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37th PARLIAMENT, 1st SESSION

Standing Committee on Foreign Affairs and International Trade

EVIDENCE

CONTENTS

Tuesday, February 26, 2002

0905

The Vice-Chairman (Mr. Bernard Patry (Pierrefonds--Dollard, Lib.))

Mr. Louis Bélanger (Director of the Institut québécois des hautes études internationales and Professor of Political Science, Laval University)

0910

Mr. Richard Ouellet (Regular Member of the Institut québécois des hautes internationales and professor of law, Laval University

0920

Mr. Gordon Mace (Director of Inter-American Studies at the Institut québeccois des hautes études internationales and Professor of Political Science, Laval University)

0925

0930

The Vice-Chair (Mr. Bernard Patry)

Mr. Ivan Bernier (Regular Member of the Institut québécois des hautes études internationales and Associate Professor, Faculty of law, Laval University)

0935

0940

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Bélanger

0945

The Vice-Chair (Mr. Bernard Patry)

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ)

Mr. Dubé

0950

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Bélanger

0955

The Vice-Chair (Mr. Bernard Patry)

Mr. Ivan Bernier

Mr. Antoine Dubé

Mr. Ivan Bernier

The Vice-Chair (Mr. Bernard Patry)

Mr. Richard Ouellet

The Vice-Chair (Mr. Bernard Patry)

Ms. Marleau

1000

Mr. Louis Bélanger

1005

Ms. Diane Marleau

Mr. Ivan Bernier

Ms. Diane Marleau

Ms. Marleau

1010

Mr. Ivan Bernier

Ms. Diane Marleau

Mr. Ivan Bernier

Ms. Diane Marleau

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Bélanger

1015

The Vice-Chair (Mr. Bernard Patry)

Mr. Gordon Mace

Mr. Ivan Bernier

1020

The Vice-Chair (Mr. Bernard Patry)

Mr. Richard Ouellet

Ms. Marleau

Mr. Richard Ouellet

Ms. Marleau

1025

The Vice-Chair (Mr. Bernard Patry)

1035

Mr. Benoît Carmichael (Full Professor, Department of Economics, Laval University)

1040

1045

1050

The Vice-Chair (Mr. Bernard Patry)

Mr. Dubé

1055

The Vice-Chair (Mr. Bernard Patry)

Mr. Benoît Carmichael

1100

Mr. Antoine Dubé

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Ms. Diane Marleau

Ms. Marleau

1105

Mr. Benoît Carmichael

Ms. Marleau

Mr. Benoît Carmichael

Ms. Marleau

Mr. Benoît Carmichael

Ms. Diane Marleau

Ms. Marleau

1110

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

1115

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Mr. Antoine Dubé

Mr. Benoît Carmichael

1120

Mr. Dubé

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Ms. Marleau

Mr. Benoît Carmichael

Ms. Marleau

Mr. Benoît Carmichael

1125

Ms. Diane Marleau

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

1130

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Ms. Diane Marleau

The Vice-Chair (Mr. Bernard Patry)

Mr. Benoît Carmichael

1135

The Vice-Chair (Mr. Bernard Patry)

Mr. Antoine Dubé

Mr. Benoît Carmichael

1140

Mr. Dubé

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Ms. Marleau

Mr. Benoît Carmichael

1145

Ms. Marleau

Mr. Benoît Carmichael

Ms. Marleau

Mr. Benoît Carmichael

Ms. Marleau

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

Mr. Dubé

Mr. Benoît Carmichael

1150

The Vice-Chair (Mr. Bernard Patry)

Mr. Benoît Carmichael

The Vice-Chair (Mr. Bernard Patry)

1410

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Balthazar (Professor Emeritus, Department of Political Science, Laval University)

1415

1420

1425

1430

1435

1440

1445

1450

The Vice-Chair (Mr. Bernard Patry)

Mr. Dubé

1455

Mr. Louis Balthazar

1500

1505

The Vice-Chair (Mr. Bernard Patry)

Ms. Marleau

Mr. Louis Balthazar

1510

1515

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Balthazar

1520

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Balthazar

The Vice-Chair (Mr. Bernard Patry)

Mr. Dubé

1525

Mr. Louis Balthazar

1530

1535

The Vice-Chair (Mr. Bernard Patry)

Ms. Marleau

Mr. Louis Balthazar

Ms. Marleau

Mr. Louis Balthazar

Ms. Marleau

Mr. Louis Balthazar

1540

The Vice-Chair (Mr. Bernard Patry)

Mr. Louis Balthazar

CANADA

Standing Committee on Foreign Affairs and International Trade

NUMBER 060

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, February 26, 2002

[Recorded by Electronic Apparatus]

¿ (0905)

[Translation]

The Vice-Chairman (Mr. Bernard Patry (Pierrefonds--Dollard, Lib.)): [Editor's Note: Technical Difficulties] ...on the G-8 and North American relations. Our group is presently in Quebec City and the other group, with our chair, is in Atlantic Canada.

So welcome to these hearings of the committee on the examination of the two important aspects of Canada's role in North America and abroad. The members of the committee are anxious to hear the comments of the population on the challenges facing Canadian foreign policy within the G-8 and the North American context.

Canada is chairing the G-8 this year and will be hosting the summit in Alberta in June. The major priorities of the summit concern improving the world economic climate, establishing a new partnership for the development of Africa and maintaining the fight against international terrorism.

Canada is putting particular emphasis on the preparation of an action plan for Africa. The committee must submit its conclusions and recommendations to the government by the end of April, at the latest. These public meetings to hear what Canadians think are at the heart of the process. This week, one group of members of this committee is holding hearings in Quebec and another is in Altantic Canada. In early April, this stage will wind down after hearings in the West and Ontario.

In view of our time and budget constraints, we will take this opportunity to hear the point of view of Canadians on the future of our North American relations. We are interested in any comment on Canada-USA relations, Mexico-Canada relations as well as continental and trilateral relations within the context of a longer term study that will be reported on later during the year. This is the beginning of a dialogue. Information on those two studies can be obtained on the committee's website.

We would invite other Canadians to share their views with us. Please note that briefs concerning the G-8 must be presented by mid-April, at the latest, while those concerning the examination of North American relations must be submitted by the end of June.

So, this morning, pursuant to Standing Order 108(2), the committee is holding public hearings on North American integration and the role of Canada facing up to new challenges posed by security as well an examination of the 2002 G-8 summit program.

We are pleased to welcome our witnesses this morning. We will hear Mr. Louis Bélanger who is the Director of the Institut québécois des hautes études internationalesand professor of political science at Laval University; Mr. Ivan Bernier, regular member of the institute and associate professor at the Law Faculty, Laval University; Mr. Gordon Mace, Director of Inter-American Studies at the institute and professor of Political Science at Laval University; as well as Mr. Richard Ouellet. regular member of the institute and professor of law, Laval University.

I would first ask Mr. Bélanger for his comments and then I'll ask the other witnesses to continue.

Mr. Bélanger, please.

Mr. Louis Bélanger (Director of the Institut québécois des hautes études internationales and Professor of Political Science, Laval University): Good morning, Mr. Chairman. Good morning members of the committee.

I'm here before you today with some of my colleagues from the Institute who managed to free themselves up. I know that today and even tomorrow, in the case of Mr. Michaud in Montreal, you will be hearing other members of the Institute and I am happy about that.

The Institute itself cannot, according to its own statutes, take any position on matters of public policy. So, of course, each and every one of us appearing here this morning will be addressing the items on the agenda as individuals.

First of all, I'd simply like to introduce each one of the members of the Institute with me today and identify the items they wish to address and I will then give them a few minutes to add to whatever I've said.

I will first introduce Ivan Bernier, a professor at the Law Faculty and a specialist in international economic law. He has signed a number of studies on the North American Free Trade Agreement, NAFTA, and the WTO. Ivan Bernier is more specifically interested, these years, in how culture is treated in trade liberalization agreements and the implementation of an international instrument for the protection and promotion of cultural diversity. Our colleague, Mr. Bernier, would like to perhaps intervene this morning concerning the cultural aspects of economic integration and the choice of models in that field available to Canada.

Professor Gordon Mace is a professor of political science and director of the research program at the Institute on Inter-American integration and cooperation. Our colleague, Mr. Mace, is coordinating an important research project, these days, at the Institute on the impact of NAFTA on the foreign policies of Canada, the USA and Mexico. So his presence here is quite relevant. Gordon Mace would like to say something this morning about the regional and multilateral strategies Canada should deploy to help it manage its bilateral relations with the USA.

Professor Richard Ouellet, from the Law Faculty, is a specialist in trade law and, more particularly, WTO treaties. As such, he would like to intervene concerning the place that the negotiations beginning at the WTO should take up on the G-8 agenda. Professor Ouellet would mainly like to emphasize, in a context of growing economic integration with the USA, the importance for Canada of maintaining its capacity and independence to intervene on the multilateral stage and work to reinforce the dispute settlement mechanism.

Finally, I will be pleased to react to a preliminary report on Canada and the North-American challenge by emphasizing three points: the importance for Canada to try to obtain, in the present context, gains in terms of governance, beyond immediate economic and security gains; the importance of being aware of the highly political nature of globalization; and the importance for Canada to invest in the development of qualified human resources within and outside of External Affairs in order to manage our North American relations in a efficacious manner.

I would ask Richard Ouellet to begin with a few words. I imagine, Mr. Chairman, that you will then take care of the rest of the procedure.

¿ (0910)

Mr. Richard Ouellet (Regular Member of the Institut québécois des hautes internationales and professor of law, Laval University: Thank you all for coming here to hear us this morning.

Lately, I've been looking at the documents available on Internet such as an overview of the files and the key questions to be submitted to public debate. I understood that this was a document prepared by the Parliamentary Library Research Services. Of course, given my area of expertise, I mainly looked at what I could actually comment on correctly and relevantly. So I looked at everything dealing with economic integration with the USA, with an emphasis on Canadian-American trade relations.

I'd like to make a brief comment. I was struck by a sentence I found in one of the documents under the subtitle “Questions concerning economic integration”. I read the following:

In view of the September 11, 2001 events and increased American concerns about security at the Canadian-American border, it is highly unlikely that economic relations between Canada and the U.S.A. will remain unchanged. It is therefore relevant to examine the matter of North American integration.

After that sentence comes a series of economic integration options that Canada might look at in dealing with its southern neighbours. One of the things that are said is: “Based on the principle that the status quo is improbable, many possibilities may be envisaged”. That's where there is the mention of a possible customs union with the U.S.A. “under which the signatories would renounce part of their strategic freedom in exchange for economic advantages and accept to adopt a common foreign trade policy which would eliminate the necessity of restrictions such as rules of origin”.

There are also other options that would go even further. It says “a common market could be set up within which the harmonization of member countries' policies would be considerably increased, with goods, services and workers being mobile”.

One could also “have an economic union such as exists within the EU normally leading to the harmonization of domestic social and economic policies as well as the adoption of a common monetary policy”.

I found that the events of September 11 are being blamed for just about everything. If it is true that we should be conscious of a new international situation in matters of security, if it is true that we must cooperate with our southern neighbours, and I'm not denying that in any way, and if it is true that we have to rethink how we act in those areas—and I want to make it clear that I'm not an expert in security matters—I thought that if we had to go towards North American integration, maybe we should do it for the right reasons. The September 11 events were perhaps not the best of reasons.

Why am I making this comment? Especially in the context where we are looking at pursuing integration, this supposes, and the document sets it out well, that we will incorporate in some way and in some measure our trade policies with those of our southern neighbours. Now, Canadian trade policies have interests that are not necessarily the same as the American interests and it is in that sense that I would like to intervene. It is not that I want us to distance ourselves from the Americans and adopt a protectionist stance toward them, because that is not at all what I intend to say, but, because I see the document going a bit too fast in the other direction, it seemed to me I had to intervene to show a bit of the other side of the coin.

Canadian interests are not necessarily those of the USA, as I said. I don't think I have to go on at length about agricultural subsidies and supply management systems where our views diverge from those of the USA.

There is also the matter of energy, in other words everything having to do with electricity management, deregulation or regulation of electricity; the questions concerning oil; oil-related issues; the issues about drinking water, that are a concern for many Canadians and which, as you know, in the context of NAFTA, mean that we would lose part of our control over the trade of drinking water if we were to sell it to our southern neighbours through an aqueduct.

There are more sectoral questions such as milk, steel, wheat and tomatoes, that divide the Canadian and American economies. There are cultural matters that Professor Bernier will deal with far more competently and with far more expertise than I could.

There's the whole matter of health care. As you know, the price of medication is a question that is subject to broad disagreements between Canadian and American political men.

Of course, we have a lot in common with the USA and I would like this to be understood in what I say. There are benefits to be had from economic integration with the USA, but before integrating, as the document sets out, common policies in the area of foreign affairs... These are terms that sent a little shiver down my spine and that's what I'd like to react to.

There's another reason for going slowly in using the words I have just read to you. You know it is important that Canada benefit from an effective dispute settlement system. The trade dispute settlement system between Canada and the USA must work well for integration to work well. I don't want to sound too prodigal, but I would say that our neighbours to the south often hold adamantly to a certain number of policies that do not quite comply with some of the rules of the World Trade Organization or NAFTA. Once again, I don't think I have to say much more about the softwood lumber affair. You are all aware of the fact that, although American and Canadian domestic legislation and international law do not justify measures as drastic as those taken by the Americans since the end of the softwood lumber agreement, the Americans will not hesitate to do certain things and make certain decisions.

I would also like to mention a more recent decision made in the context of the World Trade Organization, the foreign sales corporations affair. The Americans were giving billions of dollars in subsidies to a certain number of corporations. These were actually export subsidies. The WTO condemned that system, which was attacked by the European Union. As we speak, unless I'm not quite up to date, that decision still has not been implemented. The Americans may still potentially lose billions of dollars in sanctions if the decision isn't implemented. And yet, for anyone following what's going on in this area, the system was clearly not in accordance with World Trade Organization rules.

You certainly are also aware of the attitude the Americans adopted in the agricultural area—I'm going back very far here—in the 1950s with their Agricultural Adjustment Act which justified a whole series of interventions, in agriculture in the USA, that were not in accordance with GATT regulations but that were accepted by the general council as an exception. This led to a whole new development, during the 40 following years, in agricultural trade and little by little this excluded agricultural trade from the enforcement of GATT regulations. Once again, a certain attitude led to that.

You also are aware of the decision made, two years ago now, on clauses 301 and 310 of the 1974 American legislation on foreign trade. Once again, they took steps that weren't quite in accordance with international trade rules. This was the application of unilateral sanctions in cases where American interests, in the opinion of the Americans, were infringed upon.

So it is important to preserve a system that will be clear, sure and effective to settle disputes. Every time we push for economic integration with our southern neighbours, we must preserve the possibility to say or do what is correct or not according to mutually-agreed upon rules. I find that extremely important. The incorporation of common policies should take that into account if we have to go that far. In my opinion, this is of capital importance for Canadian interests.

¿ (0920)

That's the essence of what I had to say about those little sentences that surprised me a bit in all of the documents I read. I also want to say that, as a whole, the quality of the documents is very good. Also, I want to make a little comment, as professor Bélanger said, about the role the G-8 could play during the next unilateral trade negotiations.

Again, my comments are rather general. You can see that my comments are not revolutionary in any way, but I think those things must be kept in mind. The dynamics at the World Trade Organization are not the same since China came in, since Doha.

You have seen that the developing countries can now influence the economic agenda and that wasn't the case at all before. In the case of the Doha Conference, I'm mainly thinking about pharmaceutical drugs. I think it wouldn't have been possible before that. Developing countries are taking up more room in multilateral negotiations. I think that China's entry is contributing to awareness and the staking out of new ground.

As far as I know, based on the WTO secretariat and from what we can find in the literature, the famous quadrilateral system which meant the main decisions were made by the USA, the European Union, Canada and Japan, thus placing all the other countries before a fait accompli will never work again. We have to take these new dynamics into account and the G-8 will have to be aware that the dynamics have changed. I wonder if the G-8 isn't going to have to become a player or become aware that it's not a player. In any case, a lot of thought will have to go into this because the dynamics will never be the same again.

Those were the general comments I had about the documents I consulted.

Mr. Gordon Mace (Director of Inter-American Studies at the Institut québeccois des hautes études internationales and Professor of Political Science, Laval University): Good morning. First, I apologize for not having written a report for the committee. We're in a period where we have to produce texts, etc. If I had to, I would have entitled the report “Staying the course in Canadian foreign policy in the Americas”.

I read the preliminary report produced in December 2001. In this report, you can see that the committee is very concerned with the September 11 events and their follow-up. I for one would say that I'm quite in agreement with professor Stairs' opinion, in other words I do not think that those events will change the fundamental Canada-USA relationship.

When you look at the situation of the last few decades, you see that trade and security were always very important concerns in USA foreign policy and that, depending on the time or cycle, they have always emphasized both of those themes. Just remember the Cold War from 1958 to 1962; you'll also remember, in the area of economics, the Nixon measures of 1971 or American trade laws of the 1980s. In all of those cases you were dealing with aggressive manifestations of American foreign policy in both of those areas. Canada was not affected but it always had to react. So, to a certain extent, it could be said that Canadian foreign policy was always an art, the art of maintaining a certain balance: the balance between maintaining good relations with the USA, on the one hand and, on the other, the affirmation of our Canadian personality and the defence of Canada's national interests in other regions or other forums. To me, that seems to be a constant theme in Canadian foreign policy that will always have to be present.

So, the events of September 11 are important but, to my mind, they don't change the fundamental relations. On the other hand, there were two fundamental changes during the last 15 years. The first is the greater vulnerability of Canada: economic vulnerability but also global vulnerability. When over 80% of your foreign trade goes to a single market then, naturally, you have less leeway than you had before, so that if the Canadian response to the Nixon measures was the third option strategy, in other words trying to counterbalance by looking elsewhere, the answer to the 1980s trade legislation was NAFTA. That is a fundamental change in foreign policy. So the first great change is Canada's greater economic vulnerability which decreases our leeway.

The second great change is NAFTA itself, of course, and the new economic management framework it imposes on North America. Canada must now conduct its relations with the USA based on those two constraints that greatly decrease its leeway.

What should Canadian strategy be in this respect? It seems to me we have no choice. We actually have to maintain our bilateral relations with the US. There are a certain number of questions—softwood lumber was mentioned and we could talk about the management of Great Lakes water—that can be settled only within the framework of that relationship.

So there is a strong natural temptation to concentrate on that relation but it is also a temptation that we must try to reject as much as possible. Taking into account Canada's greater vulnerability, if we get tied up in a bilateral relation, then our leeway is just about non-existent. So we have to find something else to offset our vulnerability. Of course, Canada not being what it used to be on the international stage, it can't pretend to find this counterbalancing factor in other areas of the world, in Europe or in Asia or so forth. I think that Canada's natural counterweight is now the Americas. So we have to pursue multilateralism, but in the Americas. The first framework for action is NAFTA and within NAFTA, I think we have to try to develop a far broader partnership with Mexico.

In the report, I noted a comment made by Mr. Sands; according to his view, there is going to be two-speed integration in North America: Canada and the USA on the one hand, and Mexico and the USA on the other. Naturally, that might seem fine for Canada, but it is very dangerous. The danger in that, naturally, is the hub and spokes model. The USA winds up at the centre of a series of agreements and they can then play off their partners one against the other. That's what Canada tried to avoid by signing on for NAFTA. So I think that playing into this logic of two-speed integration would be extremely dangerous for Canada.

We thus have to put a lot more work into our relations with Mexico even though the situation of both countries is rather different. At first glance, we can see that the languages are different, that the cultures are different, that the levels of development are different. Naturally, in the past, Canadian foreign policy was always to look down on the rest of the Americas, based on our traditions.

Despite all that, when you look at the strategy, the macro-economic and foreign policies of those countries, it is striking to see that over the last 30 years they've followed exactly the same road. So it is manifest that we have common interests. I read the reports concerning last week's visit of Minister Castañeda who said that the North American security perimeter had to be negotiated together and not separately.

So I'd say that we must pursue the multilateral avenue and emphasize it within the NAFTA framework. We must also pursue it in the framework of the rest of the Americas. I think that the Americas have now become our counterweight in our relationships with the USA.

In a moment of aberration in the past, I once spoke about developing a symphony of medium powers in the Americas. Of course, that was probably wishful thinking but, in any case, we have to think about far closer partnerships between countries at the same level. I'm thinking of Mexico and Brazil. I was thinking about Argentina, but maybe that will come a bit later. I'm certainly thinking about Chile. So, we must develop partnerships with those stakeholders who are in a relatively similar situation in the strategic game of the Americas.

¿ (0925)

I think that is where our future lies, if we want to maintain the latitude we have in our foreign policy. I think the committee should encourage the government to proceed in this direction.

I will stop now and turn the floor over to Ivan, and to leave time for a discussion afterwards.

¿ (0930)

The Vice-Chair (Mr. Bernard Patry): Mr. Bernier, please.

Mr. Ivan Bernier (Regular Member of the Institut québécois des hautes études internationales and Associate Professor, Faculty of law, Laval University): Thank you.

I'm going to speak briefly about a point raised by Richard Ouellet, namely the different integration models available in the context of greater integration with the United States.

I think that all hypotheses other than a free trade area, including a customs union with common trade policies, a common market, even more so, and economic union with common currency and common policies, etc., necessarily raise a major problem regarding the decision-making authority in the operations of these arrangements.

Whenever a power such as the United States is dealing with Canada and Mexico, in the determination of a common policy, there are two possibilities: either the United States agrees, or it does not agree. If it does not agree, the policy does not go forward; if it agrees, it goes forward.

The question is whether two countries could manage to oppose an American policy. The question remains outstanding, but as you might imagine, this is not an arrangement that promises to be particularly functional in decision-making terms, unless we give in most of the time. I think that is a serious problem, and one that will have to be dealt with some day if we try to find solutions along these lines. However, at the outset, it is not clear that this could be a solution to the problem.

I will come back to my personal comments about the subject of this meeting. In the aftermath of the events of September 11, there is one dimension that has been mentioned sometimes, but which tends to be skirted or swept under the carpet very quickly: namely the cultural dimension of those events.

What happened on September 11 was clearly terrorism, but in the response to these events, there is a problem with the understanding of other cultural viewpoints. I think this lies at the heart of the process of trade liberalization and economic integration. These processes cannot go forward if they are not accompanied by a cultural rapprochement, a process that facilitates the adjustments required as a result of the implementation of these integration agreements or trade liberalization programs.

It must be understood that all these agreements have a major impact on a society's behaviour, arrangements and values. Inevitably, the implementation of these arrangements and values will require the adoption of viewpoints that were not necessarily those held formerly, and an awareness of the economic dimension at the expense of other cultural concerns. These adjustments will be particularly difficult if no mechanisms are established to deal with them.

¿ (0935)

In all the debate that has taken place in the last six months, mention has rarely been made of this aspect. I must say that this concerns me. Whether we are talking about our relationship with the United States or in the context of NAFTA, the FTAA negotiations or the WTO negotiations, I think that in all these areas, Canada has an important vision about the role of culture in trade liberalization and economic integration. Canada has sought this vision, and to some extent has managed to put it forward in the context of its own negotiations with the United States, in its negotiations on the Canada-US Free Trade Agreement. It is still maintaining this vision in its approach regarding hemispheric integration, and in the context of the WTO negotiations.

I think that in any review of our policy on the US following the events of September 11, and the way in which we should reorganize or refashion our relationship with the United States in this context in the future, Canada must absolutely continue to defend specifically the importance of the cultural dimension of these phenomena. This is a contribution it must make, I believe, because Canada understands this problem and must seek to have its partners understand it, particularly the United States. This is not an easy task, but I think it is something we absolutely must do.

I would like to move to a second point in the context of hemispheric integration. I think that in this type of negotiation, we find ourselves confronted with two integration models that are quite different, and that will necessarily raise problems when the time comes to structure a final agreement regarding trade liberalization for the hemisphere.

The first model is NAFTA. This is a relatively simple model, structured in a very legal manner, with deadlines for the implementation of changes, the elimination of duties and the elimination of elements that are incompatible with the agreement. Finally, the whole agreement is structured very precisely and very few things have been forgotten, so much so that when we look at the text of the North American Free Trade Agreement, we realize that it is about three or four times the size of the Treaty of Rome, which established the European Common Market. When we compare it to the agreement on MERCOSUR, which is six or seven pages in length, we see that it is a very different document. It is an agreement that functions on its own, and that sets its own deadlines. Everything is provided for in legal terms, with a margin for proceeding more quickly or for making changes. Generally speaking, it is an agreement with its own features, which is quite different from the MERCOSUR agreement, which is the other model.

The MERCOSUR, compared to NAFTA, is an economic integration model based on the political dimension of trade. The text is relatively brief and the commitments as well, but everything is constantly evolving. The parties must constantly negotiate clarifications to the document and ultimately, the role of politics is much greater in this agreement than in NAFTA. In fact, the very operation of an integration model such as the one used in the MERCOSUR has to deal with tit-for-tat problems. Something is not working, one country will suspend its commitments, will try to negotiate a temporary exception with its parners, or temporary permission to achieve certain objectives. A strict application of this agreement is in no way comparable—I'm referring to the MERCOSUR—to the NAFTA. With two such different integration models, the question is which one will win out.

If we adopt a model such as the one used in the NAFTA, which is very legal, and very specific in the way it works, it is very likely that a number of Latin American countries will quickly find themselves in difficulty in the implementation of these commitments. And once they are unable to meet a particular obligation, they would be in default with respect to their commitments and would be unable to maintain the liberalization process set out in the agreement. In the case of the MERCOSUR agreement, on the other hand, political commitments often form the basis of the operation of the agreement.

A free trade area structured along the lines of the MERCOSUR model would probably be unacceptable to Canada and the United States, and likely for Mexico as well, but would NAFTA be acceptable to the Latin American countries, without any reference to the political component, which they consider absolutely crucial in their particular situation? I think that is doubtful as well.

So a compromise must be found somewhere, but I cannot tell you exactly where that will happen. In my view the question remains unanswered.

¿ (0940)

The Vice-Chair (Mr. Bernard Patry): Thank you very much.

Mr. Louis Bélanger: I will make my presentation very quickly. Many of the things that I would have liked to have said have been raised by my colleagues.

As I said, I will make three points: one on governance in our relations with our North American partners, one on globalization, and one on what I call human capital. You will see what I mean by this term.

I am in considerable agreement with the view of Gordon Mace and that of John Kurton as stated in the preliminary report on governance, or on constitutional mechanisms.

I think that since September 11, we can see a continentalization in the area of security and the economy, both in the Americas, in North America, but also in Europe, on the one hand, and, on the other hand, what might be described as a type of crisis or a marked slowdown in global multilateralism.

We have seen a number of phenomena which mean that it will be increasingly difficult for Canada to find counterweights outside the North American context, either in Europe, or in the global multilateral system. Even though I think we must continue to work to try to find these counterweights, they will be increasingly difficult to find, and Canada must be realistic in this regard.

In such a context, it is important for Canada to try to develop, through the North American system, governance mechanisms, institutions that will enable it to establish political instruments that will allow it to make itself better known and to better control its asymmetrical relationship with the United States.

With respect to the dilemma raised by Gordon Mace and other witnesses, I think we must start by resisting the inclination to deal with each cooperation problem with the United States on an ad hoc basis. This is what they will inevitably try to do in the case of the economy and security. So we must try to resist the temptation to establish quick dispute settlements with them in exchange for sacrificing future advantages. As we have seen clearly in the case of softwood lumber and the security perimeter, the Americans get us to negotiate ad hoc arrangements, non-institutional arrangements, arrangements outside NAFTA, and outside institutional agreements.

I think there's often a great temptation to reach quick compromises with the Americans, because there are some urgent short-term economic gains for us. However, I think that if we do this, we are agreeing to an approach that is a losing one for Canada.

Should we be more open to Mexico? Here again, I fully agree with Kurton and Gordon Mace. Once again, we must resist the urge to settle up quickly, on a bilateral basis, issues on which we could try to achieve a three-way partnership, which, even if it is more difficult to design initially and even if it may delay solving some problems, will be beneficial to Canada in the long term. So we must set medium and long-term objectives and resist the appeal of short-term benefits.

Finally, we must avoid defining grandiose regional governance projects which will merely frighten the United States, and simply confuse things. We should, rather, establish a strategy whereby we can integrate our objectives regarding institutional gains, about which I've just spoken, into each strategy, and into each negotiating situation: free trade, continental defence, security, immigration, etc.

So we should adopt a gradual strategy and avoid establishing joint continental projects, which, in my view, might cause us to lose some small possible victories in an attempt to achieve certain unrealistic objectives.

As regards globalization, I think September 11 can teach us something interesting. September 11, the crisis in Argentina, the reaction of the US, and so on, all show us very clearly that the globalization process, for those who had not yet understood this, is an eminently political, reversible and fragile process, and that trade liberalization, like globalization, can be damaged by politics, particularly by security policies. Consequently, the fragility of globalization should inspire the government of Canada and encourage it, in my view, to provide better political support for free trade, through a renewed approach. In this context, I think the Canadian government should show more openness. It should stop apologizing for favouring free trade and should develop an approach based on the ethical aspects of a free-trade policy.

The polls show very clearly that the support for free trade and what is generally called globalization among Canadians is very closely linked to the level of education. I think there's a message here that should not be ignored.

On the subject of human capital—and this transition is easy for me—I think that generally speaking, and this is an aspect that appears in the preliminary report and which I fully support, the government must do more to increase the level of technical knowledge, the level of technical skills of the staff of the Department of Foreign Affairs, of the academic community—and here I am speaking for my own group—and of the Canadian public generally.

The Department of Foreign Affairs has done a great deal in the last year. It has increased the salaries of foreign service employees, but the conditions of work remain difficult, and often frighten off talented young Canadians and cause some to resign. I do not think we can deal with North American challenges if we do not have the skilled, high-quality human capital we require. Canada has proven that in asymmetrical negotiating situations, the high quality of its staff and their technical expertise enabled them to make some tremendous gains.

I think that at the moment, in a North American context, this advantage Canada has is jeopardized. The Canadian government should invest more in its foreign service. The Canadian government should also invest more in the general expertise on foreign policy in Canada. I would add that the Department of Foreign Affairs should stop supporting scientific production and studies on international relations in Canada based on certain fashions—such as human security and collective security—involving institutes that disappear, and centres that come and go, and should rather define a policy to support the skills, knowledge and expertise fundamental to an effective Canadian diplomatic service.

Those are the three points I wanted to make, Mr. Chairman.

¿ (0945)

The Vice-Chair (Mr. Bernard Patry): Thank you very much, Mr. Bélanger. I failed to mention that with me today is our clerk, Mr. Roy, and our researcher, Mr. Haggart.

We also have with us Mr. Antoine Dubé, the Member for Lévis, on the other side of the St. Lawrence River, and Ms. Diane Marleau, who is the Member for Sudbury. We will begin our question and answer period.

Mr. Dubé, please.

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Thank you for appearing before us today. I think the notice may have been short and the documents long. I am an alternate member, not a regular member of the Foreign Affairs Committee. I work mainly on the Sub-committee on Human Rights. Since the election, I have focused my work on that area.

You raised many points, each of which deserves exploration. Strangely, my questions will be on points that you did not raise.

For example, there is increasing discussion about the American dollar and the idea of having a common currency. I know that it did not work in the case of Argentina. I think that the experience there could be called a failure. Nonetheless, there are people who think that it would be worth looking into this matter further. In my political party, it has even been suggested that not a common currency but at least an institute be created to study the issue. I would like to have your personal opinion on that. You did say that the institute did not take a position on political issues. This would be such an issue, I believe.

Mr. Bélanger, I do not know whether I understood you correctly, but you talked about a “continental house.” From my point of view, free trade, free trade agreements and even the FTAA are forms of collective protectionism. We are reacting to other circumstances, including the European Common Market. By wanting to create a similar situation here, perhaps not in the same way, although there are countries in Europe... One example that comes to mind is Norway, where the public turned its back on the European Common Market in a referendum. Yet that country is not in a terrible economic situation.

I mentioned the continental house as a segue to another point. The members of the committee know that I have a hobby horse: shipbuilding.

In your opinion, why has the United States never been willing to make shipbuilding and shipping part of NAFTA? They have kept the Jones Act, which is classic protectionist legislation. I find that quite incredible.

There's one last point, but if you do not have time to address it, since it deals more with Ontario, I will suggest it to my colleague. That is the famous Auto Pact.

I am not an academic or an expert in these areas, but when we talk about free trade and pacts, such as that one, how would the Auto Pact fit into negotiations on economic integration?

I will stop there, Mr. Chairman.

¿ (0950)

The Vice-Chair (Mr. Bernard Patry): That is fine. You have raised plenty of points to address.

Mr. Bélanger.

Mr. Louis Bélanger: On the last question, I will let my legal colleagues respond.

With respect to a common currency, I do believe that it should not be treated as a taboo issue. I agree that it is something that should be studied. I think that there's a problem and that it should be studied using simulation models. Mr. Carmichael, who will be with you a little later, will probably want to speak to you on this. But certainly, I believe that it should not be off limits. I think that we really need to ask the question without creating illusions,and taking a realistic approach.

Regarding the continental house, my message is very simple. If Canada wants to have a strategy to deal with what could be called the political deficit and the institutional deficit in the current construct of North American continental integration, if people agree with me that NAFTA has created an integration situation that requires political cooperation mechanisms that do not currently exist, that are needed and that affect Canada's interests, I believe that a good strategy for making progress in this area is to take an incremental approach. In particular, we need to avoid extremely ambitious models that would obscure our objectives, raise suspicions, probably frighten off the Americans and prevent us from achieving success at the negotiating table on more immediate issues or perhaps less ambitious ones.

That is the point I wanted to make.

I do not know whether my colleagues have something to add on shipbuilding or shipping.

¿ (0955)

The Vice-Chair (Mr. Bernard Patry): Mr. Bernier.

Mr. Ivan Bernier: I would first like to say a word about the common currency. I think that a common currency in itself might be possible, but it will necessarily raise the problem once again of how to maintain Canada's latitude. Everyone knows that. That is what we hear. However, people might come to accept having less room to maneuver or even none if there were benefits and people were certain of that.

I think that the problem with a common currency is that it has to be looked at along with the issue of common policies, since they are difficult to separate. Talking about a common currency in the long term without having common policies in a certain number of major sectors is difficult because tensions can gradually build because of the particular conditions in each of the three member states of NAFTA. That would mean that maintaining a common currency could have negative repercussions.

In a context where there were common policies, the situation could be different. Since the room to maneuver might be even more restricted then... If we are talking about trade policy in the broader sense, energy policy programs, a certain number of policies of that type, one might wonder whether Canada might not end up being a province of the United States. That will not be the case. If we look just at the problem of a common currency, that is something that I think can be discussed. When we address it taking into account possible repercussions on other policies, I feel that it becomes much more complex.

With respect to the shipbuilding industry, you are right in saying that it really is a form of American protectionism. This goes back al long way, to the Jones Act, as you said. The Americans have never wanted to let go of that. I believe that, in the upcoming negotiations, they will have to deal for the first time with the issue of having to pay a high price if they want to maintain the Jones Act. Many countries have told them clearly that they had to get rid of the Jones Act or pay the price, otherwise certain things that they would be asking for were going to be rejected. They have managed fairly well up to this point, but the explanations or justifications behind...

Mr. Antoine Dubé: [Editor's Note: Inaudible].

Mr. Ivan Bernier: Yes. It has been specifically said that that issue would be raised.

With respect to the Auto Pact—what is left of it—the World Trade Organization has said that Canada could no longer maintain certain benefits for manufacturers. Since these recent decisions, we have practically nothing left. One wonders whether the pact means anything now.

The Vice-Chair (Mr. Bernard Patry): Mr. Ouellet.

Mr. Richard Ouellet: On these issues, I am in agreement with Professor Bernier. I would, however, like to make a very short comment on the common currency.

It always makes me laugh to hear the word “common.” If we are talking about adopting the American dollar, I do not see how that can be called a common currency. It is the currency of another country. That is the only comment that I wanted to make. Otherwise, I agree completely with Professor Bernier.

The Vice-Chair (Mr. Bernard Patry): Thank you, Mr. Ouellet.

Ms. Marleau, please.

Ms. Diane Marleau (Sudbury, Lib.): Thank you for agreeing to appear before the committee. I very much appreciated your comments. We do not often hear comments like that here in Ottawa.

We have major challenges before us, including the cultural aspect. I could not agree with you more. But how do we safeguard that cultural aspect as a country and as a group?

I have reasons for bringing this up. The public is very much bombarded by the media, which tend to be American even though we are in Canada. I have been involved in politics since 1980, and I can tell you that today the media are selling.

They are selling sensationalism that is not always based on reality, and Canadians are unaware that this is happening. We are being told things, we are being encouraged in a certain way, and it is very difficult for people and politicians, because we are being pushed in directions where we should not go. I wonder if you have considered all of those aspects. In terms of North American issues, I think that is probably the greatest challenge we face as a nation.

The second major problem we face, as we always do, is that the United States is our best friend, whether we like it or not, but the Americans often tend to do what they want. Just look at the softwood lumber issue. I agree that we must start with small steps, because we do not want to scare them off. But how do you think we could make some breakthroughs?

The United States is always looking out for itself. You say that we can use the WTO. Absolutely, but will that push the Americans to do what they should do, or will they simply do what they did with the United Nations, in other words, pay at the last minute before being thrown out and losing their right to vote and then not paying again for a long time?

That is always how it happens. That is really in the long term. So we have this major challenge with the Americans. What do you think about that? We have heard presentations that discussed different possibilities, but I am not very optimistic in the case of the Americans.

In the case of the Mexicans, I strongly believe that we have to do more. I met the Minister of Foreign Affairs last week in Ottawa. Personally—and I would like this to be included in our report, but I do not know if it will be—I think that we should increase our investments in the regions of Mexico that are developing, that we should set up some kind of fund to work with the Mexicans, to ensure that they are able to work with us and not only with the Americans. I am thinking about $50 million over 5 years, for example. In my opinion, we are not doing enough in Mexico. We could do a lot more, and I think that the recent visit will be very helpful. Mr. Castañeda is very open and our Prime Minister is going to Mexico at the end of April, I believe. We will be there in March. So I would like to hear your ideas on that.

À (1000)

Mr. Louis Bélanger: I fully agree with you, especially on your last point. It seems to me that to date, and especially since Vicente Fox came to office, the Canadian government has not done enough to take advantage of the opportunities that have arisen to meet certain Mexican demands, to accompany it in certain areas.

Your proposal clearly reflects the proposals put forward by the Mexican government. I think that working on the relationship with Mexico is consistent with the concern I expressed earlier on the Canadian government's general policy on trade liberalization and the need to include this free trade discourse in consistent policies to support development. I think that generally speaking what you are saying is along the same lines as what I was saying about focusing a lot more attention on our partnership with Mexico.

As for our relation with the Americans, you raised the issue of softwood lumber. The softwood lumber problem is, in my opinion, very indicative of the temptations we may see. I think that Canada will have to learn to sometimes sacrifice immediate economic gain or to sometimes sacrifice the desire to resolve matters quickly with the Americans in order to avoid situations like the ones we have seen to date, where ad hoc settlements are reached that, as we have seen, penalize us in the long term because they do not allow us to resolve the matter. Five years later, we must--

À (1005)

Ms. Diane Marleau: Did you watch the news this morning? The possibility of reaching an agreement over the next few days was mentioned. That surprised me. That is always the political reality we face. When parts of the country are suffering, it is always very tempting to save jobs. For some people, it is difficult. It is easy for you to say it, but it is difficult to do. I am afraid that we are going to do the same thing that we have done in the past. I have not heard the details of this possible agreement. I only heard that some people thought there would be some kind of agreement, and to my mind, that is not necessarily the best solution in the long term. Often, our choice is limited.

Mr. Ivan Bernier: On the question about the media, you are right. The level of concentration of the media in Canada exceeds anything that can be found anywhere in the western world. We are living with that as if nothing were wrong and I think we are paying the price. The only solution we can foresee in response to that is, to a certain extent, an oligarchical structure to control information. When we see what is currently happening in the case of the editorials in the Calgary Herald on the news or I don't know what, which is imposed Canada-wide, we can see that the movement exists. The only way to counter it would be through civil society. I know that is not very popular, but we need a counterbalance. We need people who will say that they don't accept that.

Something must be done. Here again, if we look at the press, the associations in Quebec or elsewhere, reactions are very mild. There was a speech in reaction to what is happening in the case of the Calgary Herald. On the issue of the concentration of the press, I think reactions have been completely inadequate. Since it won't come from the company's owners, it will have to come from somewhere else.

Ms. Diane Marleau: I am going to tell you what is happening in my region, because I am very familiar with what is happening there. A while back, we had newspapers. We still have them, but there is nothing in them. All they contain is the national news and a short article. It's the same thing for TV and radio.

Two weeks ago, I received a letter from the manager of television stations in northern Ontario where he was boasting about the excellent new services. He said they went out to see some people in the communities, that they had been interviewed and that everyone was saying it was wonderful.

There is absolutely no news. We learned that there was a murder in Sault-Sainte-Marie, a fire in Kirkland Lake, a fight in North Bay. No research is done. When you watch the news that last for half an hour on TV—it is supposed to be local news—15 minutes is devoted to sports, because it is easier to get sports news, and only 5 minutes is devoted to covering the communities in all of northern Ontario. It's the same thing in the newspapers.

As a politician, that helps me because I'm already very well known. Anyone who would like to replace me would have difficulty being as well known. But, from the point of view of an exercise in democracy, it is not good. It's horrible. What is being said there becomes more or less the truth. You are talking about civil society, but civil society has not yet realized this. When is civil society going to decide to put an end to this?

À (1010)

Mr. Ivan Bernier: Unless it comes from parliamentarians.

Ms. Diane Marleau: No. Well--

Mr. Ivan Bernier: With respect to the industry, the parliamentarians represent the citizens, and the civil society stands beside the parliamentarians. So either the parliamentarians have to act, or the civil society must do something. There is no other choice.

Ms. Diane Marleau: No. The American influence is also at play here. They are the ones with the greatest influence. We all think that we will be wealthy some day, like the characters on the American television programs, but we forget that the poor are getting poorer. It is very difficult for us to support and move certain policies forward in such an environment.

The Vice-Chair (Mr. Bernard Patry): Thank you.

I will now take the liberty of asking one or two questions.

You said—I believe it was Mr. Ouellet who mentioned this—that we seem to be blaming the events of September 11 for almost all of our problems and that the United States is taking advantage of this to draft what you called ad hoc policies, or to proceed on a case-by-case basis. This applies to border security, immigration, energy transportation, etc. Do you believe that these ad hoc, short-term negotiations, that appear to be necessary and economically beneficial, will cause us to lose a degree of sovereignty? And would this loss of sovereignty represent a danger for Canada in the long term or can we compare it to what is happening within the European Union?

I also have a second question that I will ask now. It is for Professor Bernier.

I very much enjoyed hearing your comments about the cultural dimension. You said that the problem revolved around mutual understanding, and that Canada should undertake a process of cultural rapprochement.

How do you see this process evolving? How could we go about bringing the cultures closer together? It is the first time that we've heard such a clear comment on this issue.

Mr. Bélanger, please.

Mr. Louis Bélanger: With respect to the first question, I would hesitate to say that there would be a loss of sovereignty. I believe that ad hoc arrangements, or rather, the haste that followed the events of September 11 is not peculiar to this situation, but belongs to the general American attitude which involves facing problems as they arise, on a case by case basis, without relying on institutional processes that, they feel, might limit their own sovereignty.

I believe that the ad hoc treatment I have described would be more likely to affect Canada's negotiating power in the future, forcing it into a bilateral relationship for the management of its international relations. This is what we are witnessing now in the area of security that is being applied across the entire continent as well as in the willingness to create a common security zone. We also see it in the field of economics, etc. We are tying ourselves to the Americans with a bilateral relationship which leaves us very little leeway for future negotiations on matters for which we might wish to initiate the talks.

I believe, however, that part of the solution might lie in taking advantage of all of the situations where the Americans might be on the requesting end.

When we negotiated NAFTA, we discussed the dispute settlement arrangements. There is some dissatisfaction today with respect to the situation as it exists, as we find ourselves powerless when problems with NAFTA arise. For example, with respect to the application of chapter 11 on investments, there is no political mechanism that allows for discussion. I think there might be a partial answer for what happened when NAFTA was negotiated; we were on the asking side, and the Americans had much more to offer than we did in terms of the market. They had the upper hand and they took advantage of it.

So it is now up to us to take advantage of the situations where the Americans are asking us to re-establish, however weakly, the best possible balance in our relationship with them. That is where I think that haste and an ad hoc procedure to deal with problems might get us into trouble.

Of course, I think the Americans are taking advantage of the situation, and the comments we heard from American analysts in Washington are a clear example of the American way of seeing things that we are up against.

À (1015)

The Vice-Chair (Mr. Bernard Patry): You have a comment to make, Mr. Mace?

Mr. Gordon Mace: I think you are right about the strategy. The United States have a very strong drawing power. They represent the big market. And they use that market. We see that in the Americas. We saw it with NAFTA. Canada wanted the original free trade agreement. Mexico asked for NAFTA. The United States simply bide their time. They have the market and they know that there are advantages to having this market. They wait for the request to come in and they accept them from a position of strength.

For the Canadian government, the inherent handicap lies with the American culture that has such a foothold here. And we must not forget that our population wants access to American products, wants to vacation on American beaches. The government can try to move in a certain direction, but if the people don't want to follow, then you will have a problem. That is more or less what the Canadian government is looking at.

We need answers to some questions. Should we have a common currency? As Richard pointed out, we must define the term “common”. I am not an economist and I don't have all of the data, but I agree with Ivan when he says that a common currency will require the harmonization of some policies. It took the Europeans 40 years to integrate their currencies. Other harmonizations came before, and that is the result. It is only logical to assume that a common currency will be part of any harmonization, if we realize that NAFTA is not a free trade agreement. NAFTA, as others have already said, is not about trade. It is an economic framework for North America.

For Canada, the sovereignty issue is naturally much greater than it is for the small European countries because of the asymmetric nature of power. In Europe, power has different poles. That means that countries like Holland and others can adjust. Here, there is a considerable asymmetry at play. There is a greater threat to sovereignty.

You are asking how we can solve this. I would answer that we must have a defensive strategy. It's like Astérix and the Gauls. It's a question of defending the small square. We need not necessarily share a house with the Americas, but we must develop institutional arrangements with them. One of my colleagues spoke of niches in his presentation. I would call it strategic partnerships. We must establish strategic partnerships and, if possible, develop institutional arrangements for culture, outside the country, with France and other countries that share the same interests. But the Americans will always be against institutional arrangements. They are against anything that is supranational because, naturally, in the world of free trade, the strongest ones always win. History has shown that, and it continues to apply. Therefore, the one who has the advantage will naturally reject any structure that might work against it. It is the weakest party that must seek this type of structure by creating partnerships with those who are in the same positions. I think that is about the only strategy that Canada can adopt.

Mr. Ivan Bernier: I would just like to add to that last point.

In the case of ad hoc arrangements, one of the things we must be careful of, something we must find a way to put an end to, is the type of negotiation where the United States says that if you are not with them, then you are against them. That is a deadly way of doing things. We can see that they are taking advantage of it. We should systematically refuse to deal with ad hoc issues on those terms. That is all I have to say about it.

But there is a great deal to be said about cultural rapprochement. Any arrangement involving economic integration must also include a cultural dimension.

In our relations with Mexico, I believe that we quickly developed, beside an economic dimension, a broadly defined cultural dimension, something that, in any case, had nothing to do with economics. As an example, I might mention the fact that more and more Mexicans are taking part in our meetings, our conferences, and all sorts of discussions that involve both our countries. We travel to Mexico, they come to Canada, their students come here, we send students there. We now have a full time Radio-Canada correspondent in Mexico. We know much more about Mexico now than we did before we signed the Free Trade Agreement.

That is a side of free trade that must be taken into account, that is to say, the coming together which is implied and which means that a certain number of partners enjoy a privileged relationship. That is something we have to work at.

Something else I would like to point out with respect to increasing our cultural understanding, is that we must make some effort, we must try to convince our partners of the necessity of having greater access to other culltures. At this time, the statistics that I have managed to find show quite clearly that in all areas of the world, whether it be in developing or developed countries or between developed countries, in the audiovisual field, for example, in most countries when people are not watching their own domestic programs, they are watching American programs or, sometimes, programs from another country.

But the rest of the world, or for that matter, the rest of Europe, represents a tiny fraction, perhaps 1 or 2% of what is viewed. The French, for example, watch very few programs that are neither American or French. The same applies to Canada. Look at what is shown on television and in movie theaters that does not involve the United States or Canada. We see very few French films or television programs. Luckily, there are a few things on TV5.

Along the same lines, in developing countries, there are countries where the national audience watches 3 or 5 or 7% of locally produced programming. The rest of the time, they watch someone else's programs.

It is hard to make a democracy work in that type of context. Beyond what I've just said, we must take positive steps to ensure that we will have a greater access to the diversity of the cultural production from other countries, not only the United States. Something positive must be done in that area, and I might add that the United States could no doubt learn something themselves since they only watch about 2 or 3% of foreign audiovisual presentations. These are some of the things that will have to be considered in dealing with some of the problems, including those relating to security.

À (1020)

The Vice-Chair (Mr. Bernard Patry): Thank you very much. Do you have any other comments to make?

Mr. Ouellet.

Mr. Richard Ouellet: I have a brief comment to make for Ms. Marleau. Ms. Marleau mentioned twice that it was difficult, in reference to the softwood lumber dispute. It's difficult.

Ms. Diane Marleau: It is difficult, as a politician, to resist communities that are suffering. That is what I was talking about.

Mr. Richard Ouellet: The same could be said, more or less, about the concentration of the media. You also said that was difficult. I would like to make a very brief comment about that—and I do this with no malice whatsoever—as a citizen rather than as a professor. There is probably a loss of democracy when a constituent hears people in power saying that it is difficult. It is hard for constituents to hear those in power saying that it is difficult. You have the power. Use it.

Obviously one's loss of sovereignty depends on one's international position and on one's relations with one's neighbours, but it also depends somewhat on one's attitude. I do not mean to be at all sharp or malicious in saying this.

Ms. Diane Marleau: I understand, but I also understand what it means to come from an area that does not have much power. Northern Ontario does not have much power. We have only 11 seats at the federal level and the same applies at the provincial level. Life begins and ends in Toronto and Ottawa and in the south. So when I make those statements, I'm talking about what is happening. We are not the ones making the decisions and we often do not have the power to influence decision-making, because we do not have enough representatives.

I remember when I was new to politics that there was a movement to create a province in northern Ontario. At the time I thought the idea was a little crazy. Today I think it is unfortunate that we did not undertake that because we would have more power to administer ourselves and to finance ourselves, and we also would have had more representatives than we do today. The same probably applies for northern Quebec; they would probably tell you the same thing because they were involved with us in that movement 30 years ago.

The problem with coming from an area that is not very populated is that most of the representatives are from the main urban areas. That is another issue about democracy. We won't discuss that now, but it may be significant in the future depending on what will happen if Canada becomes closer and closer to the power that is the United States.

À (1025)

The Vice-Chair (Mr. Bernard Patry): Thank you very much, Ms. Marleau. I would like to thank this morning's witnesses. I especially want to thank you for the quality of your presentations. I think they were excellent.

We will adjourn for five minutes. Thank you very much.

À (1025)

À (1033)

The Vice-Chair (Mr. Bernard Patry): With your permission we will now begin again.

We will now hear Mr. Benoît Carmichael, Full Professor at the Department of Economics at Laval University.

You may proceed.

À (1035)

Mr. Benoît Carmichael (Full Professor, Department of Economics, Laval University): I thought I'd base my intervention on the series of substantive articles I published in Le Soleil recently. I thought it would be a good departure point for today's discussion. If you don't mind, as an introduction, I'll simply read the text I prepared. It should take about a quarter of an hour.

The debate on the usefulness and the future of the Canadian dollar has been coming back periodically for discussion since the signing, in December 1991, of the Maastricht Treaty announcing the creation of the European Monetary Union and its adoption of a new currency: the Euro. The introduction of the first Euros, last January 1, as bills and coins, quickly brought this question back to the forefront of concerns, specially in Quebec, where the enthusiasm of the French for this new currency led to wide media coverage. Also, the almost uninterrupted slide of the Canadian dollar since 1991 with its reaching the historic low of 61.7¢ American last January sometimes makes the Canadian dollar feel “dated”.

History shows that monetary systems are not immutable and that they evolve according to the needs of the times. If huge economies such as Germany and France and smaller ones like Belgium and the Netherlands find it advantageous to drop their national currency in favour of the Euro, it is not forbidden and it may even possibly be desirable for Canadians to have serious questions about the future of their own monetary system.

As in the case of the sixteen European countries, the economic links binding Canada, the USA and Mexico were also reinforced during these last years especially since the coming into force of NAFTA. Each and every year over 40% of goods and services produced in Canada are sold abroad and three quarters of our exports wind up in the USA. One can say that the same figures apply to Canadian imports. This level of bilateral economic integration is not achieved by any combination of the European Monetary Union member countries, including the French-German couple. In short, should the North American countries and more particularly Canada and the USA try to imitate Europe and seriously look at a more extensive monetary integration?

Before addressing this question directly, it would be good to point out the two key characteristics of the monetary regime prevailing in Canada. First, the Canadian monetary policy is focused on controlling inflation. In fact, the Bank of Canada's only objective is to keep the inflation rate at around 2% per year.

Adjustments up or down of the leading rate of the Bank of Canada are entirely subordinate to attaining that objective. When the economy heats up and inflation rises, the Bank of Canada pushes up the interest rate to decrease expenditures and bring the inflation rate back down towards the target. On the contrary, when the economic situation deteriorates and the inflation rate falls below target, as was the case for these last few months, the Bank of Canada shows flexibility in terms of credit and favours a decrease in interest rates to stimulate expenditures.

The decision to choose an inflation target goes back to the early 90s and was jointly made by the federal government and the Bank of Canada. It stems from a long thought process leading to the conclusion that monetary policy can best contribute to full employment and sustainable improvement of living standards by controlling inflation. Stability and the low level of Canadian inflation are due in great part to that policy. Canada is not the only one country subordinating its monetary policy to the objective of attaining an inflation rate, as England, Australia, Finland, New Zealand and Sweden also made such a decision during the 90s.

The second important characteristic of the Canadian monetary system is the flexible exchange rate that we have with our trade partners. The value of our currency totally reflects the play of our supply and demand on the exchange markets.

People do not buy the Canadian dollar for the simple pleasure of profiting from it. They actually do it to be able to buy goods and services produced in Canada as well as Canadian financial assets. Demand for the Canadian dollar increases and the dollar appreciates vis-à-vis the other currencies when, for example, the productivity of Canadian corporations progresses more rapidly than in the rest of the world thus making our products more competitive and more attractive on world markets. Reciprocally, demand for the Canadian dollar decreases and the dollar's value depreciates when Canadian productivity is slow in following that of foreign competitors because our products and services become less competitive. In the latter case, the effect of the dollar depreciation is to re-establish the international competitivity of our corporations. All that to say that exchange rate fluctuations play an important role and serve to maintain and sometimes re-establish the competitiveness of our Canadian corporations. The disappearance of the exchange rate from the Canadian economic landscape would not eliminate the need for adjustments. They would simply have to be made another way.

Now let's get back to our main question. Should Canada be looking at greater monetary integration with its trade partners in North America and more especially the USA? If so, what options are available? Actually, two main options are available.

If the objective is first and foremost to eliminate fluctuations in the exchange rate, perhaps we could look at coming back to a set exchange rate with the USA like the one we had in the 1960s. The government would have to determine what the Canadian dollar exchange rate could be with the American dollar, hypothesizing that the American dollar is the one we want to set our rate on. The Bank of Canada would then be responsible for making sure we maintain this conversion factor by using its American dollar reserves, as needed.

Going to a fixed exchange rate would not require any change to the legal framework of the present Canadian monetary system and no negotiations with the American government would be necessary. The Minister of Finance, Mr. Martin, would simply have to issue a directive to the Governor of the Bank of Canada requesting him to intervene on the exchange market by buying and selling the Canadian dollar to maintain a constant value for it.

Fixed exchange regimes like this one are often criticized because the conversion factor can be changed any time simply by issuing a directive. Even worse, the very choice of setting the exchange rate can be reversed at any time without any notice. In other words, one can never be really sure that such a system will be permanent. This characteristic is particularly troublesome in times of economic turbulence as the slightest rumour of devaluation, as unfounded as it might be, can lead to flights of capital that could vaporize the fixed-rate policy.

À (1040)

The viability of the system is based exclusively on the central bank's capacity to honour its obligation to exchange on demand the national currency for the foreign currency at the chosen conversion rate. The fact is this capacity is not unlimited and depends on the foreign currency reserves of the country and the government's ability to obtain financing on the international market. When the reserves and the outside sources of financing are depleted, the government has no choice but to abandon the fixed exchange rate and to move to a floating exchange rate.

The fixed exchange rate system could be made more permanent by making the Bank of Canada into a currency board. The rate of exchange between the Canadian dollar and the American dollar would be determined by an active Parliament, and the sole responsibility of the Bank of Canada would be adjust up or down, in a rigid fashion, the number of Canadian dollars in circulation when its reserves of American dollars change as a result of capital movements, exports and imports.

Since the conversion rate could not be changed without amending the legislation, a fixed exchange rate system with a currency board is less sensitive to rumours of devaluation, and therefore provides greater stability. Hong Kong has been successfully operating a currency board since 1983. However, the recent upheaval in Argentina shows that the risks of monetary instability are not entirely eliminated, and that they can even be rather dramatic.

A fixed exchange rate system, with or without a currency board, would not cause the Canadian dollar to disappear. The only thing that would be eliminated would be fluctuation in the exchange rate. The advantage of retaining the Canadian dollar would stem from the fact that the international reserves of the Bank of Canada, essentially assets in American dollars, could be invested in very liquid assets, such as American Treasury bills, and this would give the Canadian government considerable investment revenue. If the American dollar were to be adopted outright, the Canadian government, and, in turn, the Canadian taxpayers, would be deprived of this source of revenue.

If the desire for monetary integration goes beyond the mere elimination of fluctuations in the exchange rate, Canada could begin negotiations with the United States, and possibly with Mexico, with a view to establishing what could be called the North American Monetary Union, the NAMU. Theoretically, the NAMU could involve the creation of a new currency, as happened in Europe. In practical terms, it is difficult to imagine, and even utopian, to even think that the United States would agree to the elimination of the American dollar. At best, the Bank of Canada would become the 13th district of the American Federal Reserve, and the American dollar would become the common currency.

We must also emphasize that it is far from certain that the American government would agree to give Canada a permanent seat on the all-powerful Federal Open Market Committee, which is responsible for defining and implementing American monetary policy. At the moment, the New York district is the only one of the 12 districts that has a permanent seat on the committee.

Moreover, how would the people in charge of the NAMU monetary policy be accountable to the Canadian electorate? That remains to be determined. Is it possible to imagine as well that the President of the United States would agree to share with the Prime Minister of Canada the right to appoint the governor of the federal reserve? It is easy to see that the answer to this question is no, even without reference to the tragic events of September 11.

Abandoning the current system for either of the solutions I have just mentioned is premature for a number of reasons.

First of all, the monetary system in place allows Canada to gear its monetary policy to its own objectives. For Canada, all the alternative systems would mean that it would have to abandon all the latitude it has with respect to its interest rates.

Second, the disappearance of the exchange rate would deprive Canada of a very important adjustment mechanism. Despite their similarities, the Canadian and American economies have some significant differences. Since industries related to natural resources are more important in Canada, the Canadian economy is much more sensitive to fluctuations in the prices of raw materials on world markets. In fact, Canada is a net exporter of raw materials, while the United States is a net importer of raw materials.

When prices are low, this whole sector of the Canadian economy is affected in a way that has no equivalent in the United States. Under the current system, the lower profitability of companies in this sector reduces the attraction of the Canadian dollar and causes its depreciation. This is far from harmful, and actually enables the Canadian economy to better withstand the shock. A drop in the value of the Canadian dollar improves Canada's competitiveness. Losses in the natural resource sectors are offset by gains in other exports. To a large extent, this is why the significant drop in the price of raw material following the Asian crisis in 1997 did not result in a recession in Canada.

However, we must be somewhat cautious about the advantages of fluctuations in the exchange rate and acknowledge that the current system also produces a risk for Canadian companies. They may rely too much on the depreciation of the loonie to maintain their international competitiveness, and therefore delay unduly investments likely to reduce their production costs.

À (1045)

Adopting a fixed exchange rate system, or, more fundamentally, establishing the NAMU would not eliminate the differences between our two economies. If it were impossible to adjust the exchange rate, the economic disturbances that affect Canada more would be felt more strongly on our labour market. There are therefore grounds for fearing that the Canadian unemployment rate might become more volatile.

That said, there are also major differences between various regions of the United States, and the use of the single currency, the American dollar, does not seem to create particular problems for the American labour market, since the American rate of exchange is lower than Canada's rate.

The key to this enigma is based on the mobility of the labour force within the geographical boundaries of the United States. Americans are mobile and do not hesitate to move to the other end of the country to get a better job. For this reason, economic disturbances that affect only certain regions have few lasting effects on the rate of unemployment in the U.S.

This leads me to the third reason for which we should tend to favour the status quo. In order to promote full employment throughout North America, we would have to imitate Europe and allow labour force mobility continent-wide. Allowing Canadians to move to the United States for economic reasons without first harmonizing the two countries' tax systems would be extremely dangerous for Canada. Since income taxes are much lower in the United States, Canadians with career possibilities in the U.S. would be very inclined to try their luck there. When we remember that these are the workers who contribute the most to our governments—10% of taxpayers pay over 40% of the income tax—all Canadian social policies would be endangered. In strict economic terms, proceeding with the NAMU without opening up the American labour market to Canadians and without harmonizing the two tax systems would be an incomplete reform.

To summarize, the current monetary system, made up of a floating exchange rate with the rest of the world and a monetary policy designed to control inflation in Canada, has served the interests of Canadians very well since its introduction. The inflation rate is at its lowest level in the last 40 or 50 years. Sustained economic growth seems to be back for good, and our governments have managed to eliminate the budget deficits of the 1970s and 80s. Nothing indicates that it is time for Canada to change course, particularly not the trials and tribulations of the Canadian dollar on the exchange market.

If we were to opt for the American dollar, I would like to add that there is a third mechanism that should be considered in addition to labour force mobility. That is the introduction of tax transfers between the regions. When we think of Europe, the introduction of the euro, as was mentioned earlier, was not the first step in the process, but rather one of the last steps. And the European government makes very significant transfers between the regions of Europe, and this in fact replaces what was formerly the exchange rate.

So that gives you an overview of my position, which is rather conservative. It is a classic economics position, as you no doubt noticed.

À (1050)

The Vice-Chair (Mr. Bernard Patry): Thank you very much, Mr. Carmichael.

We will now hear from the committee members. Mr. Dubé, please.

Mr. Antoine Dubé: I do not claim to have the same expertise in economics as you, Mr. Carmichael, particularly as regards monetary issues. However, the little I know leads me to take a position different from yours.

I would like to make it clear that I am not necessarily in favour of changing our currency. I prefer to acknowledge that immediately so that it is clear from the outset, since everyone is entitled to his or her opinion. My position is that we must continue to study the issue, and not put an end to the discussion by saying that it is better to keep the currency we have and not consider any other option.

I will draw on my personal experience by way of example. For three years, I was a member of the Standing Committee on Industry. Mr. Patry was a member of the committee at the same time, and I am sure he will remember that we did a study on the productivity of business, a subject you touched on briefly. The committee did a report on this subject in fact.

What we found in the course of our study is what you mentioned earlier, when you said that some Canadian companies, particularly those that export, find the current situation beneficial, namely the gap between the Canadian dollar and the American dollar. In the short term, they find this situation advantageous.

However, in the long term—and this was demonstrated very clearly in our report—they make no effort to increase the productivity of their labour force, nor,particularly, to modernize their equipment. We looked at some sectors in which there had been some subsequent adjustments, but we can also think about the textile and pulp and paper industries. Some efforts were made. Those industries that made an efforts were able to survive; others have almost disappeared. That is the first point.

The other is the one raised by Mr. Chrétien, in particular. I mention it because I think he is right to say that despite the efforts of the Canadian government as regards the current policy, there is a phenomenon whereby people see the American dollar as a safe haven at a time of great insecurity throughout the world. This is less related to the attributes of the American economy than to a matter of perception and confidence. At times of insecurity, people turn to currency shelters, one of which is the American dollar, in fact it is probably the foremost such currency in the world. That is my second point.

The other thing is that we have to accept the facts. If we say that the current situation is very good, we can have an optimistic view. However, let us compare the American economy to ours. In all respects, the gap between the standard of living of Americans....and that is what we are talking about. We have to look at areas that are comparable. In the last 10, 20 and even 30 years—in fact for a very, very long time—Americans have been ahead of us. Of course, if we compare ourselves to developing countries or to Argentina recently, we might say that Canadians enjoy an extraordinary standard of living. However, if we compare ourselves to the best, to Americans, we see that we do not measure up, and that ultimately, the Canadian standard of living has not really increased in 10 years. The gap between the rich and the poor continues to grow, and the number of poor children and families is on the rise. I do not mind a conservative view if it states that we are doing less badly than countries experiencing great difficulties, but I do mind if there is a growing gap between us and countries that are doing well.

I'm sure you will want to comment on my remarks.

À (1055)

The Vice-Chair (Mr. Bernard Patry): Mr. Carmichael.

Mr. Benoît Carmichael: Of course, I should confess that the text I read was written for publication in a newspaper. So they wanted some strong opinions.

On your first point, my approach is not to put an end to the debate. As I said from the outset, this is an important issue, and it is good that we are thinking about it. I do not want my remarks to be seen to mean that the debate is over. No, the debate is not over. In fact, the issue should perhaps be in the public eye more often than it is at the moment. I think that Ottawa does not always do a good job of explaining this issue to Canadians. It is not simple, and we do not always.... I think that even Mr. Martin, who is usually very good, could have explained the subject to Canadians more clearly when he was questioned on this early in January, because when he talks, he makes the headlines. He is on the evening news every day. So from that point of view, the debate is not over, nor should it be.

My position is that adopting a single currency with the United States—which would in fact be the American dollar— is not the first step we should take. If we want to move in that direction, that means that a number of things must be done, and this must be clearly explained to Canadians. In strict economic terms, moving to the American dollar tomorrow, without taking into account the differences in our tax systems, which are significant, or without thinking about establishing a structure to allow for tax transfers between the regions, would not, in my view, be a reform that--

Mr. Antoine Dubé: Rather than tax transfers, can we talk about equalization payments?

Mr. Benoît Carmichael: It amounts to equalization payments, because ultimately, the exchange rate simply acts as a balancing agent. When there are economic disturbances, given that our economies are not the same, given that there are significant differences, this program works to balance things out.

If we put an end to this program, we would need another one to balance things out. If there is not another one, the labour market will come into play. We do not like significant fluctuations in unemployment.

Europe has established mechanisms to lessen the impact of such phenomena. We should also mention that the euro now has a good rating and that this is causing a lot of talk. However, we should remember that since its creation in 1999, the euro lost 25% of its value compared to the American dollar. We see the Canadian dollar dropping compared to the American dollar, but it is not alone: the euro is dropping as well compared to the American dollar. That is one point.

Second, the euro was introduced during a period of economic affluence: the growth in the world economy, and the general drop in unemployment in Europe. The euro has not yet been tested, but definitely will be tested in the years ahead. It will probably stand up well, but in 1999, when the Maastricht Treaty was signed, we could not have imagined a better scenario for the introduction of this new currency. It was ideal, and this will doubtless ensure the survival of this currency. However, had we been in a recession, with the German economy and the French economy not really working in tandem, there would have been some very strong tensions.

It is true that the American dollar is a shelter currency, and that is nothing new. This has always been the case, or almost always. Since the Bretton Woods Conference in 1944, the American dollar is the de facto international reserve currency. So this is nothing new. This has always been the case. By the way, the Bretton Woods system collapsed in the early 1970s, precisely because American monetary policy ran counter to what the other countries wanted. Since the American dollar was the reserve currency, the Americans ultimately controlled monetary growth throughout the world. Consequently, the system collapsed. Canada left the Bretton Woods system well before the others, because we did not want to import the American inflation rate. As a result, the Canadian government decided to move to a floating exchange rate, almost one year before the Bretton Woods system collapsed because of American monetary policy.

Á (1100)

Mr. Antoine Dubé: There was parity at the time.

Mr. Benoît Carmichael: Yes, it seems to me the value of the Canadian dollar was $0.925 American. Then there was parity for a while.

My point is that a strong currency doesn't necessarily make for a strong economy; a strong economy is what makes a currency strong. The fact that the Canadian dollar has depreciated over the last 10 years as compared to the American dollar, in my opinion, is a reflection of the fact that the American economy has been driving the world economy. Their economic growth is enormous down there. We've had good economic growth but, relatively speaking, not as good as theirs and that is reflected in the depreciation of the Canadian dollar. Now, we've been looking at the 10-year window, since 1991, and what we see is a decrease. If we look at another 10-year window, the one between 1976 and 1985, we would actually see the reverse.

My position is rather conservative. Yes, we have to look at the question, examine it, think about it, but we shouldn't sell the things that a common currency couldn't buy to the Canadian public.

The Vice-Chair (Mr. Bernard Patry): Ms. Marleau.

Ms. Diane Marleau: That's very interesting. You say we should continue to discuss this but we can't go ahead, at least not for the moment.

First of all, we wouldn't be creating a new currency but accepting the American dollar. We wouldn't have any choice. You can be sure that the Americans aren't going to be changing their minds.

How does one establish a governance system? It's hard with the Americans because everything starts and finishes with them.

I have a question. Recently, the President of the USA announced that they would have a deficit. Right now, that's the country that has the hugest debt in the world and it's going to grow. What is that going to do to the American dollar? We have a policy: we don't want to return to a deficit position. We hardly borrow any money anymore internationally. Will that also cause challenges for the Canadian dollar?

Á (1105)

Mr. Benoît Carmichael: If I deal with the answer as a scientist, the link between budgetary deficits and the value of currencies is not very strong. So it seems to me that we're looking at episodes where you see currencies going up at the same time as governments are running deficits. We have currencies that depreciate while governments are running surpluses. The link between the budgetary situation of a government and the changes in the value of the currency on the exchange is not very close. So it's hard to answer your question.

Ms. Diane Marleau: But as the USA currency is a shelter currency and they're going slowly and will still be borrowing money...

Mr. Benoît Carmichael: In other words, they'll be going into a deficit but are they going to go into a permanent state of deficit? I don't think so. Since the events of September 11, 2001, the American economy has gone through its first slowdown. Actually it had started before that, almost 10 years ago. Quite naturally, in economic policy, you have what are called the economic stabilizers which means that when the economy slows down, for natural reasons, the government runs a deficit and then when the economy heats up again it has a surplus. Now, it is true that the Bush administration has brought in new policies that go beyond that to stimulate economic growth in the USA even more. I don't think they'll be going back to a deficit position on a permanent basis as was the case during the 1970s and 1980s. Nor do I think that this should have a very major impact on the value of the American dollar exchange rate, but I could be wrong as the link between deficits and the value of currencies--

Ms. Diane Marleau: I am interested in that, because I was wondering if there even was a link.

Mr. Benoît Carmichael: If the American dollar wasn't a shelter currency, you could answer differently. One of the possible explanations for the problem we saw in Argentina is that governments, both federally and regionally, were running major deficits, and all of a sudden, they had this debt accumulating and people wanted to convert their pesos into American dollars, I think, because the exchange rate was one for one. You had this flow of capital that developed all of a sudden and meant that the regime couldn't stay the course. The peso was not a reserve currency... In the case of the American dollar, there are so many countries and central banks who want to hold the American dollar that getting out of the American dollar, probably for the euro, won't happen, in my opinion, in the very short term. If you look at the proportion of international reserves in American dollars, you'll see that it's the major proportion.

Ms. Diane Marleau: So it's going to continue. There won't necessarily be an impact. All those matters are difficult. I still don't agree that Americans have a higher standard of living than ours. I think that the gap between rich and poor is far wider in the USA than here, in Canada.

We have social programs we often forget to take into account in the equation when we look at standards of living. I've travelled a lot in the USA and I've found that there were very, very poor areas, far poorer than ours. You don't always see them, you don't hear about them, but life can be extremely hard in the USA, especially when you look at the huge shortcomings in their social programs.

But the American dollar, to my mind, is there. We can't actually forget it and we're almost prisoners of that American dollar but, at least, when we have our own Canadian dollar we have leeway that we absolutely would not have otherwise.

Á (1110)

Mr. Benoît Carmichael: I think that if we were to adopt the American dollar, we'd probably lose all leeway on the orientations of the union's monetary policy.

For example, California, whose economy is just about the same size as Canada's, does not have any permanent seat on the Federal Open Market Committee which determines the orientations of American monetary policy. So it would be surprising if the American government were to grant that right to Canada.

So if we were to adopt the American dollar, you can be sure that monetary policy would be determined based on the whole, but the whole would mainly be what's going on in the south, in the USA. So we would lose that sovereignty. However, it may occasionally seem interesting to lose that sovereignty because the advantages might compensate for the costs.

For example, in the case of Argentina, they wanted to go to the American dollar because they had a chronic inflation problem. Now, one way of settling that problem quickly is to adopt the currency of a country where there is not a lot of inflation. The benefit is that you get rid of inflation and adopt a “stable” currency. I imagine that at the time, in the Argentinian government's view, it was worth it.

Here, if there is a difference, it's that our inflation rate is weaker than that of the American economies. So what's the advantage to going to an American dollar? It's clear that one of the advantages would be the risk of exchange. For Canadian businesses doing trade with the USA, their costs are in Canadian dollars, for example. Their employees are paid in Canadian dollars and they sell a major part of their products on the American market. Their income is in American dollars. You always have that exchange risk that has to be managed. There are financial tools allowing you to protect against that risk but it costs money. When you buy American dollar puts and calls you have to pay for the costs, etc. To be sure, adopting a common currency would make those costs disappear. There would be some advantage there.

There's also the advantage mentioned earlier. There may be some sectors, some Canadian corporations counting on the depreciation of the Canadian dollar to get back into business. We shouldn't ignore that because it does exist but those corporations and those sectors can also play that game with government policies. You wait until you have problems and after that you'll get some special subsidy program to help you. That's the same kind of game that's being played there.

Is the risk major enough to let go of the advantages of having our own currency? Personally, I think it's not worth it, for the time being. Maybe the future will make me change my mind. Economics is not an exact science, it's a science that's always evolving. If these hearings had been held 25 years ago, you might have been hearing a different story.

The Vice-Chair (Mr. Bernard Patry): Let's say that this is quite the family thing, as you can see this morning. There have been monetary unions that were not political. If you go back in history, you had the Latin Monetary Union. There was a monetary union also between Sweden, Denmark and Norway. The two unions ended with the First World War.

In my readings, I came across Mr. Goodhart, who used to be the economist at the Bank of England and is now a professor of economics at the London School of Economics and Political Science, who stated that currencies have almost always been defined by borders that are more political than economic and that successful monetary unions require supranational political institutions with a democratic power of taxation and spending. I think that in North America it is totally utopian to think about a supranational institution, and you did mention that.

So this is my question, then. As we speak, is our Canadian economy already dollarized, is the importance of dollarizaton increasing or is it just about where it was 10,15 or 20 years ago?

Á (1115)

Mr. Benoît Carmichael: The Canadian economy is not dollarized like the economy of Columbia or Latin American countries might be. I'm mainly thinking about salaries. When you're here, in the street, you don't have to pay things in American dollars. That isn't broadly practiced. However, with the development of international trade, commerce with the USA has increased a lot. So a lot of businesses have major revenue in American dollars and that probably did not exist on that scale 25 or 30 years ago. It is probably those businesses that will be pushing for pure and simple adoption of the American dollar.

In the everyday life of Canadians, I don't think the American dollar is more important but it certainly is the case for some major businesses.

I quite agree with you that for a monetary union to work, there has to be a supranational organization with taxing and decision-making powers. That's what we've had in Europe for a long time and it will probably increase, especially with the euro, because it will much easier to compare prices between countries. That's what they're hoping for. They're hoping for harmonization of regulations in more sectors.

It must also be said that the free trade agreement is not a customs union. That means that what moves between Canada and the USA outside of customs are goods produced in the USA or Canada. The goods going into the USA from Europe and not being processed in any major way in the USA don't come into Canada without duties being paid. The European Union has a customs union. When products are delivered to France they can be exported the very same day to Germany without having to pay any special duty.

The Vice-Chair (Mr. Bernard Patry): Thank you.

Mr. Dubé.

Mr. Antoine Dubé: I would like to address a specific subject. The committee is consulting on many other matters. You are an economist and a professor of economics and you were present for part of the preceding evidence. Your colleagues from the Institut québécois des hautes études internationales ran out of time. They did address many questions.

You talked about the matter of the dollar, and we know what your view is on that. How should Canada position itself—that's sort of the question the committee is asking—in the matter of economic exchanges or trade? Should we reinforce a multilateral exchange with many countries, with all States other than the USA on the American continent? Should we look at a partner who is already part of NAFTA, Mexico, and work more closely with it to avoid finding ourselves in a situation... We like the Americans a lot, but you still have the elephant sleeping with the mouse. When the elephant moves it sometimes creates a bit of a disturbance.

I'd like to take the opportunity of having you here, and benefit from your expertise by asking you what you think about that broader question.

Mr. Benoît Carmichael: In the best of worlds, ideally everything should go through the World Trade Organization, in other words it should be multilateral. I can tell you that I'm in favour in free trade. I think the best way of encouraging prosperity for all is to allow exchanges and promote them. Ideally, it would have to be done as broadly as possible. I'm against fortresses made up of rich countries, blocks of rich countries that set up a fortress where they trade among themselves and look askance at the others who disturb us because their textile products are hurting people in our ridings, etc. I for one am--

Á (1120)

Mr. Antoine Dubé: An internationalist.

Mr. Benoît Carmichael: Yes, that's it. In other words, if we're going to think about the global sharing of wealth and make that a broad objective, we have to allow developing countries to sell the products that they produce competently.

For the time being, we're blowing hot and cold on that. We have our heart in our hands when we discuss the debt problem of poor countries. However, when it's a matter of opening our markets to them, then we have all kinds of questions. Is it hygienic? Is it this? Is it that? Europe is an economic fortress. The Europeans trade a lot amongst themselves but when comes time to open their markets to other countries, it's more difficult.

Ideally, this would have to happen at the World Trade Organization level, which used to be knownm as GATT. We have to give maximum encouragement to trade. It would now seem that this process is extremely difficult and that there are problems coming up with accords. So, second best, is the process of commercial blocks. Would free trade in the Americas work well? Maybe. Unfortunately and fortunately, Canada has a 5,000-kilometre-long border with the richest country in the world and 90% of the Canadian population lives within 100 kilometres or less of that border. It will be hard to reverse momentum. Maybe with new information technologies it will become easier to trade with Uruguay or Chile. That day may possibly come, but for the time being we're dealing with this situation. And it won't change overnight, but I think we should actually push in favour of a more multilateral, rather than bilateral, approach.

I don't know if those questions will be examined during the G-8 Summit, but it should push the Americans and Europeans into making their borders more open to products from developing countries.

I am always astonished to see how few citrus fruits we get from Mexico, for example, but maybe that will change. When I was a student, I travelled in Mexico with my packsack on my back. The quality of fruits in Mexico is unbelievable. How come we still don't have oranges from Mexico after 10 years of NAFTA? There are probably quality controls that mean they can't sell us their products. Maybe we should review those things.

In the case of the G-8, I think the multilateral approach should be favoured.

The Vice-Chair (Mr. Bernard Patry): Ms. Marleau.

Ms. Diane Marleau: I think we probably get oranges from Mexico, but we do not know that they come from Mexico. Do you not think that is the case?

Mr. Benoît Carmichael: It is possible. I was not speaking as a scientist. I was just making an observation.

Ms. Diane Marleau: I say that, because it is difficult to go from Mexico to the United States. Once they get there, they change trucks, etc. It is rather difficult.

You talk about currencies. Can you tell us what we can expect from the situation in Argentina? What will happen now that their currency is no longer pegged to the American dollar?

Another major issue we face in our trade with the Americas and with developing countries is transparency. There are problems with corruption in several of those countries that are very difficult to address. There is also the drug problem. There is all of this free trade, if I can put it that way, because we benefit from it here, but these are not good things we are receiving, and that also comes into the equation.

Mr. Benoît Carmichael: Allow me to go back to the case of Argentina. I am not an expert on Argentina, but according to what I have read and seen, the situation was not predictable, but it can be explained.

It started to a large extent with the countries of South America whose currencies were not pegged to the American dollar. The American dollar has appreciated over the past 10 years. So Argentina lost its competitiveness to a large extent with its trading partners. Its trade with neighbouring countries probably dried up and the Argentinians probably started importing a lot of products from Brazil, and Uruguay, etc., which led to major economic difficulties, especially in terms of employment. Now they have scrapped the policy of maintaining parity with the American dollar. Hopefully the economic context will improve for Argentinian businesses, and they will be in a position to sell their products on the international market, because they will no longer be pegged to a currency the value of which has nothing to do with what is happening locally.

So the Argentinians had linked their fate to a currency the value of which had nothing to do with what was happening locally, and that was very problematic for them. Hopefully they will be back in business quickly and they will get out of the hole. But they will need some help.

I have forgotten your other point.

Ms. Diane Marleau: The lack of transparency.

Mr. Benoît Carmichael: Yes, the lack of transparency. It is clear that if we promote global trade, a lot of containers will be moving around. There will be so many that it will be difficult to verify what each of them contains. So drugs or the movement of illegal goods will remain a problem.

Now, an opium producer undoubtedly plants opium poppies because he finds it more advantageous than planting grains or other food products. We must clearly help these economies to develop so that they can produce products locally that will be more attractive economically than...

But I do not think that this trade would disappear even if there were less international trade.

Ms. Diane Marleau: But it is becoming a major challenge.

Mr. Benoît Carmichael: It is becoming a major challenge. And it is clear that when democracy is not solidly established in a country, corruption takes root more easily.

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Ms. Diane Marleau: In the Americas, there are big families that hold the majority of the wealth and that pay almost nothing in taxes. This has always been something of a challenge. When we write off a country's debt, are we simply giving these families an opportunity to build up their fortune?

Mr. Benoît Carmichael: You have touched on a very good point. When I was talking about helping, I did not necessarily mean writing off the debt. If corrupt governments have become heavily indebted and have used these funds for all kinds of personal reasons, and if we wipe the slate clean and the same people remain in power, what will happen? The same thing will recur.

We must be courageous and develop mechanisms that will make it possible to provide assistance and new financing but that will not allow the same situation to recur.

For example, we should not help an African country that will use the funding to better equip its army or maintain an oppressive regime.

The Vice-Chair (Mr. Bernard Patry): Mr. Carmichael, this morning, Professor Bernier told us that there were two possibilities for the FTAA: the NAFTA model and the MERCOSUR model. As an economist, how do you see the FTAA?

First of all, do you think that it is possible for the FTAA to be in place by 2005, given what is happening in Argentina and more or less throughout the economies of Latin America and especially South America? How do you see the future of the FTAA? There are some advantages for Canada, especially as regards good governance in those countries. I think that is the main advantage. From an economic perspective, we do not do much business even with Mexico. Mexico is the real winner vis-à-vis Canada.

So what do you think about the future of the FTAA?

Á (1130)

Mr. Benoît Carmichael: I think that opening up the Canadian economy to a larger community of countries, even if we are not opening it up to the entire world, is a good thing. I do not think we have much to fear in terms of unfair competition from these countries. We have a lot to gain in trading with them.

Let's go back to the elephant that is sleeping with the mouse. Choosing to diversify our partners is always a good thing. I'm in favour of that. I do not know if the 2005 deadline is realistic. Here in Canada, what we should be concerned with in the short term is border security with the United States, because the Americans are very much concerned with that, as well as with the North American perimeter. As we mentioned, for Canadian businesses and Canada, it is important to reach an agreement and formulate procedures that work with the United States.

I remember seeing a picture taken in southern Ontario. The caption read: “Border 26 km”, and you could see trucks lined up one behind the other.

The Vice-Chair (Mr. Bernard Patry): On the Ambassador Bridge in Windsor.

Ms. Diane Marleau: There is more than one problem. There is also the problem of access to the borders. There are a lot of trucks and it is limited.

The Vice-Chair (Mr. Bernard Patry): Mr. Carmichael, we will be holding a summit in Kananaskis next June. What, specifically, do you expect out of this summit? Discussions will include security, Africa and so on, but are there any specific matters that you would like the Canadian government to put forward?

Mr. Benoît Carmichael: I have not really given the matter much thought, but I think that Africa should be very high on the agenda. The continent is somewhat neglected. When you look at improvements in the standard of living throughout the world, you can see that the situation is dramatic in Africa. The international community will have to change its way of doing things, because clearly, it is not working very well there. There are probably several countries there with crushing debts that they are not able to overcome. The wealthy countries will have to help them. It is a difficult matter. How can we help them and not allow them to maintain the habits that cause them to become so indebted? To my mind, we need to promote democracy in those countries. I think that if democracy does develop throughout the African continent, standards of living will subsequently improve. In my opinion, it will be difficult to heal the economic wounds without democracy.

Á (1135)

The Vice-Chair (Mr. Bernard Patry): Mr. Dubé.

Mr. Antoine Dubé: I have a short point to raise in connection with what you just said. I am pleased with the fact that you are keeping the debate on the consideration of a common currency open. It makes perfect sense to examine all aspects of the issue, in other words, the steps that must be taken beforehand. I would like to conclude by reminding you, and I think you would agree with me, that we can always decide to adhere to another currency. The decision is in the hands of the government. Argentina made that decision. The United States will not be making it.

In response to an earlier question by Ms. Marleau, you touched on an economic point. You said that there was no link between the deficit and the currency's devaluation. However, I have been looking at action taken by the International Monetary Fund with respect to developing countries. We saw with Russia, which was once an economic giant but which is currently undergoing difficulties, that when the International Monetary Fund gets involved in a country it always begins by saying that the government in question must reduce its deficit. The government is forced to cut its social programs; in the end, it is forced to make cuts that hurt its people. When that is applied to countries that are even worse off than Russia, and to others still, when that is applied to regimes that have virtually no social programs, we are putting them in a situation where in the end... I would like you to comment on action taken by the International Monetary Fund, which demands a balanced budget. That approach may be healthy in terms of accounting principles, but from the perspective of international aid, I do not think we are helping them much by asking them to do that.

Mr. Benoît Carmichael: There are two things to consider in that regard. When I mentioned it earlier, it was mainly in the context of a reserve currency. In the end, I was talking about the American case. What I said was that for the observer who is looking at the data and the statistical studies, who is looking at the link between the value over time of the American dollar and the American deficit, it is difficult to come up with a link in the case of the United States.

When you talk about a deficit there are two things you need to consider. This is what I always tell my students. There are two types of deficit. There are deficits due to economic circumstances. When the economic cycle is on the decline, it is normal for fiscal revenues to be lower, for expenditures to be more significant and for a deficit to occur. When the economic cycle improves, the situation turns around. I was speaking primarily in the context of this type of deficit.

The other type of deficit could be more structural in nature. It occurs when spending policies are put in place but funding methods are not put in place at the same time to ensure funding for these policies in the long term.

My understanding is that action taken by the IMF focuses primarily on this second type of deficit. Basically, reducing the deficit is not what is most important, but requiring that a country have revenue programs in place to enable it to fund the spending programs it may have.

Of course, in the short term, it is easier to cut spending than to increase revenue, especially in a developing country. Here in Canada, we have an army of officials in Ottawa whose role is to fleece Canadians in such a way that it hurts as little as possible. Taxes are collected in many ways. We have a very effective tax collection structure. If, for example, you are in Cameroon or Gabon, this structure is almost non-existent.

Of course, the IMF's position is that broad macro-economic balances must be respected. For that to occur in the short term, it is often easier to reduce spending than to increase revenue.

I have on occasion had the opportunity to read documents on specific cases. Some time ago, saying what spending should be cut was taboo. For example, the military budget was never targeted in such a way as to indicate where cuts should be made. Choosing where the cuts would be made was left up to the relevant authorities. Now, for a dictator in power, it is much easier to cut in schools and hospitals than in the army.

But it would seem that we are presently a little bit more inclined to indicate what must be done. And we are on the right track.

Á (1140)

Mr. Antoine Dubé: Pardon?

Mr. Benoît Carmichael: We are on the right track. I think it is a better approach. Again, I am not an expert on the IMF, but based on my understanding, it is a multilateral organization that must respect the sovereignty of member states. At the end of the day, it is up to the member states to develop their own action plan.

It is certain that a small developing country may not have experts to deal with all types of crises and that is perhaps when the IMF economists get involved.

The alternative would be to leave them on their own, and that also involves costs. IMF programs involve costs in the short term. If we go with the alternative, in other words not providing any loans, other costs will appear. If we do not help Argentina, there are some problems that will go on for a long time. It is a delicate situation. It is a difficult exercise.

I think some thought has been given to these matters, and some healthy progress has been made by international organizations as regards human rights and military spending. Be it through the World Bank or the IMF, helping dictators is not normal.

That is a personal opinion.

The Vice-Chair (Mr. Bernard Patry): Ms. Marleau.

Ms. Diane Marleau: [Editor's Note: Inaudible]...but I think that it has only been since the end of the cold war and the collapse of Russia and all of its satellite countries that we have seen any drastic change. Before that, the reasons we had for investing were not always the healthiest ones. Investments were made in certain areas because we knew that others were going to invest there. It was a competition between the two blocs. It has only been 10 years, no more. Some progress has been made, but I think that we have a lot more to make.

Africa is a continent, but the countries it comprises are not all the same. Should we target all of our investments, carry out all of our actions only in the countries that are making progress? I am thinking about Mali, which is a democracy, that was very poor but that has developed. There are other examples, like Senegal.

But there are also countries like Zimbabwe that are currently self-destructing. At the meeting in Kananaskis, do you think that we should advocate working first of all with the countries that have made the most progress, and not necessarily with the richest ones?

Mr. Benoît Carmichael: I would be inclined to share your opinion. I think that the emergence of democracy is fundamental. The right to say yes or no and to periodically give one's opinion of the government is a fundamental human right. It is a fundamental right that should be recognized. It is true that we should, in my opinion, focus more on encouraging countries that have already made some progress in that area.

I do not think that we should remain silent on what is happening in Zimbabwe. We are probably unable to act on what is happening there at present, but we can nevertheless say that we do not agree with what is happening and we can take action.

It seems to me that what is happening there is horrible. Mr. Mugabe will probably be re-elected and there will probably be I don't know how many deaths on election day.

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Ms. Diane Marleau: What is sad to see is that Zimbabwe is a country rich in natural resources. It is a beautiful country.

I do not know, but I think that we should have intervened beforehand, because the situation has been going on for quite some time. Democracy did exist as did freedom of the press. Today, all of that has simply disappeared.

Mr. Benoît Carmichael: Yes. It is clearly a difficult exercise, because we must avoid giving the impression that we are colonizers who say that one thing is good whereas something else is not. The country must be given as much leeway as possible as regards what is good for its inhabitants. There are, however, some cases where it is easy to judge, like in Zimbabwe for example. We can easily see that in South Africa, democracy appears to--

Ms. Diane Marleau: ...be working.

Mr. Benoît Carmichael: It is not perfect, but it is much better than it was before.

Ms. Diane Marleau: The situation is much better than it was when--

Mr. Benoît Carmichael: Yes.

Other countries have also made progress. According to what I have heard from friends who have gone to Senegal, I think that young people are very dynamic. They are taking charge of the situation and governments have changed without any shots having been fired.

The Vice-Chair (Mr. Bernard Patry): Mr. Dubé, you have time to ask a short question.

Mr. Antoine Dubé: Thank you, Mr. Chairman.

I may surprise you, but I am going to take you back to the university. You are a professor, and you are constantly in contact with students. I know that at Laval, like elsewhere, student's attitudes vary from one faculty to the next. At Laval, there was a tendency to talk about “hard” science and “soft” science.

I'm going to give you an example of something that happened. Two or three months before last year's summit, my 24-year-old daughter came home with her pads, helmet, etc. She is completing her B.A. I asked her what she was preparing to do, and she told me that she was going to train to participate in the demonstration. What demonstration? Obviously, the demonstration against the summit and globalization. I asked her against whom in particular and why, and how that affected her. After a long debate and a number of appropriate questions, I finally succeeded in getting her to give up her protective headgear. She participated in the march. Asking questions is a very good idea. The point I am trying to make is that even among young university students, some mobilize, but they do not always know why. They are against something, but they often have trouble saying why. As a university professor, can you explain the gap that exists between professors like you and university students?

It's a good question!

Mr. Benoît Carmichael: Yes, it is a good question. It is a question that I ask myself. I have even made an effort personally, in my courses, to cover the issue of globalization, its advantages and its disadvantages.

I think that when people are young they are rebellious. So rebelling is par for the course. In the 1960s, young people rebelled against the Vietnam war. That is part of the trend. I also think that the emergence of the Internet has made these things become happenings. So among young people, being part of these events is very “in”. With the Internet, you can set up a website and organize mass movements that would have been unthinkable 20 years ago.

But as university professors, we do not always do a good job of playing our role as information providers to enable them to have access to--

Economists often have a bad reputation among social sciences students who are not very interested in figures. We are perceived as capitalists associated with the power of money that has to be overthrown. This is, however, fundamentally false. We teach a way of addressing problems that makes it possible to analyze the advantages and the disadvantages and that deals with each aspect rather rigorously. However, we have not been very successful in explaining the advantages of globalization, for example, to young people. That might make them perhaps a little more critical of their own protest movement. They protest, but they do not have any solutions to offer. They do not have alternative solutions, and they put everything in the same bag.

Personally, in my courses, I use a small website that contains a section on globalization. When I find interesting newspaper articles that cover various points of view, I make them available to my students. I think that if more professors did that, eventually, points of view would change.

I often ask my students if, in the news reports on Seattle, they saw a lot of people from Bangladesh. Were there people from Sudan or the Ivory Coast? Did you see many? No. What you saw were Germans, French, Americans and Canadians. All in all, who has the most to gain from globalization? People from India or Bangladesh. Do we want to help them raise their standard of living and hope to reach ours someday?

Mr. Antoine Dubé: [Editor's Note: Inaudible].

Mr. Benoît Carmichael: Yes, that is it. But on the other hand, we must not lump everything together with globalization and allow anything and everything.

Á (1150)

The Vice-Chair (Mr. Bernard Patry): Thank you, Mr. Carmichael.

Even if I'm not really answering Mr. Dubé's question, I would say, as someone said already this morning, that young people see this summit as a private club with no transparency. Young people view this as a lack of transparency. The media especially do not talk about the advantages of globalization, whereas the disadvantages of globalization make the headlines and everybody reads the newspapers.

That is sort of what happens. But young people are very--

Mr. Benoît Carmichael: [Editor's Note: Inaudible].

The Vice-Chair (Mr. Bernard Patry): That is what Ms. Marleau was saying this morning: that when something good happens the newspapers or the media aren't interested.

Mr. Carmichael, I would like to thank you very much for your presentation. It was very specialized. The issue of a single currency is an issue that we three are not very familiar with. I truly appreciated this morning's presentation.

Thank you very much. We will now adjourn until 2 p.m.

Á (1155)

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The Vice-Chair (Mr. Bernard Patry): I now call this meeting to order. Pursuant to Standing Order 108(2), we are holding public hearings on North American integration and Canada's role in the wake of new security challenges and the study of the agenda of the June 2002 G-8 summit.

This afternoon we have the pleasure of welcoming Mr. Louis Balthazar, professor emeritus, Department of Political Science at Laval University.

Mr. Balthazar, you may take all the time you wish. This will be very interesting and we are very fortunate because you are the only witness we have scheduled for this afternoon. We therefore hope to hear your position on all the issues.

Before you begin, I would like to thank you for having sent us your presentation in both official languages. That is truly appreciated.

This afternoon, I am accompanied by Mr. Roy, our clerk, Mr. Haggart, our researcher and two members of Parliament: Mr. Dubé from Lévis and Ms. Marleau from Sudbury, Ontario.

You have the floor.

Mr. Louis Balthazar (Professor Emeritus, Department of Political Science, Laval University): Thank you. Contrary to my custom, and perhaps because of how important I feel your committee is, I am going to read the text that I gave you as clearly as possible. You are very generous in giving me more time than you normally would. Therefore, we will take the time needed. I will comment on my text, that is about five pages long. I think what will be most interesting will be the exchanges we will have afterwards.

Yesterday and Sunday evening as well, when I was watching the news, I felt somewhat awkward about talking to you about what I had prepared because these days Canada is sort of in orbit, as if it feels more independent than ever with respect to the United States, given that amazing hockey victory Sunday afternoon. Much could be said about that. This victory has very much fueled Canadian nationalism, Canadian pride, Canadian allegiance, and, of course, our pride with respect to the United States. However, this afternoon I will be bringing you back to a reality that is perhaps somewhat more painful than our hockey victory.

I'm going to talk to you almost exclusively about relations with the United States. I might talk a little about the integration of the Americas, a topic I am also very interested in, but that should not overshadow the importance of Canada's relation with the United States, which will always be unique compared to the others.

Relations between Canada and the United States are much more intensive and much closer than Canadians generally tend to believe and admit. I would go so far as to say that these relations have aspects that are unique in the world. Given our history, they have a truly existential nature. That is so true. A historian said that Canada existed because of the United States and that one day perhaps Canada would no longer exist because of the United States. Let us hope that that will not be the case. Canada was born—and we Quebeckers are very proud of this—from the refusal of Quebeckers to join the American Revolution. In 1776, as you know, Benjamin Franklin went to Montreal, solely accompanied by a Catholic bishop, His Eminence Carroll, and a French printer, Fleury Mesplet, to persuade the Canadians at the time to join in the American Revolution. In Quebec, in Canada—it was the same thing at the time, both words meant the same thing—there were many people within the population who were flirting with the idea of the American Revolution. But the clergy and the Canadian elite at the time said no to Benjamin Franklin. That allowed Great Britain to preserve a large area in North America. If Quebec had said yes to the Americans, there still would have been a few contingents in Nova Scotia. I don't think that would have been enough to make up a large colony, which Canada was going to become. Obviously, this refusal allowed many American loyalists to later come and join the population of Canada.

Since then, the United States has preoccupied Canada at all stages of our history. I will not recall that history now, but many events could be mentioned. For example, the creation of the Department of Foreign Affairs, which was called the Department of External Affairs at the time, was essentially justified by the need to classify documents regarding relations between Canada and the United States. Our first mission was in the United States, our first treaty was with the Americans, etc.

There is not at the present time anywhere in the world a closer relationship between two countries. There are no two countries even in Europe that trade so intensively and share such an extensive communications network. We must accept it whether we like or not: we are inextricably linked to our southern neighbour. We belong to North America and our bilateral relationship with the United States must be approached on those terms, that is, as an area we belong to. We have nothing to gain from taking refuge in multilateral institutions and then making them the central axis of our foreign policy, as we have generally done in the past. I do not mean to say that these institutions are no longer important to us, and still less that we should not play an active role in them. But what I do want to say is that it means that they must not and cannot be allowed to get in the way of our primary relationship which is with the United States. I would like to quote our former Ambassador to the United States, the former Deputy Secretary of State for Foreign Affairs, Allan Gotlieb, who said, in a speech that I feel was a crucial moment, a turning point in Canada's foreign policy: “Multilateralism will no longer be a strategy for limiting the influence of the U.S. over our nationhood and our lives.” And Gotlieb pointed out that he had believed that for years. That was the central axis of our foreign policy. We were involved with, and still are today, an impressive number of international organizations.

¸ (1415)

I don't have any numbers for this, but I'm wondering if we aren't the country who belongs to the most international organizations. It certainly makes our prime minister travel a lot.

But, as Mr. Gotlieb concluded, multilateralism can no longer work: “It seems that history at this time has dictated the inevitability of the second option...”—you recall the three options in 1972—“...closer economic integration with the United States.” This was in 1991, and I think that it is just as true today. Obviously, Gotlieb was saying that shortly after the signing of the Free Trade Agreement with the United States and one year before the signing of the North American Free Trade Agreement, NAFTA.

The Europeans are already making us aware—and this is an important element—that our relations with them can no longer be what they were in the past. I remember meeting Mr. Axworthy, the former Foreign Affairs Minister, a few years ago, and he himself, even though he was very inclined towards multilateralism, said this at a time when Canada was looking for support to be a non-permanent member of the United Nations Security Council. Mr. Axworthy said that he was surprised because he was going to see, as we have done in the past, our Scandinavian friends and other friends in Europe to obtain their support, and each country's response was to say that they would have to consult their European allies first.

More and more, our European friends are working—and this is very normal—within the framework of the European Union, which is becoming more and more restrictive for them. The Europeans are adjusting their policies on the basis of their membership in the European Union or, if they are not yet members, on the Union's enormous influence on them. As far as the Central European countries are concerned, Switzerland or Norway, the European Union is the main actor in Europe, even if they do not belong to it.

The larger entity to which Canada belongs is clearly continental. This is inevitable. It should not prevent us from pursuing as far as we can our relations with European countries.

Curiously, Mr. Chrétien recently spoke with the German Chancellor. He suggested a free trade agreement between Canada and the European Union. Allow me to tell you that I have many reservations. Of course, this would be very good for Canada, but I would be very surprised if it went any further than that famous contractual agreement that Mr. Trudeau succeeded in signing with the Europeans in the 1970s. It must be pointed out that Mr. Schroeder, however important he is, however important his country is in the European Union, was not authorized to speak or to make any commitments on behalf of the European Union. In any case, all the better if these things move ahead. For my part, I remain rather skeptical. Thus, we are not part of the same family.

Is it our destiny then, because of this, to become a vassal of the United States, perhaps to disappear as a sovereign entity? What I see— this text is a small summary—is that the institutions involved in our relation with the United States will become more important, more and more restrictive. We've seen it in the military arena since September 11: instead of sending a contingent with any multilateral force to Afghanistan, we are part of a North American contingent. And you know as well as I do that our military people are very watchful of what the United States do and that they gladly work with the United States.

Therefore, military integration is very strong and will continue to expand. On an economic level, I don't see how integration will not continue to expand, given the enormous interests that are involved and, of course, given that we already trade with the United States to the tune of 87%.

In the area of culture, I do not need to draw you a picture. You know what Canadians consume, especially English Canadians, but also, to a lesser extent, French Canadians. There is cultural integration.

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We have to open our eyes and live with this. I think in general that there is no point in denying reality, even if we don't like it. The best way to counter or to act as a counterbalance to things that we do not like, is to look them in the face and acknowledge them.

Therefore, I put the question: is it our destiny to become a vassal of the United States, perhaps to disappear as a sovereign entity? I say no to that question, at least in the foreseeable future, for two important reasons. Perhaps I should talk about the second one first, but in order to pay homage to Canadian nationalism, I will keep the first in its place.

The first reason is collective will. Canadian nationalism remains strong, as we have seen these days, and a great majority of Canadians are deeply attached to their institutions, their emblems, their allegiance, even if, at the same time, they have not entirely renounced what the Americans bring us, whether it be good, bad, or indifferent.

Curiously, the same Canadians who say that they are proud to be Canadians, who say that they would never want to belong to the United States, will admit that 90 or 95% of the movies they watch and books that they read, etc. come from the United States. This is the great ambiguity of Canadians. Therefore, Canadians would repudiate at once any government that attempted to surrender those distinctly Canadian institutions, our health services, political institutions, etc.

If Canadians could be brought to understand that one of the elements that distinguishes them most clearly—among others, of course, but the most clearly, I feel—from the United States is the presence of roughly 25% of francophones in their population, our search for sovereignty would benefit greatly.

How many Americans have told us, more often to those of us whose language is French, that they feel that the main difference between Canada and their country is the fact that we have bilingualism. And as the good Quebecker I am, I would go even further than just bilingualism, and say that the difference is due to the presence of a distinct society in Quebec, without which bilingualism would not have much strength. This francophone presence is a tribute to the struggle that Quebeckers have waged to promote their uniqueness and distinctiveness within the Canadian whole.

In the area of culture, for example, we have to get it into our heads that there is no point in talking about the distinct nature of Canadian culture if, in the same breath, we ignore the distinct nature of Quebec culture within Canada. That is a flagrant contradiction. I am happy to accept, contrary to many Quebeckers who would rather ignore this, the clearly distinct nature of Anglo-Canadian culture compared to American culture, but at the same time, one has to admit that Quebec culture, in its distinctiveness, is something entirely unique in this country. The same can be said for the presence of aboriginal communities who have been obtaining greater autonomy, for example, Nunavut. I imagine that this is a process that will continue.

A Canadian union including a society distinct because of its culture and language—that is what makes Canada profoundly different from the United States. I tried, during the Meech Lake talks, to tell my fellow Canadians that if there was something that made us non-American, different from the Americans, surely it was this attempt to include a distinct society in our federation. The Americans would never have thought of that, and noboby, since the Civil War, has ever suggested that Louisiana, even if it has a different civil code, be considered as a constitutionally distinct society.

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This could and should be reflected in a foreign policy suited to a federal state.

I didn't bring—I would have liked to but I realize that I forgot—Canada's White Paper on Foreign Policy from 1995. It may soon be replaced, but it still contains the main elements of Canada's foreign policy. If someone were to come from the planet Mars and read that paper, they would never realize that Canada is a federation because it is not mentioned. The White Paper mentions that Canada wants its foreign policy to be closer to its citizens—this is what you are trying to do this afternoon—that Ottawa's intention is to consult extensively. The provinces are also mentioned, but only after other parts of Canadian society are listed. Private enterprise, universities, municipalities are listed and yes, also the provinces.

Yet, up until now our federal system has included two levels of government: a federal level and a provincial level. This gives the provincial level of government a certain nobility, and I do not see why that level of government, during the Prime Minister or Team Canada's trips, could not participate in the development of Canada's foreign policy.

Furthermore, the provincial governments should be called upon not only to play a role in formulating Canada's foreign policy, but also, as one of the many institutions and as a level of government, to ensure their own presence outside the country, just as Quebec and other provinces have done.

This afternoon, for example—I was going to ask a question about this a little later—it would seem to me quite normal that your Quebec colleagues from the International Relations Ministry in Quebec be here with us to talk about foreign policy. I think that there have been some oversights.

I realize that you are dealing with a sovereignist government and that that can provoke all kinds of friction, but I do not see why, in principle, there couldn't be more consultation. I know that there is some and that there are channels of communication. However, in my opinion, we could benefit from these channels of communication being more visible.

The second reason that we should not become just a vassal of the United States has to do, strangely enough, with the American desire to recognize Canadian sovereignty. I have travelled extensively in the United States over the last 20 or 30 years and I have almost never heard any serious person, whether they be from the government, or universities, speak of a possible annexation of Canada to the United States.

I've hardly met anyone— though I know that there has been some idle talk about this within American society — amongst the people who count, who has been willing to play the “divide and conquer” game, for example when the sovereignist movement in Quebec was a threat. I have never met anyone who has said that it would be a good thing if Quebec became sovereign because with Canada divided in two, it would be easier to influence both parts.

¸ (1430)

The Americans, whatever one might say about them, did not derive their foreign policy from Machiavellian principles. They may sometimes be cynical, they can be terribly cruel, they can be thoughtless, short-sighted, you name it; they have made all kinds of mistakes, but it would be difficult to accuse them of having a foreign policy that has been calculating, cynical and Machiavellian.

Whatever the case, where Canada is concerned, the Americans have always demonstrated a very strong will to maintain Canadian unity, and all the people I have interviewed about this have always said that. They said that it was very important for Canada to be there, that we are an excellent neighbour, that we are different from them and that we do things differently, but that we are good friends. And for a hegemonic nation like the United States to be able to say that, despite the fact that they dominate the world, that they are hated throughout the world and despite everything that they have been accused of, their neighbour likes them and that relations are good between them... It is more valuable for the United States to be able to work with a sovereign, independent neighbour and to ensure that this neighbour is involved in international institutions.

For example, in 1975, it was the United States that insisted that Canada be part of the G-7. That is very valuable for the United States. I would even go further—this is my own little personal theory—and say that I believe it is in the American interest that our policy sometimes be different from theirs. That allows them to use us to test the wind, given our situation in terms of international policy and the differences in our responsibilities with respect to theirs. Even if we are in agreement, there are some things that we can do, and that, for various reasons, valid or not, they cannot allow themselves to do.

For example, we—Mr. Trudeau was very proud of this at the time—recognized Mao's China, established diplomatic relations with China before the United States did. It strikes me that this was very useful for the United States because one year after that event, Mr. Nixon made his memorable trip to China, and even though they didn't do it until President Carter, the Americans also established diplomatic relations with communist China.

Take our relations with Cuba. The Americans have often denounced us and have said that we shouldn't continue to trade with Cuba, but it seems to me that when President Clinton, a democratic president—I don't know about President Bush, it's more doubtful—would meet Jean Chrétien, he could tell him in private, from time to time, that he would also like the United States to be able to reopen their business relations with Cuba. But he had to deal with Congress, with public opinion, and he had to take into account the importance of the state of Florida from an electoral viewpoint, the Cuban refugees, etc. He couldn't, but at that time he must have been encouraging us, Canadians, to do this. Of course, the Americans would never officially say that.

Let's also take for example the role that Canada played at the time of the Vietnam War, when the famous draft dodgers, the Vietnam War draftees, took refuge here. For their mothers, it was much more reassuring to know that their sons were in Montreal, in Calgary or in Toronto than to see them exiled in Mexico or some town somewhere in Europe. Good old Canada even had the same telephone system, a similar culture.

So, I think that often... I do not want to be sarcastic in saying this, but this can allow us to play a certain role at times, in that we can allow ourselves to make breakthroughs in international diplomacy that the Americans cannot allow themselves to do. It gives us a certain margin to do things that the Americans don't do and sometimes, to make our interests and our principles known to the leaders in Washington.

¸ (1435)

So we can continue to have an independent foreign policy, but it would be worthwhile for us, on the military front, to belong to the private club of the American military interests and to act from within. That is important, and on that point I support my colleague, Albert Legault, who has said this many times. In fact, he wrote about it again last week in an article in the newspaper Le Devoir, I believe. So it would be in our interest to exercise our influence often within the North American context. By North American context, I mean the United States and Canada. Even if Mexico, which I will say a little about in a few minutes, and the rest of Latin America can often be very helpful to us, we should never lose sight of the fact that basically, for cultural, historical and other reasons, the United States and Canada have a very special relationship.

Our best allies are often to be found in the US. That is another characteristic of the relationship between our two countries. Right now, in the softwood lumber dispute, our best allies are the American consumers, who vastly outnumber the American companies challenging our export system. Homebuilders in the United States prefer to buy cheap Canadian lumber. The ambassadors have often said this. I heard it from Raymond Chrétien a few years ago.

When we organize a lobbying effort, need to deal with or promote an issue or defend a point with Congress in particular, we need to mobilize lobby groups within the United States to push our ideas, especially with Congress, which is made up of elective representatives who are very sensitive to their voters' wishes, to their constituency, as they say. So our best allies are often within the American public.

It is important to remember, for example, that half the Americans did not vote for the current US president. They did not vote for him because they were opposed to many of the measures that he is implementing today. You might argue that, since September 11, the public has rallied around the president to a very high degree, that his popularity has jumped to 85%, that many people who voted for Gore have completely forgotten him. That is true, but despite all that, with time, as the war on the terrorism continues, but loses some of its timeliness and urgency and ceases to dominate people's minds in the United States, I am sure that we will see groups spring up that are very opposed to many of the American government policies that Canadians do not agree with. These might include the nuclear shield, the Kyoto environment protocol, certain international agreements, and the American attitude regarding the International Criminal Court. If certain elites can challenge the Bush administration policies, why could the Canadian government not do so as well? When I use the word elite, I am thinking about the foreign policy elite, which has considerable influence over American foreign policy. So we need to be close to the Americans, but close to a particular constituency in the United States.

There is also the fact that we are ideally positioned to point out to the American leaders that they have nothing to gain by acting alone. We will not encourage them to ignore the views of their best allies, especially in Europe.

What about our ties with the countries in Latin America? Can we work with them within NAFTA, the Organization of American States and the future Free Trade Area of the Americas to counter the hegemony of the United States? Yes, I believe that in fact we can.

¸ (1440)

I read a brief article in a newspaper on something that I would like to know more about. It was saying that we have Canadian agents representing companies or the government, I am not sure, in countries like Brazil and others to help Latin Americans think in terms of free trade, since we have been at it a little longer than them. So we are already developing allies so we are not always alone in our reaction to American hegemony. But there again, we need to be realistic. There are some gains to be made in that area, but Mexico and Canada are so very different. It even happens sometimes that Latin American countries challenging the United States on some issue do not have our support because they are rivals. We saw that in the case of trade with Brazil, for example.

We are so much more attuned, culturally and economically, with the United States that sometimes Latin Americans may distrust us. They may distrust us less than the United States, but they may have reasons for distrusting us as well. For example, the United States can obviously not treat its border issues, which are very much in the news right now, in the same way where Mexico and Canada are concerned. The two borders are very different.

A quick look at the map will show that, in contrast to the types of alliances that existed around the world in the past, Mexico and Canada are geographically on either side of the United States, which can really play the hub and spokes card to the extent that they can distance us from each other. That does not mean that we should not do everything we can to try to create closer ties in order to forge, in the general public and among our young people, in particular, a vision that sees “American” as a continental-wide concept, except in the economics spheres.

The so-called anti-globalization or anti-FTAA forces that we saw here in Quebec City last year were not really on the other side of the issue. The world “anti-globalization“ is meaningless, since the people who use that word are actually highly globalized. They communicate with each other a lot and quickly. If we could create non-economic exchanges areas, it would be very helpful. But we are not very far along in that area. Even here in Quebec, there has been a lot of talk recently about Americanicity. Many people were skeptical. I have also heard journalists from English Canada say that having contacts with the Latin Americans would be fine, but that we were much more comfortable with our European allies. We need to learn to deal with the Latin Americans because they are our future partners to a greater extent than the Europeans.

For all these reasons, and especially because of the astronomical costs caused by shipment delays at the border, I believe that we will eventually have to enter into a customs union with the United States. Hundreds of millions of dollars a day were lost in September and October because of delays at the borders. I know that there is a lot of reluctance and that the government is not ready to go down that road, but I really do not see how we can avoid doing so. It will take time, but it will happen. The economic imperatives we share with our neighbour are much greater than those shared by the European countries. As I said earlier, no two other countries do as much trade as Canada and the United States. Yet, the Europeans have done away with border controls and allowed the free movement of goods and people. We can come back to this later.

I know that the situation in Europe is quite different, but it is worth pointing out that the countries in Europe have managed to keep their own immigration policies to some extent. It seems to me that we should be able to preserve certain distinct criteria and policies in the immigration area, but we would clearly have to give up large parts of our sovereignty in that regard.

¸ (1445)

Once again, the economic imperatives are very strong, and I do not believe that Canadians are willing to buck them. When people in Canada start to feel the economic pinch, I do not think that they will be prepared to sacrifice financially very much for our independence. I may be wrong, and so much the better if I am, but it seems to me that we are generally very attached to our wallets and our economic well-being. Our economic well-being depends to a very high degree on our trade with the United States and how quickly and efficiently those exchanges take place.

We can come up with all the measures that we like for truck inspections, etc., at the border, but I do not see how all that will result in a secure border where goods can get through quickly. There will always be suspensions, inspections of completely sealed trucks will take place anyway, and there will still be delays. Once again, I am not an expert on border issues, but of all the measures that I have seen implemented since last fall to maintain a border where people and citizens are checked and freight can get through quickly, I have not seen anything to convince me that these measures would have the desired effect.

As for the currency question, I have even less expertise in that area, since I am not an economist. However, I read what is written, and the lesson that I draw is that it is not simply a matter of doing a cost-benefit analysis. From what the economists are saying, I tend to believe that such an analysis would show that the benefits of a common currency or dollarization would outweigh the benefits of retaining the Canadian dollar: the possibility of letting it float, benefits for exports, etc. But this is a hot-button issue that is connected with many important symbols of Canadian identity. The Americans understand this very well and are keeping quiet. They are not exerting any pressure. All the indications are that, for reasons that will remain highly symbolic—and symbols are important in politics—it will be to our advantage to keep our own currency.

But the day may come when people understand—I am not sure, but this is what certain economists that I highly respect are saying—that it would be in our interest to at least tie our dollar to the American dollar, to peg it to their currency. Well, once our dollar is pegged to the American dollar, we will not be far from having a common currency. Bills will still have a picture of the Queen or George Washington, but it will be exactly as if we had a common currency. If the Americans became willing to accept our money in exchange for theirs, which is far from the case right now... I lived in the United States for five years in the 1960s, and if I took out a Canadian dollar by mistake, people called it Monopoly money. No one wanted anything to do with it, even though the Canadian dollar at that time was worth just about the same as the American dollar. So we are a long way from that kind of acceptance. The Americans are very resistant to change and would be loath to share a central bank or control over their currency with us, even if our influence was relative to our population. The Americans would be loath, for example, to give us 10% representation on the Federal Reserve Board. Even that kind of step, it seems to me, will not fly in the United States.

So American resistance does us a favour and helps us maintain our sovereignty. I think that we will keep our dollar for many years to come, but I may well be wrong.

That is basically what I had to say.

¸ (1450)

The Vice-Chair (Mr. Bernard Patry): Your presentation is already over? Thank you. It was very much appreciated. It felt like we were back at school.

Mr. Dubé, do you have any questions?

Mr. Antoine Dubé: I have known Mr. Balthazar by reputation for a number of years. I have come to know him a little over the last few years, because we have had an opportunity to meet a few times at various meetings.

I would first like to admit that I am jealous of Mr. Balthazar, since as a retired or semi-retired academic, he can say what he wants, independently, and people believe him because he has credibility and a good reputation.

That said, even though I know you fairly well and I have read a number of your books, you brought out something today that I had not seen before now, and I admit it. I had never focused on that before and I am going to ask you a question on that point.

You say that the Americans do not have a Machiavellian vision when it comes to Canada. That is true, given that they would have had many opportunities since the two attempted American invasions, one by General Benedict Arnold, to try to use political means to divide Canada, but they did not in fact do so.

You say that Mr. Trudeau was able... That did not just happen by itself, after all. You have to admit that Trudeau had gall, especially where Cuba was concerned, and maintained his friendship with Fidel Castro right under the nose of our giant American neighbour. That is extremely useful today.

There is one aspect I would like to get into. Since September 11, I have noticed... Some of my colleagues are in even less of a position than me to talk, since they belong to the party in power, but they certainly have their personal point of view. Whether you are a sovereignist or a federalist, there is no doubt that, because of the work of our missionaries and nuns, Catholic or otherwise, and because of our peacekeepers, Canada long ago acquired a reputation for impartiality and neutrality that is useful in international conflicts, but I feel that this reputation has been somewhat compromised since last fall. In any case, the room to manoeuvre that you were talking about seems to have shrunk a bit.

I would like to ask you whether you feel that the events of September 11 have reduced Canada's room to manoeuvre. We have an opportunity to talk about this, and I heard Mr. Chrétien mention the possibility that this offensive or war on terrorism might be extended to other countries beyond Afghanistan. It is clear that Canada wants to resist this through what the Prime Minister is saying. I would like you to comment on this particular point of view.

¸ (1455)

Mr. Louis Balthazar: It is true that our room to manoeuvre was reduced over the fall because of the spectacular events that had occurred and the deep pain inflicted on the American people. It was not said often enough that such a thing had never happened in the history of the United States. Never in their history had the Americans suffered such a blow to their own country. Pearl Harbour was much less of a blow than September 11.

That clearly led the Americans to be extremely impatient, more impatient than usual, in dealing with our differences. They criticized our immigration policy, wrongly, as it turned out, since all the terrorists, as we often pointed out to them, left from the United States. Of course, there was Ahmed Ressam who had lived in Montreal, but how many of those terrorists lived in the United States? So their border is as porous as ours is. But their impatience is understandable. They were looking for answers, etc., and they were impatient with any kind of dissidence. The Americans were telling the Canadians that we could not afford to disagree with them.

I have another theory about September 11. I would like to write about that soon, but I do not dare because I might be proven wrong by events.

It is my impression that it is not true that the world after September 11 is profoundly different from the world before September 11. Of course, something spectacular happened that has greatly contributed to fashioning American policy and continues to do so, for obvious reasons. Bush came into this world on September 11. He has built his popularity on that. You heard his state of the Union address: everything relates to September 11.

Thus, September 11 has been somewhat inflated and, curiously, both on the left and the right.You see it on the right, of course, because this has led to security measures and a more aggressive policy. Anything goes when one has a common enemy such as the one who triggered September 11. But on the left as well, there are those who have said that the world is no longer the same, that this is the revenge of the third world, that we will now see them in action, that this is the end of the American Empire. Come on! What has happened since September 11? There was one attack on a plane with a shoe. As far as anthrax goes, we don't even think it came from the outside, we're not sure. There was of course that awful kidnapping of Daniel Pearl from the Wall Street Journal. But still, these are types of incidents that were happening before. I'm not saying there won't be any more terrorism. There was before and there will still be. September 11 was exceptional in that it was spectacular, but in my opinion, it is not qualitatively different from what was happening before.

Maybe I'm wrong, and maybe in the weeks and months to come there will be events that will prove me completely wrong, but it is my impression that if things continue like this, that if we return to the world the way it was before, then this narrowing of our room to manoeuvre will go away. This doesn't mean that we'll have a lot of room to manoeuvre because we didn't have that kind of room before; it was much less than we like to believe.

Obviously, this is part of our Canadian pride. We've been bursting with pride over our peacekeepers. Yes, they have done remarkable work in the past, but let's go a bit further back in time. Forty years ago, during the Vietnam war, we were part of the International Control Commission in Vietnam. There were three countries in this commission: Canada, chosen because it was a United States ally; Poland because it was a Soviet Union ally; and India, because it was neutral. We now know that Canada's agents in Asia, in Indo-China, played a role that was very useful to the Americans and there was a lot of communication.

We had a different policy on Vietnam. Mr. Pearson was told off by Johnson. He even told the United States that they should stop the bombing, that Canada did not agree. But that was the exception to the rule. In general, Mr. Pearson was very well regarded in the United States. Everywhere, in all areas, he had friends.

One American civil servant told me that at the same time that we were receiving American draftees who were fleeing, the draft dodgers, there were just as many Canadian volunteers who wanted to fight in Vietnam as there were American draft dodgers coming here.

¹ (1500)

You see, we're never very far from them, much less than we think. Even if we do things differently, in a different way, and we announce it, diplomatic contact with the United States, as the diplomats will no doubt admit, is always extremely fluid. Even Mr. Trudeau, who would cause a stir and who had been called an SOB by Nixon and Kissinger, had many friends and admirers in the United States, especially, obviously, within the American left. He was applauded by the American Congress in 1977 in a way that a foreign politician has rarely been applauded by members of the American Congress. It's true that this was at a time when there was a sovereignist party that had just been elected in Quebec and therefore he had a lot of sympathy.

So, there's always a very strong current running, much stronger than the public would like to admit. That is why I'm saying this. I don't think people realize this.

Take trade, for example. Softwood lumber was raised as an issue that has pitted us against the Americans, and we say that the Americans are terrible. But ask any civil servant from the Department of Foreign Affairs and International Trade and they will tell you that, basically, our relationship is extremely fluid, our exports greatly exceed our imports, our trade balance is very good, that yes, softwood lumber has been a snag and is a problem for us, but the greater part of our trade is working admirably well.

That is why I said that our room to manoeuvre has not been all that great. We can do things differently, but I am not so sure that we can allow ourselves to do things that run counter to their real middle and long-term political interests. In any case, history has not shown us that we can.

¹ (1505)

The Vice-Chair (Mr. Bernard Patry): Thank you. Madame Marleau.

Ms. Diane Marleau: You're always very interesting. I asked you a question before this morning's hearing began. We have tried to establish relations with elected representatives in the United States, but it is extremely difficult. I would even say that the elected representatives in the United States are always conspiring for the next election, to the point that they are not thinking beyond their own riding. These are people who are constantly selling themselves. When one is a minister one is more fortunate. One can meet them occasionally, but not for long. They are not interested in Canada. They are the only ones who count.

I think that we need to make ourselves better known and I am certain that the events of Sunday and last week will help us considerably. All of a sudden, Americans have discovered that Canadians exist and they know how to do things.

Apart from that, do you have anything to suggest? We're going to Washington in two weeks and it will be the same challenge. We will meet a few elected representatives, but they will be there for five seconds and then they'll leave. It's always the same big problem. That's my first question.

I have another question. You mentioned the nuclear shield. I think that's the anti-missile shield that President Bush is proposing. I'm afraid that we're getting involved in extraordinary spending that won't lead to much, except for power for the United States. Tell me what you think of this.

Mr. Louis Balthazar: In terms of your first question, it's true that one might believe there is some kind of congenital defect in the United States. I have been working on the United States foreign policy for almost 40 years now. For example, in the 1950s there was a little book called The Paranoid Style in American Politics, by Richard Hofstadter. Obviously this was during McCarthyism and it was about paranoia over the evil communists. My God, the same thing is happening today!

We used to think that Americans, because they travel throughout the world, because there is a significant intellectual class in the United States that has produced important experts on all kinds of international issues, were well informed. In fact, despite what has been said, I don't think that the Americans are as badly informed as we think if they bother to find information. The information is available. So one would think that they would be more aware of the complexity of the international system.

That is what is missing: an awareness of the heterogeneousness of the system. Because they are strong and powerful, because their history is, all in all, a nice history, because they have an extensive cultural influence, they are inclined to see themselves as a microcosm of the world. In fact, American culture does not exist in cultural affairs. When one talks to them, one hears that culture is not important at all; Céline Dion is Canadian, another singer is American, so what; they like them and that's all that counts. They don't realize that throughout these things there is a culture that belongs to them and that others are different. Thus, there's a denial of this heterogeneousness.

There have been American presidents who have tried to break with that. For example Jimmy Carter, who made a famous speech in 1977, said that Americans had to rid themselves of this wild fear of communism that was making them welcome any tyrant just because he was against communism. The same could be said today. We have to get rid of this frozen idea of terrorism that is making us use anti-terrorism as a measure for everything.

Obviously the same thing happens when one talks to them. They are so preoccupied with their culture, their interests. When a nice Canadian comes along, they say: “Hello, it's so nice of you”, etc., but we're shown the door very quickly, especially in areas like the Congress because these are political areas, as I was saying.

I have done studies in the United States. Within the public service it's not too bad. People welcome us, talk to us, they like Canadians, etc. But the same cannot be said for Congress. I have tried to meet and interview senators. All that I managed were two senators from Vermont. They don't count for much within all of the United States, but obviously, because Vermont is Quebec's neighbour, they're interested.

Yes, there are the border States, and there are issues for which we may be on the same wavelength, so there is a part of that population. That can be developed. In Washington, at the embassy, we have many people working on these issues, making up lobbies, finding friends.

There is progress here and there. I would say that it's very slim. In my area, the academic issues, I must say that we have made a lot of progress. In the 1960s, Canada was the most boring subject par excellence. Today, there is an association for Canadian studies in the United States that holds conferences with 600, 700 or 800 people, and which has representatives in most American States. Well, this has effects. I know perfectly well that these are intellectuals, that these are people who teach, who have a certain audience, and who, often, make Canada and its literature known and admired. They are people who are passionate about Canadian writers and even about some Canadian films. Of course, it isn't a lot. Our country is small, and that is our great difficulty compared to the Europeans; we have this huge sleeping giant beside us.

I've often said that the Germans and the French can be very chauvinistic, can be convinced that French or German culture is superior to all others, but they would never deny their mutual existence. To all intents and purposes, the Americans deny our very existence. It's as if we didn't exist. It's as if we were just other good Americans like themselves. They don't realize that that is sometimes very insulting. There has been a little bit of progress in that area, but of course there is still a lot to do, and that is why communication of Canada is important. I would say it is even more important for Quebeckers, because if Canadians, as a general rule, have trouble getting their message across, we who speak the French language have even more trouble. We are this oddity, this queer phenomenon. It's difficult, although Hispanicism is developing in the United States and this will perhaps help them understand that people can speak other languages, because many Americans now speak Spanish.

¹ (1510)

I must say that it is particularly difficult with people like those in power today. These people are very different from the democrats. I heard people say last year that Democrats and Republicans were all the same. Canada sees it differently. We've always had more friends in the Democratic Party, more understanding. This hasn't always been the case. There were some democratic senators who were awful with us. They can be especially rigid on trade issues. However the Republicans don't know us. George Bush had no idea what Canada was. He came here maybe once or twice on vacation.

Your second question was about the anti-missile shield. Yes, it is more correct to say “anti-missile” than “nuclear”, but the idea is the same: to counteract nuclear weapons, possibly missiles. This is an extremely costly and very fantastical affair ,and according to many scientists, it is unlikely to have the desired effect. We cannot be sure at all that this won't encourage the development of even more sophisticated offensive weapons. All of defence history, in the history of humanity, has shown that a perfect defence has always been an invitation to the enemy to find a way through it. There has never been a perfect defence. This was sort of Reagan's dream, now Bush's, that is, to develop a perfect defence so that we could abandon all our nuclear weapons programs in other areas because we would be completely covered in space.

I think we can and must address this. There must be Canadians who are working on this now, who are using all their influence, who are writing articles on this to show that this is not a good thing, that it is too costly and that it will create much needless antagonism throughout the world. Do not forget that the leader of the opposition in the United States, the president of that small democratic majority in the Senate, Tom Daschle, stated that he was opposed to that program. So this isn't finished yet. There will be a fight in Congress over it. Therefore, Canada can, through its diplomacy, play a role and voice its opposition to this, as long as the majority of Canadians agree on that position.

However, if ever this were to happen, I think that it would be more to our advantage to work within the system than otherwise, because we could lose all our military influence in North America. In any case, there will be some hard times. Some of the military people I met have said that if this happens, we will have no choice, it will be to our advantage to join the program. But this hasn't happened yet and it will still be a few years before it really does happen.

¹ (1515)

The Vice-Chair (Mr. Bernard Patry): Thank you.

Mr. Balthazar, to what extent can the current framework of NAFTA be used to broaden co-operation between the three countries? Is there a need, as some witnesses have recommended, to draft a NAFTA plus, or to increase the powers of the North American commissions, such as the environment commission?

Mr. Louis Balthazar: Yes, for things that do not pertain to the economy. I participated in the small group that had met in Ottawa in 1996 or 1997, I believe. Mr. Axworthy was the Minister of Foreign Affairs at that time. It was quite interesting. We examined the non-economic aspects of NAFTA and our sense of belonging to the continent. I observed that there were many associations that existed in order to encourage ties and communications. Here, for instance, in Quebec, we have accelerated learn-to-speak-Spanish programs. We will therefore have young people who will be more likely to speak Spanish. There's a great deal of interest in doing this here, in Quebec, at least, because it is trendy. This is one way of saying that we are American but not from the United States. In my opinion, we sometimes do this even excessively. When we talk about programs for the Americas at Laval University, Latin America springs to mind and we don't think enough about the United States. I tell students that it is all well and good to have ties with Latin America, but that the neighbour living beside us is extremely important.

We could even work on this with the Americans. I know that this is probably not the best time right now, because the Americans have not made much progress in this direction, but we could convince young Americans, in particular, to broaden their concept of what being an American means and to say: “I'm an American, but I am a continental American. There's not only my American culture, but there is also the culture from Canada, from Latin America. All of these things are what make up my identity.”

Take note to what extent, in Europe, regardless of what Europe meant, regardless of all the economic, social and other types of mechanisms, just the idea that Europe was cool, that it was being embraced by many people living in Europe, was enough to act as a type of spark plug for the European Union institutions. In other words, it's cool to be European, if I am allowed to use this expression. It may be cool to be an American, to have this identity, to want to share interests.

This already exists. This is a small trend that exists and it seems to me that we should create institutions to encourage it and to encourage co-operation on social, environmental and cultural issues. I think that it will be easier to establish co-operation on cultural matters than it will be in the other sectors. Our economic situation is so different from that of all the other Latin American countries and, consequently, our social and environmental situation is different as well, and therefore it will be more difficult, but that does not mean that we should not be laying the groundwork.

I think that this is how we could get people to accept the Free Trade Area of the Americas. Some progress is being achieved in this respect. It struck me that in Davos-New York, we heard so many people who had hard things to say to those in attendance, whereas in Porto Alegra, we started talking about the issue in a more positive light compared to what had been done in the past.

The dream, therefore, is to have economic integration go hand-in-hand with cultural, social and other types of integration. I believe that by creating institutions, we will encourage this type of phenomenon.

¹ (1520)

The Vice-Chair (Mr. Bernard Patry): You talked about our former Minister of Foreign Affairs, Lloyd Axworthy. In an address called A Changing North American Agenda, he maintained that an integrated energy strategy was imperative and he said, at that time, that we should not accept a hastily put-together program based on supply which would cause us to miss an opportunity to develop a distinct North American approach.

Do you agree with that?

Mr. Louis Balthazar: I agree that we did sign off on some small hastily put-together agreements in the economic integration treaties that we perhaps negotiated and signed too quickly. For instance, the infamous chapter 11 comes to mind. I agree with everybody that we need to reexamine this issue. I also agree that we will have to wage a tremendous battle when it comes to cultural products. My colleague Ivan Bernier must have talked to you about this issue this morning better than I could. We must not give up when it comes to this issue.

I will repeat what I said earlier. This is a good opportunity for us, as Canadians, to engage in a little exercise of cohabitation, of understanding each other better when it comes to what Canada is all about, to remember that the price that we have to pay for Canada's distinct nature is often recognizing our internal differences.

Moreover, in an article I wrote about the border, I said that the price to pay for maintaining a Canadian-American border is perhaps the cost involved in maintaining certain borders within our country. I do not mean borders in the sense of international borders, but the cost of acknowledging the heterogeneous nature of our country.

The Vice-Chair (Mr. Bernard Patry): We will start a second round. Mr. Dubé.

Mr. Antoine Dubé: You alluded to something that is often perceived as being a delicate issue: the concept of a distinct society. In an ideal world or in an ideal Canada, this would be acknowledged absolutely by all of those members of current Canadian society and we could play this card more often to have the Canadian difference acknowledged, particularly in the United States.

You will recall the Quebec Summit, where the Premier of Quebec was obviously one of the guests but was unable to speak officially on behalf of his Quebec State. In an ideal world, where everything would be well understood and accepted, how could we play this card?

I have participated in a few delegations to Latin America, in particular, and the rapport was so easy that I felt like I was meeting with cousins that were closer than others. They have a stronger sense of music and dance than we do, but they also act in a manner that is more familiar to us.

It seems to me that if we were to present that to the Americans, they wouldn't hate that image at all. Moreover, they say that they often come to Quebec for the good cuisine, even if they say so in English. How could we get this message across without getting caught up in our eternal bickering? If this were accepted, how could we play this card?

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Mr. Louis Balthazar: In the 1960s, I worked for the Royal Commission of Inquiry on Bilingualism and Biculturalism, the Laurendeau-Dunton Commission. I remember sessions we had in the anglophone provinces. Obviously, the people knew where we were coming from. We were representatives of the commission and we were working on a small research project for the commission. We asked them what distinguished Canada from the United States. Obviously, as a francophone, I was hoping to hear, as quickly as possible: “We are bilingual”. However, the people told us: “We have the queen, medicare, Parliament”. At any rate, it took a long time before the linguistic aspect was mentioned.

There is no doubt that we have achieved some progress since then, because some of the recommendations made by the commission were implemented, particularly those recommendations pertaining to Canada-wide bilingualism, but the recognition of Quebec's differences still bothers many Canadians.

We are going to be celebrating the 20th anniversary of the Constitution of 1982. Here is what an American sociologist who has studied Canada a great deal, Seymour Martin Lipset, has to say:

Perhaps the most important step that Canada has taken to Americanize itself--far greater in its implication than the signing of a free trade treaty--has been the incorporation into its Constitution of a bill of rights, the Charter of Rights and Freedoms, placing the power of the State under judicial restraint.

You may or may not agree with that, but this is, nevertheless, an impartial observer who is saying that this Constitution has Americanized us. There is nothing bad in having this. Quite the contrary, it is wonderful to have a Charter of Rights and Freedoms in the country, but Alan Cairns was saying that we have given less importance to what he called the provincial spatial construction. In other words, because our rights are protected by a federal charter, because the final adjudicators for protecting our rights are federal court judges appointed by the federal power, because our allegiances are conceived in terms of rights—I belong to such and such a group of the disabled, homosexuals, this or that in society and I'm protected by the Charter— this makes us give less importance to our provincial allegiance.

This is not sacred. Not giving importance to the role of the provinces is not the end of the world, however, as I was saying earlier, we are a federation with two levels of government and for us, the Québécois, the provincial level is very important because of the linguistic and cultural issues. This is often where our discomfort resides.

Mr. Dubé, despite the fact that you are an advocate for the sovereignty of Quebec, you know as well as I do that the people would not think very much about this option had we found a way to recognize, in a significant manner, the distinct society. I am convinced that had the Meech Lake Accord been ratified, there would have been no referendum in 1995 and the sovereignist movement would not have grown significantly since then. However, this is a question for which we will never know the answer.

All this to say that we would be better off examining another quote that I could give you, from Mark Starowicz. This man is a far cry from being a Quebec nationalist. Mark Starowicz, who is the author of A people's history of Canada, says that, culturally speaking, it is absolutely deplorable that a young Canadian outside of Quebec is more likely to see a Los Angeles police officer instead of a citizen from Quebec on television, obviously because of the series that we watch.

It is therefore our eternal problem. Some say that the Québécois may be to blame. Many Canadians tell us that we have wanted to go our own way and that our Canadianism is conditional. No doubt there are wrongs on both sides, but this is a phenomenon. We find it difficult to clearly showcase this Canadian asset outside our country.

There have been some omissions that I find unforgivable. Mr. Raymond Chrétien, a man that I admire a great deal, a great diplomat who did excellent work in Washington, gave an address a few years ago to the Association for Quebec studies in the United States. You know, this is interesting. The Americans acknowledged the specificity of Quebec in that, within the Association for Canadian Studies in the United States, ACSUS, there is also the American Council for Quebec Studies. The specificity of Quebec studies was recognized. Often, these are literary people who enjoy French literature and all that. There is no separatist sentiment within their organizations.

At any rate, one fine day, Mr. Chrétien was addressing the members of the American Council for Quebec Studies. He was talking about the services provided by our embassy and our various consulates. Obviously, he introduced himself as a Québécois. There was no problem with that, however he did not say one word about the services provided by the Government of Quebec representatives to the United States.

I know that we often have some disagreeable bickering about this particular issue, but ideally, why not, as it's sometimes done in some countries...

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I remember going to Los Angeles a long long time ago. I was received by a chargé d’affaires at the Canadian consulate in Los Angeles and he told me: “Mr. Balthazar, do not forget to say hello to the representatives from Quebec who are here, in the same building”. They enjoyed excellent relations with these representatives. You see, this acknowledgment did exist, but the fact that we do not mention it very often bothers me somewhat. As you said, it would be to our advantage to do this with the Americans. Americans find that this is very good. They feel that it is an asset for Canada to have two languages and to maintain certain asymmetries in its federalism.

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The Vice-Chair (Mr. Bernard Patry): Ms. Marleau.

Ms. Diane Marleau: I do not want to keep you too long, but I feel that too many little power games have been played in the past and this is probably why there has never been this recognition of the distinct society. It must be said that we have wonderful assets as Canadians. You read something and I would like to say something that is contrary to what you just read.

I have had many meetings with representatives from the government of the United States, including a meeting with Ms. Clinton, who confessed that she was very jealous of our Charter of Rights and Freedoms, of the things that we had been able to achieve here, that the Americans would have liked to have accomplished themselves but had never been able to. That impressed me. She talked, among other things, about our health care system. She said that she would really like to have been able to achieve this thing that we did a long time ago. We therefore have something here, and when they learn to get to know us better, they say that they would really like to be like that too.

As far as culture is concerned, this morning I talked about the concentration of the media. In Quebec, as is the case in Canada, we are increasingly coming under the influence of the Americans. We see ourselves less and less often in the news, whether it be in Toronto or Montreal. I think that this is the biggest challenging facing us as Canadians, as Québécois, as members of this society.

Have you given any thought to the effects of that? It is extremely dangerous. The American influence is part of our life, and we always want to sensationalize everything. If there is a murder, we see it, if there is a flood, that is what we see, but we never see good news.

Mr. Louis Balthazar: This is true, and this is a universal phenomenon. The power of the American media is such that Canadians working in this field often succumb to the temptation of using the last video clip and the last photo taken. This holds true in all our Canadian newspapers. At one point, you will see a photo on a first page. What is it? It is an American, in Iowa, who wants to jump off a cliff. The photo is admirable, etc. It has nothing to do with our life, but since the photo is good, we publish it.

Ms. Diane Marleau: But what can we do about it?

Mr. Louis Balthazar: All of that contribute to making us live as if this was the group we belong to. Many Europeans are also complaining about the growing international aspect of the news.

Ms. Diane Marleau: It is called CNN.

Mr. Louis Balthazar: They no longer know what is happening at home. We are, however, doing a lot in this regard. We have Newsworld and RDI, and Radio-Canada is trying to give high priority to Canadian news.

Companies are perhaps the most to blame in all of that because, obviously, the only thing they think about is their profitability. As you know, they're always being pressured to show a certain percentage of Canadian content in their programs, etc. We live with difficulty in North America and this will always be the case. We always have to walk on the tightrope. We have to go as far as we can in this regard.

You talked about Ms. Clinton, who was impressed by our Charter, which is different from theirs. This is true, and I did not mention it earlier. I said that the Charter, to a certain extent, Americanized us, but it is true that our Charter is different. For example, in terms of collective rights, we go much farther. Unfortunately for us, we do not talk about the collective rights of the Québécois in the Charter, but we do talk about the collective rights of the Aboriginal people, women, several groups.

This is what the Supreme Court has to say. This is a good reference as well. I will quote you a paragraph that I often quote to Americans to try to get them to understand that our federalism is very different from theirs.

This is what the judges had to say in their ruling on the Quebec secession reference in 1998. For reasons that were no doubt political, the judges spoke at great length about the principle of federalism in Canada in this decision. I feel that this is a valuable decision and one that endures, regardless of the context. The judges said this back in 1998, which was not so very long ago:

The social and demographic reality of Quebec explains the existence of the Province of Quebec as a political unit and indeed, was one of the essential reasons for establishing a federal structure for the Canadian Union in 1867.

I do not have the right quote. What I wanted to say is that they say, at one point, that the principle of federalism in Canada enables a minority in the whole of the country to form a majority in a given province.

Obviously, the judges say that this is the case of Quebec. That is very un-American. Federalism in the United States is not perceived like that, it does not enable a minority to assert itself as a majority. We could say that this is now the case for Nunavut as well, where a particular culture is asserting itself within a territory and, eventually, perhaps a province.

They then said:

The federal structure adopted at Confederation enables French-speaking Canadians to form a numerical majority in the province of Quebec, and so exercise the considerable provincial powers...

This is an asset, in my opinion, but I would like to hear Canadians quote such a passage more often when they are in the United States to show the difference between our federalism and theirs.

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The Vice-Chair (Mr. Bernard Patry): Thank you very much, Mr. Balthazar. We will now conclude this afternoon's meeting. This was very interesting, as you could see. The fact that you are appearing alone enabled us to get to know you better, to appreciate you more and to follow your line of thought. I would like to thank you on behalf of my colleagues and the team who is working with us.

I would also like to thank all of the console operators, the translators and all of the people who are working with us so that the proceedings of this meeting can be transcribed.

Thank you very much and I wish you all a good day.

Mr. Louis Balthazar: I would like to say a special thanks to you for giving me the opportunity to talk for such a long time. You could have just as well told me that I would get 10 or 15 minutes, you could have asked me fewer questions and done all kinds of other things this afternoon. I really appreciate having had this forum.

The Vice-Chair (Mr. Bernard Patry):Thank you once again.

The meeting is adjourned.