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37th PARLIAMENT, 1st SESSION

Standing Committee on Foreign Affairs and International Trade

EVIDENCE

CONTENTS

Thursday, June 13, 2002

0905

The clerk of the Committee

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.)

Mr. Deepak Obhrai (Calgary East, Canadian Alliance)

The clerk

Mr. Deepak Obhrai

A voice

Ms. Francine Lalonde (Mercier, BQ)

Mr. Deepak Obhrai

Ms. Francine Lalonde

The Chair (Mr. Bernard Patry (Pierrefonds—Dollard))

Mr. Deepak Obhrai

The Chair

Mr. Mac Harb (Ottawa Centre, Lib.)

The Clerk

The Chair

Mr. Deepak Obhrai

The Chair

0910

Mr. Deepak Obhrai

The Chair

0915

0920

0925

The Chair

Mr. Deepak Obhrai

Mr. Peter Harder

Mr. Deepak Obhrai

Mr. Peter Harder

0930

The Chair

Mr. Keith Martin (Esquimalt—Juan de Fuca, Canadian Alliance)

Mr. Peter Harder

Mr. Keith Martin

The Chair

Mr. Larry Shaw (Director General, International Business, Department of Industry)

The Chair

Ms. Francine Lalonde

0935

Mr. Peter Harder

0940

Ms. Francine Lalonde

The Chair

Mr. Larry Shaw

Ms. Francine Lalonde

Mr. Larry Shaw

The Chair

Mrs. Marlene Jennings

0945

The Chair

Mr. Peter Harder

Ms. Marlene Jennings

Mr. Peter Harder

Ms. Marlene Jennings

The Chair

0950

Mr. Peter Harder

The Chair

Mr. Bill Casey (Cumberland—Colchester, PC)

Mr. Peter Harder

Mr. Bill Casey

Mr. Peter Harder

Mr. Bill Casey

Mr. Peter Harder

0955

Mr. Bill Casey

The Chair

Mr. Pat O'Brien (London—Fanshawe, Lib.)

The Chair

Mr. Peter Harder

1000

The Chair

Ms. Aileen Carroll (Barrie--Simcoe--Bradford, Lib.)

The Chair

Mr. Peter Harder

The Chair

Mr. Larry Shaw

The Chair

Mr. Keith Martin

Mr. Peter Harder

1005

The Chair

Professor Stephen Blank (Professor of International Business and Management, Pace University (New York))

1020

1025

The Chair

Mr. Guy Stanley (Director,International,MBA Program, University of Ottawa)

1030

1035

The Chair

Mr. Keith Martin

The Chair

Prof. Stephen Blank

1040

Ms. Francine Lalonde

1045

The Chair

Mr. Guy Stanley

The Chair

Ms. Francine Lalonde

Mr. Pat O'Brien

1050

The Chair

Mr. Pat O'Brien

The Chair

Prof. Stephen Blank

1055

Mr. Pat O'Brien

Prof. Stephen Blank

The Chair

Mr. Bill Casey

Prof. Stephen Blank

Mr. Bill Casey

Prof. Stephen Blank

1100

Mr. Bill Casey

The Chair

Mr. Guy Stanley

The Chair

Ms. Marlene Jennings

Prof. Stephen Blank

The Chair

Mr. Guy Stanley

The Chair

Mr. Keith Martin

1105

The Chair

Mr. Guy Stanley

Prof. Stephen Blank

The Chair

Prof. Stephen Blank

The Chair

Prof. Stephen Blank

The Chair

Ms. Aileen Carroll

The Chair

CANADA

Standing Committee on Foreign Affairs and International Trade

NUMBER 090

1st SESSION

37th PARLIAMENT

EVIDENCE

Thursday, June 13, 2002

[Recorded by Electronic Apparatus]

¿ (0905)

[Translation]

The clerk of the Committee: Pursuant to Standing Order 106(2), the first item of business is to elect a Chair. I am ready to receive motions to that effect.

Mrs. Jennings.

Mrs. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): I move that Mr. Bernard Patry do take the chair of this Committee as Chair.

(Motion agreed to)

[English]

Mr. Deepak Obhrai (Calgary East, Canadian Alliance): Whoa, whoa.

[Translation]

The clerk: I invite the Chairman to take the Chair.

[English]

Mr. Deepak Obhrai: What happened?

A voice: What happened? You're an hour late.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): This is the first time all Liberals are here in advance.

[English]

Mr. Deepak Obhrai: How come I couldn't put a motion?

[Translation]

Ms. Francine Lalonde: Congratulations, Mr. Chairman.

The Chair (Mr. Bernard Patry (Pierrefonds—Dollard)): Thank you so much for your trust.

[English]

Now, since I was a vice-president, we must refer to Standing Order 106(2): “Each standing or special committee shall elect a Chairman and two Vice-Chairmen, of whom two shall be Members of the government party and the third a Member in opposition to the government”. Because of my election as chair, this committee now requires a vice-chair from the governing party. I'm ready to have a motion for a vice-chair.

Mr. Deepak Obhrai: Why don't you put Diane Marleau in? Does the vice-chair have to be opposition or government?

The Chair: It would be a government member.

Mr. Mac Harb (Ottawa Centre, Lib.): I nominate Mr. Sarkis Assadourian as vice-chair.

The Clerk: There was a motion from Mr. Obhrai. That motion was made first, so it has to be disposed of.

The Chair: Mr. Obhrai, what was your motion? What was her name?

Mr. Deepak Obhrai: Diane Marleau.

The Chair: Madame Marleau is not here. The clerk tells us that we can elect someone in absentia. At this time I ask, is it the pleasure of the committee to accept Madam Marleau as a vice-chair? Are there any comments regarding the position of vice-chair?

¿ (0910)

Mr. Deepak Obhrai: Why do we have to elect vice-chairs? Why can't we just carry on? Were you the vice-chair before?

The Chair: I was the vice-chair before.

We need to go one by one.

Mr. Reg Alcock (Winnipeg South, Lib.): Call the question.

The Chair: We're going to vote on the motion of Mr. Deepak Obhrai to elect Ms. Marleau as vice-chair of this committee.

(Motion agreed to)

The Chair: We'll move to the order of the day, pursuant to Standing Order 108(2), a study of North American integration and Canada's role in light of new security challenges.

The witnesses in front of us are from the Department of Industry. We have Mr. Peter Harder, the deputy minister, and Mr. Larry Shaw, director general, international business. Welcome to our committee.

Mr. Harder, the floor is yours.

Mr. Peter Harder (Deputy Minister, Department of Industry): Thank you, Mr. Chair. It's a pleasure for me to be here.

In many respects I'm here not just as the Deputy Minister of Industry Canada, but as the chair of the North American linkages research project of the Government of Canada. I'd like to start out, before I get to the presentation, by describing this work.

We have two aims in the North American linkages project. The first is to improve our capacity to understand the changing nature of ties--human, social, cultural, institutional, and economic--between Canada, the United States, and Mexico and their implications for Canadian public policy. The second is to ensure this knowledge informs policy-making.

This project brings together 30 departments and agencies from across government to research eight areas of inquiry. In addition to that, we've engaged scholars and experts from all three countries in this work. Let me just describe the eight areas and then focus on my presentation. They are trade and investment, productivity and innovation, labour mobility and human capital formation, sustainable development and the environment, public safety and security, social protection, identity values and social cultural space, and governance and institutional arrangements. This work is well under way and we are about finished phase one. We'll do that in the very near future.

What I would like to do this morning is focus mostly on the economic issues, and I have distributed a presentation I will go through. I am not going to use the projection of powerpoint, but I hope this is a not a pointless presentation.

The work is premised on the following question or statement. What are the consequences of sharing economic space in North America, and how do we leverage maximum national advantages and benefits to Canada?

The events of September 11 have not changed this basic question, but they certainly have highlighted it. The issues around the border--the recent budget and the smart border declaration--illustrate the Canadian government's determination to deal with some of the economic consequences. But our research goes beyond simply border and security to describe and discuss the nature and extent of the integration. How can we ensure sustainable wealth creation? How do we enhance our Canadian way of life, and how do we manage relationships within and among our North American partners?

This presentation will focus on the nature and extent of the integration and look at some of the policy implications.

As you can see on slide 4 of your deck, the Canadian economy has become much more outward-oriented in the course of the last decade. NAFTA has achieved what it was designed to do: reduce barriers and expand trade and investment.

Total trade, that's goods and services as well as exports and imports, is now equal to 81% of our GDP. Foreign direct investment as a share of GDP now stands at close to 65%. We see a noticeable decline in both exports and imports in 2001 as a result of a slowdown in the U.S. economy; however, it would be our view that this is a hiccup, and trade and foreign direct investments will continue to be critical to the Canadian economy and to the prosperity of Canadians.

Slide 5 shows that for Canada, outward orientation is synonymous with closer linkages to the United States economy. The U.S. accounts for fully 83% of Canadian exports in goods and services, and 72% of imports. That compares with 71% and 68% respectively only 12 years ago. Canada and U.S. trade now stands at $676 billion per year. That's $1.3 million every minute.

Canada is an important partner from the U.S. perspective, as well. Close to 25% of all U.S. exports come to Canada, and this is not just a close border phenomenon. Of the United States' 50 states, 38 have Canada as the number one export market for their goods and services.

¿ (0915)

[Translation]

Between 1990 and 2001, direct investment stocks between Canada and the United States nearly tripled. The U.S. now accounts for more than two-thirds of inward FDI and just a little more than half of the outward FDI.

[English]

The geographic distribution of Mexican trade is similar to that of Canada's. Slide seven shows they also depend heavily on the United States market, with more than 88% of Mexican exports going to the United States. The dependence on the U.S. for imports is also similar, with about three-quarters of the imports coming from the United States. Canada is the second most important destination for Mexican exports and our fourth largest source of imports, although this is still quite modest.

The prospects for Mexico as a growing market for Canadian exports hold, we believe, great promise, with its fast-growing economy and a population more than three times that of Canada's

So what is the potential to improve Canada's economic performance?

[Translation]

There is an 18% economy-wide productivity gap between Canada and the United States. For example, in manufacturing, the productivity gap is even wider at 34%. This is a major difference but I see no reason why Canada cannot be as productive as its Southern neighbour.

Allow me to tell you now why increasing productivity is so important to us.

[English]

As slide 20 would show, the gap between Canada and the United States in real GDP per capita, measured with purchasing power equivalent, was over $8,000 in 2001. For a family of four, that's $33,000 a year. Lower productivity explains close to 90% of the Canada-U.S. income gap. The remainder is due to fewer people working and fewer hours worked per person employed. Therefore, by narrowing the productivity gap, Canada would also reduce the real income gap significantly.

Slide 11 shows that to close the productivity gap it is also essential to attract and retain investment. Canada's share of North American inbound foreign direct investment stock has declined from 10% in 1990 to 6% in the year 2000. This has been closely mirrored by a U.S. gain in market share. Therefore it is not cheap labour in Mexico that's been attracting the investment to North America, as some had feared during the free trade debate, but the productivity, innovation, and dynamism of the U.S. economy. In 2001, however, Canada did better, and this may indicate that investors are finally seeing Canada as a significant location of choice within the North American economic space.

As slide 12 shows, and I wish we had more recent data--this is the most recent data available from Stats Canada, but the data that will next come from Stats Canada will be very crucial to analyse--there is a looming demographic crunch: aging populations throughout the industrialized world, including Canada. The competition for skills will intensify everywhere, including here. Therefore, attracting and retaining skilled people is a strong requirement of our economic performance. By 2011--in public policy terms, that's tomorrow--immigration will account for all net labour force growth in Canada. We will be competing with other countries to attract the knowledge workers and skilled workers required for our knowledge economy.

Slide 13 suggests that we are competing successfully with Mexico in the United States market, but there are signs of increased competition from Mexico. Despite the massive increases in our exports to the United States, Canada's share of United States imports--our market share of their imports--has remained all but stagnant throughout the 1990s. In fact, it's gone down 0.1%. This shows that Canada's export growth has been largely driven by the growing U.S. market; we've grown with the American market. However, if you look at Mexico, it's managed to nearly double its share of the U.S. market, driven by competitive factors, barrier reductions under NAFTA, as well as U.S. growth. Increased competition from Mexico is our most important fact of life that we need to incorporate in our thinking.

And the next slide would suggest.... To those who think Mexico's exports to the United States are based on textiles and tequila, let me just describe to you that in three critical sectors of high-value-added exports, Mexico has almost a 50% increase: in electronics, machinery, and transport equipment. And although Mexico is currently engaging largely in low-value assembly activity, it is moving up the value chain extraordinarily fast, and we must pay attention to that. Canada has yet another incentive to innovate and increase productivity to compete effectively in the United States with other international exporters, Mexico included.

So what have been the benefits of increased outward orientation?

As slide 16 shows, exports directly accounted for more than 50% of the growth in output in 15 of 20 manufacturing industries in Canada. In some export-intensive industries such as clothing, electrical, machinery and furniture, exports growth accounted for all of the growth.

¿ (0920)

[Translation]

Increased outward orientation provides many benefits: greater exports; increased investment; increased competition leading to lower prices; improved productivity; and higher real wages. The Free Trade Agreement, the North American Free Trade Agreement and foreign direct investment significantly contributed to productivity gains in Canada.

[English]

Because it contributes to what slide 18 is characterizing as a virtuous cycle of improved economic performance, increased outward orientation is a necessary condition but it is not sufficient. Increased innovation and outward orientation feed on each other and create a virtuous cycle of improved productivity performance and living standards. The Canadian economy was strong in the 1990s thanks to the U.S. boom, the free trade agreement, the NAFTA, and a low Canadian dollar. Only through productivity growth can a country make strong and sustained improvements to its competitiveness and living standards.

In conclusion, we have seen that Canada's outward orientation, increased linkages within North America and particularly the United States, has been good for the Canadian economy. However, we have challenges to face and we must do this in a North American context. We do this through innovation and enhancing Canada's activities in value-added products; creating an attractive climate for investment; retaining and attracting human and knowledge capital; and continuing to strive for reductions and barriers and impediments to the free flow of goods, services, and productive resources across the economy.

To take advantage of the potential opportunities of North American economic space will require Canada to look at its policies and programs to determine if they help create economic opportunities for Canadians to participate in value-added and knowledge-based activities within Canada; provide incentives for investment by domestic and foreign investors; encourage private sector entrepreneurship in action; reduce border risks; facilitate the operation of an efficient North American marketplace and improve Canada's productivity and innovative performance; and draw highly qualified people in key disciplines in the knowledge economy to Canada as a place to live and work in the 21st century.

Recently, Wendy Dobson of the Rotman School of Management at the University of Toronto put forward an interesting idea. She suggested that now is the time to act. Canada needs to take the lead before the U.S. is forced to react. The tragic events of September 11 are providing Canada with a window of opportunity to think big and engage the Americans. She says that ad hoc approaches are lost in the U.S. political system. A strategic bargain she says is possible. Sovereignty is not just what we give up but it is what we gain.

I believe that the research we're undertaking suggests that now is the time to engage in this public policy discussion, that there are significant new ideas out there in the research community and that the data suggests we need to build on what we've already achieved.

Thank you.

¿ (0925)

The Chair: Merci beaucoup, Mr. Harder.

We're going to pass now to question and answer. Thank you very much. Your presentation was very clear, was very important for us.

Now it's five minutes for question and answer. I understand, Mr. Obhrai, you want to share with Mr. Martin. Go ahead, Mr. Obhrai.

Mr. Deepak Obhrai: Thank you for your presentation. There are a lot of questions. It was a good presentation. You brought up a lot of issues here, especially in relation to the post-September conflict.

I want to dwell on one little thing that concerns the fact that we issued a new immigration policy a couple of days ago; that is, your comments on skilled workers and the need to attract skilled workers. You stated that this has become critical because the growth in coming years is primarily going to be based on skilled workers. What I want to ask you is have you had an input in the preparation of this new immigration policy from your department indicating what you have indicated to the committee of where the future growth is going to be, and if so, are you satisfied with the new policy? Would it attract the right number of skilled workers that Canada needs down the road?

The Chair: Mr. Harder.

Mr. Peter Harder: Let me respond to that by saying that the Department of Citizenship and Immigration are part of this study. And in respect to Industry Canada's role, I can assure you that we have worked with them in pointing to the urgency of dealing with the need to retain and attract skilled workers both as immigrants and as temporary workers. There are two issues there.

As a former Deputy Minister of Citizenship and Immigration, I'm acutely aware of the importance of getting it right in this regard, and we're continuing to work closely and understand the most recently released regulation suggestions in terms of what the impact would be. For our part, we believe this, and increasingly in the consultations we're having with the private sectors the issue of skilled workers is one of the top three issues the private sector is raising with us. And we are underscoring that both in terms of the labour market reality, because in 2011 all of our labour market growth will come from immigration, and in terms of the knowledge economy, which increasingly provokes the question of how do we get our share of highly qualified people in particular, which is the skilled worker issue.

So it's very high on our agenda. We're working closely with Imigration and we believe we need to do more.

Mr. Deepak Obhrai: I have just one other comment. Are you satisfied that the new regulations will fulfill this mandate down the road, or not?

Mr. Peter Harder: We're examining that and we are dialoguing with Immigration Canada in the context of the recently tabled regulations to understand them better and to ensure that our issues around skilled workers are adequately addressed. And we'll continue to do that. We want to see, as I think many do--in fact Immigration Canada does--that we are able to meet our skilled worker needs.

¿ (0930)

The Chair: Thank you.

Mr. Martin.

Mr. Keith Martin (Esquimalt—Juan de Fuca, Canadian Alliance): Thank you, Mr. Patry.

Thank you, Mr. Harder, for being here today.

I have two questions that go to your central question, which was how to leverage maximum economic benefits for Canada in the current environment. I want to focus on two issues: one is U.S. unilateralism, and the second is Canadian productivity.

There's an interesting article I read recently that argued that U.S. unilateral protectionist policy was actually bad for the U.S. and good for Canada, because the implementation of these subsidies was actually something that would weaken the U.S. economy but force us to become more innovative. I'm from British Columbia. That may be good in the long term, but it's not good in the short term.

Is there a way to argue with the U.S. administration to convince them that what they are doing is actually a precursor to what happened in the recession before the Great Depression, that it is actually hurting the U.S. economy, in an effort to convince them to lower those subsidies so we have a level playing field?

My second question is on Canadian productivity. You argued wonderfully that this is what we need to do. But there are many studies to show that Canada is not as productive as we could be. What would you do to improve Canadian productivity vis-à-vis taxes?

Thank you.

Mr. Peter Harder: Let me start, and I'm going to ask Larry Shaw, who is a trained economist--I am not--to add his comments.

The data is very clear in suggesting that open markets benefit, so artificial barriers do cost the total economy. This has come through, I hope, in the presentation, that we have benefited from the free trade in all sectors, and that in fact the sectors that have benefited most are those where the barriers came down the most significantly.

In terms of productivity, you asked about it vis-à-vis taxes. I think productivity is not just taxes. I'm happy to answer in the specific of taxes, but I would want to put it in the broader context of ensuring we had in place a range of policies to enhance R and D performance going up the value-added chain, and taxes is one piece of that.

Certainly what we have been able to accomplish in the last while in business taxes--the combined American state and federal taxes--with corporate income tax being 5% less by 2004 is hugely advantageous to us. The treatment of stock options and venture capital improvements have really had a response from the private sector.

I think the issue of increasingly benchmarking our public policy to the United States in the context of these questions is important for us.

Mr. Keith Martin: Where would we be--

The Chair: Mr. Shaw wants to answer the second question.

Mr. Larry Shaw (Director General, International Business, Department of Industry): Just quickly, Dr. Martin, to go to your question, I think the Americans well understand the expense of some of their protectionist policies. Certainly to use softwood as an example, as I'm sure you're aware, the coalition for homes in the U.S. has calculated that their policy raises the cost of an average house by an extra $1,500. This keeps some 100,000 American families out of the market for a new home. Again, I think they well understand it. Certainly the people I deal with are very aware of the economics of it.

However, economics and politics are not always the same, and in the American market they seldom seem to be the same. We approach the Americans on a number of different levels and we have to keep doing that. We make it very clear to them what our analysis shows. We also pursue our legal opportunities before the WTO and before NAFTA panels. It's this kind of coordinated approach that's necessary when you're dealing with the Americans.

The Chair: Thank you.

Madame Lalonde.

[Translation]

Ms. Francine Lalonde: Good morning, Mr. Harder. Thank you for your presentation.

My last question is about your conclusion which I thought was quite enigmatic. I would like you to explain it to us. But I would like you first to answer my first question. On page 9 of your presentation, you say that “in manufacturing, the productivity gap was 34% in 2000, compared to 20% in 1995.”

This figure is very disturbing. It is even more so when you combine it to the drop in Canada's share of foreign investment, not to mention the weakness of our dollar and the impact this has on corporate investments. In my view, productivity has nothing to do with workers' efforts and is basically related to technical and technological investments corporations make in order to produce more per unit time. This productivity gap means that corporate investments dropped or did not grow enough. It seems to me that this factor which is critical to understand what's happening is missing from your presentation.

As to the weakness of our dollar, Industry Canada surely has an idea of the contribution of our weak dollar to the drop or inadequate growth of our corporate investments due to the cost of investing. I would like to have your views on this.

¿ (0935)

Mr. Peter Harder: Thank you, Madame Lalonde. I will ask my economist to give you an economist's perspective on these issues. I will admit that you have good reason to be troubled by the figures. It's true that our share of the investment market has declined and that we should be more aggressive in taking advantage of our position.

For example, KPMG recently concluded that Canada and Canadian cities are among the best places of the G-7 and some other countries to invest in. In the North American context, we have deep advantages in Canada but decision-makers don't seem to realize that.

[English]

We have to become more American in our marketing. We have to become more promotional, because, quite frankly, the data is not as well known by American decision-makers or foreign investors.

I'll give you an anecdote. I do a lot of work in Germany as an investment champion. I recently heard from the CEO of a very large German multinational, which was looking to put a $350 million to $450 million U.S. greenfield site in North America. They did what German companies do: they asked the headquarters for North America to develop a plan and propose a site location.

The North American headquarters for this German operation is in Pittsburgh, but I won't tell you which company. Where did they recommend the site get located? Right next door to that headquarters. The CEO, on receiving this before the board, said, “Did you look at Canada?” He had learned from some of the comparative data that we had been engaging him on, KPMG and others. And the North Americans said “Well, no, we haven't.” He said “Go back and give me a Canadian site.” They went back and they came back with a 12% lower cost in absolute.... And that's ongoing costs; that's not one-time.

My point is that had the CEO in Germany not asked, “Have you thought about Canada?”, we would never have known that Canada wasn't even on the radar screen.

So I completely agree with you in terms of the troubling nature of some of these data, but we have a good story to tell and we have to be more aggressive in telling that story. At the same time, we have some challenges to enhance our productivity. That's what the innovation strategy is about, and that's why we have to enhance the R and D investment in our private sector.

Five-eighths of all research and development in Canada today is in the private sector. If we are going to move, as we have indicated our goal is, from fifteenth to fifth in the OECD R and D intensity, we're going to have a tripling of private sector R and D investment, and that's going to take more than an exhortation; it's going to have to take the commitment of public policy and the alignment of public policies to achieve this.

¿ (0940)

[Translation]

Ms. Francine Lalonde: And what's the contribution of the dollar in this?

[English]

The Chair: Mr. Shaw.

[Translation]

Mr. Larry Shaw: Clearly, there's a strong link between productivity and investment but the issue of investment goes beyond the value of our dollar. Other factors impact investment levels. For example, the value of the Canadian dollar was relatively stable in the past ten years compared to European currencies but the level of European investment, particularly in Germany, is higher than ours.

[English]

To the extent our companies need to buy, particularly from the U.S., it's clear that the low value of the dollar slows their acquisition of equipment and their productivity. But it's not the only factor. We don't know the extent--

Ms. Francine Lalonde: It's part of it.

Mr. Larry Shaw: It's part of it, yes.

The Chair: Now we'll go to Ms. Jennings.

[Translation]

Mrs. Marlene Jennings: Thank you, Mr. Chairman.

Thank you for your presentation.

I'd like to discuss the issue of productivity. You said that the government should review its policies and programs to find out if they represent barriers or incentives to increased productivity in Canada.

In this review of policies and programs, did Industry Canada identify any policy or program that represents an incentive? Were you able to show that the design and implementation of the policy or program led to growth in a directly related industry? Did your review identify any policy or program that was shown to clearly hinder productivity growth in one or more private sector industries? This is my first question.

My second question is about temporary workers. I'm kind of getting back to what Mr. Obhrai said. You did not actually answer his question but that's all right. I think the answer is no but that you could not say so. So I'm going to say it. No, I don't think amending the Immigration Act and Regulations will achieve the objective of encouraging skilled workers to come to Canada or to make Canada a choice destination.

When I was a member of the industry committee, Immigration Canada had an IT pilot project which had been designed by the private sector. Its objective was to recruit skilled workers for Canadian industries that needed them. It was about speeding up the whole review process, approval of applications and so on. It was shown to be a success. I remember that there were officials from Immigration Canada, Industry Canada and the private sector. I suggested that if private industry thought it was a success and if Immigration Canada said that it would cost $40,000 per case to guarantee that the administrative process would be completed in three months in 90% of cases, then private industry would be willing to pay. We were told that the suggestion was excellent and that it would be reviewed.

I'd like to know what happened to this suggestion. Did Immigration Canada, the private sector and Industry Canada actually examine and implement it? Obviously this is one way of getting skilled workers. We're always talking about user fees.

¿ (0945)

[English]

Well, that could be a user fee.

The Chair: Mr. Harder.

Mr. Peter Harder: Mr. Chairman, I'll try to answer both of those questions.

With regard to the first one on the public policy challenge, one of the reasons the government tabled the innovation papers was, frankly, to begin a more aggressive engagement with Canadians, particularly the private sector, on what we need to do to encourage greater investment in R and D in particular. We have now identified and begun 35 to 40 sector round tables, where we've effectively asked them the question you're asking me: what are the barriers in your sector to your productivity performance and your R and D investment?

Those round tables will move forward to come together in the fall, and we will want to respond in a very specific way to the recommendations coming forward. Some, for example, have pointed to foreign ownership rules. Some have pointed to the regulatory environment with regard to processing times for regulatory approvals. Some point to what they would describe, in terms of the North American marketplace, as disjointed regulatory systems for Canada versus the United States. So they would speak to mutual recognition and that sort of progress.

I hope that what will come out of all of this is an agenda to deal with these in very specific areas that leverage our advantage. So let's not respond just by adding all of these, but let's put them through the lens of how we leverage advantage for Canada. From the consultations I've been personally involved in, I see a significant enthusiasm in the private sector to do just that. There are barriers we need to work through. It's not surprising in the sense that we only have just over a decade of experience in living with the reality that our economic space is much bigger than our political space, and so much of our regulatory and policy regime was created for economic space that is equal to your political space. Now some of that tension is at play, and we're engaging Canadians to determine where best those adjustments can be made.

With respect to temporary workers and your suggestion, I'd like to get back to you in more detail. I can tell you that we are discussing fast-tracking for particular skills, again because it came up in the consultations with the private sector.

Ms. Marlene Jennings: Do you realize, Mr. Harder, that it's about three years ago at least that the issue of the temporary workers came up when the industry committee was beginning to conduct a study on productivity and innovation? I believe we tabled our report about two years ago. So you're--

Mr. Peter Harder: But the ICT sector did not live up to the expectations of that time in terms of some of the labour market needs, so it took some of the pressure off.

Ms. Marlene Jennings: That was just one example.

Mr. Peter Harder: It's one example, absolutely.

Ms. Marlene Jennings: There are sectors where we need tool and die experts and welders. About two and a half to three years later, you're getting back to talking about fast-tracking. That's probably one of the problems with our government, that we're unable to turn on a dime.

The Chair: I don't know if there is an answer to that. It was more of a comment.

¿ (0950)

Mr. Peter Harder: That was a statement that can stand by itself.

The Chair: Now we'll go to Mr. Casey.

Mr. Bill Casey (Cumberland—Colchester, PC): Thank you very much.

Thanks for the report. It's an excellent report. Even I can understand it, and that's a true test.

On the last page you say “and we must think big!” It's even in big print. You seem to be on the verge of telling us something, but you don't quite tell us what it is. What is your vision in the department of thinking big?

Mr. Peter Harder: I think it's fair to say the department hasn't concluded on one specific model. What we're very much engaged in and what today's conclusion is trying to demonstrate is that there are beginning to be a number of proposals. Dymond and Hart put out a paper on what they call the post-NAFTA agenda. Wendy Dobson put out hers.

We in Industry Canada would welcome that debate taking place on a more broad base than in academic circles. At the end of the day, it happens when public policy-makers, in government and in politics, participate. The data that precedes that last conclusion says there is some real basis on which to build.

In some areas, we've performed extraordinarily well in the last 12 years. We have some challenges. Maybe we need to think through in a more comprehensive way what it would be to take advantage of our economic space in North America. Wendy Dobson's idea is one that we think merits the challenge of public debate. It wouldn't be right for Industry Canada, in itself and without consultation, to come up with something and say this is our bold plan.

We certainly are encouraging that discussion and are bringing together academics and researchers, from both Canada and the United States, to examine what options and choices could be made.

Mr. Bill Casey: Don't you think you should come up with a bold plan? I would think it would be the purpose of the Department of Industry to come up with a bold plan for productivity and our relationship with the United States.

Mr. Peter Harder: I don't doubt that we will as we engage. But we want to hear and engage in the broader debate before the department concludes. I think it would wrong for us, within the confines of our own building, to conclude.

Again, I would point to the consultations that are underway on the innovation agenda. We have, as I mentioned, 35 to 40 sectors. We have 35 community-based innovation summits taking place. Some them have already taken place. We have a federal-provincial conference next week, which will build on the federal-provincial agreement, with all provinces and territories, that within our jurisdictions, we will align our efforts to reach the top five in the OECD, R and D intensity. All provinces have signed on to that. We will be reporting to each other what steps we are taking.

So there are elements of this vision already underway and there are elements of it that are being discussed.

Mr. Bill Casey: I see your point. It's a good point.

Mr. Peter Harder: That's the point of Industry Canada's role, frankly.

Mr. Bill Casey: That's good. I appreciate that.

Are the round tables the same as the summit meetings?

Mr. Peter Harder: No, they're different. We've taken about 40 sectors. This is not just Industry Canada's responsibility, by the way. Agriculture is participating, and so is Natural Resources. We are sitting down with the leadership in those sectors, asking them what it would take for them to enhance their R and D intensity, to enhance their productivity and performance. That work is well underway and will aggregate up to a national summit.

The regional work is fascinating, because we originally thought we would probably do five to seven regional meetings. Right away people said they wanted one, too. We're now at 35 communities that are having summits. That's building on the whole notion, the recent notion, of clusters. Clusters are a recent phenomenon and communities are now asking themselves how clusters form. What are the assets we have in our community that we can leverage to enhance our economic performance? We now have 35 of those underway.

I was at the Waterloo summit, which was the first large summit. It brought together 250 people, 46% of them business, including the Mike Lazaridises of the world, who spent a day and a half making this inquiry at a very specific level. It wasn't just at the high level of rhetoric. Of the attendees, 26% were from academic institutions--three universities and a community college. Again, we know that in the knowledge economy, universities are economic engines as well. The integration of the university with the entrepreneurship, with the community economic development.... The remainder were from your local and regional governments, where economic development is increasingly part of their agenda.

Those community-based organizations are integrating some of this activity. Some are more obvious. In Waterloo, for example, you cannot have a community summit and not talk about automotive, not talk about technology, the ICT sector. In Montreal, you can't not talk about pharmaceuticals, biotechnology, aerospace in particular. So there will be that roll-up.

The overarching theme to this is what we have to do together to achieve this objective. We will not move from fifteenth to fifth in OECD intensity by 2010 with just public sector investments, but there will have to be some public sector investment.

Mr. Bill Casey: When will you hear the sum of all these...?

Mr. Peter Harder: In the fall.

¿ (0955)

Mr. Bill Casey: Yes. Thank you.

[Translation]

The Chair: Thank you very much.

[English]

Now we'll go to Mr. O'Brien, please.

Mr. Pat O'Brien (London—Fanshawe, Lib.): Thank you, Mr. Chairman. Congratulations on your election to the chair.

Thank you, gentlemen, for being here.

Going to the last page, I had a similar thought as my friend, Mr. Casey. I don't know what you would could call them, but some of your statements were “teasers”, I guess I would say. They throw out an idea, but they don't quite.... I'd like to follow up on a couple.

You say that “Canada should take the lead before the U.S. is forced to react”. I'd like to hear some possible options on how we might do this, or further options from what we have already done. I wonder what some of the options are that you would see for taking a lead. What's your view on a potential customs union with the United States, and a common dollar, or an “amero,” which we all know would be the American greenback? I'm not proposing these; they're up for discussion. I wonder what your views are on them.

You also remark that “Ad hoc approaches are lost in the U.S. political system”. This is just a statement, but I think we're seeing too much evidence that maybe they run the U.S. political system. I think I know what you mean, but as an outsider trying to approach it that way, you might not have luck.

I'm interested in your thoughts on linkage, including such things as us not pulling our weight in military terms as a country--which I think is accurate to say--to the embarrassment of MPs on both sides of the House. To what extent do you think that the Americans link these things?

I know that you were addressing yourselves specifically to North America, but what's your view about the FTAA initiative and how it might impact North American integration?

So I have three or four questions, Mr. Chairman.

The Chair: Mr. Harder.

Mr. Peter Harder: Why don't I take a stab at them, and then ask Larry to respond as well, because this is really a conversation, isn't it? It's almost a summit.

There is some interesting work out there. I don't know if the committee has had the opportunity to have Frank Graves share with you the recent data that he has on public opinion in Canada, the United States, and Mexico. It's interesting to see the differences now between the three jurisdictions. It's the first time that I've seen trilateral comparisons. It probes some of the very questions that you ask. I would just reference that for the committee, as it is really quite interesting.

In terms of the options, I think we're at the early stages of sketching out what some of those options would be. I would point you to the Hart and Dymond study, which is a monograph that Industry Canada supported. It has a very specific set of proposals, which they call the post-NAFTA agenda. Other people have come forward with their own. I know that Paul Tellier has recently given a speech where he was talking about this.

I think the point isn't “What is the one option?” It is to begin a public debate on what kinds of options are out there, so that we can broaden our understanding, and hopefully achieve some degree of consensus. What is clear is that the FTA and the NAFTA would not have been accomplished without, in a sense, a bold vision. Since then we have made significant gains and have had a number of bilateral issues come forward. The most significant challenge, of course, has been September 11. The governments on both sides of the border have responded, with the smart border initiative, and the like.

I think that business on both sides of the border would even have asked on September 10 what the next stage of economic integration would be. I was at a meeting on September 10 with representatives of Canadian and American businesses to have an in-house seminar on how we could improve linkages and border performance. These conversations need to get out of boardrooms and into a more public and broader participatory process.

If my comments leave you on your appetite, they're intended to. Frankly, this is not a subject officials should lead on. They should support, and provide some intellectual data on, but it's one that we need to....To accomplish this, we need to engage and find ways to have American stakeholders engaged. This is not just a conversation for Canada. The success of the NAFTA was because of advocacy for the NAFTA in the United States.

À (1000)

The Chair: Thank you.

Do you have any comments, Mr. Shaw?

Ms. Aileen Carroll (Barrie--Simcoe--Bradford, Lib.): Wait. I really wanted to hear the answer to my colleague Mr. Obhrai's question on linkages.

The Chair: That's fine. Do you have some other comments, Mr. Shaw or Mr. Harder?

Mr. Peter Harder: Sure.

It's one that we debate, because the traditional response is that linkages only hurt the smaller partner, and we should be very clear in separating out issues that we have concerns with. And that certainly has served us well. But any time you go through a period where some files are prolonged and difficult, as we are at present, it provokes the question.

Frankly, I guess I would say the evidence suggests that over the longer term it is not good for us to make linkages. Having said that, I would at least argue implicitly in this presentation that if it's not linkages, it's at least a vision. It's at least some sense of a common destination, and the files could be looked at in that context.

So I would try to avoid linkages as such, but begin a discussion on where we want to be by 2010 in terms of the economic space of North America.

By the way, I think the stronger we answer that question, and include issues of social, political, and cultural distinctiveness, the more self-confident we will be to deal with the economic issues. So this is not just an economics-driven question.

The Chair: Thank you very much.

Mr. Shaw.

Mr. Larry Shaw: I have a quick comment on your question about the FTAA.

We believe there is enormous potential for Canadian industry in South America, and the FTAA holds out enormous potential in securing our access to that market. Right now the economies of South America are going through a bad period, Argentina in particular, but the growth potential in that area is enormous, and it is very much in our best interests to ensure that we have good, solid access to that market.

The Chair: Thank you very much.

I'll take one last question from Mr. Martin--a very short question, Mr. Martin, before we close with our witnesses.

Mr. Keith Martin: Thank you, Mr. Patry.

Mr. Harder, getting to the nub of the issue, there are rooms full of studies to deal with the problems that we've discussed today. The question that I have is, what is the obstruction to action? Why do we not have the action that our country demands for the problems that you articulated so well in this paper, whether it's manpower, productivity...? We've known this for years and years. What's the obstruction?

Mr. Peter Harder: I would respond by saying I don't think it's a question of obstruction. I would rather say “What would it take to galvanize a more comprehensive response?”, because obstruction makes it sound as if you take one thing away and all of a sudden happiness will come.

I actually believe that what is happening now, both in governments--federal and provincial--and in the private sector, is galvanizing that opportunity. In terms of public policy, in the last ten years there's been a sea change in three fundamental ways.

First, all jurisdictions are becoming much more fiscally responsible, and fiscal responsibility is a huge sea change and a prerequisite, I would argue, of the world's economy.

Second, we've all become free traders in the sense of recognizing that economic growth comes from trade and export in goods and services.

Third, we've become cognizant of the fact that the future of western industrialized economies lies in the knowledge economy, and what will it take to galvanize public policy and private sector behaviour to go up the value-added chain?

That's the consensus that I see emerging that will galvanize the actions, both private and public, and will give me confidence that we will actually move forward, not just with the study, but with actual behaviour change. Because the consensus on the future is more obvious today.

À (1005)

[Translation]

The Chair: I wish to thank both our witnesses.

[English]

Mr. Harder and Mr. Shaw, thank you very much for appearing in front of us this morning. It was very interesting, and I'm sure it will be noted in our report.

We're going to recess for two minutes.

À (1006)

À (1015)

The Chair: We'll start back now.

We have the pleasure and honour to have with us now, from Pace University in New York, Professor Stephen Blank, professor of international business and management; and from the Université d'Ottawa, Mr. Guy Stanley, directeur du programme international du MBA. Welcome to our committee this morning. We want to hear your remarks.

Professor Blank, first.

Professor Stephen Blank (Professor of International Business and Management, Pace University (New York)): Thank you very much.

I am Stephen Blank and I am a professor of international business at the Lubin School of Business at Pace University in New York City. I'm also the director of the Pam American Partnership for Business Education, which is an alliance of four North American business schools. I serve on the executive committee at the North American committee and on the board of directors of the Alliance for Higher Education in North America.

I am honoured to appear before this standing committee.

I think you have a copy of my statement. I'm going to move quickly through it, because I think the questions are the most interesting part.

The first point I want to make is that the attack on the World Trade Center underlined both the reality of the North American economic community and its fundamental weaknesses. Since September 11, I think we've all become aware of how many businesses and jobs depend upon easy border crossings and also how fragile that border system is. And if thinking about a new North American agenda seemed academic before September 11, we all know now that it's a critical task.

My second point is that economic integration in North America has largely been bottom-up, driven by changes in business structure and strategy in the 1980s. Again, it's an interesting story. I've written a couple of books on this. Basically, companies in North America responded to new conditions in the business environment in the 1980s, including changes in national policy, crucial policies in Canada and Mexico in 1982, lower trade barriers in intensifying global competition by creating new continental structures and strategies.

The result, by the late 1980s, was an emergence of complex cross-border networks of production and distribution that form the basis of the North American economic system. The flexibility of this process without heavy government involvement encouraged rapid economic growth and job creation.

What I'm saying here is that the North American economic community pre-dated the institutional arrangements, the free trade agreement and NAFTA. We have to see these as part of a North American system, not the whole of it. In fact, these agreements were very modest agreements compared, for example, with the EU agreements. They were responses to economic changes or changes in the economic environment that had already taken place.

This evolving economic structure has driven the transformation of infrastructure, railroads, highways, gas and electricity transmission systems, airline routes, telecommunications and data pipelines and so on, from three national systems to a single continental system. In other words, changes in the business environment led to changes in corporate structure and strategy. That led governments to respond with these agreements, and further, it has led to the creation of what I would call the North American infrastructure.

We now confront the limits to bottom-up growth. Further integration is blocked in some areas, for example, by the persistence of trade disputes. In other areas, patterns of interests and government policies create inefficiencies. Often we think that the shape the North American infrastructure will take is determined less by markets than by regulations in dozens of federal, state, and local constituencies by competing objectives of firms and shareholders and efforts to build and sustain coalitions of political support.

If I might, I will break my presentation here and talk to something Mr. Harder said. Let me say what he said in slightly different terms. He talked about shared space, and I think it's very important that we all understand this. The relationship between the United States and Canada, between Mexico and the United States, and increasingly between Mexico and Canada is not just trade. We are talking about a deep structural integration. We are talking in essence about a single North American economy run by three sovereign nations. That's the issue here. The contradiction exists, and the very success of the North American economic achievement worsens the contradiction or intensifies it between a highly integrated economic system and a very minimal governance system. And that's a very significant contradiction.

Mr. Harder said we must seek to maximize economic benefits to Canada. Let me tell you exactly how I feel about this. I want to get it right out. I think the route for increasing economic benefits to Canada is through a North American community. Now, I don't mean a North American state. I don't mean a North American sovereign entity. I don't mean a single government or the end of Canada. I'm not thinking primarily about an EU model. I believe that Canada's benefit will lie in the creation of new, more institutionalized answers to key questions of coordination and governance.

À (1020)

How do you do that? This is what some of you have been asking. There are various vehicles on the table. Professor Bob Pastor has called for the creation of a North American commission. Recently Tom d'Aquino talked about what really would be a grand bargain. Between the governments, I think there are lots of possibilities, but--and this is the message I want to bring home most--to do any of this, to do the next step forward, we must build a constituency that supports these endeavours.

The great North American project that lies ahead, in which Canada's interests can and should be maximized, is to build a constituency that supports the emergence of a North American community. I think that's the key.

Let me now tell you what I mean by that. We can no longer assume that the spillover from economic integration will be automatic. Our task must now be to supplement the bottom-up process of integration with deliberate actions. We must build a vision of North America, create an authentic North American voice, launch projects that will enhance this vision, and create new institutions that will support a North American system.

I think the vision is pretty clear. Someone will ask me, I'm sure, about a North American identity. No, I don't think we see a North American identity in the future. I don't think that's an issue on the table. But I do think what we should be aiming at is a vision that recognizes the interests we share as North Americans in a freer, continent-wide economic system, in an effective and cost-efficient infrastructure that supports this system, and on a commitment to bring all citizens into the system to ensure that everyone benefits from participation in this North American community. We share interests. I don't think identity is the issue.

Secondly, that vision must be enunciated by a North American voice, a voice that represents the reality and complexity of North America, a voice of three nations and also of the mosaic of North American regions. Support for the next steps toward creating a North American community must be built in North America's regions and localities. The North American community must be deeply rooted in North American civil society, and not only the creation of three national governments. In fact, a framework for this community already exists in the wide array of organizations that work along our borders and in many sectors of our economy. Many groups share deep interests in cross-border linkages and are prepared to work to build a North American community. What must be done is to link these groups, organizations, and associations with a common vision and purpose.

I've discussed in a paragraph--and I would hope you might take a look at it--the efforts by the North American committee to create a North American alliance linking these various organizations, linking national, provincial, and metropolitan governments, and so on. The idea would be to build a foundation and envision ideas in legitimacy to support the creation of a North American community--in a sense, the idea of Jean Monnet's Action Committee for Europe--that would exert moral influence and exert and exercise constant outside pressure.

I think the vision should focus on building institutions and carrying out projects. In regard to the institutions, I think it's pretty clear we need a permanent North American court on trade and investment. It's clear we need better institutions for bringing members of our federal, state, provincial, and local governments together to get to know each other better. I feel very strongly that we need institutions to support educational and information needs.

As a sidebar right here, as an educator, let me underline that many leaders in our governments, media, and academic communities know little about the developments in North America, despite the growing importance of these developments in our lives. Almost no resources are directed toward public information or education. There are almost no university institutes on North America, no programs of visiting faculty or student exchanges, no funds for collaborative research. There is no foundation or centre devoted to North American research. The gap between what is happening in our North American economy and what we know about it is enormous, and I see this as one of the most profound weaknesses in our North American system.

We need to create projects involving customs, borders, immigration and energy, and I think the most important project we must undertake is to widen Mexican participation in NAFTA. In a world in which our capitalist economic system is widely challenged for its lack of equity and rising levels of inequality, no mission is more important than to demonstrate that this system can indeed embrace and offer meaningful opportunities for all North American citizens.

À (1025)

Let me end here. I hope I've said enough to encourage some discussion, and we can go on from this point.

Thank you for inviting me. I look forward to the opportunity to talk with you now.

The Chair: Thank you, Professor Blank.

Now we'll go to Mr. Stanley, please.

[Translation]

Mr. Guy Stanley (Director, International Business and Management, University of Ottawa): Thank you very much. With your permission, I would first like to congratulate the new Chair and Vice-Chair of the Committee. I also want to thank you for the opportunity to appear before you and to contribute to your discussion of Canada's future in North America. Here are some opening comments.

[English]

To begin with, I think we should thank whatever deity we believe in several times a day for being in North America, rather than some other part of the world, and for having a country like the U.S. as our immediate continental neighbour.

We have to recognize as an inescapable fact of geography and economics that our immediate destiny as a country is tied to those of the U.S. and Mexico and the arrangements we make for sharing our continent. We shouldn't forget the Caribbean countries and our polar neighbours, in particular. We also have to understand that engaging in this way is a positive sum opportunity, rather than a zero sum contest. We only lose if we don't play.

I second the comments of Professor Blank on the networking of the North American economy, or the creation of what is generally a single economy, by the operation of bottom-up-developed networks. That is what challenged us, in particular, to develop a made-in-Canada North American strategy, un projet de société nord-américain, plus précisément. Canada is uniquely suited to do this, but we haven't done it, and the initiative has mainly been taken by Mexico.

Some people may be a little hesitant to go forward in this direction, fearing standardization--the adoption of norms that are uncomfortable to ourselves. But on the contrary, having a clear North American management framework would provide protection for diversity, and allow diversity to flourish more strongly than at present.

What would a made-in-Canada North American strategy look like? The key idea should be to champion a series of measures that would enhance the efficiency of North American transactions. Dr. Blank has quite correctly pointed out that this is a bottom-up activity driven by millions and millions of private transactions, and we're now at the point where we have an opportunity to increase the efficiency of those results with some useful public policy.

The secure border initiative is one such example. Others should be designed to bring the networks and industries that are so important economically under a common set of rules. In some cases, that would imply going beyond national treatment.

In the present circumstances, it would be very interesting to have a Canadian picture of what North American defence, including Mexico, actually means. How do we see it? All I've seen from the Department of National Defence is roughly a discussion of Canada, and not so much a discussion of North America and Canada's role in it, or a high level of appreciation of where we go from here and how we fit into what needs to be done.

Another interesting area is the environment. With the U.S. keeping Kyoto at arm's length, it is a perfect opportunity to move beyond what we have globally to a regional agreement on handling emissions. Environment Canada probably still has such a project in its files. They haven't brought it out for public discussion, but I think it's reasonably well known there's something there. It would allow us to attack this problem on a North American front.

There are many other issues, and there's probably a hierarchy of need that would suggest the way they could be tackled. At the moment, for example, there won't be a whole lot of foreign investment in North America until we can prove to outsiders that we're running something other than a crooked casino. So a North American approach to handling financial services regulation would be pretty productive right now.

À (1030)

We've even had David Dodge mention the need for greater Canadian reporting transparency, and a few people have mumbled something about the need to adopt gap rules but in fact we need to be a lot more creative. We could take the lead here. In fact there are a number of issues where domestic politics has led to log-jams, but nevertheless things need to be done. A trilateral approach might be a useful way through these log-jams

Anyway, the list could go on. I would like to inject a note of fresh thinking. What about a common North American agricultural policy? Since we can't get the Americans to play by international rules, perhaps we could elaborate on something that would include supply management and subsidies together, so we don't totally screw all of us up into the bargain.

On the issue of the other visions, this is a lively discussion now, and I agree with Wendy Dobson that it is time to come up with a big idea. Some people have suggested that we move toward a customs union as a kind of big idea. I actually don't know whether that's a big enough idea. Anyway, I suspect that the free trade coalition has what they want, and it isn't really ready to do very much.

If you can show people where there are common interests and where common rules could serve and enhance prosperity, then I think you have a chance. You have something concrete to propose. You have a coherent framework and you have a significant dollar value to put on it.

Why is Canada ideally placed to do this? Well, we're at the same level of development as the U.S. and we have a stronger interest in the stakes. The U.S. is preoccupied otherwise, but in the current economic conjoncture I suspect it's open to constructive suggestions that are growth-enhancing.

Third, I think the process would provide a vehicle for helping Mexico through a difficult period and for bringing it more closely into a three-way continental partnership. I think this is crucial, if for no other reason than that Mexico is the youngest country in the triad and offers significant prospects for helping both our creaking demographic profiles to cope with the future.

I suspect that a lot of the files I've mentioned are moving in this direction, and I think we should be encouraged by that. I don't think the prospect of initial resistance should somehow deter us, because having a North American vision and working within it will help align our domestic policy-making in a constructive direction. It would help us strengthen our domestic intergovernmental agreements. It would help us readjust our tax and regulatory structures to make them more effective. And it would also help us, the decision-makers, to get our heads around this ambiguous situation we're in now, where we're sort of part of a North American something, but we don't know exactly what it is. I think we need to really be clear on the potentials and possibilities and to be also extremely forthright and proud of it.

In doing that, we would be taking a leaf from some of the smaller European states that have redefined and enhanced their role in the EU, in particular Ireland over the last few years, although there are some questions whether or not their current situation will continue.

So that is the thrust of my argument. My main question is about whether the current government and its advisers can overcome the suspicion that there's something to lose in accepting Canada's North American destiny. And I'd like to believe that our policy-makers can seize the initiative and develop a bold, forward-looking strategic vision for North America. I'm quite hopeful that this committee's deliberations will turn out to be a constructive step forward in that process.

Thank you very much for your attention.

À (1035)

The Chair: Thank you very much, Mr. Stanley.

Now we'll go to questions and answers. I will be strict on the five minutes, because a vote is going to be announced around 11:10, and I'd like all of us to have a chance. I just want to warn you.

Mr. Martin, please.

Mr. Keith Martin: Thank you, Monsieur le Président.

Thank you very much, Professor Blank and Professor Stanley, for being here today. As I mentioned, we could spend an hour on each of you--or maybe even half a day. We appreciate your candour and what you have said too.

I might say, Professor Blank, as we've been friends for a long time, that you're one of the few “Canadianaphiles” in the U.S. We certainly appreciate, Professor Blank, all you do to improve bilateral relations between our countries.

Let's get to the heart of the issue. I agree completely that there's a need to create institutions that will enable us to maximize our relationship, not only with the U.S. but with Americans. The problem we have is that we're not even on the radar map with our counterparts down in the U.S.

How do each of you, Professor Blank and Professor Stanley, propose we manage to get through the iron curtain in Washington in a way that will enable us to interact in a meaningful way with our counterparts in the U.S.? When we go down there, we're looked upon as little more than a nice circus curiosity.

Ms. Aileen Carroll: That's on a good day.

Mr. Keith Martin: On a good day. Thank you.

Second, all I see, quite frankly, between our countries is unrealized potential--massive unrealized potential. Perhaps, since we only have five minutes, both of you could tell us what institutions you would suggest and how we might manage to get beyond this chasm we have between our two nations. How do we get the Americans to the table and make them understand that their interests are our interests and that we have to come together to develop solutions to the problems, solutions that are of mutual benefit to both of us?

Thank you.

The Chair: Professor Blank.

Prof. Stephen Blank: Yes, Keith. Thank heavens we're old friends, because what I'm going to tell you is that this vision--with great respect--is totally wrong. It is wrong because it is an image that is based only on Washington-Ottawa.

The fact is, where I live in New York City and where Pace University lives in Westchester County, Canadians are very big players. What I have to say is you don't like to go to those places, and you don't spend much time building the constituencies and building the coalitions that are necessary to have influence in the U.S. The image of Canada being a small player and being treated in this fashion is simply as much a Canadian doing as anyone else's.

I had the opportunity a long time ago to spend a lot of time with someone I think you knew as a young man, Senator van Roggen. We had a good time, and he used to regale me with stories about how Canadian ambassadors in Washington would only visit the executive; they wouldn't go to Capitol Hill because they felt it was not appropriate. And then, after Ambassadors Gotleib and Chrétien, the Canadians discovered Capitol Hill.

Well, let me tell you what has to be discovered: the rest of the country. The reality is that you are big players in many parts of the world, and the reality is that the U.S. policy-making process is long, local, and permeable, but it requires efforts to participate in the process.

Again, here is a quick example. Westchester County is just north of New York City. It is part of the belt from mid-New Jersey over southern Connecticut that houses many of the great U.S. multinationals, tons of high-tech firms, biotech firms, whatever. In Westchester County our major trading partner is Canada, by far. Four members--count them: one, two, three, four--four members of the House of Representatives come from Westchester County. It is very clear that for Westchester County, the firms and people there depend on Canada a great deal. These should be part, in my view, of a strategy of Canada to build the coalitions, to build the alliances, and to build the constituencies for North America.

Now, quite frankly, I think the effort has to be a North American effort rather than a question of how do we maximize Canadian interests. Canada's interests are most maximized in this, and if the questions come to it, I will say that I disagree with this bilateralism that has been the recent trend in Canadian policy and a retreat from trilateralism. I think that's the answer, that Canada is not small and it is not irrelevant, but it has to participate in the complex policy-making process.

Let me end this intervention with one other matter. I really understand there's a dilemma here. I spent ten years running the Canadian affairs program in New York, where as you know many of the Canadian provincial premiers and federal ministers came. Often, a premier of Ontario would come. I would say to them--because I did work for the Government of Ontario--look, think of this as a riding; these are your friends; relax and enjoy yourself. What happened was they'd come as foreign potentates, where this was a foreign mission with the limousines, all the assistants, and so on. In fact the reality is that this is not a foreign country; this is a riding.

The quid pro quo is that Canadians' view of themselves is going to have to change, and I understand there's a reluctance to do that. In any case, that's the story.

À (1040)

[Translation]

The Chair: Madame Lalonde.

Ms. Francine Lalonde: Thank you very much, Mr. Blank. It was very interesting. You ask good questions and you speak frankly. Thank you for coming this morning, for your frank questions and your positions.

One of the issues is the North American space. What could it be, if not economic? In order to design it, you can of course use NGOs, intellectuals, academics and people from everywhere, but political institutions are always the ones which take the first steps.

Members of my party, the Bloc Québécois, went to Mexico in January with three concrete proposals: a trilaterally negotiated perimeter, a monetary institute of the Americas, which would consider the feasibility of a common currency within 15 years, and a structural and social fund. We were taking up Vincente Fox's proposal because you can't consider a space going beyond economic considerations without trying to get the Mexican people to a higher level of wealth relative to Americans and Canadians. I would like to have your views on these three concrete positions.

Mr. Stanley, you're suggesting first and foremost that we accept a common approach on defence. This is interesting. It's the first time I hear this position. Actually, I think it's a view that should somehow become obvious. For example, what we will do on the NMD initiative will largely determine the U.S. administration's attitude towards Canada. This is a view that I share with you.

What do you think of this?

À (1045)

The Chair: Mr. Stanley.

Mr. Guy Stanley: First of all, the reason why I stressed the importance of defence is that we had September 11. It's also a fact that in our relationship with the U.S., we have been somewhat careless regarding our responsibilities for North American defence. Maybe we relied more on them than on our assets, our capacities, etc. In a sense, the Americans thought this was proper in the context of their policies.

The problem now is that the U.S. was attacked on its own territory and that the stakes are quite high. If we don't want an American strategy to be forced on us, we must have something to balance their strategy, with the same sense of urgency and a position based on our strengths and our different traditions, as well as a range of concrete contributions that we can provide within a common approach.

I also believe it would be desirable to include Mexicans in the same discussion and dialogue because we don't know what the direction of American policies will be in the near future. If we want to be able to encourage or to deter some things, we'd better have a major and recognized contribution, and a partner who supports us or shares the same perspective with us and who is capable, in a trilateral context, to provide a stronger dimension and a higher value than what can be done unilaterally. Otherwise, I would be concerned about the decisions the Americans will be making in the short term.

The Chair: Thank you, Mr. Stanley.

Mr. O'Brien.

Ms. Francine Lalonde: I asked some questions of Mr. Blank.

The Chair: The five minutes are up.

Mr. Guy Stanley: Sorry, I talked for too long.

Ms. Francine Lalonde: I will talk to him later.

[English]

Mr. Pat O'Brien: Well, I'm part of the cultural diversity of Canada as well, and we all are. The shamrock is on the coat of arms of Canada and I'm an Irish Canadian. We're a bilingual country but we've always been a multicultural country. I just wanted to make that point.

I was very interested in your comments. I find them stimulating, but I have problems with a few of them.

Mr. Stanley talks about our North American destiny. But as a student and teacher of Canadian history, that's the point, the constant question that we'll always be asking ourselves--what is our North American destiny? We have been asking it since the time of the American revolution at least.

I'm not sure about this North American voice, common vision, and purpose. To be candid, I find that a little bit...if it is said in all seriousness, I think it ignores the disparity in size between Canada and the United States. I think it ignores the statement of a pretty good Irish-American politician, Tip O'Neil, who said that all politics is local.

I guess that's Mr. Blank's comment. Do you really believe that this is ever likely to happen when there is such a disparity in size and power? I'm sorry, but I agree with the statement about the ignorance of Canada. I know a lot of it is inside the beltway, but I don't agree that it's all inside the beltway.

When we hear elected people in the United States say “We didn't know the Farm Bill could cause such problems in Canada. Are our actions in softwood lumber really hurting you that much?”, that's either incredible ignorance or incredible dishonesty. It has to be one or the other. And that is a great concern. I just can't see this North American voice and common vision and purpose, because it flies so much in the face of our experience as a country.

I agree we're incredibly fortunate to have the United States as our next-door neighbour and friend, but I also like the statement that sometimes the United States is our best friend whether we like it or not. Having said that we're fortunate to have this relationship, we also have to have our eyes open. And I just think we would be kidding ourselves massively as Canadians if we think we're ever going to see a North American vision and voice that isn't almost totally dominated by the United States of America.

Someone mentioned the fear of standardization. I think the more accurate comment is the fear of Americanization, and that again has been true throughout our history.

Mr. Chairman, I'll finish with this, because I want to allow some time.

À (1050)

The Chair: What's your question?

Mr. Pat O'Brien: Let me finish this thing on defence, because I have some sympathy for that.

When the United States unilaterally announced this Northern Command, it flew right in the face of NORAD and what we'd done since 1949. That didn't show much of a North American voice or vision or their part. I understand their reaction to September 11, but I just don't see any signals coming out of the current administration, or throughout American history, that support this. It's an interesting academic exercise, but it's a long way from reality. Do you really think this is achievable? It's hard for me to believe that.

The Chair: Professor Blank.

Prof. Stephen Blank: Yes, I think it's achievable.

Let me give you another statistic: one-third of U.S. exports now go to our NAFTA partners. That's a reality. That ain't tunafish or chopped liver; that's real stuff. The reality is that in the United States we are deeply dependent upon this relationship. The realization of that dependence led major industrial segments, including automotive and so on, to say on September 12, “Do not close these borders, because if you do, you're going to throw hundreds of thousands of Americans out of work”.

Can we build a North American vision all at once? I don't think so. But if you come with me down the border from the Pacific Northwest economic region, to the Alberta-Montana agreements, to the Great Lakes governors associations, to recently when I had the honour of chairing the opening session of the last Quebec and New York State economic summit, a lot of people in a lot of areas have begun to understand this. Have these been linked together in a North American vision? No. But is the material there to do this? Yes.

Secondly, on the issue of implementation, this vision has to be accompanied by a serious strategy to win a constituency to build coalitions to get the legislation we want. If we who believe in North America don't do that, we won't go anywhere. I believe Canada could play a significant role in helping to launch this process. Moreover, the way to maximize Canadian interests is to do this.

Are we going to settle everything? No. Americans are difficult. The political system is difficult to operate. Watch The West Wing; it's a pretty good image of how things work. Can you win parts of it? Yes, but we need to do it together in a coordinated strategy.

À (1055)

Mr. Pat O'Brien: Do you really think the United States is going to share with Canada and Mexico its power base in dominating North America?

Prof. Stephen Blank: I think about the large number of American workers who realize they are dependent upon these relationships--the large number of people living along the borders who realize they are dependent upon a stable relationship. They may not realize it's a North American vision, but this is the raw material with which we have to work.

We're asking people in the Pacific Northwest, Quebec, and New York State to build institutions in their interests; we're not asking them to give up sovereignty. One day they will realize that a different world exists, but the steps include acting in their own interests. That's the key.

The Chair: Thank you.

We'll go now to Mr. Casey, please.

Mr. Bill Casey: Thank you. This is a most interesting discussion; I am enjoying it.

You just said that in order to maximize Canadian interests we should move together, but I think you have to define Canadian interests. I don't think all Canadians put trade interests as a priority. Canadians are interested in being Canadians and don't want to be Americans. They appreciate the difference.

I don't think there's a political appetite at all in Canada to come up with a big bold vision to amalgamate our defence, trade, security, and all these things. That's not what I detect in my riding from my constituents. So when you say to maximize Canadian interests, you have to think about what the Canadian interests are. We are different and we have different interests.

How do you define Canadian interests? Do you define them strictly from a trade point of view?

Prof. Stephen Blank: No, but trade is important. I see a new friend, Francine Lalonde; I see an old friend, Keith Martin; I see you. I think even if we ask the people on this side of the table how they define Canadian interests, this is not an easy question to answer. There may be different answers. That's number one.

Number two, I didn't create a situation in which some 80% of Canadian trade is with the United States. I'm an American. I have to accept that as a reality. I didn't do that, I didn't persuade you, I didn't lure you. That's a reality. Therefore it seems to me that in economic terms, Canadian destiny is with this.

You said the third option was to go trade more with China. As an American, I'm not going to put my ships in front of Vancouver and say you can't do it. I'm just saying this is a certain reality that exists. It is in Canada's interest to maintain a vital, vibrant identity, a cultural, multi-cultured existence within a North American system, and to play a leading role in that system. That is how I define this. So far as everything I can see and the data I have access to, working well within that system is in Canada's interest. It is not to be the backyard of that system.

You are people of wisdom here. If you decide that Canada should be a member of the EU and can do it, again I'm not going to put my gunboats up and say you can't. I'm just working with what I've been given. I have to say that in 25 years I've not always been the most popular person in this city, and now you know why.

Some hon. members: Oh, oh!

Mr. Bill Casey: I think your comments generate a lot of consideration and maybe reconsideration on our part. So we value them in that way.

Again, you keep coming back to Canadian interests. There is an inherent interest for Canadians in being Canadians, in being different from Americans, and we pay a price for that. If we became Americans suddenly, probably our economy would be a lot stronger, but it would never happen.

Prof. Stephen Blank: Again, I think we are North Americans. Would you become Americans in that sense? No. I wish sometimes you would. I would like to have better gun controls. I'd like to live in a country....

There's sort of an assumption that bad things inevitably blot out good things. Why wouldn't we learn from you? I would love to live in a North America that was more Canadian than American, quite frankly. I would think it's great. I've spent much of my life here. I'm an enthusiastic Canadian in that sense. But quite frankly, sir, I don't think that's at stake. I don't think Canadian identity is at stake in this. I don't think the sense of Canadian-ness is at stake.

As I said, I don't see the emergence of a North American identity. I think we work together. I think if anything, what we're likely to see in this, if I'm right, is that the identity of the Pacific west, the identity of Quebec, the identity of the Maritimes is likely to be strengthened within this North American context. I realize that can be a problem too. But I don't think we stop being Canadians. I don't see that at stake, quite frankly.

Á (1100)

Mr. Bill Casey: Sometimes we just feel like roadkill when we're dealing with--

The Chair: Just a moment. Do you think it's possible to have Mr. Stanley also reply?

Mr. Bill Casey: Oh, sure.

Mr. Guy Stanley: I think it's important also to bear in mind that we are talking about a kind of new reality in which a lot of the old routines are still being run. I don't think you're really arguing for a Canada that tries to hide and remain invisible. We're arguing for a Canada that plays a vigorous role and articulates a sensibility of North America that frankly a lot Americans don't share.

It's a selling job. We're suggesting we do this because that is the best way to promote Canada and the future of Canada, which, because of the economic and various other historical trends, is primarily within a North American framework. But if we don't play a vigorous role in designing new routines, new ways of managing our shared space, those routines will be imposed by the big enchilada, obviously, who will do it just because they're organizing their own stuff.

So that is the reason we're both arguing for a much more vigorous and reflective approach.

The Chair: Thank you, Mr. Stanley.

Madame Jennings.

Ms. Marlene Jennings: I have a very brief question. Would the steel industry represent a potential sector of activity, given the level of integration of that industry North America-wide, where we might be able to seize the advantage, use it as a pilot project in order to take the integration even further and develop within that sector a North American vision?

Prof. Stephen Blank: The steel industry is a problem because Mr. Bush very much wants to carry West Virginia in the next election. Let's be totally frank.

Ms. Marlene Jennings: I see.

Prof. Stephen Blank: That's an issue, and I'm not sure quite how we get around that.

Second, the degree of integration of firms across the border is problematic too, because the firms play both sides on this. That's certainly true, too. But what hasn't been done--in Guy's world too, defence is what hasn't been done--is there is no entity in North America such as a group of wise men who write papers, a group of people who present an alternative.

You may recall the Surface Transportation Board's rejection of the Canadian National and Burlington Northern merger. Most of us thought that was a good thing. When we looked at the material submitted to the STB, there was not one single paper saying why this was a good thing. When I asked the people at Canadian National why they didn't do it, they said they were sure it was their role. The fact is there was no agency, there's no foundation, there's no university centre, there's no group anywhere that might say “Look at this; here's another idea on this. Is this a good thing?” We don't have anything like that. That would not take much energy or money to do, simply to do what you're doing, to take evidence and produce a series of reports, but also to make sure we contact the representatives in the different constituencies to say “This is important to you. It's your people, your jobs. Read this.” But we don't do any of that. We don't do any of that at all.

There's no North American defence studies centre. There's not one single paper that's been written on this. Quite frankly, it's unbelievable.

The Chair: Mr. Stanley, 30 seconds.

Mr. Guy Stanley: I agree with that. Under the old British arrangements, years ago, there was a Chief of the Imperial General Staff and there was an imperial staff. It didn't work very well. But the closest we have to that is this sort of NORAD thing, which only covers one of the environments. So I think we need to really just go back and rethink the architecture and the role we can play in it. And we shouldn't waste any more time, because it's getting short.

The Chair: Thank you, Mr. Stanley.

Mr. Martin, you have 20 seconds to put a question for a short answer.

Mr. Keith Martin: Trade, transportation, and telecommunications require beltway blessing in order to occur. And we're talking about really two interests: parochial interests and national interests. How do we manage to overcome parochial interests, which drive Washington, when we really should be talking about institutions that deal with national interests? That's the problem we have.

Á (1105)

The Chair: Mr. Stanley.

Mr. Guy Stanley: I could say something about that. The reason I suggested we focus on those kinds of transactions is I think it's possible to define areas where the industries will come together and promote this. They would probably include a relaxation of foreign investment constraints and things like that, and additional harmonization of standards. There would be a number of issues that would have to be worked out to overcome, shall we say, the barriers between totally seamless telecommunications industries across North America.

I draw your attention to the fact that the Europeans are working on this, and when they get it we'll feel the difference.They've already got it in cell phones.

Once you get people talking in this direction they can see the gains and they will work on our behalf. So the parochial interests in this may diminish as information is developed.

Prof. Stephen Blank: Very quickly--

The Chair: Yes.

Prof. Stephen Blank: The issue, I think, Keith, is coalition building. Question: why is there no NAFTA transportation corridor east of the Hudson River? One reason has been that neither the Government of Quebec, with great respect, nor the Government of New York State have put pressure on representatives in Washington to build this. Why? For a lot of reasons that are not important, but they haven't.

If we want to do this, if we want to have a corridor, a Quebec City-Montreal-New York corridor, with federal funds, the ISTEA funds, then the representatives of New York State are going to have to make the case. And this means that Quebec is going to have to work closely. Quite frankly, with all due respect--and I'm a member of the Ordre national du Quebec--

[Translation]

The Chair: The Ordre National du Québec.

[English]

Prof. Stephen Blank: Oui.

It is inexcusable that successive governments in Quebec, for ten years, have not pushed to create this summit. It is bad policy, and everyone among my closest friends shares this view. And that's the answer, Keith. We have to focus.

I didn't want to run too quickly over the concerns of Mr. Casey, because they're very real. The reality is that Team Canada, in addition to going to the antipodes, or God knows where they're going to go next, is going to have to go to Westchester County. And it may not be glamorous and it may be a bit of a shock to Canadians' self-identity, because it's not Team Canada going to Singapore, but the reality is they'd better go to Westchester County too.

The Chair: Aileen, ten seconds.

Ms. Aileen Carroll: I think this has been one of the best discussions we've had, because you've challenged so many of the white elephants, both of you. I think that's very important to do. I don't know if we have the power to offer you jobs in the PMO, but if we did, it would be a good place to put you because of that.

Professor Blank made the excellent point that the summit-to-summit approach is like frapper un mur so many times. Growing up in Halifax and understanding the relationship we've had with Boston, the New England maritime region, I think this is an excellent example of what you're talking about. I think developing the regional links is very important. Mainly, I believe if we don't do it, they're going to. If you want to do it your way, you'd better get on the road.

The Chair: Thank you, Ms. Carroll.

Thanks very much to our witnesses, Mr. Blank and Mr. Stanley. As was mentioned, they were very challenging remarks. Thank you again.

We're going to meet next Tuesday morning regarding the draft outline of the North American study.

We have three and a half minutes left before going to the vote. Thank you.