SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, May 3, 2000

• 1537

[English]

The Chair (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Good afternoon, ladies and gentlemen. I'd like to welcome you to the Subcommittee on International Trade, Trade Disputes and Investment. Pursuant to Standing Order 108(2), we are continuing our study on Canada's economic relations with Europe.

We have with us today Dr. Charles Barrett, vice-president of business research, from the Conference Board of Canada, and Kathleen Macmillan, president of International Trade Policy Consultants Inc. Welcome.

Dr. Barrett, will you start?

Dr. Charles Barrett (Vice-President, Business Research, Conference Board of Canada): Yes. Thank you, chair. I have a few opening remarks.

As the chair indicated, my name is Charles Barrett. I'm a vice-president at the Conference Board of Canada, and I wear a number of hats. I'm responsible for, among other things, our international relations activities and for our research programs in the area of international trade and investment. I'm pleased to have the opportunity to address the subcommittee as part of your study of Canada's economic relations with Europe.

As you may be aware, the Conference Board is, as my notes say, Canada's pre-eminent not-for-profit research organization. Our mission is to help our members, which include business, government, and other organizations, to anticipate and respond to the change in an increasingly competitive global economy, which we do by developing and exchanging knowledge through a variety of means. We focus on organizational effectiveness, emerging economic and social trends, and public policy issues. Our mandate is non-policy-prescriptive, which means we do not advocate specific courses of action, but rather we assist decision-makers to arrive at more informed choices based on objective and sound analysis.

We have been following transatlantic business relations for a number of years. In my remarks this afternoon I'm going to touch on some insights from research we have undertaken, as well as our current views of the prospects for European economies.

I'll draw to the attention of members of the subcommittee three Conference Board reports that you may find useful background to what I have to say this afternoon. I believe they're available in the parliamentary library. They are: Managing European Monetary Union, a report we did last year assessing the implications of the EMU for Canada and Canadian business; Europe Towards the New Millennium: The Relevance to Canada, the proceedings of a seminar we held here in Ottawa a couple of years ago during the British presidency of the commission; and Strengthening Canada-European Union Business Relations, a 1997 report we did in collaboration with the Delegation of the European Commission in Canada.

• 1540

I'm also going to touch briefly, as I said, on our view of Europe's economic prospects, based on the latest edition of our regular World Outlook.

First, as a word on the nature of the relationship, I would describe our economic relationship with Europe as being more important than one might suppose. If you look at the trends in at least the commodity trade, the results seem somewhat discouraging at first blush, but it's also important to understand that the numbers can be misleading. On the other hand, we have a strong and growing investment relationship, and the process of European integration clearly makes Europe a key market. The economic prospects for Europe are brighter now than has been the case for some time.

Over 80% of Canadian trade is with the U.S., but Canada-U.S. trade is characterized by very high levels of intra-firm trade, which simply reflects the increasing integration of the North American economy following the FTA and NAFTA, although not, of course, solely the result of those trade agreements.

With integrated production systems, the same goods may cross the Canada-U.S. border several times during the manufacturing process, initially as components at various stages of production, and then finally as finished products. Think of the automotive sector as the classic case. In that sense, Canada-U.S. trade is overstated.

Conversely, the impact on Europe of the Canadian economy may also be somewhat understated, in that some of our trade with Europe may be through the United States. That is increasingly so, again because of the integrated nature of the North American economy. The same could be said of our trade with other regions outside of Canada.

Two-way Canada-Europe trade totals about $40 billion. That's merchandise trade. It's about $64 billion per year if you include services. Of course, that pales in comparison with our trade with the U.S., but $40 billion is a fair bit of money and that is a significant trading relationship.

But the trends in the trade are not encouraging. Although our trade overall has grown rapidly, both in dollar terms and as a share of GDP, Europe has become progressively less and less important as a destination for Canadian exports, and there's no reversal in sight that I can see.

In 1998 Canadian exports to the EU totalled just under $18 billion. The share of Canadian exports going to the EU is half what it was in 1980, having fallen from about 12.6% to 5.5% in 1998. This relative weakness reflects the economic conditions in the EU, where growth, at least until very recently, has been much less robust than in the U.S., as well as the increasing integration of production with both Europe and North America.

In contrast to trade, Canada has a strong and growing investment presence in the EU. In 1998 our direct investment in the EU totalled some $46 billion, which is about 20% of Canadian direct investment abroad, and EU investment in Canada totalled $45 billion, or over 20% of the stock of foreign investment in Canada.

It's widely recognized that in high-value-added sectors, doing business in Europe requires a presence in the European Union. And conversely, Canada has had some success—although I might say perhaps less than we would have hoped—in attracting European investment to serve the North American market.

Now let me turn to how Canadian business views Europe. This is based on some research we conducted in conjunction with one of the studies I mentioned, some consultative workshops that were held across Canada.

I would describe the Canadian business view of Europe as being a mixture of complacency and skepticism. The business communities in both Canada and the EU suffer from a lack of knowledge and a shortage of timely and targeted information on each other's markets. Many Canadian companies have tended to focus on traditional bilateral relationships with such European partners as the U.K. or Germany rather than focusing on what's happening in Europe as a whole. They need to be more aware of policies and practices at the EU in order to develop targeted strategies appropriate to the increasingly integrated European market.

• 1545

While I believe the information gap is real, it's not obvious how it might be addressed. Unlike dealing with emerging markets in Asia and Latin America, doing business with Europe does not appear to require government leadership. It's not like selling a power plant to an emerging economy, where government-to-government is the mode in which business occurs.

There's a small number of Canadian multinationals that are active in Europe, and they appear to understand Europe very well. On the other hand, smaller businesses, which in numerical terms are far more dominant in Canada, may be and indeed I think are confused about the purpose and policies of the European Union. But how you address this in a cost-effective manner, given the dynamic nature of developments in Europe, is not at all obvious.

Finally, while Europe is an important market that cannot be overlooked, it's difficult to make a compelling case that Europe should be a priority market for Canadian firms, faced as they are with opportunities in the emerging markets of Latin America and Asia, or right in our own backyard in North America. Indeed, Canadian business is quite open about stating that explicitly.

Governments, however, have an important role in the area of trade policy, specifically in addressing the remaining barriers to transatlantic trade as well as a host of trade irritants. The outstanding Canada-Europe trade issues are quite well known, so I'm not going to repeat them in detail, but among the most intractable issues are agricultural subsidies, access for Canadian wines, barriers to fish and seafood, non-ferrous metals and forest products, technical barriers to trade, rules on genetically modified products, sanitary and phytosanitary regulations, and telecommunications market liberalization. Frankly, it has been very difficult to make progress on these issues. That's in part due to the failure to launch a new round of multilateral trade negotiations, but it's also because bilateral progress has been hampered perhaps by a lack of will to address it, and also, I think, by political difficulties, not the least of which was the fallout from the fish wars of the mid-1990s.

It appears that free trade negotiations between the Canadian government and the EFTA will be completed this year. EFTA comprises Iceland, Norway, Switzerland, and Liechtenstein. The agreement is expected to focus primarily on tariff elimination and trade facilitation. Two-way merchandise trade is small; it's $5 billion—$1 billion of Canadian exports, and about $4 billion of EFTA exports to Canada. But if this agreement is successfully concluded, it will be Canada's first transatlantic free trade agreement, and it may well be a stepping stone to enhanced trade agreements with the EU.

To say a few words on the European monetary union, various stages of European Community development have fostered the process of economic convergence in Europe, including the comprehensive liberalization of trade, the elimination of barriers to capital and labour mobility, and the harmonization of indirect taxes. All those have fostered increased competitiveness among the European economies. But the Maastricht Treaty brings the process of integration to a new level, in fact further even than the establishment of monetary union, because the agreement also poses fiscal constraints on the European governments. With less ability to accommodate, borrow, and support spending, European governments will be under pressure to harmonize social programs and labour market regulations, ultimately leading to a greater convergence in terms of economic performance throughout Europe and arguably to stronger economic growth.

The process of adjustment to monetary union is well underway. The first difficult stages are past us. How long the whole process will take is of course a matter of conjecture. It won't be smooth. It will be most disruptive for those countries that in the past have tended to provide the most generous social programs and/or have had the most highly regulated labour markets.

Multinational corporations, in particular, need to pay attention to the changes brought about by the currency union. I believe the EMU is the most significant event in international finance since the collapse of the Bretton Woods system in the 1970s. The process will provide a single currency to a group of companies that together rival or indeed exceed the United States in economic size, and it will affect the evolution of international trade and finance in fundamental ways.

The EMU process presents both benefits and risks for Europe and for the global economy. Companies will enjoy a significant cost saving once exchange rate risks and conversion costs are eliminated. Fiscal prudence and monetary stability under a European central bank will help governments deal with fluctuations in the economy, while making possible more productive use of government funds, lower taxes, and a more stable environment for business planning.

• 1550

Although it's primarily a process of further economic integration, many also see the EMU as part of a political process. In fact, that's quite explicit. To take a recent quote, Eddie George, the Governor of the Bank of England, said:

Monetary union is fundamentally a political rather than an economic issue. It necessarily involves the deliberate pooling of national sovereignty over important aspects of public policy, in the interests not just of collective economic advantage but of a perceived wider political harmony in Europe.

Let me conclude with a few remarks on the current economic outlook in Europe. As I said, the most difficult early stages of post-Maastricht are now past, and we're seeing that in terms of the short-term outlook for the key European economies. German GDP is expected to advance by close to 3% both this year and next, helped in measure by improving trade prospects outside of the EU, due in part to the low value of the Euro. France, bolstered by vigorous domestic demand and a stronger pan-European growth, is expected to grow by 3.5% this year and next, and Italy is expected to grow between 2.5% and 3% this year and next respectively.

The conditions in some of the smaller countries also appear more buoyant. Ireland will continue to head the pack with growth of over 7%, and Austria, Belgium, Portugal, Spain, Finland, and Greece all expect to grow by more than 3% in 2000.

In the United Kingdom the domestic economy has grown vigorously, showing in many respects more similarity to the performance of the U.S. than to the rest of Europe. But as is perhaps typical in the U.K., when domestic demand is buoyant, the trade position has weakened significantly. That also reflects the strength of sterling against the Euro. This has dampened export demand and has resulted in relatively weak manufacturing production. The U.K. has moved from a current account surplus several years ago to a deficit position, and that's expected to deteriorate further over the near term. Most observers, including the Bank of England, expect sterling to ease against the Euro, but as is the case with large currency movements, nobody knows when that's going to happen. In the meantime, British manufacturers and other exporters face an uphill battle to remain competitive in Europe, which is overwhelmingly the U.K.'s most important market.

The strength of domestic demand is also placing upward pressure on wages and prices, which is a classic response in the U.K. GDP growth of between 3% and 3.5% this year and between 2.5% and 3% next year is a likely outcome. Despite recording the lowest inflation rate among the EU15, by the domestically preferred measure the U.K. will see inflation rise between 2% and 2.5% over the next couple of years, and interest rates will increase modestly. Sterling will weaken slightly, and the current account will drift deeper into debt.

The important point about reviewing the short-term outlook for Europe is that this is really more robust than what we have seen in Europe for some time and certainly very different from the experience over the last decade.

Just a few concluding remarks. The first point is that Canada's economic relationship with Europe is important. It shouldn't be taken for granted. Secondly, the process of European integration, and in particular monetary union, has the potential to make Europe much more dynamic and the European market much more attractive to Canadian business. The short-term economic outlook supports this rather optimistic view. But to take advantage of the opportunity, Canadian business needs to understand Europe better. Ultimately, this is the responsibility of business itself, but I think there are some issues there around the economics of information.

Finally, at the intergovernmental level, Canada and the European Commission need to address a rather long outstanding list of trade barriers and trade irritants. Little progress has been made in the past few years because of difficulties in the overall bilateral relationship arising from the fish wars. But in the absence of a new multilateral round of trade negotiations, it's incumbent on both Canada and the EU to identify other approaches to resolving these outstanding issues.

Thank you very much.

The Chair: Thank you very much, Dr. Barrett.

Next we'll go to Ms. Macmillan, and then we'll have questions. Ms. Macmillan, please.

Ms. Kathleen Macmillan (President, International Trade Policy Consultants Inc.): Thank you, Madam Chair, and thank you, committee, for your invitation.

• 1555

By way of explanation, because you can be forgiven for not knowing what International Trade Policy Consultants is, I thought I'd take a moment to briefly describe my background so that you can understand where I'm coming from on trade policy issues.

I'm an economist by training, and I've written on trade matters for a number of years for the C.D. Howe Institute, the Canada West Foundation, and independently as well. Most recently I wrote with Patrick Grady a book on the next round of WTO negotiations called Seattle & Beyond. I'm plugging my book because not only did Charles talk about the Conference Board's excellent publications, but also, as you can imagine, with the debacle in Seattle book sales are not what we would have hoped.

In terms of actual hands-on trade experience, I spent five years as vice-chair of the Canadian International Trade Tribunal. In that capacity I heard and decided cases relating to countervailing duties, anti-dumping, as well as customs evaluation and classification issues.

My company's primary activity is to provide advice on trade to Canadian exporters and importers. Most of it is in the area of trade disputes, and some of them have involved Europe.

I'd like first of all to applaud you for taking on this important issue, Canadian-EU relations. Our trade relationship with Europe is terribly important, and it has rather got away from us in the last few years, due primarily, I would add, to issues that are beyond our control. Europe represents a very important market for Canada.

However, as you well know, our stake in Europe goes well beyond that. It's a highly influential economy on the world scene, and in some ways Canada is more aligned with Europe than it is with the U.S. on certain issues. A strong and constructive trade relationship with Europe could serve as a very useful counterbalance to our tremendous dependence on the U.S. market.

What has happened to diminish our trade ties over the last decade or so? First of all, the creation of the economic union caused what economists would term trade diversion, and that means essentially that Canadian imports to Europe were replaced with imports from other EU member countries. I know you've seen the figures, which Charles just reviewed for us again, and the deterioration in Canada's market share in Europe is quite striking.

The second negative factor has been the massive subsidies that are provided by the EU's common agricultural policy. Not only have these subsidies shut us out of the European market, but also they have played havoc with our ability to sell in third markets to traditional customers. For example, we used to provide vast quantities of wheat and barley to the U.K. Those days are long gone. Instead, we battle against dumped and subsidized EU food surpluses in markets where we used to have a stake, such as China and the Middle East.

The third factor is that the European Commission has brought regulation to a higher plane than one could ever imagine. The regulation obsession has closed markets for us, such as the canola and the asbestos markets, and has generally frustrated the desire to tackle new export opportunities in Europe.

I've been very unfair to entirely blame Europe for our weakening trade ties, and I won't do that really. Canadian exporters have certainly been guilty of some benign neglect in our preoccupation with mastering the U.S. market.

Where do we sit right now with regard to Europe? Not terribly advantageously. Canada is only one of six countries—the others are Australia, Japan, New Zealand, Taiwan, and the U.S.—that do not have a preferential trade agreement with the EU. Indeed, the only nations that are further down in the preferential pecking order are nations such as Iraq and North Korea. The EU's preferential trade pacts hurt Canada in a number of ways, including by substituting imports from pact countries for imports that would otherwise have come from Canada.

We also face the likelihood that the EU will welcome ten or so new members into its club over the next decade. This will expand the trade diversion that has already hurt us. It could also conceivably contribute to EU food surpluses, which have already cost us so much grief in world markets.

• 1600

So what are Canada's options? One I know that you are actively considering is the formation of a Canada-EU trade pact—or at least negotiations aimed at that. I know the EU has courted a large number of players in this area and has probably shown a lukewarm interest in entering into negotiations with Canada so far. The reason might be that they see little strategic interest in a pact, like us.

The first thing we would have to do would be to get their attention. Assuming that we are successful in doing so, what advantages would a trade arrangement between Canada and the EU provide to Canada? I think the answer is a small, and possibly only temporary, leg up on the five other non-aligned EU trading partners—the U.S., Australia, New Zealand, Japan, and Taiwan.

The political benefits of an EU-Canada pact might be considerable, and in that respect I defer to those who understand these things better than I. I can speculate, though, that the economic advantages are probably not sizeable, because a deal would probably address trade barriers in the form of tariffs, primarily, and tariffs between Canada and the EU are not very high right now.

The real impediments to trade between our two countries are regulatory impediments of various sorts, and it seems to me unlikely that Canada will succeed in having these dismantled where others that have negotiated with the EU have failed in this regard.

Now, on the investment side, again I see fairly little upside that would flow from the formation of a trade pact. There are very few serious impediments to investment between Canada and the EU, and I think the EU firm that is considering Canada as a potential location for investment would look at economic fundamentals like our tax, social policy regimes, the quality of our labour force, etc. These are issues that require made-in-Canada solutions, and I don't think they would be helped along by a trade policy solution.

Most of the reason I'm hesitant on the value of an EU-Canada trade pact is that it wouldn't give us what I term “the big prize”, and that is agricultural trade liberalization. Once the EU does agree to talk seriously about this, I would hasten to suggest that it would not be in bilateral negotiations with Canada. I say this with the greatest respect for our very talented agricultural trade negotiators like Michael Gifford, who do an excellent job, but this is a bigger job than they would ever be able to achieve on a bilateral basis. Our hope in really breaking through in this area lies in multilateral talks at the WTO level.

So should we just sit back and wait for WTO negotiations to bear some fruit? No. I think there are some things that can be accomplished in the interim, on a bilateral basis. I think these are more in the nature of very low-key negotiating initiatives, not big splashy stuff like WTO rounds, but I think they offer some potential nonetheless.

First—and Charles alluded to this earlier—I think we can redouble our efforts to negotiate mutual recognition agreements in a wide variety of industrial sectors. These could be extended to related areas such as customs facilitation, rules of origin, and other issues.

Second, I think we could seek to expand the scope and coverage of government procurement agreements. Both Canada and the EU, as well as individual EU member states, are parties to the WTO agreement on government procurement, but its coverage and scope is rather limited.

For example, I noticed with interest that one of your earlier witnesses had cited Bombardier as an example of a successful Canadian investor in Europe. I guess it's a question of some interest whether Bombardier's investments in Europe were made on their own merits or whether they were made because of protectionist policies that exist in member states with respect to procurement of subway and rolling stock, etc. So are we making investments in some areas in Europe as an alternative to exports that we could be making from our own country?

• 1605

Government procurement is an area where we could make some progress with the EU on a bilateral basis, and I think that should be given some thought.

Thirdly, we can continue to work away at framework issues like competition policy. There are efforts underway at the OECD and in other fora to mutually recognize each other's practices, to cooperate in some areas. This could have a very long-term payoff, because it could allow us to dismantle anti-dumping regimes way down the road, and this is something that is in both our interests.

Finally, and this does not pertain to negotiations per se, I think we need to do some pre-emptive work when it comes to trade disputes. I think there's a disturbing tendency on the EU's part to disparage our production methods in a number of areas and to use this as a basis for blocking trade. I think we really need to better champion Canada's standards in health, safety, environment, and technical areas.

I'm not saying that none of the EU's criticism is warranted or that all of it is a mere guise for protectionism, but the reality is that because of the complicated political dynamic in Europe, consumers can get completely out of control, and the EU commission is left with little alternative but to succumb to fears and concerns in that area. I think we need to do more effective marketing to ward off these attacks before they arise. I think we have very little to be ashamed of in Canada in terms of our industrial, health, environment and safety standards. Indeed, some of the practices that the EU complains about, they employ in their own areas. I think we need to say so and meet some of these unfounded fears and unsubstantiated allegations with hard facts.

In closing, I'd like to wish you the very best of luck in your important work. Our trade relations with an ever-changing Europe are hardly straightforward, but the effort expended in this area has a tremendous payoff for Canada nonetheless.

Thank you.

The Chair: Thank you very much, Ms. Macmillan.

Now we'll entertain questions.

[Translation]

Do you have any questions, Mr. Rocheleau?

Mr. Yves Rocheleau (Trois-Rivières, BQ): Yes, Madam Chair, I do.

I want to thank both witnesses for their interesting presentations. I have a multi-part question for Mr. Barrett.

Mr. Barrett, could you elaborate further on what you said on page 3, specifically: “in that some of our trade with Europe may be through the United States”. The emphasis is on “through the United States”. What exactly does this statement imply?

Further on, you note that “the trends are not encouraging”. Even though you paint a fairly positive picture of what we can expect to see in future in the majority of European countries, with the exception of Great Britain, in terms of levels of economic activity—you mentioned real growth of about 7.5% per in Ireland—you claim that the trends are not encouraging. I'd like you to explain to us why you feel this way.

Finally, you also remarked that “Canadian business view Europe with a mixture of complacency and scepticism”. Could you explain to us what you mean by that?

[English]

Dr. Charles Barrett: Thank you. Those are all very good questions.

My point was, first, that our direction of trade—by “direction of trade”, I mean what percentage of our exports goes to what market—needs to be interpreted with some care, because the numbers are not necessarily what they mean. One of the characteristics of the world economy is that as we have globalized, we have also regionalized. That's true in North America. That's true in Europe. Although it was less true in Asia, it has become true in Asia.

Just to be very specific, the economies of the province of Ontario and the state of Michigan are very heavily integrated—in fact, perhaps more integrated than some parts of Europe, although it's less formally so.

• 1610

So production systems within North America are not Canadian versus American; they are North American in nature. The intra-firm trade between Canada and the U.S. is very substantial—in fact up to perhaps one-third or more of our total trade. So there are all kinds of examples where a final piece of equipment may end up in Europe after having been shipped from the U.S., but will include Canadian value-added, or vice versa.

At a more basic level, because of the integrated nature of the Canadian production process, Canada-U.S. trade includes the same goods many times. Automotive production is the most obvious case. A seat assembly may go from Ontario to Michigan for some further assembly, and then come back to Ontario for final assembly, etc.

In explaining the increasing concentration of our trade with the U.S., what has been going on? The U.S. economy has been growing very rapidly, integration of the North American economy has been preceding the pace, the European economy has been growing less rapidly until quite recently, and, as my colleague indicated, there has clearly been trade diversion as a result of the creation and increase in development of the European community. All of those sort of mitigate against Canadian exports to Europe.

I would simply say that on the one hand one shouldn't be too pessimistic that our trade is becoming more concentrated with the U.S., because that would be the expected outcome. But even saying all of that, the picture emerges that we haven't done as well in Europe as we might have, for exactly the reasons I think Kathleen has outlined.

[Translation]

Mr. Yves Rocheleau: On reading your text, would one be correct in assuming that we are exporting fewer and fewer of our products but conversely, increasingly exporting our capital to Europe?

[English]

Dr. Charles Barrett: The investment relationship is in some ways the more interesting part of the relationship, because it has clearly grown. The question is to what extent that investment relationship has grown in a way that is supportive of the trading relationship, and to what extent it has been a substitute for the trading relationship, because direct investment can be either.

If you take the classic case of Canada a hundred years ago, every small town in Ontario, and perhaps in Quebec, aspired to have an American branch plant. Why was that? It was to jump over the high Canadian tariff. It was investment that was a substitute for trade. More recently, as globalization has proceeded, I think it's well understood that multinationals can be drivers of trade, so investments can be creators of trade. If you look at Canadian investment in Europe, which is it? Well, it's both. Some Canadian investment creates trade, but some is a substitute for trade.

Canadian direct investment in Europe is concentrated in finance and insurance, non-ferrous metals, transportation equipment, and food processing. I would suggest there's been as much substitution of trade as there has been creation of trade, if you look at the specific investments. Part of that Canadian investment has been to have a presence in Europe, because Europe is a protected market.

[Translation]

Mr. Yves Rocheleau: Thank you.

[English]

The Chair: Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): I'd just like to concentrate on two issues. I know the Conference Board has in the past commented on the seeming slowness of our business community to react to new science and technologies, yet it would appear that reticence also exists in Europe. I would place Canada, in its embracing of science and technology, as somewhat more advanced than its European counterparts.

• 1615

Can you see some kind of opportunity there for Canadians? We talk about our growth in the e-commerce industry and how we can get there before them to get a sort of a mass cluster and lower our costs, so other competitors will find it difficult to compete later. How can we use that force in our favour? It's obviously something the European Union is going to need, something they're desiring now. How do you see us sort of facilitating that kind of trade?

Dr. Charles Barrett: Again, those are very good questions. That's a complex area you've raised. The Conference Board has indeed commented about the state of innovation in Canada and the innovative capacity of Canadian business. We think that's a critical issue for this country. If you look at a whole range of indicators, we do not come out particularly well, whether it's the traditional indicators of R and D spending or other measures of innovation at the level of the firm.

I'm not sure I agree completely with you, in terms of your assessment of how we stack up against Europe. I think it depends on which country and which sector. In the area of e-business and connectedness, we are probably ahead of the Europeans. We've done some work in that area that would show Canada behind the U.S. but ahead of most other countries. I don't know if that's the case across the board.

Be that as it may, I think one of the strong reasons for being interested in international business, whether it's trade or investment, is that it is a way, through the competitive process, of encouraging more innovative behaviour. There are opportunities for the Europeans to learn from us and opportunities for Canadians to learn from the Europeans, but a free and open international market, with healthy firms competing aggressively, is exactly the type of environment that fosters innovation.

Mr. Alex Shepherd: Some of the so-called barriers to trade have been physical, and I think those physical barriers are possibly part of the psyche of Canadian business, but because of e-commerce and so forth we can actually get our products into the European markets simply by the click of a mouse button or whatever.

Are we missing out on capturing that trade because of some of the biases we've had over the years about accessing the market?

Dr. Charles Barrett: Well, perhaps. I describe the Canadian business community as complacent on the one hand and skeptical on the other. If you talk to the Canadian business community, they're quite open and ask why they should go to Europe. They have this dynamic big market just a couple of hundred miles away. They understand the culture and the business norms. The regulatory environment is more familiar.

I agree with you that in the world of e-commerce, electronic business reduces distance tremendously, but you still have to answer those fundamental questions. Why should someone go to Europe when they can go to Texas?

Mr. Alex Shepherd: I guess we're sort of nibbling around the edges. Canada keeps seeing itself as being the most connected country in the world, or so one of our ministers says. How can we utilize that asset to maybe capture a market that is less connected and showcase some of our businesses? I don't know what the answer is to all of these things. But it occurs to me when I'm in Europe that businesses are not less innovative, but they're certainly less progressed in the area of using e-commerce than we are.

Dr. Charles Barrett: That could well be. I think overall, telecommunications and communications in general are areas of strength for Canada. So I don't see any reason why they can't be as strong in Europe as elsewhere, bearing in mind some specific regulatory issues. So yes, I would agree with that.

• 1620

I think it's also important, though, to bear in mind some realities about the nature of the Canadian business community. We have a handful of multinationals and they are very successful. We have a cadre of Canadian affiliates of multinationals from other countries, mostly the U.S. but not exclusively, that operate under limited mandates. Then we have a host of relatively small organizations. Many of those are very successful internationally, but by their nature, given their size, they're successful by picking niches carefully. Some of those may be in Europe, some may be in the U.S., some may be in Asia.

Mr. Alex Shepherd: I just wonder if we're losing some opportunities. We have, of course, Silicon Valley North here in Ottawa. I've run into a number of these people, and they don't seem to even think about Europe.

The object of the exercise is to get into that U.S. market. I don't know what governments can do about this in the first place, whether we can expand people's mental horizons to show them there's a great opportunity that they're missing in Europe. I don't know if you have any suggestions for us as to what we could do as a government to promote that.

Dr. Charles Barrett: I think I did discuss the question of the information gap. There is an information gap and I think some things could be done, perhaps by government, perhaps by creating the right environment for the private sector to make organizations more aware of opportunities. That would be true of Europe, but it would also be true of other non-North American markets.

You characterize Europe as not being on the radar screen of Canadian companies. That's exactly the experience I've had, and I've been right across this country talking to companies about Europe. Not only is it not on the radar screen, but the information that exists or the perceptions may be questionable. There is a vague sense that Europe is complex, which it is, and that regulations are difficult, which they sometimes are, but there's not a clear understanding of how Europe works or the distinction between individual member-states and what's done at the level of the commission. So the question is finding a low-cost and effective way of making people more aware of opportunities.

The Chair: Thank you very much, Dr. Barrett.

Ms. Macmillan, I'd like to ask you a question. Can you expand on your recommendation for Canadians to do more effective marketing to ward off the challenges we have in the health, safety, environmental, and technical areas? What more practical advice could you give us on what we need to do in that area?

Ms. Kathleen Macmillan: That's a tough question. My recommendation arose out of a real sense of frustration, because there's a certain pattern that arises when one looks at the trade disputes. There's no doubt that European consumers are much more sensitive towards issues related to health, genetic modification, safety, industrial standards, asbestos, etc. I think the knee-jerk reaction is that every other country, i.e. Canada, has lax, dangerously unregulated standards. We all know that's not the case.

I guess it's almost like a public relations campaign that we could possibly mount through the assistance of missions, through the assistance of industry associations, through participation in international bodies where standards are discussed and developed and monitored. Perhaps we could step up our involvement in that sort of activity to try to combat this idea that we just let our producers run around wild and do whatever they want. That's simply not the case. A lot can be done at the multilateral or plurilateral level through participation with bodies to try to promote the use of scientific standards and what not.

• 1625

The Chair: The reason I ask is that this is the first time this recommendation has come up. It's a very interesting recommendation.

With respect to our trade disputes, one of the questions I asked a previous witness was what can we do to make things better with these trade disputes? The answer was that this is normal, and of course as trade increases, you're going to get more and more trade disputes. Would you comment on that response?

Ms. Kathleen Macmillan: Yes, I think that's the case. Perhaps the multitude of trade disputes is unhappy in one respect. It's good news and bad news. The bad news is that the poor men and women at the Department of Foreign Affairs are running themselves ragged defending Canada's honour in all of these. It's exhausting. There is tremendous potential for panels to come down hard on us in areas that really affect the way we do business in this country. So it's not good in that respect.

I suppose the positive side of it is that it's the first time with the WTO that we have rules that bite. This is a natural process to go through. We're trying to find our level and improve the multilateral regime to the benefit of us all.

I don't think there's a lot we can do to prevent trade disputes. There is perhaps work.... I know the officials at the Department of Foreign Affairs do this. There are consultations on a behind-the-scenes basis to try to ward off disputes arising to a full-fledged panel process level. They work very hard at that sort of thing. I think you've heard from a number of witnesses who have been involved in this kind of exercise. Really the only thing we can do, because we have such a huge stake in the rules-based system, is deal with them and fight them as best we can. It's very difficult to completely eliminate them from our lives.

The Chair: Dr. Barrett, I believe in your paper you also spoke about the ongoing fish wars. How do we move on from the asbestos and the fish wars? These were the irritants. Instead of going over and over these, how do we move forward to try to explore new areas so we're not constantly going back to the same old wars we've had?

Dr. Charles Barrett: My sense of this, my intuition—well, it's a little bit of informal discussion, but mainly it's intuition—is that we are on the cusp of being able to do just that. There's absolutely no doubt in my mind, having talked to DFAIT officials and having actually met the European Commission person responsible for Canada, that this episode had an adverse impact on the relationship, but I think that was some time ago.

The fact that Seattle failed and the fact that both the European Union and Canada have a stake in the success of the multilateral trading system I think creates an opportunity to be somewhat inventive. I agree with Kathleen's comment that if you look at the range of trade issues we have with Europe, some of them can be done bilaterally and some of them can't; they have to wait for a multilateral round, which may take place in 2001 or beyond, depending on what happens with the U.S. presidency and the WTO process and so on. It seems to me that if there were an environment to get on with it and at least to begin talking, it's a more positive one now than it has been for some time. But as I said, that's pure intuition.

The Chair: Thank you very much, Dr. Barrett.

I have been informed that we have a vote. We still have some time. Those are not quorum bells. It seems that whenever we have our subcommittee meeting, there is always a vote. I don't know why.

On behalf of the committee, I want to thank you both very much for coming. You're free to remain. I just have one piece of future business I do want to discuss before we go back to the House.

I have been informed that our trip to Europe has been approved by the Standing Committee on Foreign Affairs. I have spoken to the whip's office and they will push it forward for us. The alternatives are to go at the beginning of June or in October. Certainly there has been a preference expressed by Mr. Speller that we try to proceed with it in June and try to get in front of the liaison committee. The whips will push it to the House leader so that we can all go. We must be prepared to go, so I need everybody onside to go.

• 1630

What are your feelings? Should we do it now? I'd like to do it now. I know Richard Marceau has expressed that he will be in Australia with the international trade minister at the time, but certainly there are other members who could come at that time. Mr. Rocheleau, could you bring that back to your party? What's the feeling here? What would you prefer to do?

Mr. Alex Shepherd: I don't know.

The Chair: I think if at all possible, we should go now so that it's part of the study. If we leave it until October, there will be a bit of lull. Right now we seem to be on a bit of a roll. That's why I wanted your comments.

Mr. Rocheleau.

[Translation]

Mr. Yves Rocheleau: Madam Chair, the message that I've been asked to convey on behalf of the Bloc Québécois is that June is not convenient for us. The fall would be a better time, as my colleague Mr. Marceau has already stated.

[English]

The Chair: We're going to need unanimous consent on this. We don't seem to....

Mr. Shepherd.

Mr. Alex Shepherd: I'm certainly willing to support the chair on the concept of going in June.

The Chair: Okay. Maybe what we need to do is take it to the House leaders. They may make our decision for us, but my sense still is that we all want to proceed. I cannot tell you how many people have reinforced to us the importance of our actually going to Europe. I personally feel it would be a mistake if we concluded this study without the trip.

We'll take directions from your comments. Again, thank you very much.

The meeting is adjourned.