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 26, 1999

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[English]

The Chairman (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): Ladies and gentlemen, if I could have you take your seats we'll begin as we wait for other colleagues. Perhaps my most important colleague, Monsieur Sauvageau, is here now, so we can start. We have a quorum with Monsieur Sauvageau.

Good afternoon, ladies and gentlemen, and welcome to the Subcommittee on International Trade, Trade Disputes and Investment. The mandate of this subcommittee, pursuant to subsection (2) of Standing Order 108, is to examine Canada's priority interests in the FTAA process. We have been conducting hearings across Canada at the same time as we've been conducting the WTO consultations. But we also realize that while this process is parallel, it is also separate. We welcome you here today to address the committee.

We will start, I believe, with Patricia Smith, deputy director of investigation and research, economics and international affairs branch of Industry Canada's Competition Bureau. Ms. Smith, welcome.

Ms. Patricia Smith (Deputy Director of Investigation and Research, Economics and International Affairs Branch, Competition Bureau, Industry Canada): Thank you very much. I'm pleased to have the opportunity to address the subcommittee as a representative of the Competition Bureau. I hope my comments and the specific responses I have to the questions that were posed to me will help you in the examination of the FTAA.

Competition policy is now very prominent on the international policy agenda. It has begun to play an increasingly important role in certain regional trade agreements. NAFTA, Canada-Chile, and the Canada-Israel free trade agreements all contain obligations requiring the parties to maintain competition laws and to cooperate in the enforcement.

The work program of the OECD, as well as the WTO working group on the interaction between trade and competition law, support the view that competition policy can play a key role in ensuring that markets are competitive. Canada is also currently involved in discussions with the EFTA countries and in the FTAA. The work undertaken in each of these fora contributes to the advancement of competition policy internationally.

The Competition Bureau believes that domestic competition laws, effectively enforced, complement trade liberalization efforts by ensuring that private anti-competitive conduct does not diminish the benefits of trade arrangements. The inclusion of competition policy in these fora will help ensure that Canadian exporters and investors, when doing business abroad, enjoy the benefits of an objective and predictable competition policy regime that will protect them from anit-competitive practices in the local market.

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The rapid transformation of many Latin American economies through trade liberalization, deregulation, and privatization has enhanced the need for a sound competition regime, particularly in those sectors where concentration ratios remain high after liberalization. Among the 12 countries in the hemisphere that currently have competition laws, many have only recently developed them. And even among those countries that do have them, there is an imbalance in the level of effective enforcement.

To date the FTAA negotiation group on competition policy has had three meetings, and I believe they have been very positive. Throughout the discussions, many countries have been particularly interested in the subject of how competition policy is important for and will benefit small economies and how these small economies will be able to effectively participate in the competition policy framework in the FTAA. The negotiating group has agreed to support more study on these topics by the Tripartite Committee, which is made up of the OAS, the Inter-American Development Bank, and the United Nations Economic Commission for Latin America and the Caribbean.

Technical assistance to countries with no or a relatively underdeveloped policy regime will be an essential ingredient for the conclusion of an FTAA framework on competition. Those providing technical assistance will need to understand the necessity for a gradualist strategy that begins with the development of an intellectual, political, and social consensus about the value of competition policy, and culminates in the adoption of sound competition laws and effective enforcement of those laws.

The FTAA working group on competition policy is now in the process of developing an annotated outline for a chapter on competition, which will be presented to the ministers, hopefully in October, in Toronto. The outline will list the specific issues that members will deem necessary to address in negotiating a competition policy chapter.

As requested by the subcommittee, I will address the basic proposed elements of a competition framework agreement in the FTAA. I would mention here that I have already tried to impress upon you all a paper that has recently been distributed for consultations by the bureau, entitled “Options for the Internationalization of Competition Policy”. If I didn't press one of these papers into your hand, it can also be found at our website. Also, statements that I make are similar or almost identical to those made by the commissioner of competition on April 15, when he appeared before SCFAIT.

In terms of the basic elements, first and foremost there should be an obligation to adopt a sound competition law with appropriate scope and independence in investigation and adjudication, plus an advocacy role for a competition authority.

An FTAA agreement on competition should endorse the principles of transparency, non-discrimination, national treatment, and procedural fairness. These principles would help to ensure that competition policy is applied in a fair and impartial manner. Key provisions should include cartels and criminal conspiracies, merger review, abuse of dominant position, and access to effective remedies or deterrents. There should be a minimum of exceptions or exemptions.

There has already been a lot of work done at the OECD relating to common approaches on hard-core cartel and merger notifications for transborder transactions.

Another element is related to the growing interdependence of markets. That means that enforcement work has to be done, no longer in isolation, but in a more coordinated fashion. An agreement could address cooperation that fosters and facilitates cooperation among competition authorities.

Another element is dispute settlement. This is one where the verdict is not in. It's a subject for negotiation whether dispute settlement procedures could be used to determine if member countries are respecting their obligations to implement and maintain competition laws pursuant to a competition framework. However, it must be clear that any dispute settlement mechanism cannot review decisions of competition authorities in individual cases.

Nevertheless, we feel that a lot can be accomplished short of an actual dispute settlement mechanism. The negotiating group may wish to examine other means of ensuring that members respect their competition obligations, such as a council that could operate as a forum to discuss implementation issues and offer members a place to consult and seek the views of other members through the process of developing, implementing, or modernizing their competition laws.

We believe that the effectiveness of an FTAA agreement on competition policy would also be enhanced with the establishment of a competition policy review mechanism, which we've stolen from the WTO trade policy review mechanism. A council would be tasked with the responsibility of preparing a periodic review on the substantive provisions of a country's competition law and the competition agency's enforcement record. Both the competition policy review mechanism and the council would promote transparency and establish a competition authority's track record of procedural fairness, and in our view could be an acceptable alternative to addressing the issue of compliance.

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Equipping the FTAA with appropriate rules to effectively deal with anti-competitive conduct will be a significant achievement. However, it will take time. To ensure that we get a high-quality agreement, I believe we may have to adopt an incremental approach. The agreement could include transition periods required for smaller economies and those jurisdictions trying to develop their competition laws and institutions.

Once completed, we believe a competition framework agreement on competition policy will promote the establishment of sound competition regimes and enhance cooperation in attacking anti-competitive conduct within an FTAA.

I would like to address the remaining questions posed by the subcommittee. I was asked whether there are examples in the Americas of where countries use their merger approval procedures and other competition policies as barriers to trade.

As I've already noted, many of the countries in the FTAA area do not have, or are only in the process of developing, a competition policy regime. However, based on our experience in the interaction with competition authorities in the hemisphere that do have regimes, we do not believe that competition policy or merger review procedures are being used to restrict trade. These countries seem to recognize the importance of establishing competitive markets, and they recognize the linkages between trade liberalization and the regulation of anti-competitive conduct.

The subcommittee also asked whether a free trade policy alone is good enough competition policy for small economies such as those in the Caribbean, Central and South America, and if not, why not?

The concept that free trade alone is sufficient to establish efficient markets in small economies within the hemisphere raises a number of concerns for the bureau. I would suggest that free trade policy should never be viewed as a substitute for competition policy. For example, a free trade policy alone would not address situations where firms with significant market power are engaging in anti-competitive activity such as collusion.

In today's globalized economy we are discovering increasing international cartel activity involving both domestic and foreign firms. In these cases, free trade policy only opens markets such that the parties are international rather than domestic in nature. However, it does not address anti-competitive behaviour by those parties in those markets.

At the same time, competition policy should not be used as a remedy for all market access problems, particularly when a market is operating efficiently and competitively. The touchstone for competition policy remains the impact on competition, and competition legislation should be used only to enforce competition. If the market mechanism is allowed to play a greater role in smaller economies in terms of setting prices and the standards of quality, then the resulting efficient markets should attract efficient trade.

It is our view that properly enforced competition policy, together with liberalized trade, are the best guarantors of efficient markets. While we recognize that the tariffs and non-tariff government barriers are inherently anti-competitive and restrict foreign competition, private anti-competitive business practice can substitute for tariff and non-tariff barriers and impair the efficiency and restrict the entry of foreign competition in markets of any size.

For example, with the reduction of border protection, both tariff and non-tariff barriers, there is growing concern that the progressive dismantling of domestic state monopolies will leave a void that can quickly be captured by private monopolies. In such an environment, a sound competition law and policy vigorously enforced can be a bulwark against this happening. In this respect, the importance of the advocacy role of a competition authority is significant in making sure that competition authority is involved at the very beginning of the regulatory process.

Finally, the subcommittee asked whether it is feasible to have the Caribbean, through the CARICOM, establish competition law and an agency for the region.

I believe that further conceptual analysis needs to be undertaken to explore the workable options for very small economies, such as CARICOM members, where the resource constraints for establishing and operating a domestic competition institution are major considerations.

However, where small economies share compatible views and objectives in terms of competition law and policy, the adoption of regional or sub-regional rules—possibly based on the model provisions—and institutions might be feasible for countries with little or no resources to establish their own regimes. Such an approach could provide for a more effective and rational allocation of resources.

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I'd like to thank the committee. That's the end of my remarks. I believe an FTAA that can be built over time will assist less developed countries in achieving efficiency in their own economies as well as ensure fair markets for Canadians doing business abroad. Thank you, and I'm ready to answer any questions you may have.

The Chairman: Thank you very much, Ms. Smith.

Next we have Annette Hester, who is the associate consultant and regional coordinator of Expetro International OGPC Ltd. Welcome, Ms. Hester.

Ms. Annette Hester (Associate Consultant, Regional Coordinator, Expetro International OGPC Ltd.): Thank you. I would like to thank you for giving me the opportunity to appear before this committee, and I congratulate you on your efforts to include civil society in this process. This is a good example of a point I would like to raise during my presentation, which is leading by example. I would also like to thank Dan Shaw for his interest in my work, and Christine Fisher for her patience.

What should Canada's position be vis-à-vis the FTAA process? I believe Canada has the opportunity to show some leadership in the Americas. Further, this is a process where we can all learn from each other. In other words, Canada has as much to learn from Latin America as those countries have from us.

In order to make the best use of my allotted time to explain the reasoning behind my answer, I will structure my talk as follows: I will lead with explaining who I am and then turn to my research agenda, followed by the lessons from the history of trade agreements in the Americas, or what I call Canada, the new kid on the block. Finally, I will put all the pieces of the puzzle together with some comments and suggestions.

So who am I? I wear several hats. I'm a Brazilian, and I have lived in Canada for 20 years. I have travelled extensively in South America, Europe, and the States. I've had different careers and raised two children. Then I decided to go back and get an honours degree in economics. I am presently writing my thesis components for a master's degree in economics at the University of Calgary. For my undergrad work and master's degree my area of expertise is international transactions and integration focusing on the Americas.

Professionally, I am very involved in the energy sector. I am a partner with my husband in a geological service consulting firm called CABRA Enterprises. We have approximately ten associate consultants providing services throughout western Canada and Cuba. Since last year we have been charged with the task of training and providing equipment to Cuban geologists for a Canadian company operating in that country.

I am also the Canadian representative as well as an associate consultant of Brazil's leading consulting group in the energy sector, Expetro. This group has been involved in the opening of the Brazilian energy sector since 1991 and has acted as consultant to a number of government officials, including the board of directors of the Brazilian National Petroleum Agency, the ANP, which would be the equivalent to our NEB, as well as to Brazilian and international energy companies. In this capacity I work closely with the Alberta, Canadian, and Brazilian governments as well as the ANP and companies in both countries. We are working toward the dissemination of the Canadian energy regulatory model, as well as facilitating the entry of Canadian companies into the Brazilian and MERCOSUR markets.

So as you can see, I was living integration in the Americas much before it became a buzzword. I hope this brief biography will give you a bit of an idea of the scope and the kinds of questions you can pose to me after the presentation.

What's my research agenda? I started by studying the history and the political development of the Americas, followed by a careful look at the historical trade agreements in the region. As I mention in my thesis proposal abstract, which you'll find attached to this brief, in the last 30 years the world trading scenario has changed dramatically. Regional trading blocs together with a maze of different trading arrangements between all possible combinations of countries and regions became the norm rather than the exception.

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Canada's trade policy has followed this pattern quite a bit. I have an overhead I'd like to show you. This is just the Canadian profile. We show the trade front and the investment front and what are called FIPPAs, the foreign investment, promotion, and protection agreement. I have been told that the 1998 FIPPA with Costa Rica is now in force. So we have quite a comprehensive network.

But this is a complicated scenario, and this next slide will give you a bit of an idea of the trade agreements existing in the Americas. This scenario raises some important questions that should be posed: Are we complicating or facilitating trade? Further, are those trade agreements just about trade?

While surveying the literature on the subject, I realized that the issue of the impact of trade agreements on trade was well covered. Issues such as trade diversion versus trade creation has been analysed and discussed in-depth.

However, little research has been done on the effect of trade agreements on foreign direct investment. Consequently, I decided to look for answers from this perspective. I started to focus on statements that were being made by Latin American officials as well as to look at events taking place in the Americas related to trade agreements from a variety of perspectives.

Latin American officials repeatedly link the existence of trade agreements of different kinds—such as free trade areas, customs unions, and common markets—regional integration, and the inflow of foreign direct investments to a particular region. For instance, if you check the Communidade Andina's website, they have a list of results, and one of the items listed in the results is, and I quote, “The considerable increase in FDIs, more than 8 times going from U.S.$1.14 billion in 1990 to U.S.$9.792 billion in 1997...”.

Another example is found in a paper written to ALADI by the Brazilian ambassador, José Artur Denot Medeiros. In a piece entitled “Brazil and Regional Integration: the present momentum of ALADI and MERCOSUR”, he states that “the increase in the capacity to attract FDIs”—foreign direct investments—“and the growing importance of inter Latin American countries' investment flows” are acting, in conjunction with trade agreements, as “integrating factors”.

Clearly, the predominant view is that these agreements are generating both trade and investments.

On another front, trade agreements are acting as a political force. The most current example that comes to mind is the situation in Paraguay, where recently the former president was linked to the assassination of the vice-president. In other times the assassination of the vice-president could have easily led to great political instability and even a coup. Fortunately, times have changed. Paraguay is a MERCOSUR member country and has signed the Ushuaia Protocol, which institutionalized the MERCOSUR'S democratic clause. Consequently, in the event of a coup it risked jeopardizing its membership. As you know, a crisis was averted with the help of the Brazilian and Argentine presidents. This is just one of the many examples I could give where trade agreements are acting in the political realm.

I would like to clarify that I'm not suggesting that a democratic clause be included in the FTAA. As it stands, the MERCOSUR is a customs union among countries that share several commonalities, including stages of development, while the proposed FTAA is a free trade zone among several very diverse countries. I am afraid that this type of clause, if suggested by either Canada or the United States, would be seen as an imposition and could act as a deal-breaker. I have some more comments on this subject, and I would leave them for the question and answer period.

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What I am suggesting and presently researching is that we put these two factors of indirect investment and political risk together. Investors, at least the ones I'm familiar with, look at a project with a specific methodology. The gist of the methodology is that the riskier the investment, the higher the return required. Maybe one of the consequences of this agreement—and the region is attracting larger flows of FDIs—is it's being perceived as a lesser risk. Of course, investors are still subject to a host of other risks, such as economic and financial, etc. Consequently, by participating in these agreements Canada has a chance to contribute to the political stability of the region.

Let me turn to the answers to the two original questions: Are we complicating or facilitating trade? Are trade agreements just about trade? On the first, I think the jury is still out. However, if the FTAA consolidates some of the existing agreements, as opposed to adding yet another layer, it could facilitate trade.

On the second question, trade agreements are not just about trade. They have consolidated the economic liberalization and democratization of the region. As a consequence of this process, there has been wealth created for people. Brazil serves as a good example.

Since the economic liberalization, formation of the MERCOSUR, and an official commitment to economic and financial stability, the standard of living of the lower class has improved substantially. People are eating better. Purchases of basic household appliances have increased, as well as energy consumption. I have some great statistics on this that I would love to share with you. I'll leave it for the question period.

The next one is Canada, the new kid on the block. I was interested in looking at all the other submissions. I would like to share maybe a different view of this process. How does the FTAA fit into this picture? The history of trade agreements and integration attempts in the Americas dates back to the 1960s, actually even before, with Raul Prebisch starting maybe in the 1950s. It started with ALALC in 1960, which became LAIA, the Central American Common Market, in 1960. CARIFTA was changed to CARICOM in 1973. The Andean Pact of 1969 was changed to the Andean Community in 1996-97. Even the MERCOSUR, signed in 1991, saw its origins in the Brazil-Argentina economic complementation agreement of 1986.

As for Latin America, in 1986 Canada signed a preferential trading agreement with the Caribbean nations, or CARIBCAN. However, according to Sebastian Edwards, who used to be our World Bank Latin American desk, this arrangement had the limited context of providing duty-free access to the Canadian market for certain imports from commonwealth Caribbean countries. Given this perspective, Canada is the new kid on the block.

History also points to the fact that most of these attempts at integration were unsuccessful. One can't discount the political and developmental philosophies in Latin America during that early period, with military governments, import substitution models, as well as two world oil crises and the debt crisis of the 1980s. However, there were also specific problems with those agreements. The main criticism is that they tried to do too much in a timeframe that was too rigid. Thus, it's not surprising to hear that Latin American countries are suggesting that the FTAA process be conducted at a slower pace and with a less ambitious scope than originally suggested by Canada and the United States.

Although in the FTAA process there are several forces at play that would slow it down anyway—the lack of fast-track by the U.S. administration, Brazil's own agenda and the upcoming WTO negotiations—I still believe Canada can learn from history, just as the Latin Americans have. The region is diverse in a variety of ways, and it takes time to get to know one another.

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Now let's put all the pieces together. So what's in the FTAA for Canada? If one follows the lines of reasoning I suggested, Canada will benefit directly from increasing trade and investments, and indirectly from a more stable democratic Latin America.

In conclusion, here are some suggestions. Avoid “do as I say, but don't do as I do” and lead by example, as I alluded to in my introduction. This civil society consultation process is a good example of leading by example. However, Canadian officials are not as willing to share information as they would like us to believe. For instance, when I started to research FIPAs I managed to receive a lot more concrete information on government position from the Brazilian officials than from the Canadian ones. I should qualify this statement. It wasn't that the Canadian officials were unwilling to talk to me. They were very nice and they were very willing and very responsive. However, they wouldn't give me any information. The standing line I received was that they could not comment on ongoing negotiations. Well, if you're only going to comment on negotiations that have already concluded, what can I add? They're trying, though. It's slowly improving.

Also, as we continue to push for civil society participation elsewhere, I would like you to remember that democracy is an expensive proposition. This type of civil consultation in Latin American countries would be very difficult. It would cost a lot of money.

Further, although I am positive that Canadian leadership and involvement in the process is welcome in Latin America, I beg to differ from the view that we are seen as the “nice guys”. I've seen several of the briefings that suggest that's the image Canadian officials have of themselves in Latin America. I think the Canadian stance on the Bombardier-Embraer dispute is a case in point.

My second point is to learn from history and use this process to get acquainted. It has been mentioned several times that all governments, perhaps with the exception of the United States, find it difficult to negotiate so many agreements at the same time. I am not so sure I completely agree with this view. However, I do agree that the number of negotiators for each country is limited. This can be seen as an opportunity for Canada, as the same negotiators will be sitting across the table every time. Consequently, as long as we don't keep changing our team, we'll have a chance to get to know them and understand their particular predicaments.

The other great opportunity you have already acted on is to fill the vacuum created by the lack of American fast-track legislation. I also have some suggestions about some possible participation in the upcoming FTAA ministers' meeting that I'll reserve for the question and answer period.

In conclusion, let's put the pieces together. Probably the most important point for me is let's make sure the FTAA fits into the puzzle by consolidating the previously negotiated agreements, and not by adding another layer. As in building any puzzle—to borrow from my Mexican friend, Homero Hernanadez—always look for the commonalities that make the pieces fit together, as opposed to the differences that keep them apart. Furthermore, let's keep it simple. We don't have to solve the whole puzzle at once.

Thank you.

The Chairman: Thank you very much, Ms. Hester. Thank you for your comments and your observations.

Next we have Mr. Greg Chamandy, who is the chairman and chief executive officer of Gildan Activewear. Welcome, Mr. Chamandy.

Mr. Greg Chamandy (Chairman and Chief Executive Officer, Gildan Activewear Inc.): Thank you.

I guess I was invited to attend today as a representative of a small Canadian company that's been active in the Americas and has had hands-on experience dealing in those countries.

We're a Montreal-based manufacturer. I personally am a fifth-generation manufacturer of textiles in Canada in my family. Our company, Gildan Activewear, is a publicly traded company. We're on the Toronto, Montreal, and American stock exchanges. We have 5,000 employees, with 1,000 in Quebec and the balance in the Caribbean and Central America, specifically Honduras, Nicaragua, El Salvador, and Haiti.

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We are manufacturers of activewear, predominantly T-shirts, sweat shirts, and golf shirts, and we are the fastest-growing company in North America.

The reason we've been very successful is because of access to the Caribbean and Central America by participating in the American bilateral agreement, known as the Caribbean Basin Initiative, that is their law 807.

The good news is that this has enabled us to grow as rapidly as we've grown. We basically went from 1992, when we did less than $30 million in business, to this year in which we did $330 million in business, and we're looking to do half a billion dollars worth next year.

The bad news is that to participate in that bilateral agreement... The reason I mentioned this bilateral agreement is that one thing thing we need to be aware of, as Canadians, is that our primary competition, in my opinion, is the Americans. They really have the jump on us in terms of a precursor to the free trade of the Americas agreement by the various bilateral agreements they've created. How it affects a company like our own is that we've really had to move manufacturing facilities from Canada to the United States in order to be onside with their legislation.

The reason we've been able to grow as quickly as we have is by having access to the Caribbean and Central America region. We have access to a labour pool that is very aggressive, very anxious to work, and very cost-effective. Compared with Canadian and American wage rates for garment assembly, a sewing operation that you can't get people interested in working at in North America, labour is very plentiful over there. When you combine that with the fact that Canada has the most cost-advantaged location in North America for manufacturing textiles, specifically in the province of Quebec, combining those two areas of opportunity has allowed us to be successful.

So that's where our interest in the free trade of the Americas has its genesis. Through our American subsidiary we've been a member of the Caribbean and Latin American Association since 1995. We attend the Summit of the Americas in Miami every year, and we're monitoring very, very closely.

Obviously our company is in favour of pursuing the free trade of the Americas agreement. The key thing that we would like to say is let's not reinvent the wheel. The NAFTA has been very, very successful, and one of the reasons the American government doesn't want to give the Clinton administration fast-track eligibility is because they're worried he's going to reinvent and create new legislation.

Really, our biggest concern as a company is that the American people we compete with are looking to use the FTAA negotiations as a way to correct things they feel they were beaten at in the NAFTA agreement. So from our company's point of view, let's not reinvent the wheel. The NAFTA agreement is working with Mexico. Let's just extend it further into the hemisphere, down into the southern hemisphere.

If we were to give our recommendation on where there needs to be improvement, it would be specifically in the area of the environment. It's one thing to have to compete with wage rates and that sort of thing, but it's another matter when there's no regard for the environment. With Canada being one of the most environmentally conscious countries in the world, I think we should also maintain a level playing field with all the countries we compete with.

In our own particular industry, I've visited facilities and have been totally shocked and disgusted at how some local governments allow certain abuses of the environment. That's a major cost centre in our industry.

The second big point would be in the area of labour laws and the protection of labour codes and to avoid incidents of child labour and that sort of thing. Again, that is something that has to be protected against.

I think the key benefit to Canada, in addition to providing us access to a much larger market, such as we've already benefited from with NAFTA, is it also provides us with the ability to continue to grow and to remain globally competitive by positioning ourselves as international companies to take advantage of the best the hemisphere has to offer.

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I would just say, for our company and our industry, our biggest concern is the U.S.A. I think the Canadian government really has to be aware of what the Americans are doing behind our backs. Specifically—I'll give you a most recent example—they had the audacity to present legislation in the United States that is called the Caribbean-NAFTA parity agreement. They've essentially created a bilateral agreement that gives the Caribbean all the benefits of NAFTA, yet they specifically precluded Canada from being a participant in that agreement. I find this very alarming. And this is just one small example. There are numerous examples.

If we're going to go to the table with the free trade area of the Americas and we're going to go to the table with, in particular, the Americans as our partners and as key pillars of the agreement, I think there should be some sort of understanding that in any precursor to the free trade agreement, such as the NAFTA parity bill that is currently going through the House, Canada be made a partner in that.

At the end of the day, the free trade area of the Americas is to allow Canadian companies to be more globally competitive and have a larger market. If we're going to achieve that goal, I think it has to be with a level playing field—so a level playing field with our key competitors, the Americans, and a level playing field in terms of the environment and the labour laws.

Those would be the key points I'd want to bring to the attention of this committee.

The Chairman: Thank you very much.

Last but not least, we have Mr. Bob Weese, who's vice-president of government and external relations, GE Canada, and also a constituent and a friend of mine. Welcome, Bob.

Mr. Robert Weese (Vice-President, Government and External Relations, GE Canada): Thank you, Madam Chair.

Let me introduce my colleague, John Wilson, who was formerly a full-time employee of GE Canada, who is an electrical engineer by trade and spent a large part of his career in South America working on hydro projects. So he is our resident expert on Latin America and will be prepared to handle any tough questions you may direct toward me.

It's my pleasure to be here today. I've submitted—and I think it has been distributed—a bit of a presentation to the committee. In the interest of time, I propose to go very quickly through the first couple of pages so that I can get to the meat of our submission.

Those first couple of pages emphasize the importance to Canada of open markets and the tremendous progress we've made in the last ten years or so in reducing tariff and non-tariff barriers around the world through the series of agreements Canada has been part of and has taken, I think, a leading role in negotiating. I welcome this chance to appear before the committee and urge you and our government, through the FTAA and the upcoming WTO negotiations, to continue that progress, which I believe is in the interest of all Canadian companies.

Before I go further, let me say a little bit about my company, GE Canada. We're a wholly owned subsidiary of the General Electric Company, headquartered in Fairfield, Connecticut. As you perhaps know, GE is one of the world's largest and most successful companies, with eleven major businesses in areas like lighting, power systems, aircraft engines, medical systems, GE Capital, and others. Big GE had revenues last year of over $100 billion U.S.

GE has a very deep root in Canada. The company has been here since 1892. Today, all the GE businesses are in Canada. We have 15 manufacturing plants, 9,500 employees, 150 sales and service locations across the country, and revenues last year of $5 billion Canadian.

Several of our businesses in Canada have full-scope global product mandates. They are GE Hydro in Lachine, Quebec; our large motors business in Peterborough; GE Power Management in Markham; and GE Harris Energy Control Systems in Calgary. All those businesses are responsible for research and development, manufacturing, and global sales from a Canadian base.

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All our manufacturing plants in Canada now specialize in specific products, and most of their production is now exported. That has been a tremendous change in the last few years.

The other key feature of our operations in Canada these days is the rapid growth of GE Capital, our financial services business, which now represents over 50% of our business here in Canada and globally.

As a large and successful global company, it won't surprise the committee when I say that GE supports the greatest possible degree of openness in international trade and investment. But not only are open borders good for big GE, they're also good, in our view, for GE Canada. They're vital for the success of the businesses in Canada with global mandates, and they're also important for those manufacturing plants in Canada that go to international markets indirectly through sales to the GE parent.

We support the greatest possible degree of tariff reduction or elimination; the reduction or removal of the maximum number of non-tariff barriers; the most efficient possible administration of customs and border controls; and the highest possible degree of fairness and transparency in procurement and other administrative processes. In our view, such measures will create huge new opportunities for us and for other Canadian companies.

As we look at Latin America, as has already been said, we're looking at economies and societies that are fast-growing and dynamic. The spread of democratic governments and market economies throughout Latin America has really been dramatic. The countries of Central and South America represent increasingly important market opportunities and in some cases some pretty impressive competition for some of our businesses here in Canada.

In Brazil, Argentina, Chile, and elsewhere in the southern hemisphere, economic policies have become very enlightened during the last decade, by and large. Tariff rates are dropping; regional trade agreements, as has been said, are blossoming; and in some cases, real efforts are being made to harmonize regulatory environments.

All GE Canada's global businesses are active in Latin American markets, and all would welcome reductions in tariff and other barriers and faster, more efficient, and more transparent administrative processes.

Let me take a moment to talk about our hydro business, GE Hydro, based in Lachine, Quebec. That business designs and manufactures hydraulic turbines and generators. It grew up in Canada, in response largely to the needs of Hydro-Québec, Ontario Hydro, and other provincial utilities with hydro-power potential. None of our Canadian competitors can boast the same breadth of scope or the same depth of management responsibility as we have here in Canada. In the last few years the focus of that business has shifted. A primarily domestic business has become a primarily export business. Markets for the development of new hydroelectric power have been growing rapidly in China, other parts of Asia, and in Latin America, while North American opportunities for new hydro generation have been drying up.

We compete and win against the best on projects all around the world, often with the support of the Export Development Corporation, with which we have a very close working relationship. For that business, clear and consistent global rules, fair treatment, and efficient administrative processes are critical components of business success.

The focus of that business, by the way, is now shifting again a bit, to renovation and upgrade projects, as opposed to new hydro projects, and to ongoing service opportunities. With that shift comes a new set of issues and challenges, with perhaps less emphasis on tariffs and more interest in rules governing the provision of services, investment, and temporary entry.

Getting specifically to the free trade area of the Americas agreement now, as we all know, that was launched with great fanfare and enthusiasm a year or so ago. Some of that initial enthusiasm had waned because of last year's shock to global financial markets, the approach of new multilateral negotiations in the WTO, and importantly, I think, a rising protectionist sentiment in the U.S. that is threatening to slow down or temporarily block further progress in trade liberalization.

We should combat that mood in every way we can, and we should recognize that even in the absence of fast-track authority in the U.S. administration there are things we can do that would constitute significant steps forward. Even if, for the time being, we can't make rapid progress in the FTAA on significant tariff reductions, there are a number of business facilitation measures we could take that would make a contribution to good governance throughout the hemisphere, increase stability and predictability, and help the flow and reduce the cost of business transactions to the benefit of all concerned.

• 1640

One of these business facilitation measures is in the area of customs administration. Canada has played a leading role in promoting and supporting efficient customs administration in a variety of international fora. We have encouraged and supported training for customs officials, we've promoted standardization of customs forms, harmonization of classification systems, streamlined procedures and codes of conduct for customs officials. We have urged the adoption of electronic data interchange between customs authorities.

We have already adopted, in Canada, a control and release approach to efficient customs clearance, which is probably the most advanced in the world. This is an area in which I believe concrete business facilitation progress should be made this year in the FTAA talks. It is an area where Canada could offer some practical assistance and it's an area where success would have real advantages for all companies in speeding up processes and reducing costs.

Another area where early progress could be made, in our view, and where Canada could play a lead role is transparency in government procurement and in other administrative processes. The transparency agenda relates to better governance; to fairer and more open processes and to less corruption; to a business environment that is transparent, where business is done with a high degree of integrity and where a legal system exists that gives confidence that the rules will be enforced consistently.

I hope Canadian negotiators will place the highest possible priority on achieving agreement in the WTO, in December, on a universally subscribed government procurement transparency agreement. Endorsement of this objective by FTAA ministers at their Toronto meeting would provide a significant impetus to that end.

Speaking of which, I want to take just a moment to applaud the efforts, on the part of all members of the Canadian Parliament and the members specifically of this committee, for the role you played last December in rapidly passing through all stages the legislation required to implement and ratify the OECD's new anti-bribery convention, which obligates signatory countries to adopt legislation to make it an offence to bribe foreign public officials in the pursuit of business.

As a result of Canada's ratification by the end of 1998, that convention came into force on February 15, 1999. Just to explain for a minute, they needed five of the major trading nations of the OECD to ratify the convention by the end of 1998. Canada was the fifth country to do that and our ratification therefore had the effect of bringing the convention into force. It is now in force.

To take measures now, through the FTAA, to support and buttress transparency initiatives as represented by the OECD convention and other similar conventions against corruption would be an important further contribution to the global fight against the scourge of corruption in business dealings. Progress in these areas, as well as in tariff reductions, would give impetus to the important multilateral WTO ministerial meeting scheduled for early December in Seattle.

Progress in FTAA discussions can add substance and momentum and clearly must be consistent with and supportive of improvements to the global rules of the World Trade Organization. Completing the FTAA is an important priority. The logic in favour of the FTAA remains compelling and its promise remains exciting. It is simply the best mechanism for ensuring continued economic growth in the entire hemisphere, and would contribute as well—and I agree with the previous contributor—to a stabilization of social and political society.

We should do now what we can do now. We should go as far and as fast as we can. I am confident, Madam Chair, that the trade ministers from the 34 countries will make real progress at their meeting in Toronto in November.

Thank you for the opportunity to be with you today. My colleague John and I would be happy to welcome any questions you may direct toward us.

The Chairman: Thank you very much. Thank you all for your presentations.

Questions, Mr. Sauvageau.

[Translation]

Mr. Benoît Sauvageau (Repentigny, BQ): I must start by apologizing for being late. I didn't know my presence was so important for quorum purposes.

I would like to thank all witnesses for providing us with French and English versions of their briefs. We appreciate that very much. I will ask my questions of the witnesses in the order of their presentations. I will therefore start with Ms. Smith.

• 1645

Ms. Smith, on page 5 of your statement, you say the countries should pass a competition Act. Do you recommend that they pass this legislation before signing a Free Trade of the Americas agreement? You say:

First and foremost there should be an obligation to adopt a sound competition law with appropriate scope [...]

Further on, in the second paragraph on page 6, you say, with respect to dispute settlement:

It could be an informal process by which the council would establish a committee of experts on competition policy to assess the validity of a complaint and make non-binding recommendations based on its consultations. The process could also offer members a forum to consult and seek the views of other members [...]

Don't you think that an informal process whereby a committee of experts would make non-binding recommendations would be a rather weak settlement process? I'm sure you have your reasons for supporting this approach, and I would like to hear what they are. My next question will be to Ms. Hester.

Ms. Patricia Smith: I apologize for my poor French. I will give my answer in English.

[English]

We think this is going to be a very gradual implementation process. If you look at the whole WTO dispute-settlement understanding, it took almost 50 years to get there. We don't look at this as something we can implement immediately. What we see is that we have a commitment from countries to have a competition agreement based on the objectives of efficient markets, and that it would contain the provisions I outlined above—something about cartels, hopefully something about mergers, abuse of dominance—and that it would have provisions for procedural fairness.

We feel that is possibly at the moment all that is practical for countries. As I said, only 12 of the FTAA countries now have a competition agreement. There are certainly the smaller micro-economies that are not clear that they need it. So we have a lot of work to do to convince these countries to adopt one.

In terms of dispute settlement, what I'm thinking is there is a big debate out there. The United States in particular is adamantly opposed to having any dispute settlement that might come back and question their individual decisions on a case. Say they disallowed a merger; they would not want that to be reviewed by the WTO.

I personally believe you can probably go somewhere along and say that just those obligations, your obligations to have a sound competition law with those minimal provisions, could be subject to dispute settlement in an FTAA. However, there could not be any provisions for nullification and impairment. If you're familiar with the TRIPS agreement, the provisions on dispute settlement there that are implemented for the first five years carve out nullification and impairment. That's a model we might usefully be able to implement in the FTAA.

[Translation]

Mr. Benoît Sauvageau: Thank you.

In your paper, Ms. Hester, you asked a question that I would like to ask you as well: are we in the process of complicating trade or facilitating it? I have trouble finding an answer to this question in your brief. Do you think that the regional agreements are designed to complicate trade? Are you more in favour of multilateral agreements, including those signed at the WTO, than those that appear in the table you described at the beginning of your presentation? Is the purpose of this agreement to complicate trade or to facilitate it? Do you have an answer to this question?

[English]

Ms. Annette Hester: I'll answer in English.

• 1650

I guess if I had a complete answer to this I'd be really rich. I think it's a hard one, because a lot of countries, including Brazil, were signatories to the GATT in 1948. Brazil signed the GATT in July and other countries followed, except Mexico, only much later. So there has been a great desire to have a big multilateral forum. I think the countries are looking forward to a new round.

However, the last round was painful. The Uruguay Round wasn't easy to negotiate. I found in the research that the development of all the regional agreements ended up being parallel to the difficulties encountered in GATT, in which businesses were moving a lot faster, and needed to have those provisions and couldn't wait until everybody sat at the table and finally decided what they're going to do with agriculture, or something like that. They were very difficult issues. And there are very difficult issues as the WTO now becomes bigger and bigger.

I think there's something to be said for the fact that multilaterals such as the WTO would be better probably for everyone, for the world in general, but is it achievable? It's the art of the possible. For Latin America, MERCOSUR, for instance, has been very positive. However, it has imbalanced somewhat in some areas the trade with other countries. So there's an argument to be said for trade creation, trade diversion, that could be corrected. But I think as long as we keep moving to the multilateral and integrating, as I said, those agreements in creating a more, as you have suggested, level playing field...

However, the interests of Canadian companies in gaining access to the Latin American market are not always the same interests that Latin Americans have. So they might suggest that they also want to keep a balance between the access they give to North American companies and the access they are giving to Europeans. That's definitely at play here: how fast are they giving access to everyone, and how everybody's coming in. In terms of access from Latin America into North America, because North America has much lower barriers to begin with, other than non-trade barriers and anti-dumping suits and countervailing and so on, they seem to have a lot less to gain. That's why I started looking at the investment, because it seems like they are very interested in attracting investment.

So I don't know if you can clearly say they are facilitating. Doing business in Latin America, at least from the oil and gas perspective, is complicated. You need legal counsel. Actually the lawyers are fantastic, because you must have a local legal counsel no matter where you go. It's complicated; it's not easy. You have to look at a series of incorporation papers, regulatory environment, how does it fit, double taxation agreements—it's complicated.

[Translation]

Mr. Benoît Sauvageau: Second, you asked whether trade agreements were strictly about trade, and you answered in the negative. Do you think that a trade agreement such as the Free Trade Agreement of the Americas could improve not only the economic situation but also the political situation of some countries in South America?

[English]

Ms. Annette Hester: I think so. I think what we are seeing is that the countries are using those agreements as part of a bigger picture. They are part of a big trade liberalization, a whole shift in that development theory. I think they are part of that, and they are being used as a consolidation of an improvement in the region. I think they are helping.

• 1655

The economics is just part of it. I know from going often to Brazil that since Brazil has had a change in currency in the plano réal, and a whole change in policy, lives of the poor people improved.

A friend of mine is an egg distributor in the northeast of the country. He's basically doubled his sales in little towns. And you see it in the streets. There is less crime in Rio. People are less afraid. People are getting their pockets picked less. So I could tell, but I said let me look and see if I can find actual statistics that will prove that.

I found that the consumption... I went to look at household goods in Brazilian IBGE, which is Statistics Brazil, I guess, and the consumption of fridges and stoves in the last ten years for the lowest quintile of the population of income has increased dramatically. And you see the increase that is not so great in the higher. So you have people consuming more fridges and stoves and having more automobiles. In 1987, among the households that had up to two minimum salaries—and a minimum salary I think in 1996 was at $112—there were 60% that had a fridge. In 1996 it was almost 70%. It goes on.

Being an economist, I thought I would test this with a good that wouldn't be normal, so I looked at sewing machines. In regard to sewing machines, I said that when people have more money they buy a garment, they don't buy a sewing machine. So actually what I found was exactly right. I was so happy that economic theory works.

From 1987 to 1996 in the lowest quintile of the population there was a pretty big increase in the purchases of sewing machines and a drop in every other category. When you look at the way people are living and where their lives are better, it's economics, but it's people, and they are better.

The Chairman: You're quoting those statistics. Do you have those statistics that you could actually file and provide for the committee? Because one of the things that we certainly heard in our cross-country consultations was that there were certain sectors of the Canadian population who truly believe that our standard of living has gone down since the FTA and NAFTA, and that the difference between the rich and the poor has increased, so actually the quality of life is... If you can give us those kinds of statistics that we could rely on, we'd appreciate it if you could file them with the committee.

Ms. Annette Hester: Yes, I will. I won't do it on NAFTA, but I'll make a little brief on what I have here on Brazil. And I should make a point that the picture is not all rosy, because when you talk about income inequality, I'm sure you've all heard that Brazil has the worst record.

We measure income inequality in the genie coefficient. The genie coefficient goes from zero to one, zero being perfectly equal and one the most unequal. During the last ten years, in 1987 it was 0.56 and in 1996 it was 0.58. So it is more unequal. Actually I thought this was pretty bad, so I went to look at where it went. I know that the trade theory and everything will say the pie will get bigger. This system is really good at making the pie bigger, but it's really lousy at the distribution of this pie. So we have to rely on governments to redistribute this, and the Brazilian government is not fabulous at it.

• 1700

What happens when you separate where it's gone up and where it's gone down... In all of the new areas in Brazil—the northeast, Belém, Fortaleza, Recife, Salvador—the genie got better. There were fewer problems. Where it got really bad was Sao Paulo, Porto Alegre... Actually, the areas really affected by MERCOSUR. I just looked at this on Saturday as I was getting all the stuff ready to come here, and I thought more research was needed.

The Chairman: Thank you, Ms. Hester.

Mr. Calder.

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

That's exactly what we're here to do—research.

Annette, you were talking about the bigger picture, and that's what I'd like to take a look at—the WTO. When we signed on to this there were 117 countries. There are 134 now, and there are 30 more that want to come in. I'd like everyone's opinion, first off, when we start doing these continental trade agreements like the FTAA, and we have one that is a global agreement like the WTO, where we're setting international rules of trade... That's basically what the Uruguay Round was, the seven years that it went on. It basically set rudimentary rules that we're here to polish up this time. They've had six years of running, and we can find out what their mistakes are and hopefully correct them. So it would make sense to me that any continental agreements we work on should fall within the parameters of the rules that are set down on the international basis by the WTO. I'd like your comments on that.

Mr. Robert Weese: Perhaps I might say a word on that. I think we've had some experience in utilizing regional agreements to contribute to progress on a multilateral WTO basis. A good example is APEC. A couple of years ago the governments of APEC, the Asian Pacific Economic Cooperation region, reached agreement on an information technology sectoral program that they were then able to take into the WTO. It got adopted by the WTO and became a multilateral agreement. We may see the same thing again.

At last year's APEC meeting, building on progress made in Canada, great progress was made in nine sectors, including a couple we have an interest in—energy and medical equipment. There is a fair hope, I think, that this agreement is going to get carried into the WTO meeting in Seattle in December and help to form the basis for some progress on the multilateral level.

So clearly it's important that what we do in these regional agreements is not inconsistent with what we hope ultimately to achieve on a multilateral basis. But we can also use those regional agreements to build toward progress multilaterally.

The Chairman: Mr. Chamandy, would you like to comment?

Mr. Murray Calder: Actually, Greg, I was going to go to you next, because you made a comment here about environmental rules, and that's one of the reasons I posed the question of the WTO and international rules of trade.

I think we have to seriously look at the environmental rules when we do international trade agreements. If you're dealing with a country, for instance, whose environmental rules are less strong than those we have here in Canada, that would immediately become a trade barrier and/or subsidy, because at that point in time the environmental standards you would have to adhere to manufacturing here in Canada would add to the overhead of your factory. However, if you're dealing with a third world country that wants to be part of the trading agreement and they don't have the same environmental rules, their overhead would be less, making you uncompetitive.

Mr. Greg Chamandy: That's why I brought it up.

Even in our own case, anything we do, anywhere in the world, we do to Canadian standards. That's because that's our company's philosophy. Down the road, as more competitors come in from say South or Central America, if they're not following the same set of rules that we follow, then they're going to have, from a financial point of view, a competitive advantage. I think that's very important, not only from a financial point of view, but from a philosophical and humane point of view.

• 1705

That's also why I raised the point about the labour situation, because there as well we have to have a level playing field. Their advantage in those kinds of countries might be a lower wage rate because of their standard of living. Our advantage might be an abundance of energy and natural resources in Canada. But if every country has a level playing field, then really the decisions will be made on what their true strengths are.

Mr. Murray Calder: In that situation, then, obviously we have to take a look at trying to level that playing field out, and our negotiators are going to have to look at that. How do they look at it? How do they approach that? How do you go in to another country and tell them how they should be operating? How do we go about achieving that? It would be like the United States coming back to us and saying “Look here, Canada, you've got to get your dollar up to 85, 90 cents, because in fact that's a motherhood tariff you've been using and you've been quite successful at it”.

Mr. Greg Chamandy: Well, there are standards. For example, when it comes to labour law, there are certain basic elements of labour, starting off with avoiding the use of children. So there's a biological cut-off you can create that says okay, anywhere you go in the world, a person's not a young adult until they're 17 or 18 years old. We can create standards; it's been done. For example, various branches of the United Nations have set certain kinds of standards for medicine and the environment. It's really just a matter of enforcing them and making them an important part of the negotiation. Whether it's effluents into the air or the water systems or that sort of thing, there are all kinds of benchmarks for which, regardless of where you go in the world, they use the same measurement tools.

Ms. Annette Hester: It's okay, I just get all excited. Okay. This is what happens when you get a Brazilian at the table. I think Brazilian negotiators are a lot calmer than I am. I think I'd make a lousy negotiator. But I think we have to also caution—this is a big caution—that every time I hear sustainable development, I hear all the northern panellists talking about environment, while all the southern panellists are talking about hunger. I think in Brazil, for instance... And I don't disagree at all with having some minimum standards as far as child labour is concerned. I think that will be universally accepted. Well, maybe it won't, but I don't see a big issue on that, definitely. When you get to the delicacies of labour law... I believe we have the ILO, which is a forum that has been involved in that. On the other hand, would you like to have imposed in Canada... Brazilians get thirteen salaries, so they have a different—

A voice: Do you mean a thirteenth week? Is that what you're talking about?

Ms. Annette Hester: A thirteenth month. Brazilians have thirteen months.

If we're going to impose standards, are we going to be open, are we going to start imposing them in Canada? I don't know. It's a question I don't have the answer for. But there's definitely a question there.

On the other hand, with the environmental issues, there's a big cost in being environmentally friendly. At the stage of development we see ourselves at in Canada, we have our act together there. But the developing countries make a pretty strong argument for having different standards, at least in starting development. They are very complicated issues, and I think if it has to be part of an FTAA, you'll take just as long to negotiate it as the WTO in that case.

• 1710

Mr. Murray Calder: The reason I've gone along this track of questioning is that I believe there is one question in the last round of negotiations that was never answered. It's a very simple one, and yet it's complicated at the same time. What is the definition of a subsidy? We're not there yet. The reason we're not there, and a beautiful example, is the commodity prices we're experiencing right now.

In the last round of negotiations with the GATT, low prices should stop low prices—meaning that you cannot produce something at a loss for an extended period of time before the bank comes in and shuts you down. Yet we're still producing grain at a loss, and that's six years later. So I don't believe we've got to that point yet where we have a true definition of how we take and handle that beast called a subsidy.

The Chairman: Thank you. I have a few questions as well.

Mr. Weese, I'm going to play the devil's advocate here. I have to say—and the researcher and I were just speaking—this is one of the few papers we have received in favour of continuing the negotiations, enhanced free trade, and we welcome this paper.

From the testimony we've heard across the country, the only people who really benefit from these types of trade agreements are the transnationals. If I were to say “But look at this paper from GE”, the critics would say “Yes, but you see this is our point exactly, it's a transnational”. How would you reply to that?

Mr. Robert Weese: More and more successful Canadian companies, I would argue, are interested in exploiting export markets. There aren't very many... Apart from the hairdressers and the restaurants and those businesses that are not in tradable sectors, there aren't very many Canadian companies these days that look to the domestic market only as the source of their success. So it's not just big transnationals, I would argue, like GE, it's almost any Canadian manufacturing company, and more and more Canadian service companies, that have to tap into export markets, largely the U.S. in the first instance. But more and more of them are now looking to markets further afield and certainly markets further afield than the American, I would argue.

The Chairman: Okay.

Gentlemen, I'd like to ask you a question. You talked about this new bill that I believe is in front of Congress, the Caribbean NAFTA parity agreement. You have a very successful company. You've said you have 5,000 employees, 4,000 of them in the Caribbean and Central America. How does this legislation affect you, the American one? What detriment... I look and see you're already such a successful company. How would a free trade area of the Americas agreement, with Canada as a signatory, help your company?

Mr. Greg Chamandy: That's a very good question. In the kit I gave as a handout I included a copy of the proposed bill the way it's drafted. Specifically, the way it's been drafted, it has been done in a way to exclude Canada from benefiting from the duty relief.

I'll give you an example in my company. We manufacture everything that goes into the shirts we make. So all the fabric is manufactured in Canada. For the U.S. market we sew it in the Caribbean and Central America, and for the Canadian market we sew it in Canada, because Canada doesn't have that access program that they have called the Caribbean Basin Initiative. That program has been so successful for the United States that literally the United States textile industry is booming.

It's also been beneficial for Canadian companies such as myself, who export the fabric into the United States, because we have to export the fabric into the States and cut it into components in the States to qualify. So we ship Canadian fabric, and we cut it in the States; it's now classified, for duty purposes, as American components.

Maybe the panel will be interested to note that Canada has now surpassed China as the largest exporter of textiles into the United States, as of this year. A lot of it is because all the cutters, the people who buy the fabric and cut it, have access to the Caribbean and Central America, where they have a cost advantage for garment assembly, which is the labour-intensive portion of the operation. As a result, they've become more competitive as a domestic industry and much more healthy. They're able to compete with companies from the Orient, etc.

• 1715

The reason the new proposed legislation is prejudicial to companies like my own and other Canadian companies is because of the way they've drafted it. They specifically said that unless you manufacture your fabric in the United States or in the Caribbean, you can't benefit from zero duty. In other words, they're eliminating the duty only on fabrics that are made in the Unites States or the Caribbean and sewn in the Caribbean. So they specifically went out of their way to exclude Canada.

We have the point of view in our company that we think it was specifically identified to target us. So we engaged a lobby firm in the United States, one of the top... they're rated number two by Fortune magazine in terms of power. It's called Barbour Griffiths. Haley Barbour is the head of the American Republican Party. They created a transition rule that would get us into it. And as a result of some of the headway we've been making with politicians in the States to get included into the bill, Fruit of the Loom, which is our major competitor, has issued a letter to all the congressmen and senators accusing us of being a Canadian company that's dumping in the U.S. market, because they can't figure out why we're able to be so competitive with them.

That's why we believe they specifically went out of their way to target people like ourselves, we think specifically us, because we are the largest Canadian company in this field. We are the only ones in our whole industry in North America that are growing, so we're a real thorn in their side. As a result, they're using these trade rules to try to hurt us.

The reason it's very distasteful for me is that Canada as a country... I've knocked on every minister's door that you can imagine, and there's nothing Canada could do to help us as a company. It's really disturbing, because the Americans are making other side deals, in electronics and other industries, similar to what they're doing in the textile business, that are going to give their companies a jump.

Let's say the target for free trade area of the Americas is 2005. By the time Canada has the ink dried on the paper, because of all the bilateral agreements the Americans are making to support their own companies, their companies are going to be over there in full force. If you went over to Honduras today, you would be amazed. It looks like the 51st state. Every single industrial park is just jammed with American companies. In fact we've never seen one Canadian company.

One of the largest industrial developments of industrial parks in San Pedro Sula has all these flags on the front of the building. When we entered there and signed our lease, we specifically said they had to put up a Canadian flag, just to let them know we were there.

That's really the message I was trying to tell you, why it's so disturbing. We have to really be on the alert and make sure we don't get sideswiped by our American competition. This is not just in the textile business, but this is electronics, this is housing, this is anything you could imagine that could go on in the region.

The Chairman: Thank you very much.

Let me ask you a quick question. You had stated that one of the things you find, doing business in Brazil, is that you needed a lawyer everywhere locally. In Mr. Weese's presentation he talked about the need for transparency. Is this the problem—there's a lack of transparency? Is that why we need a local lawyer wherever you go?

Ms. Annette Hester: I don't think it's a matter of transparency; it's a matter of complying with the legal requirements of the country. You can't do business in Canada without having a Canadian lawyer.

The Chairman: So you're saying it's still transparent, it's not a question of transparency? Maybe I misunderstood.

Ms. Annette Hester: No, it's just complication. I wasn't saying it's a matter of transparency; I'm saying it's a matter of adding new layers. I'm just thinking of this predicament, in which in order to understand the full implication of the trade agreement, and now a new initiative by Americans, it's getting so confusing... it's confusing, case in point.

The Chairman: Mr. Chamandy.

• 1720

Mr. Greg Chamandy: One thing you have to understand is that because of the disparity between the rich and the poor in most of these countries, it's like a triangle—it's very thin at the top. It's a very incestuous relationship. The people at the top all know each other. So in addition to needing a lawyer because of the legal requirements, you really almost pick a lawyer because of connections as well as knowledge. The lawyers in those countries, from our experience, act as your Sherpa guides. They make sure you meet the right people and advise you who's honest and who's not honest. For example, in Central America, even if you go to court with them, there's no point. So you're really on the honour system. You have to know who you're dealing with, in addition to knowing the laws.

Just to give you a case in point, with every single contract we make, we always make sure to have a clause that any kind of legal situations get settled in Florida, because we can't rely on their legal systems.

The Chairman: Do you find that the corruption and the bribery still continue to be high? How do you deal with that now, with the OECD convention on foreign corrupt practices—the corruption of foreign officials act we passed in December?

Mr. Greg Charmandy: In our particular case, we never come across any situations where there's bribery because we don't sell in the local markets. We produce in controlled enterprise zones. They are bonded tax-free zones. They don't tax the operating company there because you're only manufacturing for assembly and processing for further exporting. So we don't come across that.

In terms of collusion, there's definitely collusion in Central America. For example, in Honduras, maybe six major families control all the real estate. So they get together at the same social club and agree what the price per square foot for rent will be. There's nothing you can do about that.

Ms. Annette Hester: That might be the case in smaller economies, but it's not the case in Brazil. Brazil is pretty big and there are a lot of people.

Also, there's a great push from the Brazilians—I think it was alluded to in the GE presentation—for a different, more modern economy, for that matter. So the Brazilian oil and gas regulator in the Brazil round one is very transparent. Every question asked of the regulator is posted on the net with the answer. It's a very transparent process.

However, choosing as your counsel somebody who knows the industry is good business practice. I would do so in Canada. You get a lot further in Canada if you have a legal counsel who knows how to manoeuvre in Ottawa than if you don't. That's not unusual.

On the other hand, on the issue of the trade agreements, the number of legal counsel who understand those trade agreements is also limited.

The Chairman: Ms. Smith, I have one last question for you. You talked about the implementation of the FTAA competition policy and you suggested an incremental approach. What kind of time span are you talking about? Even with the WTO and some of the obligations of the smaller economies, one of the problems is they haven't been implemented. So realistically, what kind of timeframe are we looking at to implement these things? Again, how do we enforce the implementation?

Ms. Patricia Smith: We really haven't had any discussions about timeframes. I think there would probably be a number of different timeframes.

You need a couple of things. You need a sort of framework for the institutions. If you have a well-developed court system and a well-educated group you need, God forbid, economists and lawyers to run a competition authority. So countries with those would be put on a faster timeframe of maybe five years, to get it up and running.

For other countries without those, this has to be discussed in terms of technical assistance. What do they need to get them to the point where they are ready to accept a competition authority? Just giving them a law and having them sign it won't help us a lot. So this is part of the negotiation, and the quid pro quo will be technical assistance.

The Chairman: Okay. Thank you very much. Thank you all very much for coming. Thank you for a very good question and answer session.

As we state whenever we meet with witnesses, this is only the beginning of the process. We see this as an ongoing dialogue. We would ask you, if there are other issues you want to bring to the committee's attention, to please do so.

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We plan to have our report in September, so we have a long time before the report is prepared. I thank you again for coming.

The meeting is adjourned to the call of the chair.