working with insurance companies to try to see whether we can access some of that money as well in support of Canadian exports, and we're making good progress on that front.

We've developed a pre-shipment financing initiative for the auto industry with the Royal Bank, with CIBC, with the Toronto Dominion, and ABN AMRO. So we're working more aggressively with the commercial banks as well to expand that service.

The CIBC has been working with the knowledge-based industries to develop special programs for their needs, and we're working with them. We've got a program guarantee with them for that business. We're working with other banks as well.

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We've strengthened our support for small and medium-sized exporters as well. We've increased our small and medium-sized financing team. Actually, we had an emerging exporter market team for the short-term insurance stuff. We have another team put together to deal with smaller loans for smaller exporters, which are always more difficult to handle.

We've increased the use of the MARG - the master account receivables guarantee - which is a program we started off initially with the banks to support small and medium-sized enterprises. Since then the

[Translation]

Caisse Desjardins has been involved in the program. The program we have with la Caisse Desjardins, with the Banque Nationale and other banks is a good one because it is geared to SMEs.

[English]

Another vehicle we've been using is a firm called Northstar, which has been backed by the Bank of Montreal, by WED, EDC, as well as the governments of Ontario and British Columbia, which is basically structured to do smaller loans in a variety of countries. We have been supporting them and the banks have been supporting them to help small and medium-sized enterprises as well, with particular attention to try to figure out how we can help finance those loans into difficult markets. And Northstar is taking off right now. It's been one of those things that took a little while to get going, but it's got its own speed up now. We're very proud to be a part of that and to be working with other financial institutions to make that happen.

[Translation]

There is also the NatExport program, and the Banque nationale is involved in it because most of its clients are SMEs. The program is strictly for exports.

[English]

In addition to that, we've also worked very closely with the CCC to ensure that there's a sort of seamless delivery of services to the exporters through the CCC and EDC so that they don't have to deal as much with two different organizations. It's a seamless thing.

In conclusion, 1996 has been a very good year. We're banking very much on 1997. We expect the Canadian volumes to continue to grow. We think that the volume of our corporation is probably going to double again over the next five years. We're gearing ourselves for that. It's a very large stretch. We're working very closely with the exporters. We're trying to figure out how we can be better, how we can respond faster. We have to keep our exporters satisfied and we have to be able to understand better than each of the international markets, which are changing fundamentally, moving from government purchases to private sector purchases.

[Translation]

I will now ask Mr. Neals to do the presentation on the client survey we conduct every year so that he can explain what we work from and how we react to the results, and then John Hutchison will tell us about the services we have offered to small and medium-size enterprises.

[English]

The Chairman: Fine.

[Translation]

Mr. Labbé: We have some overheads with us. I know the committee transcripts cannot include overheads. We can hand them out after the meeting. You have them already, I think.

Mr. Sauvageau: Is it this document?

Mr. Labbé: Yes.

Mr. Sauvageau: So we can follow without any problem.

[English]

Mr. Mike Neals (Director of Marketing, Export Development Corporation): Thank you, Mr. Labbé.

Mr. Chairman, members of the committee, good morning.

Gaining a clear understanding of our exporter base, our customer base, and the overall exporter community at large is a critical part of our strategic approach in the design and delivery of our service. To acquire that level of understanding, we've established a very rigorous research program that provides a comprehensive view of the exporter community in Canada.

There are three main components to our research program. The first is an annual survey of customers rating EDC performance, and I'll present you the high-level results of that in a moment. The second is an ongoing survey of prospective customers, now totalling over 9,000 cumulative interviews with businesses across Canada, to determine what their particular requirements are and how we can best help them. And finally, all of that quantitative data is backed up and supplemented with some qualitative assessments of our communications and product development initiatives, usually done through some focus group activity.

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I will just tell you a little bit about the parameters of the survey before showing you the results. We completed 747 interviews with our customers last year, yielding a margin of error of 2.8%. The survey period was October 15 to November 13. We hired an independent marked research company that specializes in business-to-business executive interviewing to conduct this survey with identified points of contact from our business units.

Now we will go to some of the results. The customer satisfaction index - or the CSI, as we call it - is a composite index that's comprised of the responses to two questions that are measured on five-point scales. The first is an overall satisfaction question and the second is a question on the likelihood to recommend to business associates. When we add the scores of those two, we derive our customer satisfaction index. As you can see from the charts, the composite score increased from 8.5 in 1995 to 8.8 in 1996.

The increase in overall customer satisfaction in 1996 can largely be attributed to the higher number of customers that gave us a perfect five out of five on overall satisfaction. As you can see from this chart, if you focus for a minute on the very top bar you can see that close to four out of ten of our customers gave us a perfect five out of five score. By industry standards, that kind of score is exemplary.

Similarly, fewer customers expressed any level of dissatisfaction with their service, as only 4% stated they were either somewhat dissatisfied or not at all satisfied with our service.

In the survey, we measure the reactions to over 25 different service and product attributes. The results for our key attributes are summarized on this slide. As you can see, there was an improvement again in individual ratings on these key attributes between 1995 and 1996.

For the things that are most important to our customers - that is, turnaround time, the matching of our products to meet customer needs, ongoing communication, and appetite for risk - all registered improvements between 1995 and 1996. Pricing remained flat over that two-year period.

Continuous customer satisfaction improvement, as Mr. Labbé mentioned, is an important objective for EDC, and this is also reflected in the scores, as more than two out of three customers indicated that our service had improved over the previous year. Conversely, only 2.8% stated that service levels had declined. That's half as many as in the previous year. We recognize that while our scores are generally high and generally showing an upward trend, we have to be conscious of the fact that continuous improvement will always play an important part in our program.

If we look at individual service attribute ratings, this chart summarizes in more detail the reactions to individual aspects of our service. As you can see, we received approval ratings in the range of over 90% with regard to our professionalism, our staff knowledge, the fact that we're open in key markets. There were similarly high scores for the security of government backing, accessibility, turnaround time, the matching of our products to meet exporter needs, documentation, ongoing communication. And there were relatively lower scores but still high on the sharing of expertise, understanding the customer's business, risk appetite, and pricing. I should add that the 62% approval rating on pricing in this type of research can still be considered to be very high.

The Chairman: I don't like to interrupt your flow, but if members maybe had a question about a specific thing on the slide maybe it would be good to grab you now, before it disappears.

Along those lines, I want to ask you about where we would... When we're speaking to members of the business community, particularly the small and medium-sized exporters, obviously it would be the two bottom ones, largely the risk appetite and price, where people obviously are most hung up. Have you any idea how that would compare with the rest of the banking industry in terms of industry comparison or anything else? Because that's the other comment we had during the committee report: there was some suggestion as to whether or not with the other banks there was a crowding out by EDC being in some areas they'd like to get into and things like that. So those might be two things the members of the committee might be interested in having a little further elaboration on.

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Mr. Neals: Mr. Chairman, I do have some results that will show you specifically how small business reacted toward pricing and risk appetite. I'll get to that in just a second.

The Chairman: That's very helpful, thank you.

Mr. Neals: With respect to the banks, they're very reluctant to share this kind of data with us.

The Chairman: I imagine any bank would do this similar type of internal work.

Mr. Neals: Yes - very similar type of work.

The Chairman: Maybe we can send this along to the industry committee and suggest they ask some of the major banks what they do.

Some hon. members: Oh, oh.

Mr. Neals: An important part of understanding customer satisfaction is in the measurement of expectations. For each of the service attributes in our survey, we not only measure satisfaction for each attribute but also the importance of that attribute. So the difference between the expectation and satisfaction scores is what we call a performance gap. On this chart the performance gaps are sorted from left, where there is no gap between expectations and satisfaction, to the right, where the gaps are the highest.

For example, on communication, products, and services, our satisfaction scores are actually exceeding expectations. And then when you look toward the right, there's still more of an expectation gap, if you will, with regard to pricing, risk appetite, and turnaround time.

Mr. Labbé: Mr. Chairman, to add to that, it's important to realize that what we're doing is working on those gaps. If we had looked at the gap on the same chart for 1993, for example, you would have found that the gap was much wider in those things. So we keep trying to close that gap, which is basically trying to figure out how we can best meet the desires of our customers. That's what drives us, trying to close those gaps. So the wider the gap -

The Chairman: Maybe we can get into it later, but it seems to me what you said about your capitalization... I mean, your equity really is what allows you to play with your price, because when you're borrowing on the market your margins don't allow you to go below your cost of capital, but in your equity presumably you have some room to be more flexible about pricing. Maybe that's where there is a little bit of subsidization that can sneak in there, like some of our competitors.

Mr. Labbé: Certainly the strength of the operation is what enables us to take on these higher-risk markets and take on these risk concentrations as well, which in a normal financial organization one would be very leery about taking on. The strength of the balance sheet is what enables us to do that.

The Chairman: So the equity side would influence the risk appetite phenomenon as well, presumably, in terms of where you're...

Mr. Labbé: Definitely.

The Chairman: I can understand that.

Mr. Neals: I'd like to move on to the next slide.

For our larger customers, flexibility and customization are key to servicing their particular types of transactions. Conversely, for the smaller exporter, rapid, easily accessible service is really the key. On both of these fronts EDC customers registered very high approval ratings this year. The pie chart on the left shows that 82% of our large customers - which we call non-emerging customers - agree that our products and services are sufficiently customized to meet their particular needs.

Similarly, nine out of ten small customers agree that the standardized one-stop shopping service that we've established is helpful in meeting their particular needs. So there are very different types of approaches acquiring approval ratings for the type of service we're providing.

The Chairman: On one-stop shopping, you've tied this into the provincial things as well, haven't you? I mean, that's the idea of the one-stop shopping. Going back to Mr. Sauvageau's interest when we were looking at the small to medium size, if I go into your place in downtown Toronto, can I get information on what Ontario government facilities are available, or Federal Business Development Bank - sort of everything at once, or you send people to those...?

Mr. Neals: Yes, we do provide referrals very often to other federal support programs, but we have established - and we'll describe it to you in a little bit more detail in a minute - a centralized 1-800 service specifically designed to meet the needs of small exporters. From there we very often do refer businesses to other relevant agencies that support exporters as well.

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Mr. Labbé: For the record, Mr. Chairman, when we're talking about one-stop shopping, we're talking about one-stop shopping within EDC. In other words, people come in to one point and they get an answer to what their problem is or they get a quick referral to a provincial government or to another level of government or to another organization that could best handle the problem that's being posed to us.

The Chairman: If they're talking forfeiting, they don't have to go down to a different office to talk forfeiting, as opposed to risk insurance over there, until they end up -

Mr. Labbé: Yes, that's it.

Mr. Neals: With respect to our overall corporate image, customers in the 1996 survey recorded high ratings as well. Eighty-three percent, as indicated in the top bar, agreed that EDC is important to the competitiveness of the Canadian economy. Similarly, three out of four customers agree that we're customer-focused and responsive to the needs of all business, regardless of size. You can see that our 1996 ratings for those three top scores improved over the previous year.

Slightly fewer exporters agreed that we adapt quickly to their particular needs. Thirty-four percent thought that we were risk-averse, with no change from the previous year. One out of four, 26%, thought that we were bureaucratic, down from 35% the previous year. And only 17% felt EDC is an insurer of last resort.

Now, looking at the data from a different perspective and comparing the reactions of small-business exporters to the reactions of larger companies, one of the recurring themes in this survey and indeed all of the research we do is that we consistently register high approval and satisfaction ratings from small-business customers. The index that I described earlier was 8.8 for small customers, compared to 8.7 for larger ones.

Looking at the next slide, specifically on individual service and product attributes, you can see here, focusing on the red line, which are small businesses, compared to the yellow, which are all EDC customers, small-business customers gave us higher scores on pricing, risk appetite, products and services, and professionalism. There's not one single service dimension that is rated lower by our small-business customers. So that supports the general notion that we're receiving better approval ratings from small business.

In direct response to some detailed market research we conducted a couple of years ago, we set up the 1-800 call centre to deal specifically with small-business exporter needs. This chart shows the ratings and improvement that has been registered in the delivery of that service over the past two years. Again, looking at the red bars, 86% of our small-business customers are satisfied with the quality of the information received through that service; 84% are satisfied with the speed of the response; 85% are satisfied with the speed of the call pick-up. These are all very important service attributes for us to track, and all register improvement over the previous year.

Finally, in comparison to other companies who systematically track customer satisfaction, EDC's performance has been exemplary. In a recent Fortune magazine article, the customer satisfaction indices from over 200 companies were published. EDC's comparative index of 85 places us in the 90th percentile of companies. That means that only 10% of the companies in this Fortune article had customer satisfaction indices that were higher last year.

To summarize, Mr. Chairman, the 1996 EDC customer survey revealed high scores and a dramatic improvement over 1995 levels. We read this or see this as a strong endorsement of our new sector team approach, combined with our small-business 1-800 centre.

Secondly, key attributes have shown extremely positive gains over the past year, particularly on risk appetite products and turnaround time. Small-business exporters continue to register high scores with us.

Finally, and perhaps most importantly, we're committed to continue to use this type of feedback to guide us in the design and delivery of our service.

Thank you very much.

The Chairman: Thank you. It throws up some very interesting notions. That's a helpful presentation.

I have a couple of questions, Mr. Labbé, arising out of our small and medium-sized business report. How was your experience in terms of the focus of the small and medium-sized businesses you're dealing with? Is it largely the U.S. market?

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Secondly, if that's the case, is there any movement to improve the state of financing receivables in the United States market? That was something that was brought up to us by the committee. A lot of small businesses said, look, we have problems with our working capital lines with the banks, and if U.S. receivables could be treated the same as Canadian receivables, which would make sense in a NAFTA context, or even Mexican receivables... Is there some way we could facilitate that? That would help finance small and medium-sized business. That's the U.S. market.

Are you finding we're getting more small and medium-sized businesses getting into these emerging markets that you spoke of, or are the emerging markets very much the exclusive preserve of the large companies that can afford to take the risk?

Mr. John Hutchison (Vice-President, Small and Medium-sized Enterprise Services, Export Development Corporation): Can I address that? Actually, I have a few slides as well on the SMEs, and a couple of them address those particular issues.

The Chairman: I'm very sorry. I didn't realize we had another presentation. Why don't you go ahead and do your presentation?

Mr. Labbé: We'll get back to that, but for a quick answer, the SMEs are not solely concentrated on the United States. It's obviously the largest market for everybody and it keeps attracting a lot of exports, but we're seeing SMEs in many more markets of the world, which is a very encouraging thing.

The other thing is we're seeing a number of SMEs graduate, if you want, from an SME focus into a larger enterprise, which is also another good thing. But we'll have some more detailed slides on that.

The Chairman: We'll go back to our multiculturalism chapter on the SMEs. You mentioned the Banque Nationale. Would the Quebec liaison with the Banque Nationale and EDC focus more on francophonie companies? Is there any way we can get a handle on that?

Mr. Labbé: I wouldn't say francophonie.

[Translation]

I think that what distinguishes the province of Quebec is that there is a greater variety of businesses; there are far more SMEs, and the Banque nationale has organized itself to serve them. There are also big businesses, but the fact is that Quebec companies do not focus exclusively on francophone countries. You find Quebec firms, perhaps in even greater proportion, in every country of the world. They are also very avid exporters.

The Chairman: They are also very focussed on New York and the parts of the United States that are close to the Quebec border.

Mr. Labbé: There is a higher concentration in the North-eastern section of the United States, but you can find them everywhere in the United States.

The Chairman: Fine.

[English]

Mr. Hutchison.

Mr. Hutchison: We want to look exactly at what we're doing for SMEs.

There are so many definitions of what an SME is, but just for your information, how EDC looks at them - and we do this as a fairly straightforward way of doing the cut, and we can also compare Stats Canada data more easily. A small enterprise is a company whose annual sales are less than$5 million, a medium enterprise is less than $25 million, and a large enterprise is one that has over $25 million in sales. That's for EDC's purposes, and all the data has been cut that way.

We also have another group that looks after the emerging exporters. In your report you referred to the emerging exporter team, and that is an SME - so under $25 million in total sales - that exports less than $1 million per year, and they account for 56% of EDC's customers; 85% are SMEs and 56% are in that very small category.

As Mike mentioned, we do a lot of surveying of our customers to find out what their needs are. We've conducted over 6,000 questionnaires with SMEs trying to determine exactly how we can best serve them. Basically, four strong messages came to us: they wanted quick, easy access to decision-makers; they did not want superfluous information; tolerance for red tape was zilch; and they needed quick decisions. We really based our delivery programs on those requirements, and we've had some success in that respect.

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The merging exporter team call centre was designed specifically for those things, and we like to delight exporters occasionally. As an example, last week we had a call from one of our customers in Edmonton. This gentleman was quite amazed. At 8 p.m. the night before he'd been working late and had sent us a fax asking for a $50,000 approval on a buyer in the United States. He arrived back in the office at 8:30 the next morning and the approval was on his desk. We'd had the benefit of a two-hour time lag, but that sort of quick service is what we're aiming to do. In fact, the emerging exporter team gives 66% of its answers on ``can we approve buyers'' within 24 hours, and the average turnaround time is one and a half days.

As I mentioned, it looks after almost 60% of the corporation's customers. These are very small firms. We talk about exporting up to $1 million, but they go down to companies that have $100,000 and even less in exports a year. We're capturing all of them.

One of our targets is to help them grow the business. An interesting thing is that last year 139 of them grew their export business to the extent that they didn't qualify for this 1-800 service and graduated to our other teams. We look upon that as an important success.

Mr. Sauvageau: Can I ask a question?

[Translation]

The Chairman: Yes.

Mr. Sauvageau: I apologize for interrupting your presentation. Since we are talking about the report on exporting SMEs, I would have a few questions to ask you. I am very interested in this.

Approximately what percentage of your efforts, of your equipment, facilities and aid goes to SMEs as opposed to big businesses?

Earlier on, you gave us your definition of an SME and of a large enterprise. A small or medium-sized enterprise is one with revenues of less than 1 million dollars. A large enterprise, according to the EDC, has revenues of over 25 million dollars.

You have developed a lot of services to help exporting SMEs, such as the emerging exporters team or the 1-800 line, but is it fair to say that 80% of the money goes to large firms and 20% to SMEs? How can you calculate it?

Mr. Hutchison: I think that the simplest answer would be to say that we are willing to allocate sufficient resources to SMEs to meet the demand.

A certain percentage is available for large firms and another for SMEs. We have increased the sums allocated to help SMEs. I am not saying we have unlimited funds, but we are ready to meet the entire demand.

Our biggest challenge is to inform SMEs of our availability to help them. So I can say that the percentage of volume for support... Last year, we provided approximately 3.8 billion dollars in support. Of all federal services, that is the biggest SME support program. We are willing to do anything that might be required to increase that number.

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Mr. Sauvageau: I am not sure I understood your answer. There can't be many large enterprises that have revenues of over 25 million dollars.

Mr. Labbé: They represent 15% of our clientele.

Mr. Sauvageau: I am thinking of SNC, Teleglobe Canada and Bombardier. Perhaps I am wrong, but I thought those people had some international expertise. So perhaps they do not need to rely on the EDC so much for expertise. But they might need your insurance or other services.

SMEs need a framework. Despite all your good will - and I am not trying to criticize you - couldn't you increase the assistance you give them? You say you are trying to meet the demand. It is a vicious circle because those who know you like you. That is what you have shown us with all your tables. People who know you generally appreciate the work you do, but is there a survey that shows how many SMEs know you?

As far as we are concerned, with the report on exporting SMEs, we tried to see how SMEs could have access to programs that could help them export. Yes, the 2500 or 3000 SMEs that deal with the EDC are satisfied with the programs, but you are in charge of marketing and advertizing. How have you tried to attract SMEs that want to export? I went to see you in Montreal to get an explanation of EDC services and they were explained to me by providing examples of SMEs in my riding. You are very professional and have done extremely good work. I am not criticizing you on that. But what have you done in terms of marketing and advertizing to inform SMEs who want to export that you exist? How do you work with other services to help SMEs export?

Mr. Labbé: You have covered quite a range of topics. I believe the committee was also concerned about duplication of services.

Mr. Sauvageau: Yes.

Mr. Labbé: The EDC concentrated on offering financial support services or guaranteed services. Our challenge is to identify and reach out to those businesses and to let them know we are there to serve them. To do so, we obviously use advertizing, but we also mail information directly to the firm to try to tell them what we do and how we can meet their needs and to tell them that all they have to do is call the 1-800 number. That is how we are trying to reach those enterprises.

A very small business that has done one export transaction will perhaps go to the bank to see whether it is an export transaction that can be done through a letter of credit. It doesn't need credit insurance or any other service. That transaction can be done without us. In those cases, we nonetheless try to reach those firms to tell them that they can call us if they have a problem. If their challenge is not financing, we will refer them to another federal or provincial government service for help.

Secondly, with all the feedback we get from our clients and everyone else, we try to see how we can get organized to provide them with better help. In my view, the important thing for businesses is that they can pick up the phone and call us. They don't necessarily want someone to go to see them to explain what they should do.

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When designing our services, we really tried to organize them so that the services we offered to our exporters would be provided in the easiest, clearest and quickest manner possible. Obviously, some businesses are better informed than others on what has to be done to break into the export market. That is where we rely on other government programs and the Chamber of Commerce, for instance, which has a training program for businesses wanting to export.

Once they have completed their export transactions or are ready to do so, we can intervene to help them.

Mr. Sauvageau: May I ask another question, Mr. Chairman? I will ask you the question, but I do not want to play politics or make partisan observations.

In the report on exporting SMEs, it says you will create a guide or a single wicket to help SMEs who want to export. In Quebec, there already is a guide of that type. If I remember correctly, in the suggestions and recommendations, it was suggested that the provinces prepare such a guide for SMEs wanting to export products or services.

As far as I know, no other province has such a guide. In any case, we didn't find one. Do you think the guide we have in Quebec, which is available to exporting SMEs and is thorough enough to provide them with an overview of available services, could be reproduced for the entire country?

Mr. Labbé: I honestly can't say anything about the Quebec guide or the guides from other provinces because I don't know them well enough.

I will be very honest with you. I don't know if you saw it today in the EDC journal, but we tried to implement a program on available services. However, there is clearly - and I have always been convinced of this - a lack of understanding, a lack of training among Canadian businesses as a rule with regard to the challenges they must overcome to export professionally.

There has, however, been significant improvement over the past five years. Just look at the number of enterprises that have participated in our missions to Asia or even in the promotional development programs in Mexico and elsewhere. Canadian businesses are really trying to export, and an increasing number of them are getting better training and becoming more knowledgeable in the field, but we have a long way to go before being perfect. There is a lot of work to be done in that regard, and to be honest with you, we rely on the programs offered by other levels of government or government agencies to do that work.

That is not the kind of work we do, because if we did we would then be overlapping others. I'm not sure that the EDC, despite all its knowledge of export markets, is in the best position to help businesses to acquire the knowledge for this type of work.

Mr. Sauvageau: Thank you. If you would please continue, I would like to ask you further questions later.

The Chairman: I would like to know whether there are still small and medium-size businesses working in the service area who use your expertise, because it seems to me that is the area where our activity should be developed. In is in the export of services that the Corporation could be particularly helpful to Canadians, because you have already developed expertise in this area.

[English]

Mr. Hutchison: I'd like to mention two important aspects of the emerging exporter team call centre. One is that the people who answer phones are decision-makers. These are underwriters. They can approve buyer credit limits, put insurance policies in place, and approve qualifications under lines of credit. The vast majority of people who come to us through that call centre, companies who export under $1 million, are companies who use export credits insurance, selling on short payment terms. That can be put in place very quickly.

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Another part of the training of those underwriters, and one of their important tools, is reference material about other programs that are out there provincially, federally, through the banks. If a company comes in and has a problem with a letter of credit, we can refer them to the letter of credit department of their bank, which is where they can get the answers. If we need to refer them to SDE because they need some financing, we can do that.

That referral service - and it's really not just here's a phone number, it's this is what the program does and I think this is the right place for you to go. A lot of companies actually call back and say thank you for giving me that phone number; it was the right thing to do.

One of the most exciting of our new initiatives in 1996 was the establishment of the new SME financial services team to support SME exporters of capital goods and services. In our experience in dealing with these customers, we found that what works particularly well is to give service and the undivided attention of the underwriters of the financial service managers to the needs of smaller business. If the same person has a large deal and a small deal at the same time, naturally the large deal tends to grab the attention.

So we've set up a unit and they have the job of finding solutions. That doesn't mean lending ourselves, but it may mean taking them over to the Canadian Commercial Corporation and together with CCC putting in place a financing solution. It may mean going with them to Northstar and saying, you can do this very quickly; let's get this in place.

Another of the goals of this team is to simplify, to find simpler tools to provide financing. You don't need to have the same lawyer's bills for a $2 million loan as you do for a $200 million loan. The aim of this group, and it's accomplishing it quite successfully, is to simplify the processes and apply the appropriate due diligence to the size of the loan.

We reported to the committee in our last visit what we were doing in setting up MARG. MARG, the master accounts receivable guarantee, was launched in partnership with the chartered A banks and the Caisse centrale Desjardins in March. We have just signed up the Alberta Treasury Board - I think a press release went out yesterday - as another financial institution.

In 1996 we put in place 61 guarantees under the MARG program. These were companies who got lines of credit financing. Mr. Chairman, you were asking about this. MARG lets them get financing to margin their foreign receivables. Our surveys of those customers have indicated that this has been a very important tool for them in getting that additional financing.

It has grown, and we're seeing steady, slow growth. We are trying to market this using two methods. One is through the banks to get them to market it. We've been training account managers. We've also been doing direct mail to exporters to tell them about it, saying go to your banks and ask about it.

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The Chairman: Does the charge vary in function of the risk of the markets? A U.S. guarantee would be a lot cheaper than a Moroccan or something like that?

Mr. Hutchison: No. It's done on an actuarial basis. The banks classify the risk as one, two, or three, and we do the rate on that basis.

The Chairman: Okay.

Mr. Hutchison: Mr. Labbé talked about the partnership with Northstar and other financial institutions, but that continues to be an important part of the delivery.

A small item there, but as an indication of the sorts of things we're prepared to do, we've put an umbrella policy in place with the wood products group, a group of maritime and eastern Quebec wood products exporters, so that they can go to that group and have one policy.

I think this chart speaks for itself. I mentioned $3.8 billion, up from $2.8 billion last year, and our customers went up from just over 2,000 to 2,500 SME customers during the year. That's an achievement we're very proud of.

This just reflects the fairly obvious, but 85% of our customers are SMEs. They do 17% of the business.

Again, Mr. Chairman, you asked about the product mix in the countries... Three-quarters of the business supported was through our short-term credits insurance program. The other quarter was divided among medium-term insurance, medium-term financing, foreign investment insurance, and performance security insurance, where we will insure performance bonds that are put in place.

The Chairman: Small and medium-sized businesses are bidding on foreign contracts.

Mr. Hutchison: Yes.

The Chairman: Those would usually be a mix of both services and goods supplies as well.

Mr. Hutchison: Yes. There are certainly services in those numbers. These are not just goods exports at all.

The Chairman: We can never get a handle on what's what, though, around here. I don't think anybody else does either.

Mr. Labbé: The reality is that a lot of that is changing, because I think more and more you're finding that suppliers have to supply both equipment and services. That's the nature of the changing market, and that's why the international experience becomes so important.

I'll get back to one of the questions that was asked a minute ago because I think it's very germane.

Mr. Hutchison: Mr. Chairman, you asked about where companies are going. For just over 50% of our business we supported sales to the United States. That's against a Canadian export volume of about 82% to the States. Other industrial markets are fairly large, but you'll see about a quarter of the support there is to Asia Pacific, Latin America, and other markets, which include eastern Europe, the Middle East, and Africa. So there is a diversity there, and certainly small businesses are looking all over the world, not just south of the border.

[Translation]

Mr. Sauvageau: How do you export in Canada?

Mr. Hutchison: As Mr. Labbé mentioned, we are able to ensure domestic sales for exporters, because a loss for an exporter, even in Canada, may...

[English]

Finally, I'd just like you to put our number into the record so that you can refer that number to any of your constituents who are interested. We are looking to attract as many people as possible to call that number.

The Chairman: What is the 1-800 number?

Mr. Hutchison: It's 1-800-850-9626.

The Chairman: I'm just trying to get you to get it into the record. It's not that I'm totally blind yet.

Mr. Hutchison: Thank you.

The Chairman: Thank you.

Mr. Labbé, a quick wrap-up for our members.

Mr. Labbé: We talked a lot about small and medium-sized business. We talked a lot about knowledge. One of the important things that's going on right now more and more, as I say, is that they need to be in specific markets to understand what's going on, to be present. They need for Canadians to be more international in their approach.

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I was involved in the exporting at one time, and we used to have farmers from Saskatchewan training farmers in Algeria, the Sudan, and everything else. People go out and transfer skills.

One of the interesting stories I keep telling is that I was at the Montreal airport once on a Sunday afternoon, just before Bombardier was supposed to deliver their first regional jet to the Lufthansa CityLine. I'd been invited to go aboard the plane. There was a young man working on a Sunday afternoon, doing final touches to this plane. I got talking to him and complimented him on being diligent and doing the work on a Sunday afternoon while, I assumed, his family was waiting for him. I asked him where he was from.

[Translation]

He was from Valcourt. So I said to him: "I imagine that your wife and children are waiting for you in Valcourt." He answered me: "No, I now live in the south of the United States, in Wichita." He told me that he was showing the Americans how to install those devices in planes.

[English]

So when you talk about knowledge, when you talk about experience, when you talk about transfer of services, when you talk about opportunities, the fact that all of our enterprises...and the large enterprises do a lot of that as well, in terms of bringing Canadians with the expertise, to be able to deliver those services into foreign markets, which is a big part of what the future is all about. I think we're doing a very good job of that.

[Translation]

The Chairman: Thank you very much. Mr. Sauvageau.

Mr. Sauvageau: I asked some questions earlier which I considered to be quite nice. The ones I'm going to ask now are not quite so nice. Nevertheless, I hope that we will remain friends.

My first two questions concern environmental standards regarding access to loans or insurance. We can consider the case of the CANDU or other products. Does the EDC intend to basically follow the practice of the U.S. export credit agency as regards environmental standards?

We heard that there were negotiations with the OECD to support companies required at least to meet the environmental standards of the countries where they intend to set up. Sustainable development has been promoted, but that should not be done only in our backyard. How does the OECD act or make itself accountable on that issue?

My second question concerns Algeria. You said that you made loans or participated in activities in over 137 countries. Does the political situation in a country affect the rating, that is 1, 2 and 3, only in the case of loans, or could it happen that some companies might be refused authorization to export to such countries? I'm thinking here of Algeria. You started a mechanism of $170 million U.S. in order to help SMEs to export to those countries.

Mr. Labbé: Please allow me to respond first to the question on the political situation. There is no doubt that the political situation of a country affects not only its reputation, but also its ability to repay its debts. Obviously, when we sell to an unstable government or State - I'm not necessarily referring to Algeria here - the repayment problem becomes far more complex. Some countries such as the USSR, even though there are parts of it left, disappear in the present context.

Therefore, it is obvious that we have to consider the situation of the country, its political stability and also its economic direction, in order to decide whether we are ready to lend money to it. There are some countries to which we are not open. We make a distinction between short and medium term, and we often make a distinction between the loan structures, because there are arrangements which can be made even in countries which seem somewhat less able, whereby revenue is obtained from outside the country and there can still be assurance of the loan being repaid.

All these factors are taken into consideration. When the political stability of a country deteriorates, we have to be careful and try to limit to some degree the commitment made towards the country concerned.

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That is a factor, and there are some countries which in the past did not meet their repayment obligations. It is difficult to give them further loans when they do not repay those already made to them. In many such cases, we are not open.

Nevertheless, it is possible that the Canadian government might look at more important economic and political considerations and decide to "go ahead and charge to the Canada account". This is a small part of the total business, and not included in the figures presented to you today. I think that the Canada account for last year was 2.5 per cent of the total figure for the Corporation. This account is used in very difficult situations or when the country concerned is considered good but the loan is too big for the Corporation. This would be the case, for example, with the nuclear plants in China. We do it for the government because it is too big for the Corporation.

As regards the environmental issue, that is obviously a very important point. In an ideal world, everyone would respect established standards. What we are trying to do in the context of the OECD is to develop standards which would be well-respected and accepted by everyone concerned. Unfortunately, to date we have not achieved such an agreement. I think that other measures will be taken and that we will try again to achieve agreement on this point, but frankly it's taking quite some time.

In this context, the Canadian government is seeking to ensure that environmental standards are being met and also that we are not excluded from the process because our standards are tougher than those of other countries.

When we assess investment, the environmental issue is important for us. If the project is expected to have an adverse impact, that will affect its viability and consequently repayment of the debt.

Therefore, we take those factors into consideration when assessing a project's viability. Also, we look very closely at the reputation of the companies offering the projects. Those factors are also taken into account in our decision to grant or refuse a loan.

As regards China, as you know, there is a case underway. I prefer not to express any view about it. The government decided a long time ago that the EDC was exempted from rules applying to Canada, but we must still ensure that the project itself is viable and meets environmental standards to the greatest degree possible.

Mr. Sauvageau: It is the same situation as regards other social standards. This question came to my mind while you were answering the one about environmental standards. It is the same situation as regards child labour. Your loans are made on the basis of a Canadian social reality outside the country. Mistakes could be made, but we don't want a company using child labour to receive a loan from the EDC. The same thing applies as regards the environment.

Therefore, all those environmental and social factors are taken into account before the EDC makes a decision regarding the firms concerned.

Mr. Labbé: In the case of broader questions, of a political or macro-political nature, we are guided by the policy of the government of Canada.

The Chairman: There would be a question concerning, for example, Birma or Nigeria. The politicians concerned would be different.

[English]

One last question and then we'll have to break.

Mr. Labbé, you mentioned the OECD. I know there's the OECD code on lending rates so that there isn't unfair competition amongst the various governmental agencies, of which you're one. You mentioned you're constrained in a way that some others are not who receive large amounts of freer government money than you do. How is that working out from a global competition point of view? I know Canada is anxious to make sure it works well, but we hear rumours that if France or the U.S. cheats... Somebody probably says we cheat.

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Mr. Labbé: It's an ongoing bone of contention. There certainly has been some improvement within the OECD, and I think there's certainly less concessional financing today than there was perhaps ten years ago.

We have an ongoing bone of contention with the OECD because within the WTO there is an obligation of the signatories of the WTO to get their export support programs on a break-even basis. There was no timeframe set for that - that was the first thing. The second thing is that the break-even basis is an ill-defined concept, because we say what they ought to be doing is operating like we do, on an accrual basis, on a commercial basis, on an accounting basis, on a transparent basis. That's what should be guiding everybody.

That's not where everybody is today. We keep trying to push them forward so that we can compare things on an apples and apples basis. The reality is that if they were just going to break even on their book, for example, and their operating costs were going to be supported elsewhere, it doesn't make a lot of sense.

What we're trying to do is to get them to agree that there are standard accounting rules that everybody should be honouring and that's what we should be operating with. It's important to us. And it's also important to us because we end up partnering with them on large projects, and you want the rate of interest charged on some of these projects to be reflective of the risk. You don't want some of those rates to be subsidized. Even if they're marginally positive, if they don't reflect the risk over the long term then it's not a good deal.

What we're trying to do is bring a lot more discipline into that. We're having some successes and we're having some failures, but in general we're hopeful that we're moving in the right direction.

The Chairman: Thank you, Mr. Labbé. It was a very helpful presentation for the members of the committee following up on our report. We're encouraged by the progress that's being made. Thank you.

Normally, of course, when the estimates come up EDC comes in there. But I think this has given us an opportunity to get into EDC, so we may not have to get into that at estimates time - although I'm sure you'll be there with the minister when he comes.

Mr. Labbé: The one point I would like to make on that specific issue is that I was a little shocked when I was reading the report about the fact that the Export Development Corporation is perceived to cost the Canadian government some several hundred dollars a year.

You have to be careful with regard to the estimates, because we are self-sustaining, as you know. We're making money. Even the Canada account has been a provider of positive cashflow to the government over the years, except in a few cases of debt forgiveness. So even when you say that there are budgetary amounts allocated to EDC - which is really for the Canada account - they are not losses; those are just allocations of funds to a receivable that ends up being an asset of the Canadian government. It's not really an expense.

We have a bit of an issue with the Treasury Board as to how they account for these things. You have to be very careful in dealing with that, because in the budgetary figures when you talk about the Canada account you're not necessarily talking about expenditures.

The Chairman: That's a helpful comment, because this a source of constant confusion to all of us around here as to how the accounting system of the Government of Canada operates. There is no real asset side to the balance sheet one can get a handle on as to what's an asset and what's a liability. There seem to be constant outflows. Anyway, the matching doesn't ever seem to work.

If you have anything on paper on that and want to send it to us, you might...

Mr. Labbé: I'm not too sure my colleagues at the Department of Finance would appreciate me opening this window, but we do have to look at it objectively.

The fact is that when the Canadian government extends a long-term loan to China, the rate of interest may not be high, but the asset is still there, and that asset is reimbursed by China to the Canadian government over time. So it's a loan; it's an asset on the books. When we have lent money, for example, to Russia for things over time that are being reimbursed, those loans are reimbursed. They are assets on the books, and the money comes back to the government and people of Canada. In strict parlance, while they're expensed from the government's point of view, they still do come back on the revenue stream - even if it's a long time later.

The Chairman: Yes, but your point would be that insofar as they are at less than market rates for a similar risk, that is a transfer, and what comes back... The people of Canada in fact are subsidizing to the point where the amount loaned is not loaned at a rate that would be compensatory for that political and commercial risk associated with that type of a loan.

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Mr. Labbé: Agreed. But there are two different types of loans. There are the concessional loans, which are at less than market rates. There is an opportunity cost there, but the asset is still there on the books. And there are other loans that are made at very commercial rates. They are higher risk, and they may be too large for us, but they are made at commercial rates and they come back at commercial rates. The capital and the interest comes back to the Government of Canada.

The Chairman: That's what you refer to as the Canada account.

Mr. Labbé: That's the Canada account. Every year in Parliament the government tables a report on the Canada account transactions. I think the members should be looking at that as well.

The Chairman: That wouldn't show up in the Department of Foreign Affairs estimates, though, would it, whereas you come into the Department of Foreign Affairs estimates. Whose book would the Canada account turn up in?

Mr. Labbé: It shows up in the Department of Foreign Affairs as an EDC line item.

The Chairman: Okay.

Mr. Labbé: I sometimes get sensitive about that as well, because I don't think it truly reflects the performance of this corporation and what the performance of this corporation has done for the Canadian exporters and Canadian people for the last 52 years.

The Chairman: Also, you don't have any decisional control. You have some input probably, but you're not the ultimate decider.

Mr. Labbé: The ultimate decider is the Government of Canada, obviously, but we administer those loans for the Government of Canada.

The Chairman: We'll keep an eye out for that difference. Thank you.

Mr. Labbé: Thank you.

The Chairman: Thanks, Mr. Labbé, that's been very informative.

We're adjourned until 9 a.m. on Thursday, when we will have Mr. Maurice Strong coming. He will talk to us about environmental loans.

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