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37th PARLIAMENT, 1st SESSION

Sub-Committee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

COMMITTEE EVIDENCE

CONTENTS

Thursday, February 7, 2002

1535

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.))

Mr. Sergio Marchi (Permanent Representative and Ambassador of Canada to the Office of the United Nations and to the World Trade Organization)

1540

1545

1550

The Chair

Mr. Bob Speller (Haldimand--Norfolk--Brant, Lib.)

Mr. Sergio Marchi

1555

Mr. Speller

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

Mr. Sergio Marchi

Mr. Rick Casson

1600

Mr. Sergio Marchi

1605

The Chair

Mr. Rocheleau

Mr. Sergio Marchi

1610

Mr. Rocheleau

1615

Mr. Sergio Marchi

The Chair

Mr. Rocheleau

Mr. Sergio Marchi

1620

The Chair

Mr. Mark Eyking (Sydney--Victoria, Lib.)

Mr. Sergio Marchi

1625

Mr. Mark Eyking

Mr. Sergio Marchi

The Chair

1630

Mr. Sergio Marchi

The Chair

Mr. Sergio Marchi

The Chair

Mr. Donald Mackay (Special Adviser, Canadian Foundation for the Americas)

1645

1650

The Chair

Mr. Rick Casson

Mr. Donald Mackay

Mr. Rick Casson

Mr. Sergio Marchi

1655

The Chair

Mr. Rocheleau

Mr. Donald Mackay

1700

Mr. Rocheleau

Mr. Donald Mackay

1705

Mr. Rocheleau

Mr. Donald Mackay

The Chair

Mr. Mark Eyking

1710

Mr. Donald Mackay

Mr. Mark Eyking

Mr. Donald Mackay

1715

The Chair

Mr. Bob Speller

Mr. Donald Macay

1720

Mr. Bob Speller

Mr. Donald Mackay

The Chair

CANADA

Sub-Committee on International Trade, Trade Disputes and Investment of the Standing Committee on Foreign Affairs and International Trade

NUMBER 020

1st SESSION

37th PARLIAMENT

COMMITTEE EVIDENCE

Thursday, February 7, 2002

[Recorded by Electronic Apparatus]

¹ (1535)

[English]

The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): Colleagues, I'll call the meeting to order.

We are very fortunate to have before the committee today Mr. Sergio Marchi, our ambassador to the WTO. He is an outstanding citizen in his own right and an individual who has made us all very proud through the many issues he has dealt with at the WTO on behalf of Canada, in particular the leadership role that Mr. Marchi and his team played at the Doha meeting. I saw first-hand the way the Canadian delegation was working exceptionally hard in order to ensure that Canada's position was very well known. Talking to some of the delegates, in particular from the least developed nations, I became even more aware of the respect WTO members have for Canada, all because of people like Mr. Marchi and his team.

I'm also honoured to have with us Mr. Don Stephenson, who will be assisting Mr. Marchi today.

The way we are going to structure this is that Mr. Marchi will have an opening remark and then we will open it up for questions and comments. Mr. Marchi, welcome to the committee and welcome to your House.

Mr. Sergio Marchi (Permanent Representative and Ambassador of Canada to the Office of the United Nations and to the World Trade Organization): Thank you very much, Mr. Chairman. It's always good to be back before your committee. I thank you for those generous words on the Canadian effort in Doha. From our minister on down, our team played not only a key role for Canadian interest, but also, I would dare say, a key leadership role in ensuring the consensus that finally emerged.

As you mentioned, I'm with Don Stephenson this afternoon, the director general for trade policy.

I'm grateful to you, Mr. Chairman, and to the other members of the committee, for providing me with this opportunity to brief you briefly on recent developments at the WTO. I note that you have assembled an impressive list of experts to brief you on both the WTO files and the FTAA issues over the next few weeks. I'm sure your assessment of WTO negotiating issues will help to flush out Canada's priorities as negotiations in Geneva unfold. I hope, therefore, that the comments I will be making today will contribute to this important effort.

As you know, the WTO faced a real question of relevance after Seattle. So at Doha, Qatar, last November, WTO members had a very heavy burden to bear. We had to get out from behind the shadow of Seattle; we had to respond to the needs of all members, not just the rich and developed ones; we had to resolve some tough trade and economic issues while accommodating broader concerns, such as issues of development, environment, and social equity; and we had to do all of this with the tragic events of September 11 very much still in the air.

Simply put, the WTO and the global community needed a win in Doha, and the membership, I'm glad to say, responded accordingly. Some of you, of course, as you noted yourself, Mr. Chairman, were indeed in Doha and played a role in there, and so you are already intimately familiar with what trade ministers negotiate. Let me, therefore, briefly summarize what we accomplished.

Overall, it is Canada's belief that Doha established a significant negotiating agenda for the WTO community. For example, WTO members are now committed to negotiating the further liberalization of both industrial goods and services, ambitious agricultural reform, clear rules on anti-dumping subsidies and countervailing measures, and the reform of the dispute settlement system. Doha also paved the way for future negotiations on the so-called Singapore issues, that is to say, global rules for investment, competition policy, transparency in government procurement, and on trade facilitation, to be launched, by consensus, at next year's ministerial meeting.

In assessing what all of this may mean for Canada, two particular achievements come quickly to mind. On the sometimes controversial and very emotional issue of agriculture, Doha represents a significant milestone, because for the first time ever, WTO members committed themselves to negotiations with a view to phasing out agriculture export subsidies. They also committed themselves to substantial reductions in trade-distorting domestic support and to substantial improvements in market access.

So Doha was a significant step on the road toward allowing Canadian farmers to compete on a level playing field with the farmers of the largest agricultural subsidizers--the U.S., the EU, and Japan--rather than competing with their rich and deep national treasuries. With respect to services negotiations, the countries of the WTO also agreed to firm and realistic negotiating deadlines to expand market access and further liberalize trade in services.

For a country like Canada, where 67% of our GDP is services driven, including more than $43 billion Canadian in exports annually and millions of jobs east, west, and north, this sector and these negotiations hold out tremendous potential for Canadian firms.

¹ (1540)

I spoke earlier, Mr. Chairman, of the need for the WTO to address broader concerns. That is why we also see incorporated in the Doha agenda strong support for the concept in real terms of sustainable development and a groundbreaking commitment to negotiations and ongoing work on important trade and environmental issues.

I think it is also worth underlining that ministers recognize the WTO does not hold all the answers to these and other far-reaching questions. That is why they agreed to continue to work with the Bretton Woods institutions toward achieving greater coherence in global economic policy making, and noted the ILO's useful work on the social dimension of globalization.

For their own part, trade ministers also committed to making the WTO's operations more open and more transparent, as well as improving the organization's dialogue with the world's public.

As you know, Mr. Chairman, Canada has long championed enhanced transparency at the WTO, and we will continue to do this, because we are of the firm view that this reform is central to the future of this organization.

Perhaps most important, however, is that members strove in Doha to bridge the developmental divide--the global gap between the rich and the poor. The Doha development agenda, which we have called this round of WTO negotiations, will contribute to economic growth and the reduction of poverty in developing countries. The Doha mandate squarely addresses developing-country concerns about basic market access for their agricultural and industrial products.

The declaration also makes commitments to deliver substantially enhanced trade-related technical assistance and capacity building for developing countries in order to ensure that every WTO member, small and large, can maximize the benefits of the global trading system. There is also, as you know, a separate declaration confirming that WTO rules on pharmaceutical patents provide flexibility for countries to protect public health and promote access to medicines for all when facing some of the epidemics that some of our fellow colleagues and countries are facing.

There was yet another declaration agreed to by ministers that addressed many developing-country concerns about the implementation of existing WTO obligations that were agreed to and finalized in past trade rounds.

All of these achievements not only meet the growth and development agenda that Canada set out for itself to negotiate at Doha, but they also provide, we believe, ample opportunity for developing countries to achieve significant economic aims and gains.

Of course, a final notable accomplishment at Doha was the historic decision, after 15 years of negotiations, to accept China as a member of the WTO family. Canada's fourth largest trading partner is now bound by the rules and agreements that give life and purpose to the WTO, and therefore the prospects for Canadian companies, who already export in excess of almost $4 billion a year in goods, are quite significant indeed.

Looking ahead, it is clear that Doha was just the beginning of a long road. After all, we have only launched new global trade negotiations, and we now have much work to do and little time to do it in. The deadline for completing all the negotiations is January 2005--less than three years away. In WTO time, that is a very ambitious deadline.

As you know, the last round--for comparative examples of global trade negotiations--the Uruguay Round, took almost eight years to complete. So despite the successes of Doha, achieving consensus among 144 members--and growing--on a complex global negotiating round will not be easy.

¹ (1545)

Countries like our own, for example, will be under pressure from developing countries seeking increased market access for goods such as textiles and clothing. At the same time, many developing countries will continue to seek special and deferential treatment within the existing WTO agreements. Some will indeed remain skeptical of, or even opposed to, the eventual launch of negotiations on the Singapore issues, particularly the issues of investment and competition.

As we try to build support among developing countries for stronger and deeper obligations and rules, we and others will be called upon to live up to our promises of Doha and deliver the technical and capacity-building assistance developing countries need to negotiate, implement, and benefit from WTO agreements. So there will be no shortage of challenges.

In this context, some observers are understandably skeptical of our ability to finish our work by 2005. But I believe it can be done. Indeed, WTO members have already made progress since the meeting in Doha. In December of last year, we decided on Mexico as the venue for the next ministerial conference in 2003. We also agreed on the establishment of a global trust fund for trade-related technical assistance in capacity building, with a target budget of almost $15 million Canadian. The pledging conference will be in mid-March.

Last week, following weeks of intensive consultations, the newly established trade negotiating committee agreed on the core elements of a lean and efficient negotiating structure and process. Under the chairmanship of the director general, the trade negotiations committee will oversee negotiations in seven separate negotiating groups, and all will report regularly to the general council.

What does this all mean for Canada? In other words, how does the day-to-day work at the WTO impact Canada's national economic interest? As members of this subcommittee, you all know very well that Canada's trade with major partners outside of North America, such as Europe and Japan, is crucial to Canada's economic health. Unprecedented opportunities for Canadian business beckon in the world's huge emerging markets, such as China and India.

Our best guarantee of access to and fair play in those markets comes from the WTO. Canada continues to push forward, as it should, on our bilateral and regional trade ties, such as APEC and the FTAA negotiations. However, the WTO remains, in effect, our trade agreement with the world. That is why Canada is so active in Geneva, helping to shape the agenda while advocating our own national interests.

With that in mind, I am very pleased to see this subcommittee consulting closely with Canadian businesses and stakeholders on Canada's priorities at the WTO. Your discussions will yield valuable insights and lessons from both businesses and stakeholders. Such discussions are also very much needed, because in comparison to bilateral and regional initiatives, I believe the private sector internationally has taken much less interest in both Seattle and Doha. I believe and hope this can change.

Now that we're at the beginning of a new WTO round, we need to revive that spirit of support and cooperation with the stakeholders in Canadian trade policy, including the private sector, consumers, and NGOs. Surely there is a vested interest in achieving globally what this country has accomplished bilaterally and continentally.

In conclusion, I remain optimistic about our prospects for success at the WTO in Geneva. We will have a very busy year in Geneva, given the launch of negotiations in Doha. I know that this subcommittee's work will provide valuable input to our efforts to refine the Canadian negotiating position.

¹ (1550)

Therefore, I am looking forward to your report, and I will welcome hosting you on a return visit to Geneva, if you believe it would be helpful to complete this very important work.

Thank you.

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

I am going to take the liberty to ask my colleague, Mr. Speller, if it's okay with him to ask the first question. Mr. Speller was the famous parliamentary secretary to Mr. Marchi when Mr. Marchi was the minister responsible for international trade. Is that correct?

Mr. Bob Speller (Haldimand--Norfolk--Brant, Lib.): That's right, Mr. Chair. I want to have the opportunity now to grill him. This is payback time.

Ambassador, welcome back. I do want to thank you on behalf of all Canadians for your hard work on their behalf in Geneva.

My colleague, Mr. Eyking, and I have had an opportunity in the last number of months to travel across this country, talking to Canadian farmers about future opportunities in agriculture. One of the issues that always comes up, no matter what part of the country you come from, is Canada's international trade position and the importance trade has on agriculture. I know we have talked about this in the past. One of the areas Canada had been pushing very strongly for was for the elimination of export subsidies. If you look now at the EU website, they claim that in fact they have not in any way agreed to the elimination of export subsidies.

I'm wondering if you could give us an update on that issue, because it's key for Canadian farmers that these trade-distorting subsidies be indeed gotten rid of totally. We thought when we started these negotiations that in fact this had been agreed to. There seems to be some question as to the European Union's position. I'm wondering if you could help Canadian farmers understand what is actually going on there.

Mr. Sergio Marchi: First, thank you very much, Bob, for your kind opening words on the Canadian work.

Second, I think that work has certainly been aided by individuals like you for a long time, particularly on the agricultural beat, where you have consistently defended and promoted the interests of Canada's agricultural constituency.

I, like you, feel that the accomplishment of Doha on agriculture...keeping in mind that this is just the start of negotiations. Notwithstanding that, this is the very first time the WTO has agreed in a ministerial declaration to eventually phase out and eliminate the export subsidies game.

The OECD has calculated that the wealthiest countries spend in excess of $250 billion U.S. annually, and 80% of those moneys comes from the European Community, Japan, and the United States. It represents over 35% of the value of agricultural production. It is an absurd number, one that creates havoc, including with the Canadian farming community as they try to compete with their counterparts.

I think the European website is essentially to give a European spin for European constituencies, because it is pretty clear what the WTO members agreed to. I believe that while they can put their own interpretation on it, this was an important achievement...and I would also say that if there is a moving away by the Europeans--or any other country, for that matter--on this central commitment to do away with export subsidies in the life of these negotiations, not only will it be a backtracking on a commitment they too signed onto, but it would have a very dramatic and negative spillover onto the other issues at play on the negotiation agenda, including some very large issues that are very important to the European Community.

If they were now to interpret that this is not what they meant, then that is going to have very serious consequences. I haven't heard that from the European ambassador in Geneva. I haven't heard that from Pascal Lamy. I am fully prepared to give them the benefit of the doubt as to whether they will live up to their commitments and do what we said we would do in Doha.

¹ (1555)

Mr. Bob Speller: Thank you. I promised I'd just have one question.

The Chair: Mr. Casson.

Mr. Rick Casson (Lethbridge, Canadian Alliance): Thanks, Mr. Chairman.

I too would like to welcome you, Mr. Marchi. Thank you for being here and for your comments, and also thank you for your hospitality when we were in Geneva a year or so ago and for the quality of the meetings we had there. We were able to sit down with the director general and have some face-to-face conversations on some issues. I think that was very helpful to the Canadian delegation, and hopefully we supplied him with information that he needed as well.

I wasn't in Doha personally, but there was very little disturbance outside of the meetings, unlike Seattle. How much do you credit that to the location and how much to the fact that the system or the process now has been changed to be more transparent and inclusive? Do you feel that in future meetings, because of those changes, we'll be able to get past that?

Mr. Sergio Marchi: Thank you again very much for your comments. I also should be thanking you and the other members of the SEC committee who made the trip to Geneva. As the Canadian ambassador, I believe we can never have enough trips, not only by parliamentarians but also by CEOs and members of the NGO community, to actually see the operation of the WTO on the ground and have the kind of meetings we did. Ultimately, I also believe Canada wins as the rest of the WTO sees the kinds of commitments our parliamentarians and private sector and NGO community are making to actually come through Geneva.

We obviously took a lot of heart in seeing a lot less protest, certainly the negative kind. I think it left a pretty negative impression upon the outskirts of Seattle. I'm not talking about constructive NGO groups or individuals who had different opinions from our government or any other government. In Canada, obviously we respect different opinions. What I guess very few people can respect is the kind of damage that was done in Seattle. That did not take place in Doha, Qatar. Obviously it was a function of a different procedure by the government of Qatar, but I also think it was reflective, Rick, of a very different process that led to Doha. It was absolutely different, night and day, from the process in Seattle.

With the process in Seattle, after the long, divisive election of the DG--two DGs, actually--there was very little time left. When Mike Moore came on September 2, 1999, he had just a couple of months before the Seattle show. So the process was not well prepared. It was fast, it was not inclusive, and therefore at the end we got a 35-page document that was largely bracketed and very divisive.

By contrast, in the preparation for Doha, the process was infinitely more open and transparent. There were endless numbers of informal meetings inviting all the members of the organization, both small and big. In fact, we had so many informal meetings that a number of the smaller delegations complained that they couldn't manage all the meetings. So we made a virtue of openness, and therefore it was a much more balanced text. Everyone had an agenda going into Doha and everyone had a vested interest.

As a result of that process, the document and the ministerial meeting enjoyed greater legitimacy and a greater buy-in. It certainly taught us the lesson that the process leading up to whatever negotiating substance you have is incredibly important to achieving overall success.

I think the chairman of the WTO council; the chair of the ministerial meeting, who was the trade minister from Qatar; and Mike Moore, who invested a lot in those relationships, are really to be complimented, as well as the leadership from within that made the political will overcome a number of national differences. I think it was a very different preparation process and ultimately a very different and much more positive end result.

Mr. Rick Casson: I was interested in your one comment that you don't feel the private sector is engaged enough. When we were at meetings elsewhere on that trip, we were told that if Canadian businesses want to have success in Europe, they'd better have a presence there. They'd better be at the trade shows and get to be part of the culture.

Do you not feel, though, that when we get to have more concrete advancement, the businesses will naturally become more involved when they see that there's some possibility to be included in a few years? I'd like you to comment on that, and also on the aspect of having seven negotiating groups and the structure of that. Are they indeed separate? Do they compare notes? Are they going to trade one off against the other? That idea is what I'd like you to comment on.

Thank you, Mr. Chairman.

º (1600)

Mr. Sergio Marchi: When I made my comments about the private sector, we should obviously have the context of the fact that I believe the private sector in Canada has really been the champions of liberalized trade. That is to say, we've seen that clearly in the free trade agreement with the United States, and then the expansion into Mexico under the NAFTA.

We saw a great take-up in the FTA, for example, when I was trade minister. We had the largest Team Canada representation; 500 companies came on that trip. That told us how bullish the private sector in Canada was on the potential of a free trade agreement in the Americas. When it comes to APEC, we have a business advisory group attached to that. What I'm saying is that the private sector, without a doubt, has championed the cause of liberalized trade.

I said I was puzzled that both in Seattle and Doha...when you compare that championing role that the private sector historically has had, I thought it would be matched by an equal engagement on the multilateral scene. I also said that the international business community was kind of one step removed, and when I speak to a number of ambassadors in Geneva, that is their sense in their respective private sectors as well. There may be some good reasons for that. They may feel that perhaps the WTO has moved too slowly. They may feel that there are enough rules after 50-odd years of the GATT and the WTO, or they may have concluded that their efforts are better placed on regional or bilateral trade initiatives.

All I'm saying is that we need that kind of engagement. Governments need the private sector to animate their interest in trade, to be passionate about a multilateral institution and why it is in our best economic interest to have a strong WTO rules-based system rather than the laws of the jungle where countries like Canada and many others can get hurt. Therefore, we need that engagement. We also need them to be champions at home for the WTO in the defence of criticism that is unfounded.

So it was simply a reflection of a different kind of engagement on the regional and bilateral than I have experienced in both Doha and in Seattle, generally speaking.

On the issue of the negotiating groups, these are seven separate negotiating groups. So, for example, the agricultural committee in special session will deal with the agricultural negotiations, and the services council in special session will deal with the services negotiations. They will be separate entities chaired by separate chairs, and then, in a coordinating way, they all report to the trade negotiating committee, which is going to be chaired by the director general, Mike Moore, until the end of August, and Dr. Panitchpakdi starting on September 1. Ultimately the TNC reports to the WTO council, which is appropriate given that the WTO council is very much a member-driven organization.

That's essentially the structure and flow for the negotiations.

º (1605)

[Translation]

The Chair: Mr. Rocheleau.

Mr. Yves Rocheleau (Trois-Rivières, BQ): Thank you, Mr. Chair and thank you, Mr. Marchi, for your presentation. Welcome.

You say at some point in your presentation:

…members strove to breach the development divide, the global gap between the rich and the poor. The Doha development agenda […] will contribute to economic growth and the reduction of poverty in developing countries.

In that context, I would like to know what is going to happen with the contents of NAFTA's Chapter 11, which was referred to as the Charter of Investors' Rights, which may find its way into the FTAA agreement and was found in the MAI, the Multilateral Agreement on Investment. How much of the spirit of Chapter 11 or those investors' rights have been preserved at the WTO? This is my first point.

Secondly, I would like to focus on a simple and specific example of a situation which affects possibly the most desperate area of the world, I mean Africa. In fact, the Prime Minister has made some commitments in favour of that continent. You must be quite familiar with that case and the Foreign Affairs Committee is going to look into it.

I will take the example of the Nestlé company, which has big dealings in Africa with cocoa and coffee, and plays individual or national producers one against the others. That company, in keeping with the rules that prevail in any good business context, always buys at the best price, at the lowest price, so that it keeps weakening trading entities and worsening the economic situation over there. I have seen that, particularly in Côte-d'Ivoire. Small producers are led to produce at a loss. It costs them more to produce than what the big multinational pays them.

So, what kind of future is in store for the Nestlé company, for instance, with the new rules of the game that will be applied at the WTO?

[English]

Mr. Sergio Marchi: Merci, pour votre question.

On the first question, on chapter 11 as it relates to investment, I did mention in the opening statement that there are a number of developing countries that were very skeptical about the so-called Singapore issues, primarily investment and competition.

I thought it was unfortunate that we also put trade facilitation and government procurement and postponed it until next year, because I thought those two were ready to go. Trade facilitation is everything about how to get products and services across our border and customs with the greatest of facility for our entrepreneurs, and transparency in government procurement would be an obvious gain.

Somehow, all four Singapore issues were treated as one package, but the real concern was primarily on investment and competition. When we were discussing investment in Geneva, it was very clear that there was a concern about chapter 11--investor state--and it was a consensus as well, that if we were to have successful negotiations in investment, it would exclude the concept of investor state. That was one issue that was abundantly clear. I don't believe that has changed since Doha, and I don't think it will change in the next 18 months or so.

Investment and competition and the other two Singapore issues will be dealt with in a work program, and then next year in Mexico, the WTO will, on consensus, possibly move them into negotiations.

But no one in Geneva, to my knowledge, is pushing that those investment negotiations include an investor state.

With respect to the specific example of one company, I'll refrain from the specific and stay on the generic.

The African countries, as well as others, and their ministers made a number of points that were very significant to all the other ministers, particularly those coming from the developed countries.

The first is--and they've been saying this since Seattle--if we are to launch, we need to see our agenda reflected in the launch of new negotiations. We need to see our issues and our concerns reflected. If they're not, don't expect us to support a launch.

So I believe that when one looks at the Doha declaration, it very much reflects that kind of warning and desire, legitimately so. Indeed, that's why we called it the Doha development agenda. And when one looks at those commitments, one really sees a strong bedrock of development-related agenda items.

Two, they also said we need to have greater access for our basic commodities, essentially our agricultural products, textiles, and clothing. If these are the items that we move best or as well as any, then we need to also have penetration in those markets, and therefore we have to be able to put this on the negotiating table. And both are.

The third thing they said is, look, we're not philosophically opposed to an issue like investment because we're opposed. Part of their difficulty is in the capacity of understanding the issue; of being able to have people to deal with the issue; and ultimately, in terms of products and services, the capacity to take products from their country, store them, transport them, and take them to market.

So the whole issue of trade-related capacity was significant, and in fact there are ten different references or so to both capacity and technical assistance.

I would suggest further that this is an issue that developed countries are taking very seriously, and we need to move quite quickly, seriously, and concretely. We need to get technical assistance right in the first three months if we're to have a good three-year negotiation. Because ultimately, developing countries can also say, well, if you haven't moved it fast enough, we're not able to negotiate, and therefore we need to slow things down. That's why there's a pledging conference next month.

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That's why it's important for both developed and developing countries' ministers and ambassadors ultimately to be in the same room and to understand what that assistance will be. Six months down the line you don't want a developing country saying, “That's not what I needed in terms of technical assistance”, or a developed country saying, “This is the only kind of capacity we can give.” There needs to be a shared understanding so that we can be guided by that for the purposes of the three-year negotiations.

[Translation]

Mr. Yves Rocheleau: This is not good enough, Mr. Chair, because my first question was not about the investor state but rather about the investor private sector. The debate took place mostly in the context of the MAI, the Multilateral Agreement on Investment, in which the private sector is given the right to go after a state which regulates or legislates.

An easy example would be the example of an environment in which the investor could say that it was prevented from making profit because a specific state had put in place a program which prevented that investor from acting as he wished. The investor sues the state and his claim is upheld because of the agreement which favours the investor.

That is what all the people who challenge globalization and who talk about globalization of poverty are rejecting. Faced with big and powerful multinational investors, the states will have less and less national power and influence. This is the heart of the issue. Are we going to change this? Are we going to assert the primacy of the states over multinational investors? I clearly believe that this is the heart of the matter.

º (1615)

[English]

Mr. Sergio Marchi: I thought I understood the question, and I thought I was quite clear. What you are driving at is the investor-state provision that grants what you think has been a concern or a challenge among a number of observers in the face of globalization. What I am saying is that as a result of the concern throughout the MAI negotiations, a possible investor-state provision in multilateralizing investment at the WTO is not going to be a part of that. That's my whole point. Countries at Geneva want ultimately the state to have the sovereignty and they don't want the investor-state provision. That's exactly what I was saying in my first response to you.

I also feel that will not change in the intervening 18 months as we continue the work program on investment. If that were to change, I think then we would have a very difficult time in actually bringing successful closure to the issue of investment.

[Translation]

The Chair: Do you have any other questions?

Mr. Yves Rocheleau: Agriculture is such an important sector. I met with dairy producers from my region last fall, who were greatly concerned about the evolution of negotiations on supply management.

The issue of dairy supply is very important in Quebec and in Canada. Are the concerns of dairy producers founded in the context of these negotiations? If I understood correctly, we will be able to manage supply for the domestic market, but a supply management system like the one we have now will be totally ruled out.

[English]

Mr. Sergio Marchi: First, we were very pleased, as a result of a lot of hard work by the federal government, together with provincial governments and the industry, that we recently won the WTO panel on dairy.

We were naturally disappointed that both the United States and New Zealand persisted in not accepting that verdict at the WTO and continue to challenge it. However, we feel quite confident that we can come out on top again.

Secondly, we feel that our capacity and ability to do supply management is entirely compatible with the obligations we have undertaken at the WTO. We don't see a conflict about how we organize ourselves in the face of international obligations. It is very much along the lines of how other countries do it in both agriculture and other sectors.

Thirdly, there was no reference in terms of the issue of supply management with respect to the commitment of the agricultural negotiations document launching the negotiations. I don't know if other countries in the life of the negotiations will raise whatever issues of supply management they may; that is obviously for them to contemplate, and when they do, we will respond accordingly. But there was no assumption or guiding principles in terms of the whole issue of supply management with respect to the launch of agricultural negotiations in Doha.

º (1620)

The Chair: Mr. Eyking.

Mr. Mark Eyking (Sydney--Victoria, Lib.): Thank you, Mr. Chair.

It is good to see you again, Ambassador Marchi. I thank you, like the rest, for the hospitality in Switzerland and France, and also for introducing me to the importance of Geneva in making the world more harmonized, I guess.

Today in the House, the big topic in question period was the softwood lumber issue. Americans seem to be playing with us; they have not much to lose, I guess. There seems to be lumber coming in from other parts of the world now while we have mills being shut down.

I guess what I'm asking is, how is this thing going to be avoided with this new trade order that we're talking about? There seem to be more anti-dumping laws floating around. Are these countries going to use them as another tactic or trade barrier, even though we have these agreements in place?

What do you see, or what do you hope for, when something like this happens? Would there be someone like a bit of a judge or somebody to step in quickly and clear up these disputes?

Mr. Sergio Marchi: Thank you, and thank you for your comments.

It was good to have you as a member of the subcommittee in Geneva, and I hope you return. Sometimes we don't get enough Canadians who come through Geneva to familiarize themselves as well as make a mark on the functions there.

Softwood lumber is obviously a terribly important issue for our country--over $10 billion in exports--and you know that better than I. There are two things on the softwood issue. The first is that in Doha the United States, it must be said, played a crucial role in the overall ability to launch by exercising leadership on a number of fronts. One of them was by putting anti-dump on the table in Doha. This is quite significant because in Seattle the then United States administration refused to budge on anti-dump. They refused to agree to negotiate anti-dumping rules, to try to clarify them, so we can all play by the same rules wherever we are in the world. In Seattle it was one of the so-called issues that broke the spirit of Seattle.

Doha was very different because I think the United States administration recognized that it was inevitable, given the rise of anti-dumping cases all over the world, not only by the United States but by developing countries as well. We say there is a legitimate use of the anti-dumping countervail tools. That is to say, if countries are breaking the rules, then those are responses that are legitimate. But if they are exercised in the wrong way, then obviously they cause not only harm, they harm at huge expense--and we have seen that. The fact that they put it on the table was a huge leadership gesture, one that created the momentum that allowed us to succeed. I think the Americans deserve credit for that.

Having said that, I also believe we have a real opportunity now from a WTO perspective. We're only starting negotiations. It'll be interesting to see how they go, but we have an opportunity to clarify the rules of anti-dump and countervail. It really is a growth industry, unfortunately, but I am hopeful that in clarifying those rules we will bring a lot of clarity and therefore less frustration. Therefore, there will be less litigation, and it will be less expensive on issues like softwood lumber, which Canada has had to go through repeatedly.

The second point is that, as you know, the Minister of Trade, Mr. Pettigrew, has obviously been working very hard on this issue. I recall my predecessor, Art Eggleton, working on that. When yours truly was there, it was an issue that was on the go, but it was more manageable because we had this bilateral agreement in place. Therefore, as that has come off, it has become a huge issue.

At the WTO we have just gone to the director general because there was no agreement by the Americans on the panellists to hear our WTO case on softwood lumber. He will have to appoint them now, so we will soon start that process in earnest.

The only point is that it takes time--a panel takes six to nine months--and when we win that panel there is the possibility for the United States government to appeal. While we should use every possible tool at our disposal at the WTO for the rules, Minister Pettigrew also recognizes that there are communities in Canada that are hurting in terms of softwood lumber. That's why his efforts to try to get a WTO-plus solution so we can have a buy-in by the United States that would consistently allow predictability and a level playing field for our softwood producers....

We are going to do everything we can at the WTO, but I think the minister correctly understands that while we're doing that at the WTO, he obviously needs to keep the pressure on his counterpart in order to get the government to understand the dilemma they are causing communities in different parts of our country.

º (1625)

Mr. Mark Eyking: What do you see as a time line for these things to unfold? Will it be two years or three years? When will the next round of talks be, when we start hammering this stuff out?

Mr. Sergio Marchi: The rules, countervail, and anti-dump subsidies will be all packaged in a separate rules negotiating group, which will be one of the seven negotiating groups. We have just agreed to the structure and to the chair of the TNC.

On February 13, at our next general council meeting, it is the expectation that the chair of the council will nominate these chairs and put their names to the council. We hope we will be in a position to adopt them, because the earlier we adopt them, the earlier we can actually start the negotiating groups. I believe we can; therefore, it is simply a matter of the scheduling and the work will begin.

The ministers in Doha gave themselves a three-year time line. I said today that in WTO time, given all the issues and the consensus basis of 144 members, that is an ambitious time line. But I believe it is a time line we can achieve. It also means that ministers from around the world will have to stay engaged. I believe the evidence has shown that when we had, for example, two mini-ministerials of about 25 countries, including Canada, before Doha, it really helped converge; it really created a consensus, or a moving coalition, that ultimately helped us at Doha tremendously.

We didn't have those kinds of meetings before Seattle, so it proved to us that the engagement of ministers and finding the political will to overcome differences are important. We're going to need ministers involved and engaged in different ways in the three-year cycle.

Deciding very quickly on Mexico was important, not only because of the venue and the logistics, but because it got the minister from Mexico, who is very constructive and able, engaged early. He now also has a vested interest, as the host, in helping the process stay on track and, as it arrives at the Mexican train station, arrive on time and on budget, so it can go the rest of the distance and come in on the three-year target.

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

Mr. Marchi, before we go back to you for some closing remarks, I just want to ask a question about culture.

Where does culture sit? There's a high level of interest in the issue, and I understand that the Americans have somehow managed to push for the issue to be on the agenda. Do you have some sort of information you can share with us in the public domain on this particular, very important issue to Canadians?

º (1630)

Mr. Sergio Marchi: It is an important issue to Canadians and the Canadian government. The Canadian government has been very active--not only Minister Pettigrew, the trade minister, but also Minister Copps, the heritage minister--in ensuring that more countries understand the kind of issue culture is for Canada and all countries, in terms of being able to preserve and promote one's identity, one's dignity, one's essence, without it being seen or interpreted as a form of trade protectionism.

In that sense, the Canadian government has been pursuing the notion of creating an international instrument, by which we would give clarity and purpose to that very concept. I know both Minister Pettigrew and Minister Copps, in their meetings with their counterparts around the world, have advanced that.

We also need to say that compared to all the other issues in the WTO machinery, this is a relatively recent issue; therefore, it's going to take time and effort to move that issue. We will also have to reach out--as both ministers have--to other countries and ministers, to bring them on side and begin to share and help them understand exactly what we mean. Perhaps others have other ideas on how we can help ourselves achieve what we ultimately want from a trade and culture sense.

This is something that is very active on the Canadian government's agenda, and we continue to move it. It's a relatively new issue, given all the issues we've discussed in the last hour, but we believe it is an issue that will continue to get bigger and more important, not less. Therefore it's better to deal with it now, rather than simply allowing it to fester for a long time.

The Chair: Thank you very much.

Mr. Marchi, you have a minute or so for closing remarks, if you have any.

Mr. Sergio Marchi: Well, I don't have any closing remarks, except to say, again, I think what you are doing is valuable, particularly with the various stakeholders, as well as the private sector. Ultimately, I think what it does is show the transparency of how we conduct trade consultations.

So there are two things here. There are things we can learn from those stakeholders in the private sector to enable us to negotiate better. But ultimately, the bigger signal as well, which hopefully will not be lost on the WTO, is trying to make more transparent and open our engagement with the world's public, because seeking advice, seeking consultations, is very important. We're not talking about negotiating at the Air Canada Centre in front of 15,000 people. But up until the Air Canada Centre, I think the Canadian way has demonstrated that when you reach out to people, your bottom line is a much stronger bottom line. You are much more confident when you go to a meeting, because you know you are reflecting a consensus of people in groups and industry back home.

So I look forward to receiving your ultimate report.

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

This, in fact, is one of a number of meetings the committee will be holding. We have arranged six teams, and we will have six different panels that will appear before the committee over the coming weeks. One will be on dispute settlement reform, another will be on development, we'll have a third one on transparency, we'll have one on environment, we'll have one on services, investment, and competition, and we'll have one on agriculture. In total, we will have in excess of approximately 70 NGOs as well as stakeholders who will have an opportunity to feed into the process you have just spoken so eloquently about.

On behalf of my colleagues on the committee here, collectively and unanimously, I thank you and Mr. Stephenson, as well as your team at the department, very much. We have clearly stated collectively how proud we are of the work you are doing at the WTO.

º (1635)

º (1640)

The Chair: We'll call the meeting back to order. We're very fortunate to have with us a very distinguished individual who is going to give us his views on the second item on the agenda, which is the free trade area of the Americas. We have with us the executive director of the Canadian Foundation for the Americas, Mr. Donald Mackay.

Mr. Mackay, you have an opening statement, and then we will have some questions, and comments from you.

Mr. Donald Mackay (Special Adviser, Canadian Foundation for the Americas): Thank you very much, Mr. Chairman.

I'm not given to long speeches, so as you suggested, a brief opening statement fits very nicely with my plans and inclinations.

And thank you, members of the committee, for the invitation to appear here today.

With respect to the free trade area of the Americas, the committee set out a number questions and discussion points, and what I'd like to do is to touch on three themes that relate to that.

The first relates to the question on congruence between the process that is going on in Geneva, the WTO process, which was described to you by Ambassador Marchi, and the process of negotiating a free trade area of the Americas, which has been going on since December of 1994, when the leaders of the hemisphere launched the negotiations in Miami, Florida.

The second issue I'd like to touch briefly upon is the question of the benefits from a free trade area of the Americas, and the third is the question the committee posed vis-à-vis the obstacles that stand in the way of a possible free trade area of the Americas, for which I'd like to provide at least a partial answer, all of these being partial answers.

With respect to the first, the congruence between the WTO and the FTAA processes, I'd like to point out from the top that trade negotiations and the issues dealt with in trade negotiations tend to be very similar, regardless of what forums one is tackling the issues in. Mr. Marchi described a structure of a trade negotiations committee that will guide the Geneva-based negotiations. Ministers in this hemisphere agreed to a similar body with exactly the same name, the trade negotiations committee, vis-à-vis the FTAA.

Ambassador Marchi described that the 19 issues agreed to in Doha would be dealt with in the context of seven negotiating groups. In the free trade area of the Americas there are nine negotiating groups, and there is a great deal of crossover and convergence in terms of the issues handled in the two processes.

In the free trade area of the Americas there are special devoted groups, in addition to the nine dealing with trade issues, and there are three additional groups dealing with special issues related first to smaller economies. You'll be aware that in this hemisphere we have, in terms of the structure of the 34 countries, the 16 members of CARICOM, the five Central American republics, plus Panama. These are economies that are much smaller in size than those of their neighbours, both their trading neighbours and their geographical neighbours. Therefore, in the FTAA context it was thought prudent to have a special group that would be devoted to smaller economies. In the WTO there is a group devoted to developing countries but not to smaller economies, although that was pressed by a number of countries prior to Doha.

Again, in the FTAA there is a group devoted to electronic commerce, which I'll skip over fairly quickly, and a group devoted to civil society, which did not find its way into the final agreement to emerge from the meeting in Qatar. The inclusion of civil society, albeit at a very minimal stage and in a minimal way, is something that is unique to the western hemisphere process.

So simply to point out that when one looks at the trade agenda between now and 2005...and I note that the date of 2005 represents the end date for both processes, though perhaps it is slightly optimistic in the case of the WTO and perhaps a bit more realistic in the case of the FTAA, given that it is a process that has been effectively in train since 1994. So there are some six or seven years of solid work behind the countries in terms of scoping out the negotiations and achieving some level of congruence. I think that's an important point to note when you're looking at the future agenda in which Canada and the other countries of this hemisphere will be engaged.

º (1645)

The second point I would like to make answers the question that was not posed, but it does go the question of benefits of the free trade area of the Americas process and of Canada continuing to play a strong role in that.

There will be a number of observers who will put forward the view that, given the successful launch of the Doha Round, why would one want to continue with the free trade area of the Americas negotiation? Are you not doubling up? Are you not falling into the danger of covering the same area twice?

That is an issue that I think bears some level of detailed study. I'd like to preview what the conclusions of such a study would be, however, at least in my view, which is that both processes should continue. They should continue to be separate, but Canada should certainly continue to pursue the hemispheric one with as much vigour as it pursues the multilateral negotiations.

Within the WTO, the objective, of course, is to lower trade barriers. Within the free trade area of the Americas, the objective is to eliminate trade barriers. This is, in fact, a requirement under the famous article XXIV of the original GATT, which I presume many witnesses before this committee will quote to you at length.

Simply said, there are benefits to Canada and to the other countries of the hemisphere in continuing the negotiation that is hemispherically based, and don't put all the eggs in the basket that is held in Geneva.

Past experiences in the previous eight rounds of GATT-WTO trade negotiations have shown us that one of the tendencies of multilateral negotiation is that when you get down to the final elements of the negotiation, the issues tend to be those that are high on the agenda of the United States, the European Union, Japan, Canada--the quad members.

Within the western hemisphere you have a balance in the sense that, of course, the United States is the single largest entity in this hemisphere, but the smaller countries that are participating have an opportunity to put forward their concerns. Those concerns are not always well reflected in Geneva, with its 142 members, as opposed to this hemisphere, with its 34 members.

Finally, the members of the committee put forward the question seeking to preview where some of the obstacles may lay in the future of a free trade area of the Americas. I would say that the singular obstacle of significance will be a question of how well the United States and Brazil can work together when the FTAA process approaches its end game.

You will be aware that in the ministerial meeting in San Jose in 1998, where the structure was set out for the negotiations, it was decided that the chair of the process for the final phase of the negotiations would not be a singular country, as had been the procedure prior to that, but that responsibility would fall on co-chairs, those being Brazil and the United States.

Brazil seeks access to the United States market, most particularly for its agricultural produce. This is an area within the U.S. that is subject to the highest level of effective protection.

º (1650)

Quite frequently, tariffs at the border may be low on particular products, but effective levels of protection in the agricultural sector are extremely high in the United States. They are high elsewhere. They are high here in Canada. That represents the number one issue that the Brazilians want from the U.S., and that will be their sine qua non for engagements with the United States. So the management of that bilateral relationship is the key issue, I believe, as these talks come to the end.

Your question had a subtext to it: what can Canada do to help overcome those obstacles? On that issue I'm afraid I do not have anything that would approach even my own definition of wisdom. This is something, I think, that needs to be worked out between our friends in the United States and our friends in Brazil. I'm confident they will. But if you're looking for a potential trouble spot in the future, in my view that would be it.

Mr. Chair, I hope that satisfies at least an opening curiosity on behalf of the committee, and I'm at the disposal of yourself and your colleagues. Thank you.

The Chair: Thank you very much, Mr. Mackay, for your comments.

Mr. Casson, do you have a question?

Mr. Rick Casson: Thanks, Mr. Chairman.

If the U.S.A. and Brazil can't come to some agreement to move forward with the other members--34 in total, you mentioned--and one or the other of those two countries isn't a participant, what would happen? Would that then make the whole thing useless?

Mr. Donald Mackay: It's an interesting scenario, sir. The answer is in the affirmative in one instance and a possibility in the second instance. The United States represents 85% of all of the economic activity in the western hemisphere. Of the $9.5 trillion in total GDP for the western hemisphere, the United States is about 85% of that. If the U.S. doesn't play, there's no game. Brazil is the largest country in Latin America, with a population of 160 million people. The second largest, of course, is Mexico, with slightly more than 100 million. If at the end of the day Brazil were to say, thank you very much, chaps, it has been a very good run but we've decided not to participate, I think it would probably unravel an entire FTAA. It would be a major crisis in both cases, sir.

Mr. Rick Casson: What about some existing irritants we have? We seem to have ongoing ones with the U.S. at various times. As mentioned by other witnesses, softwood lumber is a concern right now. Also, Canada's relationship with Brazil has been somewhat rough in the last few years. Are these things going to be workable, or are they going to cause rifts right from the start? How are we going to get past some of these issues?

Mr. Sergio Marchi: Some of them will be solved in the negotiations, sir. New ones will arise that we don't yet know about.

Mr. Marchi did not go into the history of the softwood lumber dispute, but it actually dates to 1875 or 1876--the 1870s somewhere. That particular issue has bedevilled Canada-United States relations since the founding of this country. We have found at various times modalities to deal with it. We've bought temporary truces. We have had ongoing negotiations, that sort of thing.

In any trading relationship there will always be some level of difficulty, some level of disagreement, because at the end of the day, a trading relationship is one in which two or more countries have decided upon a set of rules. Reasonable people, reasonable countries, will disagree from time to time on the interpretation of those rules. Therefore, one strives to have a quick and effective dispute settlement mechanism that will allow for some sort of interpretation of the rules.

Nevertheless, you'll certainly be aware that there are issues that constituents hold extremely dear to their hearts. And issues that should not lead to disagreements between countries frequently do.

You mentioned ourselves and Brazil. This, of course, is the question of Bombardier and Embraer, two very large, very successful aircraft companies. At the moment, and probably for the foreseeable future, the relationship of the Canadian government to Bombardier and the relationship of the Brazilian government to Embraer are each more important to those two governments than the relationship of Canada to Brazil. I suspect strongly that for a long while that dispute will continue to bedevil the two countries.

But I would point out, sir, traditionally, for those people who like to run the numbers--and there are lots of people out there who do--they will tell you that the trade disputes involve roughly 3% to 4% of what is actually traded on a day-to-day or annual basis among countries. The good-news story is that 94% to 95% of what Canada trades into the United States and vice versa goes back and forth every day without any difficulty whatsoever. The remaining 5% to 6% keeps civil servants--as I used to be--employed and appearing before committees such as yours.

I don't want to make fun of it. These are serious issues. But I think it a little unrealistic to expect that a singular trade negotiation or agreement will solve for all time all of the disputes that will come up. Some will be obviously much more critical than others in magnitude and standing.

Mr. Rick Casson: Thank you.

º (1655)

[Translation]

The Chair: Mr. Rocheleau.

Mr. Yves Rocheleau: Good afternoon, Mr. Mackay. I thank you for your statement.

Before I get to my question, could I ask you to tell us in a few words what the role or the mission and the scope of the Canadian Foundation for the Americas is?

[English]

Mr. Donald Mackay: Merci, monsieur.

The Canadian Foundation for the Americas was established some 11 years ago. It was established at the time the Canadian government made a decision that it was going to engage in the Americas in a very major way over a protracted period of time.

Canada in 1990 decided we would finally join the Organization of American States. We decided to expand our physical presence in Latin America and the Caribbean through our embassies. Canada became more involved in the hosting of meetings, the most recent of which, of course, was the Summit of the Americas in Quebec City.

At that time it was decided there was no singular institution in Canada that was a policy institute, a think-tank, focused exclusively on studying the issues of the western hemisphere.

FOCAL, which is the acronym for the Spanish Fundación Canadiense para las Americas, was created in 1989. We have always remained a very small establishment, sir. We are 13 or 14 full-time professionals organized geographically, so I have staff who study the southern cone countries, the Caribbean, Central America, etc.

Simply to wrap up, we publish approximately 10 or 12 policy papers a year. The next one, which is in the pipeline, is a paper dealing with the leadership of Hugo Chavez in Venezuela. We also organize some six or seven conferences each year. For example, we cooperate with the Conférence de Montréal. Last year it was in April, and this year it's going to be in June. We will put on a panel at that time.

We are a very small entity. We work only on Latin America and the Caribbean, and our focus is to provide policy-relevant information and we hope, from time to time, advice.

» (1700)

[Translation]

Mr. Yves Rocheleau: What is your view on the Structural Development Fund advocated by President Vincente Fox and supported by the Government of Québec, the Bloc québécois during their visit to Mexico and a number of Quebeckers concerned? Do you believe it is a good concept? It is based on the European model of assistance that was used to help some of the weaker countries at the time.

[English]

Mr. Donald Mackay: In my view, it is often all too easy to reach for the European model to guide policy development in North America. Your point of departure for any analysis has to be the fact that the European Union evolved as a consequence of a particular set of historical issues and particular sets of economic issues. That's not to say that President Fox is wrong. It's simply to say that if you're going to design something for North America, I personally don't understand why you would go to Europe for a model to do so. The European Union grew out of the two world wars of the 20th century. It grew out of a need to bring Europe together and to stop its countries' propensity to slaughter each other every generation. That was its main raison d'être.

There is no doubt that Mexico, by joining with Canada and the United States in the NAFTA, has set for itself a course that in the long term will help it to develop. Parts of Mexico will always remain poor, I think it goes without saying, or they at least will remain poor for the foreseeable future I will be around. Nevertheless, the strides it has taken simply since the conclusion of the NAFTA negotiations are astounding. It has displaced Japan as the second largest trading partner of the United States. It has increased its exports phenomenally. Mexico went through the crisis in 1995 and rebounded in a shortness of time that was astonishing if you look at historical precedents.

I don't think you judge the value of a fund simply on its existence or its absence; you judge it on what its objectives are. With the greatest respect to President Fox, he and his colleagues have not yet fully fleshed out their vision for what the fund would do, how it would actually operate, and what sectors it would focus on. There is already a North American Development Bank in operation that is designed to mitigate the circumstances along the border between the United States and Mexico. That was part of the NAFTA arrangement, though President Fox's vision is a larger one, I grant you.

We will in fact be hosting a conference in two and a half weeks to examine many of these issues, and Andres Rosenthal, who is the former deputy foreign minister of Mexico, will be coming up to discuss this. He's Jorge Castenada's half-brother, incidentally, so even though he's no longer in office, he has access to the highest thinking.

I believe the issue needs additional study, sir, and we should ask our Mexican friends for greater precision on their thinking.

If I may try the subcommittee's patience for just one quick moment more, I would also urge in this respect that Canadian government officials and Canadian political leaders be asked to address this issue. The Canadians have been remarkably silent on a number of these Mexican initiatives, and it has really been Mexico pushing a trilateral agenda whilst the Canadians have remained more focused on a bilateral agenda. We are perhaps too worried that Mexico may displace us in Washington as a friend, ally, and confidant of the United States. I personally do not fear any displacement on that front. Canada has proven itself more than is necessary.

» (1705)

[Translation]

Mr. Yves Rocheleau: For your information, I will say that the mission met with Mr. Rozenthal in Mexico City.

Do you think the situation in Argentina may slow down the negotiations and have a negative impact on the agenda?

[English]

Mr. Donald Mackay: Poor Argentina--not with humour but with a great deal of affection.

Argentina emerged from the Second World War as the seventh-richest country in the world. At that time, Canada was somewhere in 30th place. Today Argentina ranks around 60th on the United Nations scale. Canada, of course, is in the top eight.

It is a very rich country. Argentinians are industrious, smart, active, imaginative people. Argentina has a great deal of resources and has suffered under bad management for far too long.

I do not believe the current difficulties in Argentina are anywhere near their conclusion. I also personally believe that the move to de-link the peso from the dollar or from a stable currency has removed the last island of stability in that economy. This is a country we need to pay attention to very carefully, because things could go very wrong extremely quickly.

Argentina has much to contribute. It has 40 million people. It is a major power within this hemisphere, there is no doubt. Trying to anticipate what will happen between now and 2005 in Argentina, when I couldn't tell you with any degree of confidence what is going to happen next week, I'm afraid would be more arrogance on my part than is called for. We need to keep a very close eye on it, but I honestly cannot tell you, sir, in which direction things are going to go.

The Chair: Mr. Eyking, and then Mr. Speller.

Mr. Mark Eyking: Mr. Mackay, you alluded to size and the efficiency of the U.S. economy in the whole scheme of things. We were talking about Brazil a bit, where they could lose a lot of ground on the agricultural side because the Americans are pretty big and efficient.

What do Brazil, and even Central American countries, really have to gain if the thing starts becoming wide open? Where can they find their niche in this economy? Sometimes I think maybe they'll just become glorified tourist destinations, or these big American companies will produce bananas and products down there.

This might be a pretty big question, but where are these countries going to find niches where they'll be able to compete and grow their economies, instead of being little satellite peasant countries of the American economy?

» (1710)

Mr. Donald Mackay: I understand your question, sir. It is one that I'm sure, let's say, 28 out of the 34 countries in this hemisphere wake up asking themselves every morning--the 28 being the smaller of the countries around. They look north at the United States--260 million people, a $7-trillion economy, with the quickest, most efficient, shortest time between idea and market of almost any economy in history. They must wake up and scratch themselves on the head and say, my God, there's just no way we can compete with those guys, either on a question of size or on a question of resources, or on a question of even subsidies.

The difficulty the countries in the hemisphere and the countries around the world face--and this is an issue that Canada confronted in the late 1980s and I think came to some sort of general understanding--is the point that you really don't have any other options.

The United States, at 85% of the economic activity in this hemisphere, represents a threat, yes, but it also represents the best opportunity you could possibly have. If in the context of an FTAA you have preferential access to the U.S. market, that gives you a leg up on your European, Japanese, and Asian competitors. That has to be the driving force for the rest of the countries within the hemisphere, because at the end of the day there really is no other alternative.

Trade barriers have been falling since the institution of the GATT in 1948. At the global level, the growth in trade has by far outpaced global economic growth due to non-trade reasons. We've seen here in Canada how much we depend on countries with open markets. It is our life-blood.

Those figures do not pertain to the same degree to countries like Brazil or Argentina yet, but they are headed in that direction. It's perhaps a simple answer to say that the writing is on the wall, but honestly, it's really not that much more complex than that. Where they hope to gain some advantage, the majority of their advantage, is in the agricultural sector--not exclusive, but that is of key concern to them.

Mr. Mark Eyking: On that, it seems that maybe Canada took a lot of the pain earlier than these countries, such as in the 1990s when we saw plants closing--windows closing, but opportunities opening.

So do you see that maybe they're going to have a little bit of an adjustment time, or there's going to be crying in the streets or whatever you'd call it, and then, all of a sudden, there are going to be emerging things happening?

Being that Canada has gone through that, maybe our part is to help them as much as we can with that transition.

Mr. Donald Mackay: I apologize, sir; that was the second part of your question, which I didn't answer.

There's no doubt that when you remove instruments of protection--an instrument of protection can be a subsidy, a tariff wall, a regulatory requirement, a standard, all kinds of stuff--and allow the signals of the market to operate--please don't take my use of that phrase to put me on the far right-hand side of the spectrum--there will be adjustments. That goes without saying.

Brazil started the 1990s with an effective tariff rate of about 34%. In the context of MERCOSUR, which is its regional grouping with Argentina, Uruguay, and Paraguay, they have brought their effective tariff rate down to about 14 percentage points. Canada's effective tariff today is probably no more than 1.5% globally, or 2% on the outside. Tariffs no longer represent a method of Canadian governments protecting Canadian industry.

Yes, there were dislocations, and that dislocation is very difficult. It's very difficult for a 55-year-old iron worker to go out and re-engineer--to use a buzzword of the 1990s or the 2000s--himself or herself as a computer operator. For many, it is actually impossible to do. Again, though, in the long term there really is no other alternative. What a country will do is devise and craft its trade policy so as to support those sectors that will gain in the future and will soak up the young unemployed. A wise government, of course, will put in place transition mechanisms to help those who are displaced, and many are displaced.

I am a believer in trade liberalization. I am not so silly as to assume that it has no effect. It does, and for many individual people, that effect is quite devastating. But I still think it is the right thing to do.

» (1715)

The Chair: Mr. Speller.

Mr. Bob Speller: Thank you very much, Mr. Chairman, and thank you for coming forward today.

Mr. Mackay, I'm wondering if you could tell us if you're comfortable with the Canadian negotiating position on the FTAA. Are there changes you would like to see there that would better reflect your individuals and groups?

Mr. Donald Mackay: Thank you for the question, sir.

As a broad answer, I'm quite comfortable with the Canadian position. I think we will be driven politically to maintain protection in the areas of agriculture and textiles, which we should not be doing. I believe there are strong economic arguments for us to move back from those protective mechanisms. There are good policy arguments to be made. There are efficiency arguments to be made. The difficulties we run into are geographically concentrated areas of particular types of agricultural production. That's about as obtuse as I can be for some of the issues Mr. Marchi mentioned.

Mr. Marchi was talking about the protection of Canada's supply management system, as an example. This was protected under what was the old article XI.2(c) of the GATT.

I am a former Canadian trade negotiator. I was involved in the NAFTA negotiations, and I have defended these industries and sectors with all the vigour that I was supposed to, for which I was paid.

Canadians are very effective trade negotiators. They should not be in some areas. Let me give you an example. If we protect the dairy industry, we have almost by definition protected an industry that is inherently inefficient. Canadians pay twice the price for milk as do our American colleagues. The Americans are not clean; they pay twice the price for sugar as the rest of the world does. Everybody has these hidden things.

But if your dairy industry charges prices that are twice the real cost, your secondary industry is equally hampered, for example, frozen pizzas. You'll be aware, for example, that the McCain family moved many of their processed food operations out of Canada because their primary inputs were priced above the market level.

I'm not one who is arguing for the destruction of the family farm, or the move to corporate farming in the Eastern Townships or anything of that sort. I'm simply saying if we're going into this hemisphere and saying to these countries that they need to lower their tariff barriers, their trade barriers, but the two areas where they are competitive--agriculture and textiles--we are going to continue to protect....

Canada is a G-7 country. We are a fibre-optic country. We are protecting the textile industry, which is the industry that launched the industrial revolution 300 years ago. It's time for us to move on from that particular industry and allow those who do it cheaper, who do it better, who do it more efficiently, to use it as a leg up to further industrialization, just as we did 100 years ago.

I apologize. It sounded like I was preaching, and perhaps I was, sir. But you ask if there are areas where Canada's position troubles me, and for the moment, since I'm no longer in government and I can say these sorts of things, those are two that do trouble me.

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Mr. Bob Speller: I think what you've done, though, Mr. Mackay, is confirm what some of us around here have always thought, that our trade negotiators weren't always fully supportive of the government's position with regard to supply management. Maybe that's one of the reasons why we have some trouble sometimes in these areas.

I'd be interested, though, in knowing who it is you represent. I'm somewhat surprised that some of the groups that I thought you represented would take a position against supply management. I would have thought, from who I thought you represented, that these sorts of people would be in favour of rural Canada and keeping our rural communities active when other commodities are gone.

Are you just talking for yourself, other than being a former trade negotiator, or are you actually representing those who sent you here?

Mr. Donald Mackay: No. What we are, sir, is a policy institute, a think-tank. We do not claim to represent anybody. I would not come before you and say I have 100,000 faceless individuals behind me. I have a policy staff of 13 people, whom I can name and bring before the committee. But I make no claims about representing anyone in that sense.

We look at issues and try to come up with what we think is a balanced approach. If we're going to go into the western hemisphere.... Perhaps we're going into Jamaica to say it has to drop its tariffs on automotives and on BlackBerries, and the Jamaicans come back and say that's fine because they don't produce cars and BlackBerries; they'll drop their tariffs on them. Then they say we have all this very complex stuff, tariffs on fabric and yarn in the textile areas, quotas we've been hammering them with ever since the multi-fibre arrangement of the 1960s, while they still can't get their sugar or confectionery items or fresh fruits and vegetables into our country, and what are we going to do for them? If we don't have an answer for that, at least philosophically, I think it's going to be hard to keep these countries engaged in these negotiations. I think that for everybody to walk away from them feeling good, everybody has to benefit.

Last, on the question of appearances, I wear cowboy boats but I've never ridden a horse in my life, sir; things aren't always as they appear.

The Chair: Thank you. I noticed you have a pair of boots.

On behalf of my colleagues, I want to thank you for your frankness and your efficient presentation, as well as for your direct answers to the questions raised by the committee.

Please, if you do have some suggestions or some answers to the questions we have sent out to you, it would be exceptionally timely if you were to send us something in writing on those questions. Then at least we will be able to draw on some of the suggestions in your comments when we formulate the position of the committee on this issue.

With this, colleagues, I want to thank you very much. And I want to thank the translators, who have done a marvellous job today as usual, and all of the clerks and the assistants and everybody else. We will adjourn.