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, March 3, 1999

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[English]

The Chairman (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Ladies and gentlemen, I would like to bring this meeting of the Subcommittee on International Trade, Trade Disputes and Investment to order, please.

We have with us today the Minister of International Trade, the Honourable Sergio Marchi, who is here to brief us on the Free Trade Area of the Americas agreement. The minister has an hour, so I would like to take this opportunity to start.

I'd also like to welcome Kathryn McCallion, who is the Assistant Deputy Minister, International Business, Passport and Consulate Affairs. She was also our chair of the FTAA. Welcome again. Mr. Claude Carrière, Director, Tariffs and Market Access Division is also here. Welcome.

Welcome minister. Thank you for joining us today.

Hon. Sergio Marchi (Minister for International Trade, Lib.): Thank you very much, Madam Chair, and members of the committee. It's a pleasure to be back. As you know, we had an encounter with the full committee last month on February 9 to look at the whole WTO multilateral agenda. I'm very pleased to return this afternoon to perhaps focus and zero in on the reference the subcommittee has graciously accepted, namely the Free Trade Area of the Americas.

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As you mentioned, with me is George Haynal, the assistant deputy minister responsible for the Americas; Kathryn McCallion, our chief trade commissioner, as well as the chair of the negotiating committee for all of the FTAA until our 18-month term has been completed; and Claude Carrière, who will be our chief negotiator for the purposes of the Free Trade Area of the Americas.

I'd like to briefly outline what Canada is trying to achieve in the Free Trade Area of the Americas, where we stand as we speak, and some of the challenges the FTAA community faces. Lastly, I'll speak on the domestic consultations. Then I'd be more than happy to hear your advice and field your questions.

First, what are we trying to achieve? In a few short words, we're trying to capitalize and take advantage of the tremendous success our business community feels the potential of the world of the Americas holds for Canada. I think it needs to be said that Canada has done extremely well in the world of the Americas. Not only do we have a NAFTA deal with Mexico and a free trade agreement with Chile, but our bilaterals with all the countries of the Americas, both on trade and investment, have gone up dramatically.

Canada is well positioned and well regarded. It is seen by many countries as a balance to the United States and the hemisphere. So from a strategic perspective, I think it's in the national interest of our trading interest to be seen to be not only participating, but also leading in the unification of what will be a tremendous region in the world.

From that perspective, Canada will be playing host, virtually speaking, to the Americas. This year, as you know, Winnipeg, Manitoba will see the Pan American Games. In the fall, the conference of spouses of leaders will come to Ottawa. In November, in Toronto, I will have the honour of hosting all my fellow trade ministers from the other 33 countries of the Americas. In 2000, Canada will be hosting the OAS general assembly, and in 2000 or 2001, the Prime Minister will be holding the summit of the leaders from the Americas. I'm very proud, as a Canadian, that we've been able to demonstrate at the front end, not only that participation but that leadership.

As you know, Canada is chairing, and has been asked to chair, the first 18-month period, which began last spring. This will culminate in our chairmanship in the meeting in November of all the trade ministers, as well as the Americas business forum that will be held on November 1 and 2. We have committed all of the countries to make concrete progress by the turn of the century and to complete our negotiations by 2005.

What is at stake, when we say the national interests of Canada's trading policy would be well served, is this can create the world's largest free trade area—800 million people with a combined GDP of $9 trillion. I think the FTAA would position Canada on the ground floor in what clearly will be one of the principal economic areas of our globe.

When we remove the business we do with the United States and Mexico through NAFTA, the region is already a $4 billion export market for Canada, and it's the destination of up to $26 billion in Canadian investment. I would suggest that's already a significant tally, and that's without Mexico and the United States.

Again, the two-way trade of the region, excluding the United States and Mexico, reached $8.5 billion last year. If you look at an FTAA, I think it would offer Canadian exporters and investors the prospects of greater market access for their goods and services, enhanced rules, as well as a dispute settlement procedure, which as we know from our experience with the United States and Mexico is absolutely crucial.

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It should be noted that our exporters still face relatively high tariff barriers in the region, and that's why a liberalized trade regime would be of benefit. For instance, in the automotive sector we face 70% common MERCOSUR tariffs; in machinery, 20% to 25% tariffs in key South American markets; in paper, it's 12% to 16% in the MERCOSUR economies; and plastic goods look at a 14% to 18% range in our key markets.

The FTA would bring down those walls for us, because the walls are already broken down the other way. Countries of the Americas and the Caribbean already face low tariffs in Canada, with many qualifying for a general preferential tariff or other preferential tariff treatment. So in conducting the negotiations, the end game would be very positive for Canadian companies, in that we would be able to penetrate even better than we've done with the current walls of tariffs in place. Ultimately, that would mean more economic activity, more job creation and, quite frankly, more linkages to one another in shaping a community in the Americas.

In terms of the progress to date, one would have to say the process is on track and most members are pleased with its progress. We had a good launch in Santiago last year, with all 34 leaders present. The administrative secretariat in Miami, which is a rotating secretariat, is up and working. It's also being led by a Canadian, Michael Eastman, who was part of our NAFTA secretariat until the FTA accepted his credentials and put him to work there.

In June, Canada chaired the first meeting of the trade negotiations committee in Buenos Aires, Argentina. It established the work programs for all of the nine negotiating groups, as well as the three bodies dealing with some of the broader cross-cutting issues. These groups held their inaugural meetings in September and October. The second round of negotiations, from January of this year until April, are ongoing as we speak.

Last December, in Suriname, the trade negotiations committee held its second meeting and focused on the issue of business facilitation, trying to achieve real progress, with an agreement to concentrate initial efforts in the area of customs, procedures, and harmonization. This committee, which is chaired by the Canadian ADM Kathyrn McCallion, will reconvene at the end of April to examine the work of the individual negotiating groups and will begin to flesh out a package of measures ministers may be able to address and decide on in November in Toronto.

On the whole, therefore, the perspective from the chair is that the process is unfolding as expected and our outlook is optimistic. At the same time, our outlook is also realistic because we also know there are a number of challenges that face the FTA community as it embarks on this very exciting journey. Let me touch on a few of those challenges.

The first one that is talked about often enough by all the experts and political folk is the lack of U.S. fast-track authority. I've been saying, and I repeat today, the fact it is not there, for me and our government, is not yet fatal to the process.

We've been able to establish considerable progress and momentum. We've set up all of the working groups, and the business of beginning the process is well in hand. However, it is also the feeling of most countries that at some point fast-track will be needed, and the sooner the better. Otherwise, if it's left too long, the FTA train can slow down. I don't think it will stop and I don't think it will go off track, because this is something bigger than simply one country's lack of fast-track or having fast-track. But clearly no self-respecting nation will ever negotiate twice. They'll do it once, they'll do it properly, and they'll do it when the United States clearly has fast-track authority.

Many say it is improbable that fast-track will come during Mr. Clinton's administration. Maybe they're right and maybe they're not. Maybe there's also a situation where both the Republicans and the Democrats in the United States, after the chapter that we've witnessed for the last number of months in Washington, will be in an overcompensating mood to show the American people that the business of the people can be done and that maybe fast-track can be one of those issues that can rally bipartisan support. Should it not be forthcoming, we will simply have to work our way around that, both in the FTA as well as in the agenda of the WTO.

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The second issue is on business facilitation, and here the aim is straightforward—that is, to try to make the conduct of business across the hemisphere smoother and simpler. The bottom line is that it should be as easy for a firm here in Ottawa to do business in Santiago as in Miami. Our chief negotiators have had successful first discussions around proposals for reducing red tape and for addressing other costs of doing business in the hemisphere and trying to focus on simplified and harmonized customs procedures. We're looking at making this a theme of our Toronto ministers meeting in November. It is something we feel strongly about, because clearly we want to get the trade policy right on the FTA, and there are many issues to square the circle around. But we also want to make sure that on the ground, on trade facilitation, where the proverbial rubber hits the road for Canadian businesses, that also will be facilitated. Sometimes if you've got the policy right and the trade facilitation wrong, you don't get the benefits of trade, because people will be handicapped by red tape or regulations or customs that are dysfunctional rather than coordinated.

The third issue is the disparity in size. This is something that is central, because you have countries like the United States and Brazil, which are large, and you have some countries in the Caribbean like Trinidad and Tobago, of one million people. So how do you square the circle on the discrepancy, not only in size between the partners but also in different economies? Some countries in the Americas rely on tourism overwhelmingly, while others like the United States and other countries are very sophisticated, modern economies. That's why we have a special group on the smaller economies, because I think the goal of Canada firstly is to not leave anybody behind, dictated by size. And secondly, through our experience with the United States, where we are ten times smaller than the American economy, we are certainly going to talk about our relationship and success story based on the establishment of trade rules as well as an independent way of arbitrating those disputes not by the size of the participants but by the facts of one's appeal or of one's story.

The disparity in size is something that I think is crucial, as well as trying to assist the smaller countries in building the institutional capacity to be able to negotiate how to set up their negotiating as well as consulting—and countries have asked us about our SAGITs—and then how to take advantage of whatever is negotiated. So the building of the capacity of some of these countries is also a challenge, and hopefully an opportunity.

The fourth area is the kind of impact that global financial markets will have on the speed and tone and shape of the negotiations of the FTA, not only internationally, but closer to the Americas' home. A lot of attention is being paid to how Brazil is going to manage its financial house and how that can impact on the negotiations, given that I believe the Brazilian economy is responsible for something in the order of 60% of the Latin South American GDP. From our perspective, these financial challenges only make the case for liberalized trade, rather than undermining. If people are concerned about the financial markets, they're not going to be seeing a solution by erecting barriers or by trying to escalate the walls of the tariffs.

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I think the answer we are certainly pushing is that openness and transparency of those financial markets will be aided by more liberalized trade and commerce rather than being handicapped by it. Canada's view is that there is a challenge to resist the demands for a more protectionist, insular, inward-looking response to some of these financial challenges and to try to demonstrate the benefits to be gained by continuing a path of liberalized trade, whether the fluctuations of the marketplace are positive or negative.

The last area of challenge would be that the participation of the entire civil society needs to remain a priority. From our perspective, it is crucial that we conduct these negotiations in an engaged, open, and inclusive way.

Negotiating a 34-country agreement is not a simple task. It is going to be challenging. But the upside of negotiating a free trade agreement among the 34 countries of the Americas is hugely positive. We've got to make sure—and this is a position Canada has advocated consistently—that as we start that seven-year journey, we've got to keep our peoples informed. We've got to promote the reasons why we're doing this and how this will benefit them and their families. I think there has been a challenge, in that some of the countries of the Latin American world have a culture where governments do the exclusive talking, deciding, negotiating.

Clearly, at the end of the day, negotiations are between sovereign governments. But ultimately, our position has been that this is also more than just a trade deal. When we're locking arms with 34 countries, we're really talking about more than simple trade matters. We need, therefore, to include our peoples and we need to have them buy into the process while we're doing this journey rather than excluding them until the journey is done. That is why, with the support of the United States and others, in Costa Rica we established a civil society committee. We feel that, yes, it's incumbent upon individual countries to do their own consultations and engagement in their own homes, but ultimately there should also be an overarching civil society engagement to the entire FTA initiative. That's why this committee was struck. The invitation was extended for people to give their submissions by the end of this month so that we can also prepare the ministers when they convene in Toronto from the perspective of what some of these groups around the FTA world have thought.

This is a productive first step, but the committee still needs a permanent chair to this committee that we're trying to put in place and a broader mandate that at some point includes direct interaction with the non-governmental organizations. The challenge here again is to bridge the culture gap, to say that each country operates in a different way. Many countries in Latin America have come an extremely long way, and we shouldn't lecture them exclusively about the final yards to the goal line, but we should also recognize where they started from and where they're at today. Ultimately we should say to each other that if we believe in an FTAA, we also have to begin to share common positions and common values and begin to bridge perhaps the differences that do exist in terms of our viewpoints. I would suggest that the area of civil society is one of those areas where we still have some work to do to bridge the gap. Then again, this is a seven-year journey, and I'm happy that we're talking about these issues in an open and candid way with fellow ministerial colleagues.

The last point is on domestic consultations. I suppose there is no more effective way to discuss the engagement of peoples from the 34 countries under an FTA than to do it in your own home and to do it early and to do it properly. That's why I'm particularly gratified and complimentary of the initiative of this subcommittee as one important tool with which to engage Canadians on their viewpoints about an FTA as well as perhaps their difficulties in any of the areas or sections.

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I think this is an important initiative in trying to bring Canadians up to speed as to what the FTA means, why it is in the interest of our country to do it, and where the areas of concern are on which we need to mobilize a national consensus and awareness. That's why I think your work, Madam Chair, is very important. I also think that's why the government has issued a gazette notice seeking broad-based public input on both the WTO as well as the FTA negotiations.

We will also undertake stakeholder consultations with various organizations in the spring. I believe on April 26 we will be having a meeting of the major NGO groups across the country. Other organizations will be doing their part. For instance, the Council of the Americas is helping our government to organize an Americas business forum this fall. At the right point as well, we're going to ask our SAGITs, our sectoral advisory groups on international trade, to become active as the work in the negotiating groups becomes more active.

What we want to do is not only address it from one perspective, but to have various means of engagement and outreach, yours being a very principled one. And I look forward to receiving the final report so that we can reflect that not only in our strategy as a government approaching the negotiations, but also in process and style with how we deal with one another at the table in November and beyond.

In conclusion, Madam Chair, let me say that our government is firmly committed to the Free Trade Area of the Americas negotiations. I think it's a unique opportunity. The fact of the matter is that the dreams of uniting the Americas has lived in the folklore of the Americas for many, many years. We have an opportunity now to bring it one step closer to reality.

I also feel it's going to be the latest rendezvous with the Canadian identity, because how we trade is also a function of how we see ourselves in the world. Our roots began in Europe. We then developed a tremendous commercial relationship with the United States. We then discovered our Pacific side of our Canadian identity in a national way beyond British Columbia. And now I think Canadians, especially our business community, are very bullish on Latin America. We will capture the imagination of the north-south of this hemisphere.

I think you can envision three strategically significant regions of the world—not exhaustive, but three significant ones: Europe, Asia, and the Americas. Canada is a member is two of the three clubs, with deep roots in the third. Strategically, looking down the road, I think Canada will be well positioned to make its firms competitive and to create the economic dynamism that all of our people in all of our ridings have every expectation to have, be it from the governments as well as the leadership from the private sector.

Thank you.

The Chairman: Thank you very much, Minister.

We'll open it up to questions. Mr. Penson.

Mr. Charlie Penson (Peace River, Ref.): Thank you, Madam Chair.

I'd like to welcome Minister Marchi and the panel here this afternoon to kick this free trade for the Americas off in terms of the committee going out and travelling across the country to hear representations.

We too think that it's an excellent opportunity for Canadians. I look forward to some day being part of the hemispheric trade agreement. However, Mr. Minister, when you talked about being realistic, I think we have to do that. This may be a longer process than we actually are talking about at the moment, but nonetheless one worth taking.

I noted that you talked about the need for more liberalized trade and commerce and the need to resist protectionism. I think that's very important. One of the reasons I think this may be delayed, as you mentioned, is we probably won't have a fast track out of the U.S. Congress for a while.

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In addition to that, you are probably aware that there's a mood of protectionism in the United States that's percolating again. It seems like it's always there to some extent, but we have to overcome that if we want to develop this concept of free trade for the Americas. I know our agriculture committee just came back from Washington, and they tell us that Senator Lugar and Senator Baucus, amongst others, are complaining about Canadian protectionism as well. That doesn't help foster this mood we need of cooperation to develop the free trade agreement. We have things like Bill C-55, the Canadian Wheat Board, and the supply management sector with 300% tariffs in Canada.

So we have some work to do in our backyard, and it seems to me that those things act as barriers to our advancing this cause. If we really believe in trade liberalization, I suggest we have some work to do here at home as well.

Also, there's a need for realism, especially with Brazil. We have to foster better relations with them. We have the dispute on aerospace, but they are also in some difficulty these days with their own economy, so that might set things back. They're the biggest economy in South America and that has to be recognized.

One thing I would like to see is that in this waiting period, while we're trying to tread water waiting for fast-track, some work would go on, but essentially it seems to me that until we get fast-track, nobody is really going to put a 100% effort into this. But it seems to me that someday this is going to happen and Canada has to be prepared.

One of the areas where I think we need to prepare ourselves, by helping young people to have the opportunity, is by working with colleges, the provinces, the universities, and business schools, to develop some Latin American programs to prepare them in terms of language training and business culture, to have them ready when this does come about and we are ready to take advantage of some of these opportunities.

I'll leave that with you, the challenge of fixing some of our own problems at home that are inhibiting our ability to negotiate credibly.

Mr. Sergio Marchi: I think you raise many relevant points. Charlie. The first one is the fast track. Clearly I distinguish between what is fatal and what will be delayed. Clearly we're certainly not in the first, and I think if we don't have fast-track until the new administration, then I think it certainly can cause the FTA train to slow down. One can also argue that through the natural course, if you have a journey that started last year and completes itself in 2005, perhaps the tough negotiations won't realistically start until 2002 or 2003 anyway. So as long as we don't allow, politically, the lack of fast-track to derail the process at the front end, I think the FTA process will be okay.

We also have to think that in the Uruguay Round the Americans didn't have fast-track until well into that round. So things are possible.

Mr. Charlie Penson: It took seven years.

Mr. Sergio Marchi: Yes, but we have a seven-year journey here too.

I take hope from the speech Mr. Clinton made last week, where I thought it was a major attempt to try to provide leadership politically to see the benefits of an America that is engaged and outward-looking rather than kowtowing to those who wear, as a badge of honour in Congress, the fact that they don't own a passport and they've never travelled, which doesn't only say “America first”, but it communicates a message of “America only”, which I think is a dangerous signal in terms of inwardness.

So I think Mr. Clinton had the right approach in making that speech. We're still hopeful that there could be a bipartisan solution to fast track. I don't think it's a problem only with the Democrats. I think you're right in saying that this is a bipartisan problem looking for a bipartisan solution, because there are increasingly a number of Republican congressmen and senators who are making protectionist speeches and threats as well.

No one house is perfect, so I'm not advocating that we should be throwing any stones. I'm not going to be as defensive about it as I think you were, Charlie, in that 95%-plus of our trade with the United States is problem free. Forty percent of our GDP is based on exports. When we add imports, 77% of our economy is export-import oriented. So I think we've proved that we are not only prepared to trade, but we're also prepared to respect the rules of the game.

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We can get into some of the items you've mentioned, which will probably trigger another debate, but I think Canada, while we can always learn, has also exposed a number of lessons in terms of being prepared to live in the international community, to make our gains and absorb our lumps, not to retreat but to keep going.

On Brazil I agree with you. I mentioned as one of our challenges that there's no question people are concerned and hopeful that Brazil will come out of its financial challenges in a strong and fortified way. Otherwise, we would argue, there would be more of a cost to the FTA. But I think it was Mr. Kissinger who said at the World Economic Forum, and he put it so well, that if you're an aspiring, ambitious politician in some parts of Latin America and you want to raise a national fever pitch, do you argue the merits of free trade or do you argue passionately against it, using sovereignty issues?

So the challenges are clearly there. I think it's going to be a long road. There are going to be ups and downs...as long as we're committed to the end mission.

Lastly, I think you're right about your reference to our youth and the whole issue of language—Spanish—and of business cultures in Latin America. I remember when Japan was at its height of economic power, how much that also affected our kids in terms of picking up Japanese and learning the Asian culture as a function of having to deal with the new Asian tigers.

I think that's a good recommendation because it speaks of education. When you talk of the new economy, education and training are its raw resources. So I think you make a good point that we should also see how we can bring this in as part of the FTA process, which I think Lloyd Axworthy, on the agenda of the foreign ministers, attached to the FTA agenda as of the launch last year in Chile....

Mr. Charlie Penson: I have a short comment.

The Chairman: Very short.

Mr. Charlie Penson: We don't want to get into a debate today, and you suggested I was being a little defensive. Essentially what I'm suggesting is that we show leadership. Other countries in the hemisphere are looking to Canada to show leadership in trade and investment liberalization. Some of those countries have hardly been market economies very long, and they are looking to Canada for leadership in this area. All I'm saying is that when we want access to their markets, we have to in turn provide access to ours. If they really do believe in liberalization, let's work on it as hard as we can at home to make sure that we also provide that.

Mr. Sergio Marchi: Charlie, I agree with you. When we look at the tariff rates, for instance, we clearly have shown leadership. The FTA would enhance our position much more, because, in comparison, in most of the sectors I've talked about, the tariffs are almost non-existent coming into Canada. So we're not complaining about it in terms of picking up our marbles and walking away. We're actually trying to promote that as one of the real gains Canada has to make, both within the Latin American world as well as in the general world of trade and commerce.

Mr. Charlie Penson: We still have some 300% tariffs here too, remember.

[Translation]

Ms. Monique Guay (Laurentides, BQ): Good day, Mr. Marchi.

Mr. Sergio Marchi: Good day.

Ms. Monique Guay: We meet again to examine another matter; we got to know each other on the Environment Committee. Since I'd like to ask several questions, I will put them quickly. Please answer briefly so that I'll have time to ask them all.

Mr. Minister, as you know, the general objectives for the negotiations concerning the Free Trade Area of the Americas mention that the Negotiations Committee should offer options that would help facilitate the inclusion of small economies.

How will you be able to include countries like Nicaragua or Honduras, whose economies were largely destroyed by Hurricane Mitch, and how will they be able to compete economically with ours? How could the Free Trade Area of the Americas make a positive difference, given the situation in which they presently find themselves?

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[English]

Mr. Sergio Marchi: It's good to see you at the trade table again, because we did enjoy discussions in the past on the environment, when you were the critic and I was the minister.

On the small economies, that's precisely the reason we established a specific working group. I think the small economies instinctively knew there were going to be particular challenges related to size. Hurricane Mitch clearly didn't help the situation, and Canada certainly pitched in, together with the rest of the international family, to try to help our brethren in that part of the world.

I think we'll also have to listen to the working group. As a minister coming from Canada, I don't want to be saying that this is the issue for the small economies or that these should be their concerns. I think everybody wants to hear from the working committee in order to find out what the important issues are? Is it a question of phase-in? Is it a question of institutional capacity? Is it a question of different tariff rates for the different economies? What is it about size that is of concern to them? Hopefully they can make a pitch to all of the 34 countries, and if they're as interested as we are in moving as a family ensemble, then we will be sensitive to the discrepancies in size as well as economy.

That's something I don't want to prejudge, but hopefully by the time the ministers come to Toronto in November we will have heard from these committees in terms of the first round. We can then decide what we want to do with the findings of this particular committee.

[Translation]

Ms. Monique Guay: According to an article that was published in the newspapers in May, culture will be on the table during the negotiations. Can you confirm this and tell us how Canada will approach the issue of culture during the negotiations?

[English]

Mr. Sergio Marchi: We will certainly approach culture at all the tables in a very consistent way. As you know, in terms of our agreements with the Americans and the Mexicans, culture is through an exemption. At the MAI table, when that table was still kicking at the OECD, we were working for the same exemption, whether it was for individual countries or all countries of the OECD. At the bottom line for Canada, that meant an exemption nonetheless.

We now have a SAGIT report on trade and culture that was just submitted to us a few days ago. I think they've done some very good work and good thinking, and I'm appreciative of those efforts. We've relayed it on to the mother committee, to the larger committee, to be included as part of its WTO reference. There, they're talking about having an international instrument—they haven't decided whether it's at the WTO or at the UN—that would begin to say what the rules of trade and culture will be. Personally, in my discussions with other ministers or the director general of the WTO, I've certainly been advocating that. Given that we've done trade and the environment, trade and labour, and given that agriculture is going to be difficult, I think it's time we also approached the whole issue of culture.

So we're not going to deal with culture any differently at the FTA table than we've been dealing with it until now.

[Translation]

Ms. Monique Guay: Are there plans to introduce rules of origin so as to prevent goods coming in through a country having lower tariffs and then being sold in our own market?

[English]

Mr. Sergio Marchi: There will be, but perhaps you might want to hear from our chief negotiator to just give us a sense of what discussions have been taking place on that.

[Translation]

Ms. Monique Guay: Go ahead.

Mr. Claude Carrière (Director, Tariffs and Market Access Division, Department of Foreign Affairs and International Trade): All the countries have agreed that there will be rules of origin. One of the characteristics of a free trade agreement is precisely to establish rules of origin specifying which countries will be entitled to tariff preferences.

Ms. Monique Guay: Because of the tariffs that will be different, there will have to be a balance somewhere to prevent them from going...

Mr. Claude Carrière: Exactly. That will be part of the negotiating process.

Ms. Monique Guay: Thank you. Madam Chair, I'd like to ask one final short question.

You mentioned strong regional blocks, which is what the Free Trade Area of the Americas would be. Would not the building up of strong regional blocks perhaps cause us to focus less on multilateral liberalisation? In other words, is it not dangerous to create three regional blocks, namely Asia, the European Union and the Americas? I'd like to hear your views on this.

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[English]

Mr. Sergio Marchi: It's an interesting question, because people raise it in the sense of whether regional trade is complementary to or contradictory to the WTO. I, and certainly our government, see it as complementary. It's complementary because I think the rules and the dispute mechanisms of the WTO are going to be exported to these regional trade agreements. I see that as a complement because we will be using the same trade hardware, if I can call it that.

Secondly, in terms of where our people are, I think it's very attractive, because sometimes the WTO is far removed from the lives of ordinary people, whether that's in our country or in others. Sometimes it's intimidating. But when people see a NAFTA, the agreement with Chile, the free trade agreement with Israel that has gone up 30%, or an FTA, I think they can define things better. They see something in action; they see it up close. So I think they not only end up seeing a regional trade agreement as a benefit, but it also helps them put into perspective and define what a WTO is all about.

Lastly, there's nothing wrong with building regional communities. I think it's natural. We do 80% of our trade right now with the United States. Italy trades 70% with Europe. What does Brazil trade with MERCOSUR? It's a high number. What does Singapore trade with Asian countries? It's also a high number. So it's a natural phenomenon. We shouldn't get depressed when we read some things—you know, oh, my goodness, we're trading too much. As long as we're building these communities and we have a bridge between this community and other communities around the world, I think we will be able to have our cake and eat it too.

[Translation]

Ms. Monique Guay: By the way, Mr. Minister, as you know, I'd like to point out that Quebeckers, like the Bloc Québécois, are very much in favour of free trade. They're already strong free trade supporters. I hope we'll be able to follow what is happening in the case of the European Union and learn from what they do right and wrong so that we, for our part, can better make our way under this free trade agreement. Thank you.

The Chair: Thank you, Ms. Guay.

[English]

Mr. Sergio Marchi: In response, I was going to say that I'm not sure what the comment or the advice is. I hear trade and politics being mixed. Insofar as Quebec is concerned, Quebec has certainly had a tradition of being very much in favour of liberalized trade. I remember the debates from ten years ago. They certainly took a position that they saw benefits to liberalized trade in terms of the European Union. Certainly Canada and the Europeans have an action plan.

In terms of North America and Europe, I also believe more of our discussion should embody more of a North American clothing. That is to say, I think we have the best brand name anywhere in the world. When we say Canada or show a Canadian lapel pin, it certainly opens smiles and doors. But what I'm saying is that when we're in Europe, I think it sometimes can pay to have a North American position. That's why I've been advocating that our action plan as a country, and the Americans' action plan with Europe, and the Mexicans' plan, should also be combined.

I've been talking about convergence. Ultimately, if we don't converge, I think the advantage will be to Europe, given that they can play one of the three countries off the others. So vis-à-vis the European Union, we'd certainly like to talk about that convergence, and we'd also like to make sure that while we're building the Americas, we build a bridge to Europe. Europe is fast-tracking Mexico for a good reason. The Europeans see what's happening in Latin America. If Canada, the United States, and Mexico are building a NAFTA community, we shouldn't allow Europe to play one of us off the others.

[Translation]

The Chair: Mr. Bachand.

Mr. André Bachand (Richmond—Athabaska, PC): Welcome, Mr. Minister. I'm happy to meet you. Before getting into the question of the Free Trade Area of the Americas negotiations, I'd like to ask two or three short questions on another subject.

First of all, I'd like to know what's happening with regard to the complaint at the WTO regarding asbestos and France. As you know, for 11 years I was the mayor of a town with the name of Asbestos. So I have a particular interest in this issue.

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When, on the weekends, I see workers who are wearing protective suits taking the asbestos out of government buildings, I once again wonder how serious the federal government is when it defends asbestos in different parts of the world.

My second question concerns Bill C-91. As you know, the European Union is considering, if it has not already done so, bringing a complaint concerning pharmaceutical patents to the WTO. You have undoubtedly received correspondence on this subject addressed to your office. I'd like to know your department's position on this.

There will always be an interest in trying to expand constantly the free trade area. I'm a member of a political party that has always been in favour of this. Since the signing of free trade agreements with the Americans a few years ago, and with Mexico and Chili, what are your views, observations and comments on the effects of this free trade on human and environmental issues in these countries as well as in Canada? In your opinion, have these free trade agreements contributed to the improvement, stagnation or degradation of environmental and human conditions in the countries that signed the free trade agreements? It's an important consideration.

You're a very good promoter when it comes to money and trade, but we should not forget the human dimension. I'd like to know how your department assesses the human and environmental situations in these countries. I know that these are issues of great interest to you.

Increasingly, we are realizing that certain countries with which we do business may, at some point in time, violate certain fundamental rights, especially those related to human persons, but also environmental rights. Is it conceivable that future continental free trade proposals could include a more rapid and more effective sanctions mechanism, rather than waiting for the UN? Would a group of free-trading partners—and I'm not referring to a group of people who trade their partners freely, like the one that was in the Montreal newspapers recently—could such a group adopt a mechanism for immediate sanctions to ensure that countries comply with certain basic standards?

Will we be discussing the issue of a common currency with the countries of the Americas during the seven-year period?

I'd like to ask other questions, should there be any time remaining.

[English]

The Chairman: Thank you.

Mr. Sergio Marchi: Thank you, André.

On the asbestos, I appreciate your interest as well as your experience. Right up until the moment we brought it to the WTO, your insights were quite valuable to me, and I'd like to thank you publicly for that.

We have brought the matter before the WTO. As of the last briefing, a panel has not yet been struck by them. We're still, I think, experiencing some lethargic moves on the part of the Europeans in striking these panels. We'd like to get on with the panel discussion. I also had an opportunity to meet the new minister of trade for the Province of Quebec, where the asbestos industry is found, and he was quite pleased about the cooperation between the two levels of government, federal and Quebec, in bringing the best possible advice and strategies to the table. So, again, the panel hasn't been struck. We look forward to the panel starting soon, hopefully, and then trying to clearly make the best case we possibly can for the asbestos industry.

We all know that when you go to a panel you can either win or lose, but we tried the negotiated route for a considerable time, I think, because we wanted to exhaust those opportunities with both the French and those in Great Britain. I think there comes a time when you feel that route has not produced and that we owe it to the industry to finally arbitrate this, as the industry has been requesting the Government of Canada to do, and that's what we're doing.

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On the pharmaceutical issue, again we've asked for a panel because the Europeans make the allegation that somehow our generic drug industry is contravening the trade and commerce of pharmaceuticals. We do not share that view, and therefore we are obviously going to be putting our case before the panel in determining that situation as well.

On the issue of environment and human rights and whether trade stagnates or ameliorates, I think clearly the answer is that in terms of trade and commerce, bringing down walls and building bridges between peoples is always going to be the preferred route, rather than trying to preserve and protect the isolation of countries and peoples from the outside world.

We also have to say openly that trade will not be the exclusive answer to environment, human rights, or labour problems. I think instead it could be seen as part of the overall solution. Clearly, if we are to put the whole burden of all of those main society issues on the shoulders of simply trade, I think not only is that unfair but also we're not going to be getting the kinds of solutions we seek. That's why I think we need to say that.

We talked about engaging civil society and trying to raise standards, and in fact our business community, both big business and small, is always pushing the file in terms of greater standards whenever they do business around the world and whenever they come on missions with us. Many of our companies in many parts of the world jump a higher bar than is required by the local governments, because they know that once you are in a global economy and you want the corporate image of yourself to be positive, you can't have good environmental practices in Canada and lower performance standards in another part of the world. Otherwise, your corporate label and the brand name called Canada will suffer. That's why I think our Canadian companies have done very well. We're also discussing with them how we can codify better the whole practice of using high standards, best practices, codes of conduct, business ethics. I think we're certainly progressive on that front.

When we talk about engaging civil society, it's in the context of an FTA where I think those issues are important for the following reason. It was Speaker O'Neill who said that all politics is local, and he was absolutely right, and I think as politicians we know that. But so is trade. Trade is no longer just this international, abstract, far away thing. Trade happens in your community and mine. When you and I go down to an industrial park, we can go into any factory and be pleasantly surprised to see how many workers are working on a contract that is based on trade and investment outside of our country. When our kids leave school, many of them will be working in a capacity that will bring them in touch with a place outside of Canada.

So trade is local, and as trade is local, domestic policy, trade policy, and foreign policy all converge. That's why I said to my Latin American counterparts, you can't be indifferent to domestic policies with regard to environment, regulatory, or labour issues, because if trade is local and if it mixes with the domestic agenda, we can't simply give them the back of our hand.

We can't take it all on our shoulders. Otherwise, we'd put foreign ministers, industrial ministers, and finance ministers out of work. Trade ministers then can run the world. I don't think they are. I don't think they should, but I think we should be part of the solution. That's why I think we should accept our share, and that's why in NAFTA, for instance, we have an environment and labour side agreement. I think that is more a thing of things to come than the exception to the rule.

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In terms of the common currency, I certainly will accept a common currency as long as it's Canadian dollars.

The Chairman: Thank you, Minister.

Mr. Calder, and then Mr. McCormick.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Madam Chair.

Roy is here from the Standing Committee on Agriculture—the tag team all the time.

Minister, as you know, last week the Standing Committee on Agriculture was down in Washington for four days, and at that point in time we had a chance to meet with the congressional chair, Larry Combest, and Senator Dick Lugar, whereby we voiced our concerns about a number of things, Canada being one of the biggest consumers of U.S. products. The figures we quoted to them were that Canadian citizens consume about $216 in U.S. products a year, whereas U.S. citizens consume $31 in Canadian products each year. So there is a huge disparity there.

We also voiced to them the fact that the latest Angus Reid poll finds that Canada is 10 years ahead of the United States in subsidy reduction.

Now, when we were talking to them, one of the things we did hear down there in our questioning was that the possibility of section 301 fast-tracking would have a better chance of getting through if it were part of an omnibus bill. If it's a stand-alone one, the chances of it going through diminish greatly.

One of the other things was that they had their agricultural outlook forum while we were down there, so we attended one of the receptions that night, and we found the undertone that's there right now seems to be a lot of concern about vertical integration in the United States. And that goes not only for the farming communities working their way up through, but also within the political community, which was something that warmed my heart, being a supporter of marketing boards.

The other thing we heard back from them was what you were talking about, a North American position versus a European trade position, because of the beginning of the eurodollar. It's something they're watching right now, and they're wondering whether or not the eurodollar is the first step toward a European trade position, which is something you might want to comment on.

The final thing we voiced concern to them about was labelling—point of origin. We were questioning them on how, for instance, if we ship cattle down to their processing plants in the United States, they can differentiate American cattle from Canadian cattle when it goes through. Is this in fact just another way they're putting a tariff in place, when we can't put an impediment to our trade with them?

Mr. Sergio Marchi: Let me say, before addressing Murray's question, that my officials corrected me, and they're right. I mentioned that an asbestos panel had not been struck. An asbestos panel has been struck as of late last year. What hasn't been chosen are the panellists. So I should correct myself, because I mentioned that I thought the Europeans were playing with a panel. The panel has been struck; they're playing with the appointment of the panellists. The panel on the pharmaceutical patents was established at the beginning of last month. So it's the panellists we don't have. But if you don't have a panellist, you don't really have a panel anyway.

So, back to Murray.

I'm glad the committee did visit Washington, because I think one of the things we need to do with the United States—as I think we did the time a number of their governors got up on the wrong side of the bed and stopped our trucks—is to make sure they hear from Canadians about the facts, and not the fiction that is easy to generate, on both sides of the border, may I say. So one of the things we were able to do is, firstly, not go to the table until the trucks were moving again. When we did I think we were able to put our cards on the table.

I think the next phase in the agricultural relationship between our two countries that has been a source of that 5% irritant, if you will, is to begin to bring not only ministers to ministers and members of Parliament to congressmen and senators, but hopefully begin to bring our stakeholders to stakeholders, because there are a lot of myths circulating. I would feel much more confident if I knew there were enough tables where a Canadian farmer is looking into the eyeballs of an American farmer and really explaining what the heck is going on in each other's constituencies, because it's fair to say that both are hurting. And it's important for each of them to know that is the case, that somehow, one or the other is not laughing all the way to the bank these days. I think it needs to happen, because clearly people sometimes don't believe their elected governments and they would perhaps much rather deal with those who are involved in the business of putting food on the table seven days a week through agriculture.

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The other thing I think it would do—and this brings me to the point you made—is it would perhaps strengthen some solidarity in the North American community, vis-à-vis the kind of subsidy war we're seeing with the Europeans. That would be beneficial, because all of a sudden we wouldn't be fighting each other; we'd be working with each other and trying to put together a brief that has a larger breadth than simply the last press release issued by each government or farming group.

I think the European subsidy—I suppose I've said it before—is a policy that is unsustainable over the long haul. You look at Poland coming in on 2002. When we visited Poland with the Prime Minister, they talked about their seven million farmers. I don't know. This is going to blow the cap on CAP.

So over the long course, I think the European subsidy game is simply unsustainable for Europe, as well as insanity for the rest of the world, where Canadian farmers get caught in that battle. How then can Canada, the United States, and other countries build common ground against the use of subsidies?

We were heartened also by the Vice-President of the United States making a major speech on reducing subsidies 100%. I hope they do hold the line on that, and while they're at it, they may also take a look at their trade remedies. If you're going to cut 100% of the subsidy, then maybe they should listen to some of the Canadian speeches we've been making over the years on trade remedies. That's why we're going to be an observer, I believe, at the challenge by the Europeans at the Americans' 301.

On the euro, I think in the early days the euro has worked well. It will be interesting to see what that will do for our trade as a country. Will it offer more opportunities, given that in theory the expenditures of doing business in Europe will go down as a result of the euro coming on stream? To what degree will other countries use the euro for their currency reserves? Our dollar has gone up at a certain point because of the American dollar depreciating in the face of the euro. I think the euro is also, beyond the monetary significance, a tremendous statement on European maturity and stability.

Personally, I've always thought the euro would do better than the skeptics who I think thought it would go down. I also think that Great Britain sooner rather than later will be part of it. I think it will become a reality, and we will need to deal with that. And hopefully Canada will see an augmented trade, rather than a tougher trade, because of the advent of the euro.

The Chairman: Thank you, Minister. I know you've given us an hour. I just have a couple of more speakers. Do you have 10 minutes you can still give us?

Mr. Sergio Marchi: Sure.

The Chairman: Thank you.

Mr. McCormick, you had a short question.

Mr. Larry McCormick (Hastings—Frontenac—Lennox and Addington, Lib.): Thank you very much, Madam Chair, and Mr. Minister and colleagues.

To pay tribute to your officials, I think we did have a very successful, educational learning experience and a good exchange on our trip to Washington, D.C. Officials, including, I think, each of these present, briefed our five-party committee for several hours at different occasions, and it was very useful.

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I'm glad to hear a lot of good comments here, and it's a great learning experience for me, like my colleague across the table here talking about education, and it makes me think of one of my favourite stories I like to tell to show how our country is shrinking.

It's a fact, an accepted fact, in the United States that English will become the minority language in North America in the year 2023. You could win a glass of grape juice on this, but the key phrase is minority language in North America in the year 2023. Now, there are only one or two redneck areas left in Canada—it certainly wouldn't be in my riding—where they swing at you thinking you're shoving some other official language down their throat, and then you remind them that already Spanish is number one in seven states, probably eight as we talk.

Several congressmen that we met...you know, there's room for us to work together with the Europeans in regard to trade and room for us to work with the Americans on the beef and some of the competition and unfair trading walls put up by the Europeans. Canada will be a leader with these small countries.

I'd just like to make a comment when I have the opportunity. It is interesting to hear Congress people say they were in favour of our Wheat Board because they've investigated it at least twice officially and found nothing wrong. They didn't say it was perfect, we didn't say it's perfect—it's now being given over to the farmers—but the fact is it is an organization where they know what they have and what will be there tomorrow.

I just want to put another thing on the table. The American Farm Bureau Federation, the largest organization of farmers in North America, mentioned the trucks crossing the border, whether we're talking about grain or whether we're talking about beef. They're all members, and their own politicians do realize, as my colleague Murray says, that it is two-way trade, but they don't see the beef going north in the east and they don't even see the grain, except they see the trucks going.

The United States is so large. I always say I'm glad to be living next to the second best country in the world, but with most negotiations, and most agreements, they seem to bury so many cards up their sleeve.

Mr. Minister, do you think, because of the positioning of the countries and the financial constraints we all have, we can expect more fair bargaining at the table during the next round?

Thank you, Madam Chair.

Mr. Sergio Marchi: Thank you, Larry. On languages, I think in this world of ours, as the world seems to shrink every day and get smaller, I see a Canada that can get bigger. One of the reasons I say that is our citizens, many of them, have their origins in countries all over the globe.

We're now coming full circle and we're seeing a policy that Canada has adopted freely, saying you are a Canadian, but you don't have to check your language or your culture at Customs Canada. I think that's a mature policy. We've seen the breakdown of the Soviet bloc, who have tried for years, under the Soviet empire, to squash language, or ethnicity, or religion, only to find that when the empire finally crumbled, all of these things sprouted.

I think history is a good teacher, and the policy we've adopted is not only going to have social advantages for how we organize ourselves as a country, but also economic advantages in how Canada deals with the world.

It's interesting you should talk about Spanish in the seven states, and I don't think it's an accident that George Bush Jr. was speaking in Spanish to so different a mentality than perhaps that exhibited by a few of his Republican colleagues. So I guess if it's good enough for George Bush Jr., it's certainly good enough for the world.

You talked about the small countries and Canada being seen as a leader, and then you asked how you deal with a U.S. that is so large. It's an interesting frame, the one you have, but I think the answer is partly in your comment about Canada being seen as a leader. When you deal with the United States in the context of 34 countries in the FTAA, I think that's why it's important; smaller economies can make a difference. There is a difference between the Americans being the only superpower left on the face of the globe as we speak; there is a difference between being a superpower and the leader of the world. They're not the leader of the world yet, and they shouldn't mix the two.

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I say that not as a lecture, because we have gained tremendously by being neighbours and allies and partners with the United States—if we had a choice, we'd pick them 10 times out of 10, and who wouldn't? But I hope they don't get into a G-1 view of the world. This is not the time for the only superpower left to do that, because I think we've seen what can happen when smaller middle powers join hands. We can make a difference. Our government, through our Prime Minister and Mr. Axworthy, demonstrated that with the land mines treaty. Who would have thought a few years ago that this thing was going to get off the ground, given the reticence of the United States? Now, to a certain degree, the Americans are in an embarrassed position, when you see the great movement of countries banning land mines.

It's the same thing with the International Court of Justice. Despite American reticence, we now see that being struck up.

So I think the message is that we're all in the same village here, and we have to live with one another. I don't think we have the luxury of saying, you're small and you don't count, because the mass of many small countries equals and surpasses the weight of one country.

So I hope the Americans understand that. I think Mr. Clinton does, by virtue of his speech. I think it's time to work with the political leadership of the United States to make sure that view is in fact their view as well.

Mr. Larry McCormick: I have one word to say: gracias.

The Chairman: Thank you, Minister.

Thank you, Mr. McCormick.

You've been very gracious, Minister. We're almost out of the time you've allotted us.

Perhaps I could end with a comment. I understand from our high commissioner in the Caribbean that Canada has signed an MOU to assist smaller economies in negotiating on the FTAA, and I would commend our government on that.

The other thing I heard in the Caribbean was that the Prime Minister of Barbados has proposed a vulnerability index for the smaller economies in the implementation of any accord. If you're aware of that, I wonder if you could comment.

Last but not least, how is the current EU-U.S. dispute at the WTO over bananas affecting the negotiations, especially, again, in the Caribbean countries?

Mr. Sergio Marchi: I'll ask my officials to talk about the high commissioner MOU, because I'm not aware, Madam Chairman.... Which high commissioner are we speaking about?

The Chairman: In Barbados.

Ms. Kathryn McCallion (Assistant Deputy Minister, International Business, Passport and Consular Affairs, Department of Foreign Affairs and International Trade): Thank you.

In terms of what we have done—and maybe it's an MOU in order to offer the course—the Canadian Trade Policy and Law Centre at Carleton University has used CIDA funding in the past to help the small economies negotiate. So it's a course in learning how to negotiate. We have done this both for the Central Americans and for the Caribbeans.

Mr. Sergio Marchi: Regarding the bananas, I think when you look at the dispute we're having on Bill C-55, which Charlie talked about, or the banana dispute they're having with the Europeans, it begins to lend itself to the discourse that Larry and I were having in terms of saying, look, you just can't push countries around, into submission. That's why I think we have to work through the multilateral framework. So in the context of Bill C-55 or the bananas, part of the answer is to allow the WTO to ultimately decide a dispute between two countries who can't resolve it. That's what panels get paid to do.

Ultimately, you can't take the law into your own hands and say, look, I don't trust that mechanism; we're going to declare a trade war on you. To me, that does not seem to be the way of the future. So we can't build those kinds of models in dealing with countries.

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We all have our disputes. There is no country that doesn't have a disagreement with someone else. It's trade and commerce in this case, but there's a way of dealing with it. It can be done in a way other than taking a position and saying, look, Canada, if you don't do this, we're going to do that; or Europe, if you don't lay down your bananas with our sour grapes, mixing fruits with fruits, we're going to hit you on the 301. That's not the way America should lead.

America needs to be magnanimous. It must believe in the multilateral framework that has been established at the WTO or in its regional trade agreements with other countries, and I hope that wisdom prevails. Otherwise, things can indeed get messy. In the end, who wins in that? Our sectors don't win when you start threatening other industries. Countries have a tougher time selling their constituents on why we should do another trade deal. Also, if we can't agree here, why should we convince them to go to another big round that's starting at the end of this year? In the end, no one wins from that. We have to take a step back and resolve things, not because of the might, but because of the right, and in an independent way. Everyone knows they're going to win some and they're going to lose some. You can't believe in the system when you win and discredit the system when you lose a case. It's heads I win, tails you lose. That's not free trade; that's dead end trade.

The Chairman: On behalf of all the members of the committee, Mr. Minister and officials, thank you very much for joining us today.

Colleagues, the next meeting of the subcommittee is next Tuesday at 3.30 p.m. We'll look at the Summit of the Americas agenda.

Thank you very much. The meeting is adjourned.