SINT Committee Meeting

37th PARLIAMENT, 1st SESSION

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

EVIDENCE

CONTENTS

Wednesday, March 13, 2002

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1605

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

Mr. Jim W. Knight (Executive Director, Federation of Canadian Municipalities)

º

1610

Mr. John Burrett (Senior Analyst, Federation of Canadian Municipalities)

º

1615

The Chair

Mr. Mathew Wilson (Director, Trade and Commercial Policy, Canadian Manufacturers & Exporters)

º

1620

Mr. Mark Boudreau (Senior Director, Policy and Research, Canadian Manufacturers and Exporters)

º

1625

º

1630

The Chair

Mr. Rick Casson (Lethbridge, Canadian Alliance)

º

1635

Mr. Jim Knight

Mr. John Burrett

Mr. Rick Casson

Mr. Jim Knight

º

1640

Mr. Rick Casson

Mr. Jim Knight

Mr. Rick Casson

Mr. Jim Knight

Mr. Rick Casson

Mr. Mathew Wilson

Mr. Rick Casson

The Chair

M. Laframboise

M. Jim Knight

The Chair

º

1645

M. Laframboise

Mr. Jim Knight

M. Laframboise

Mr. Jim Knight

M. Laframboise

Mr. Jim Knight

º

1650

M. Laframboise

º

1655

Mr. Jim Knight

The Chair

Mr. Mark Boudreau

The Chair

Mr. Tony Valeri (Stoney Creek, Lib.)

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

»

1700

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

The Chair

»

1705

Mr. Mark Boudreau

The Chair

Mr. Jim Knight

The Chair

Mr. Mark Boudreau

The Chair

Mr. Tony Valeri

»

1710

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Tony Valeri

Mr. Mark Boudreau

Mr. Mathew Wilson

The Chair

Mr. Jim Knight

The Chair

Mr. Mathew Wilson

Mr. Tony Valeri

Mr. Mathew Wilson

Mr. Tony Valeri

Mr. Mathew Wilson

Mr. Tony Valeri

Mr. Mathew Wilson

The Chair

Mr. John Burrett

»

1715

The Chair

Mr. Peter Berg (Committee Researcher)

Mr. Mark Boudreau

The Chair

Mr. Mark Boudreau

The Chair

Mr. Mark Boudreau

The Chair

Mr. Mark Boudreau

The Chair

Mr. Mathew Wilson

»

1720

Mr. Mark Boudreau

The Chair

Mr. Mathew Wilson

The Chair

Mr. Mark Boudreau

The Chair

Mr. John Burrett

The Chair

»

1725

Mr. John Burrett

The Chair

Mr. Tony Valeri

Mr. Mathew Wilson

The Chair

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CANADA

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

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NUMBER 025

l

1st SESSION

l

37th PARLIAMENT

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EVIDENCE

Wednesday, March 13, 2002

[Recorded by Electronic Apparatus]

º  (1605)  

[English]

    The Chair (Mr. Mac Harb (Ottawa Centre, Lib.)): We have a quorum, and I want to welcome our witnesses today and apologize for the delay in starting. It's four o'clock. We have with us a number of witnesses: from the Federation of Canadian Municipalities, Mr. John Burrett, as well as Mr. Jim Knight; and we have Mr. Mathew Wilson, chief economist for the Canadian Manufacturers & Exporters, as well as Mr. Mark Boudreau, the senior director of policy and research.

    So without any further delay, why don't we start with the Federation of Canadian Municipalities. Mr. Knight, would you like to take the floor.

    What I thought we'd do was do the presentations first and then open it for questions and answers.

    Mr. Jim W. Knight (Executive Director, Federation of Canadian Municipalities): Well, thank you, Mr. Chair, and thanks to the committee for hearing us. We do know that today was a special day for Mr. Herb Gray, and the slight delay is not an inconvenience.

    FCM is of course a national municipal organization. I'm the CEO, and John Burrett is a senior policy analyst. I want to start by saying that we are a very pro-trade organization. Our municipalities depend on trade. Economic development is a prime focus of their concern, and we know that Canada is a heavily trade-dependent country. We also believe in municipal prerogatives and powers, and we believe that municipal government should have choices. Our concern is that some of those powers and some of those choices could be eroded in trade agreements if we're not a little careful.

     We submitted a formal brief a few days ago, but I'm going to talk a bit informally about an event that occurred last year in Vancouver. This will help the committee understand how trade agreements can have an effect in communities even now and can cause municipal choices to go in directions that weren't anticipated.

    On June 28 last year, the Greater Vancouver Regional District abandoned a plan to launch a “design build and operate” process for a major water plant in the lower mainland. The process had been underway for some time and about $1 million had been invested, but as a result of questions raised in public hearings, the Greater Vancouver Regional District decided it could not go ahead.

    The main questions had to do with the General Agreement on Trade in Services. The Greater Vancouver Regional District wanted to argue that the GATS was not a problem and they cited article I, which excludes services supplied in the exercise of government authority. The exact words are:

—any service which is supplied neither on a commercial basis, nor in competition with one or more service suppliers.

    The GVRD argued that even if this article were found not to apply, other articles of GATS would facilitate the public-private partnership, particularly article XIII, which provides that other articles do not apply to:

— laws, regulations or requirements governing the procurement by governmental agencies of services purchased for governmental purposes and not with a view to commercial resale, or with a view to use in the supply of services for commercial sale.

    These words raised questions in public hearings, and I want to briefly characterize the kinds of questions that were raised. The GVRD officials were asked whether the fact that the design-build-and-operate process--which I will call the DBO--would involve a commercial company operating the filtration plant for a profit would make it a commercial operation. Would the fact that there was at least one municipality within the GVRD that was not served by the GVRD and that acquired its water locally from a private company create a competitive situation? These were all words taken from the definition in the GATS agreement.

    Would the fact that areas on the eastern edge of the district still served by well water could choose to be served by either an extension of the GVRD system or an extension of the adjoining Fraser Valley system create a competitive situation? Again, those were words from the GATS agreement.

    Would the fact that the water supplied by the GVRD was sold to local municipalities, which in turn sold it to their residents and businesses, some of which then used this water in the production of commercial goods--for example, in breweries or perhaps bottled water companies--make water a good for resale?

    In addition to the member municipalities of the Greater Vancouver Regional District, the region supplies water to other entities and, very interestingly, sells water to the United States--to the community of Point Roberts across the border. Does this suggest we're out of the realm of government services and into commerce and international trade because the water is sold internationally?

    Would the fact that water was a commercial commodity elsewhere in the world mean that water could be deemed a commercial good, regardless of local circumstances and culture?

    Generally, we have made comments about the vagueness of wording. I've cited the wording and indicated how various questions are raised by that wording.

º  (1610)  

    GVRD officials stressed that Canada had made no specific commitments regarding water supply or water treatment under GATT, and that if it did in future these commitments were not likely to be retroactive. But the question this posed to the board of the GVRD--to the elected council, effectively--was could it be sure that Canada would not include water in the next round of commitments in the event of pressure from Europe? And if Canada did, how could the GVRD guarantee or be sure that this would not have retroactive effects?

    The officials underlined that their project was designed with escape routes along the way that would allow the board of the GVRD to reassume operational responsibility if it deemed it appropriate to do so. But the public posed questions like these: could the GVRD be sure that, once it had opened up water operations to the private sector in a competitive process, it would be able to re-establish public sector monopoly without being challenged? Could it be sure that, by offering the filtration plant for private operation, it would not be challenged for maintaining a public sector monopoly in other elements of the water system?

    Finally, critics noted that while the WTO website first gives assurances that services like water are not being targeted, there is reference to the potential limitation and that regulation should be “least burdensome to trade”. This raised the question, could the Greater Vancouver Regional District be sure that a private international operator could not use this phrase, “least burdensome to trade”, to challenge any health, environmental, or other regulation the GVRD board might, in its discretion and in view of what was in the public interest, choose to impose?

    There was also much public comment about the “secret tribunals” and the fact that Canada, not the GVRD, would carry the case in those tribunals. The implied question was, how can the GVRD be sure that Canada will fully represent the GVRD's interests and not reach some compromise where the public interest in water is compromised or sacrificed for some other objective or higher priority of federal negotiators?

    So I offer this as the situation of an elected council in Canada wishing to develop a public-private partnership but being faced with questions that its lawyers could not answer with surety and, therefore, taking a decision to abandon the public-private partnership. I want to express our gratitude to Minister Pettigrew and officials from his department for their openness to consultation on these questions. We have had many useful exchanges and we have future ones planned. But we remain somewhat short of sure answers. We recognize the dilemmas faced by officials negotiating in an international context, but we are here as advocates of municipal interests that we don't want to see compromised.

    My colleague John Burrett will cover very briefly two or three other areas where questions arise from international trade agreements in respect to municipal powers.

    Mr. John Burrett (Senior Analyst, Federation of Canadian Municipalities): Thank you.

    We've had the opportunity, as Jim has explained, to talk with the department about a real range of trade agreements and the kinds of effects they might have on municipal governments. Our questions run the gamut from trade in services, where municipal governments traditionally provide or regulate services covered by the GATS, which will be the model for most the FTAA provisions on services.... There is still lingering concern on the NAFTA investment chapter, of course, which is significant mainly because it empowers private corporations to seek compensation from nation states.

    On procurement, while we are not covered by the Agreement on Government Procurement now, that agreement would appear to conflict with the use of purchasing power by municipalities in Canada to promote economic development and environmental products. So movement toward coverage under the WTO AGP is something we would like to understand better.

    On subsidies, the WTO subsidy rules prohibit the use of subsidies that are directly connected to export promotion or use of domestic content. It's important that we find a useful way to safeguard municipal and provincial subsidies for purposes such as compliance with environmental standards and development of distressed areas. Municipal governments often contract for environmental services, such as refuse collection and snow removal. These are covered by Canada's commitment to the GATS under market access. So we have questions on that, and we would like to have secure answers.

    We would like to have secure answers around the implications of zoning. Changes in municipal zoning can happen through fairly abrupt municipal council decisions. We've been assured that good faith actions will not trigger actions, so we would like to be sure what is acceptable to be viewed as a good faith process.

    On water standards, we would like more information on what could happen if there were a disagreement about the technology that could deliver a given water standard, even if the water standard itself wouldn't be pursued.

    Municipal governments provide many kinds of services that are routinely supplied on a commercial basis as well, such as solid waste management, drainage, building inspection, planning regulations, regulation of signage, transit, transportation, infrastructure, libraries and schools. We would simply like to understand the extent to which these would be covered, and treated as covered. Water supply is a very important part of that question.

    On investment and NAFTA chapter 11, for instance, we really need to understand what violates a minimum standard of treatment, what is seen as good process, what is transparent enough that we wouldn't be seen as somehow being guilty of triggering an international action for something that wasn't in good faith.

    On the likelihood of pursuit by the Government of Canada of a municipality that might have triggered a trade action, while we have been assured by the department we would not likely do something that would cause a foreign government to launch a trade action, it is possible that with increasing judicial acceptance of municipal decisions, investors might look more to trade tribunals for damages rather than going to the domestic courts. We have supplied some examples of that and are looking forward to the answers. Again, we stress that municipal policy can change with a single council vote, and this shouldn't be viewed as acting in bad faith but as simply acting in normal governance.

    We need, in summary, a clear account of what kinds of obligations would be there for municipalities and under what circumstances the federal government would pursue a municipal government for an amount it might have had to pay for something a municipal government had done.

    Our bottom-line request of the department at this time is for written confirmation that the Government of Canada will not pursue for compensation, and will indemnify and hold harmless municipal governments from the implications of trade tribunal decisions they may trigger, so long as their actions have been valid under domestic law.

º  (1615)  

    The Chair: Thank you very much.

    Would Mr. Myers like to start, or Monsieur Boudreau?

    Mr. Mathew Wilson (Director, Trade and Commercial Policy, Canadian Manufacturers & Exporters): Thank you.

    My name is Mathew Wilson of Canadian Manufacturers & Exporters. Thank you for inviting us here today.

    I am not the chief economist. Jayson Myers, who is still with us, is the chief economist. We apologize for not changing witness names ahead of time. It was a last-minute decision.

    Canadian Manufacturers & Exporters, whose members account for about 75% of Canada's manufacturing output, 90% of its exports, and about 2.4 million jobs across the country, is pleased to present its views on negotiating issues for the current round of WTO discussions.

    Canadian participation in the development round of WTO negotiations is of prime importance to Canadian Manufacturers & Exporters. Canadian businesses have a greater stake than ever before in the rules in governing international trade and investment. Canada's exports of goods and services have doubled in constant dollar terms since 1989, the year the Canada-United States Free Trade Agreement came into effect. Exports are growing at approximately three times the rate of the Canadian economy as a whole, and manufacturing production, which is today primarily export based, is growing at about twice the pace of Canada's GDP. The Canadian economy is becoming increasingly dependent on open and secure access to world markets.

    Recognizing the importance of a rules-based multilateral trading system to the continued expansion of world trade, to Canadian industry, and to Canada's national economy, CME strongly supported the launch in Doha of a new round of WTO talks that would focus on reducing trade barriers and distortions to international trade in order to raise the living standards of both developed and developing nations.

    CME agrees with the government's position on the WTO and the overall objectives of the new round of negotiations. Given that the WTO ministerial took place during a period of uncertainty following the events of September 11, which exasperated the worldwide economic slowdown, CME was also looking to a successful launch to send a clear signal that the global economy was not turning inward, and to restore confidence in global institutions.

    At the same time, CME stated that, should a new round of WTO talks be launched, its members would seek a more ambitious agenda that included competition and investment policy, opening markets for services, government procurement, and reducing protection in agriculture. We are pleased to see that the new round of multinational trade negotiations, set to be concluded by 2005, will be broad in scope and include these agenda items.

    Perhaps the most important part of the current negotiations is the involvement of and relationship to developing countries. As noted by Canada's Minister for International Trade:

—the Doha final declaration places the developing world at the heart of WTO negotiations.

It recognizes that poorer and developing nations warrant unique attention, including special and differential treatment that helps developing countries through the transition to open trade.

    At the urging of African ministers, the WTO is establishing a working group to examine the interconnections among trade, debt and finance. The declaration also stressed the critical need to provide developing countries with the tools and training to help them participate in the global trading system and reap the full benefits of trade liberalization.

    CME believes that the start of the current round of multilateral trade talks, which comes at a time of global economic slowdown, will play an important role in promoting the recovery and growth of the economy. As stressed by WTO Director-General Mike Moore, “trade enhances consumer choice, raises national incomes, and gives signals for an appropriate allocation of resources, thus promoting employment, development, and growth”. The Canadian government must ensure that the public recognize and understand this important link, that increased trade liberalization leads to greater development.

    The WTO and its forerunner, the GATT, has served Canada well. Like the Canada-U.S. Free Trade Agreement and the North American Free Trade Agreement, the WTO provides a stable, liberal, predictable rules-based environment built on previous negotiations.

    Not only have Canadian exports been growing rapidly over the last decade or so, their competition has been changing as we move forward towards a knowledge-based economy. While commodities such as grains, minerals, and timbers continue to play an important role in our merchandise exports, Canadian companies providing specialized services in the environmental, financial, and engineering fields are fast becoming world leaders. As well, Canadian firms are already well established as global leaders in telecommunications, aerospace, computer software, biotechnology, and environmental technology, among the other sectors. As a result, more than two-thirds of Canadian merchandise exports are now in non-resource categories such as machinery and equipment and other high-value products.

    At the same time, Canadian companies are investing abroad, locating and expanding their operations in other countries. The flow of direct investment out of Canada will create export opportunities of the future. It also gives Canadian business an important stake in ensuring fair and non-discriminatory treatment for their investments in external markets.

º  (1620)  

    This trend, however, has led to an increase in imports into Canada. We should not fear competition in Canada. When goods, services, and capital flow over Canadian borders without interference, Canadians are able to take full advantage of the international marketplace. They can buy the best goods and services the world has to offer, they can sell to the most promising markets, they can choose the best investment and partnership opportunities, and they can tap into a worldwide pool of capital.

    I'll now turn to Mark Boudreau, who will talk about some of the detailed priorities you asked us to comment on.

    Mr. Mark Boudreau (Senior Director, Policy and Research, Canadian Manufacturers and Exporters): Thank you.

    The priorities of Canada's manufacturers and exporters can be grouped into two categories. The first includes issues that directly impact on the ability of Canadian firms to compete internationally, while the second groups together broader issues that will strengthen the multilateral trading system and the WTO as an institution.

    With respect to agriculture, the WTO negotiators must seek a global agricultural market that is free of production subsidies and trade barriers. There is no reason agriculture should be treated differently from the manufacturing or service sectors. Negotiators should seek to cut global agricultural tariffs in half and the highest tariffs more sharply, with the goal of eventually eliminating all agricultural production subsidies. In addition, they must eliminate export subsidies and production-distorting subsidies and allow the peace clause to expire in 2002 so that agricultural subsidies are exposed to the full WTO disciplines.

    Another priority is tariffs. After all the Uruguay Round commitments are phased in, average tariffs on manufactured goods will be approximately 3.8% in industrialized countries. In contrast, many developing countries continue to impose high tariffs on a wide range of manufactured products. For example, in India the average tariff is about 35%.

    However, developed countries can demonstrate leadership by eliminating all non-agricultural tariffs below 5% and substantially reducing all higher tariffs. In addition, they should reconfirm the commitment of the advanced economies to fully implement the agreement on textiles and clothing by 2005. In addition, for less developed countries whose exports represent less than 1% of global trade, rich nations should grant preferential treatment to their exports.

    Anti-dumping abuses are becoming an increasingly serious problem for the trading system. Negotiators must overhaul the WTO anti-dumping code so that domestic fair trade laws cannot be used as a tool for protectionism. At the very least, dumping needs to be redefined so that duties are imposed only when market-distorting practices--for example, trade barriers or subsidies in the exporting market--are clearly identified.

    Another priority is services. Trade in services is the fastest growing segment of world trade. However, liberalization of service transactions poses rather different challenges than does liberalization in the goods area.

    Barriers to trade services are present in national economies in the form of domestic law and administrative practices. For example, an accountant in Canada may not be able to offer his or her services in another jurisdiction because that country has a visa requirement or regulatory procedures that restrict the right of foreign accountancies to operate.

    Negotiators should seek to liberalize trade in services through negative lists that assume all sectors will be liberalized unless specifically excluded and through cross-sector rules that emphasize basic rights to establishment and national treatment. In addition, negotiation should strive to strengthen the WTO rules to encourage transparency of domestic regulation. The issue of services must also address the movement of people, as it is vital for Canadian firms to be able to service their products around the globe.

    Another priority is intellectual property. The successful conclusion of the Agreement on Trade-Related Aspects of Intellectual Property Rights was heralded by many observers in the developed world as one of the major triumphs of the Uruguay Round. However, the TRIPS agreement remains a contentious issue for developing countries. At the heart of the debate is the issue of how developing nations can access medicines to treat pandemics such as HIV/AIDS, tuberculosis, and malaria. The Doha meeting produced a significant political declaration stressing that the international WTO agreement on intellectual property contains flexibilities for developing nations to obtain critical access to medicines to help address public emergencies.

    At the same time, CME urges that tapping these flexibilities within the TRIPS accord should not become a justification for undermining intellectual property. Maintaining effective intellectual property protections is in the self-interest of all nations, as the rules are essential for providing incentives to find and develop cures for deadly diseases. Moreover, intellectual property protections are important to establishing a hospitable climate in the developing world. If businesses cannot be sure their innovations will be protected in certain markets, they will avoid them.

º  (1625)  

    Now I will address three or four broad priorities. The WTO dispute settlement understanding is the backbone of the multilateral trading system. The current WTO system is a major improvement over the old GATT rules and has been very successful in resolving disputes. The WTO system offers automatic and impartial resolution of controversies under all WTO agreements. It also ensures that the requirements of those agreements are clear and that violations carry very real consequences in the form of trade sanctions.

    However, one way to improve the dispute settlement mechanism would be to make trade liberalization, rather than sanctions, the chief enforcing mechanism for WTO rulings.

    Environmental issues have already made their way onto the WTO agenda with the establishment, after the Uruguay Round, of the Committee on Trade and Environment. Members of the WTO should continue to pursue greater understanding of the complex relationship between trade provisions and environmental protection.

    Members should also pursue a modest agenda that would include reducing tariffs to zero on goods and services used for pollution control devices. Negotiators should also strive to reduce and eliminate environmentally harmful subsidies and trade barriers in energy, agriculture, and fisheries.

    With respect to labour, the issue of legalizing WTO sanctions against members who do not enforce a set of core labour standards may well emerge on the negotiation table as the new round progresses.

    CME urges the Government of Canada to resist any use of sanctions to enforce labour standards. Punishing poor countries with trade sanctions would only cripple their long-term ability to raise domestic labour standards. It is our view that the International Labour Organization remains the appropriate forum for dealing with this issue.

    If the new round of negotiations is to be successful, developing countries must have the tools and the training to be able to participate in a meaningful way. Canada can play a leadership role by funding and hosting projects, including the training of developing-country trade negotiators, and in assisting governments in the drafting and implementation of domestic economic and regulatory reforms.

    Developing countries must also assist in capacity building. They must be prepared to make significant and meaningful concessions with respect to market access.

    In conclusion, as Canadian firms continue to innovate and produce new products, they will require increased access to existing and new markets. This in turn will spur new investment in good-paying jobs for Canadians. The new round of WTO negotiations provides an opportunity for Canadian firms to compete globally with clear and equitable trade rules.

    The new round of global trade negotiations represents the first opportunity to extend the benefits of liberalization to two sectors, agricultural and services, that have largely eluded the disciplines of international trade law. If the negotiations are to be judged a success, significant progress will have to be made in these two areas.

    A successful round will also eliminate tariffs on a wide range of manufactured goods, including information technology, restrict the use of anti-dumping rules, and reform the dispute settle mechanism.

    Equally important, developing countries must also reap the benefits from these negotiations. In order to do so, they must have the tools and capacity to participate in the negotiations. We cannot have a truly global trading system unless we include the developing world within this network for prosperity.

    One study has estimated that a new WTO round could generate $90 billion to $190 billion a year in the form of higher incomes for developing nations.

º  (1630)  

    The stakes are high in this new round of multilateral trade negotiations. Failure could undermine future trade liberalization efforts and the WTO itself. If the negotiations are successful, the WTO will continue to play an important role in spurring, facilitating, and codifying the efforts of its members to reap the benefits of trade liberalization. To that end, Canada can and must play a leadership role ensuring that the new round of negotiation fulfills its tremendous potential.

    Thank you.

    The Chair: Thank you very much. Thanks to both groups for the excellent presentations you have made, as well as the excellent briefs.

    With that, I'm going to turn to my colleague Mr. Casson for questions.

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

    Thank you very much for your presentations.

    Mr. Knight, maybe a first question to you. On page 2 of your brief you say the Department of Foreign Affairs and International Trade provided a fact sheet to your members saying that GATS will not compromise the ability of municipalities to regulate within their jurisdiction--that is, protect the environment, procure services, or deliver drinking water. You go on to say, however, you've received some legal advice that says differently. So what is your concern, and what did the Department of Foreign Affairs tell you that you don't think is going to work?

º  (1635)  

    Mr. Jim Knight: Before Mr. Burrett answers that question, Mr. Chair, I do want to note that each member of the committee present today served on a municipal council at one time in their career. Monsieur Laframboise, if I'm not mistaken, is a former president of l'Union des municipalités du Québec; Mr. Casson is a former councillor from Picture Butte, Alberta; and Mr. Harb, of course, is from Ottawa. So there was a singular advantage in having the meeting at this time when we could be assured of a favourable hearing. I appreciate that.

    Mr. John Burrett: That goes without saying.

    What is written here reflects the reality at that time. We have had the pleasure of a working relationship over the last four months now with staff from the department, led by the minister himself, and I think it's fair to say that it has been a learning relationship on both sides. I think it wouldn't be unfair to say, at the start of this, the Department of Foreign Affairs and International Trade really felt that there would be no consequences for municipal government. At the same time, some advice we were getting from the complete other side of the political spectrum, perhaps, was that the consequences would be astounding.

    We knew that the truth was, as always, somewhere in the middle and decided to proceed in that way. So we began working with the department to talk in some detail about what the effects might be on municipal government. I think we've gotten a lot of very satisfactory answers. Some of what we heard was alarmist, in our view now, and at the same time I think--but I may be wrong--the departmental officials have seen that municipal affairs and contracts and financial arrangements are maybe a couple of levels deeper than most people understand and are very complex. In fact, there may be many cases where we're not sure what the effect would be and whether or not we may be challenged under some international trade agreement, and perhaps there is need for care in going forward to make sure we don't catch things that we didn't mean to catch.

    Mr. Rick Casson: You also mention the Greater Vancouver Regional District cancelling a plan to build a new water plant. Providing safe drinking water to municipalities is probably one of the biggest concerns that municipalities have, and it causes probably one of the biggest expenses to a municipality to create filtration systems and whatnot to supply that water. Then you indicate that one of the reasons some of these were cancelled is that there was concern that the drinking water standards could be compromised under international trade rules. Can you explain to me how that would happen?

    Mr. Jim Knight: I guess the notion here is that, were the national or provincial water standards to change, then it could compromise the profitability of the privatized water operation, and they could be forced to adopt a higher standard. If this were not well articulated in the prior agreement, then there could be a liability arising out of that arrangement. Although there would be every effort to anticipate that liability in the agreement, one cannot foresee entirely what the future may hold. There could be standards that we did not contemplate, or an extension of standards that was farther than we ever imagined. In that case, potentially there could be a liability to the Greater Vancouver Regional District.

    Perhaps I should clarify that this water filtration plant will be constructed. It just won't be operated by the private sector. That is what has changed. The GVRD had hoped to follow what is increasingly contemporary practice and have this operation controlled by the private sector--not owned, but controlled over time--and that is the element they've not been able to pursue.

    This creates liabilities for the Canadian private sector, because we have fewer privatized arrangements in Canada than other countries. Our consulting industries, therefore, are not as able to market their skills in this area to other countries, because we don't have a demonstrated domestic track record. This compromises, I think, not only municipal governments but the private sector, particularly the consulting services and the Canadian water companies that could potentially bid on foreign contracts, but they have very little domestic experience to reference in their credentials.

º  (1640)  

    Mr. Rick Casson: Would the situation not have to be retroactive, then? If you built a plant of any kind to present-day standards, meeting all the criteria, surely you can't be expected to be held responsible if those standards are changed 10 years down the road by whatever means, if you'd fulfilled the contract at the time.

    Mr. Jim Knight: Well, there will have to be some additional resources on the table if the standards change markedly. I guess the question is who's going to pay, because the water plant is going to have to be upgraded. Is it going to be the private sector or is it going to be the public sector?

    Mr. Rick Casson: But it seemed to me that your concern centred on why the private sector got out of this, namely the concern of standards changing in the future. Is that--

    Mr. Jim Knight: The private sector didn't get out of it. The public sector decided it couldn't risk private sector involvement because of trade agreements. The private sector was not active in this debate. It was only a debate involving the council of the Greater Vancouver Regional District. Their concern was that because of these many questions there was uncertainty. They weren't on secure ground. Their lawyers could not assure them that liabilities would not arise out of these several questions that had been posed. So on that basis, the council decided that it would not transfer operation of this facility to the private sector.

    Mr. Rick Casson: Maybe I'll switch over here to Mr. Wilson. At one spot here you said, “The issue of services must also address the movement of people, as it is vital for Canadian firms to be able to service their products around the globe.” What are you referring to there? Are we talking immigration laws, or--

    Mr. Mathew Wilson: I'm talking more about the ability of a company to get their people into the foreign market on short notice. If it's a Canadian manufacturer, they could be producing machinery and equipment, for example, which is a fairly heavily industrialized sector of the economy. Typically where their value-added and where their growth in their company is coming from is on the service and maintenance of that equipment well after the product has been sold.

    They're selling their products internationally, and even going into the United States, they're having trouble sometimes getting... It's one thing to get the person across, but to get the tools and everything else across the border is sometimes difficult because of the trade agreements and whether there is a local professional who can provide the service locally, and whether you are taking the job away from someone who is locally based.

    Once the goods are sold, the problem is whether or not the service can be sold after that to make sure the contract can be fulfilled. A lot of times it is becoming difficult--both for going into Canada as well as for Canadian companies going out. We've had cases of companies complaining to us, and we've taken the case to the government, about people being stopped at the border and having to leave their tools there. For example, they're trying to repair a piece of equipment that was sold from an American company to a Canadian company. It was the only place in the world they could get this specialized equipment from, and the person who needed to repair it couldn't get into the country. So the whole line was shut down for a week because they couldn't get the repair person in.

    It goes both ways, both into Canada and outside of Canada. But the fastest growing sector in the manufacturing area is actually in the service provided after the fact, and that's where companies are now making most of their money.

    Mr. Rick Casson: Thanks, Mr. Chairman.

[Translation]

    The Chair: Mr. Laframboise.

    Mr. Mario Laframboise (Argenteuil--Papineau--Mirabel, BQ): Thank you, Mr. Chairman.

    I would like to start by making a comment. You presented your document in English only. Is that because you did not have enough time to prepare it in both languages, because you were not given enough time?

    M. Jim Knight: Thank you, Sir. To answer your question--

    The Chair: Mr. Laframboise, there is someone in the process of doing the translation.

º  (1645)  

    Mr. Mario Laframboise: It is not serious, but since this is a text from the Federation of Canadian municipalities, I would like the witness to tell us why the document is not available in both languages.

    Mr. Jim Knight: The Federation produces all its documents in Canada's two official languages. Unfortunately, we had only a few days to prepare our brief for today's meeting. However, I can assure you that all our documents are available in Canada's two official languages.

    Mr. Mario Laframboise: I hope so, otherwise I will file a complaint with the Union des municipalités du Québec and ask that body to speak to you.

    I'd just like to talk a little more about your fear, because I can understand that the Federation may have some fears.

    You provide public services, and, increasingly, there is an effort to establish partnerships with the private sector to cut costs. I think that the fear is that if ever the private sector does do business with your municipalities, it might challenge before the WTO any new regulations and legislation that might be introduced in the future. It could say that when it negotiated the contract initially, it did not expect there would be any new standards or regulations that could come along and that it did not want to be required to comply with these new standards. Is that an accurate summary of your concern?

    A voice: Yes, that is correct.

    Mr. Laframboise: That I understand. This is probably a fear the provinces have as well. All municipalities are not.... Each province has different relationships with respect to services. Some go in this direction for education and health services, while other provinces, such as Quebec, do not get into these areas. The provinces definitely have the same fears with respect to private partnerships. Have you spoken about this with your respective provinces? Is there a movement developing that involves the municipalities and the provinces? Of course, this could cause a problem for all organizations, all governments and definitely for the provincial governments? Have you developed some strategies with your respective provinces?

[English]

    Mr. Jim Knight: It is the role of the Federation of Canadian Municipalities to deal with the Government of Canada, and it is the role of the respective provincial organizations, like the Union des municipalités du Québec, to deal with their provincial governments. Many municipalities across the country have raised these issues with their unions of municipalities and, through them, with their provincial governments. There is a profound concern among municipal councils, and that is translating into communication with provinces and, of course, through FCM, with the Government of Canada.

[Translation]

    Mr. Mario Laframboise: We must be sure we understand each other correctly. According to the Canadian Constitution, municipalities are not a government. Municipalities come under provincial jurisdiction. We do agree on that, do we not?

    I can understand that your federation must negotiate directly with the federal government. There is no problem there, except that the problems that you experience are closer to those experienced by the provinces, given that your municipalities are creatures of the provinces. We must be clear on that. That is why I'm having trouble. I understand your position, I follow you, and I support you, but somewhere, your focus is much closer to that of the provinces in the areas of health and education, there is, at least, a closer link than with the federal government, which does not provide services. That is why we have trouble understanding you at some point. The federal government does not provide services, it contributes to the provinces, and the transfers are getting smaller and smaller, particularly in the areas of health care and education. We are well aware of that. I am pleased to hear you say that your respective organizations apply pressure on the provinces, which must be in the same position as your municipalities regarding certain services.

    Finally, your major demand of the federal government is to have public services excluded from the upcoming WTO negotiations. Generally speaking, that is what you would like to achieve, it is not?

[English]

    Mr. Jim Knight: The first question was, what are we doing here anyway? The answer is that municipalities have supported the FCM because we're very good at getting answers to these kinds of questions from the Government of Canada and, frankly, probably better than the provinces on some issues, because our focus is entirely municipal.

    We respect and recognize the laws and Constitution of Canada, and everything we do is consistent with provincial law. We keep provinces up to date on our actions and visit with them to tell them what we're up to. We don't get many complaints from provincial governments about our work. In fact, often they applaud us, including ministers from Quebec, because we have gotten some excellent results on things such as infrastructure and payments in lieu of taxes from the Government of Canada, and on the GST we negotiated a special arrangement, something the provinces were happy to see happen. So I think we have on balance a constructive and positive relationship with provinces. In fact, I can tell you that the Minister of Municipal Affairs from Quebec was a guest at the opening of our headquarters in Ottawa a few years ago. So we have a good relationship.

    I don't think we seek to undermine the constitutional balance. We simply seek to work on behalf of our members, who are Canada's municipal governments. We have 300 members in the province of Quebec, and that includes both the urban and rural unions.

    What are we asking for in terms of this specific issue? We're asking that the concerns that have been raised be considered when Canada participates in trade negotiations. I think officials would agree that historically the Department of Foreign Affairs and International Trade has had no vision and understanding of municipal realities. But as these negotiations have become more sophisticated, the implications for municipal governments have become very clear. It is the duty of the Government of Canada to reflect those interests, even as it is the duty of other national governments to reflect the interests of their cities in these discussions.

    I'll give you a very specific issue you might reflect on. When examining another case that was raised under NAFTA, a Canadian judge concluded that municipal zoning could create liabilities. In other words, the change in the zoning of land owned by an international investor could generate liabilities for Canada. I'll read the words from the finding of the Canadian judge. The issue is expropriation, but it includes zoning. He refers to the definition of expropriation in NAFTA. It says “This definition [of expropriation] is sufficiently broad to include a legitimate rezoning of property by a municipality or other zoning authority.” In other words, if you change the zoning, you could be affecting an expropriation and be liable for the cost of an expropriation. That is the conclusion of a Canadian judge about what NAFTA contains.

    As a former mayor, you would understand that is clearly a big problem. Somebody has to be thinking about that, and we are thinking about it. That's why 1,000 municipal governments in Canada belong to the Federation of Canadian Municipalities.

º  (1650)  

[Translation]

    Mr. Mario Laframboise: I would just like to make a comment, if I may. I am very familiar with your commitment regarding infrastructures, Mr. Knight, since at the time, I had appointed the mayor of Laval as the representative on infrastructure. In fact, I believe is still holding that position.

    This is what I would like to say to the Federation of Canadian Municipalities. I thank you for and congratulate you on the work you did regarding infrastructures. However, this is a Canadian organization that also deals with other issues that some provinces may experience; in some provinces, you are involved in health and education.

    If any association could tell the federal government that it should be paying its fair share of the cost of services, it is certainly the Federation of Canadian Municipalities, and I find that you are often silent in this regard. You know something that certain municipalities do not know, and some of your members, which provide health and education services, know very well that they are directly affected, as are the people you represent, by the fact that the federal government pays only 14 per cent of the cost of health care services.

    You did a good job as an organization on the issue of infrastructure, and you could also apply pressure to the federal government to get it to pay its fair share, in the interest of all the people you represent.

    Thank you.

º  (1655)  

[English]

    Mr. Jim Knight: Mr. Chair, may I just have a word?

    The Chair: Yes.

    Mr. Jim Knight: We're very careful about dealing only with issues that are clearly municipal. Two issues that are not clearly municipal are education and health.

    We don't get involved in education and health, except for public health, which is something other than hospitals and the medical system. Public health is municipal, but hospitals typically are not and the medical system is not. So that is not an area where we intervene.

    The Chair: Mr. Boudreau, you want to make a comment.

    Mr. Mark Boudreau: I think we have to remember that the whole area of negotiation of services is very much in its infancy stage. This whole topic was just introduced in the Uruguay Round. So while we have been negotiating on tariffs for 40 years, this whole issue of services has only been around for the last 10 years.

    The presentation Mr. Knight made today brings out the difficulty negotiators are going to have in terms of getting their heads around some of these issues that are critical to both provincial and municipal governments. So I would think the federal government would take extensive consultations on.... That's why I've suggested we go to these negative lists. We should clearly know what's in the agreement and what's out of the agreement. That needs to be put in very clear language, so the parties know the rules they're going to abide by.

    I think your presentation brings up the whole issue of transparency, in the sense of who represents whose interests. Some have said that the whole WTO needs to be more transparent, and organizations like the FCM could make presentations to the WTO and other dispute settlement bodies. However, at the end of the day it's still an intergovernmental mechanism, and private parties are not doing the negotiating or decision-making, so we have to respect that.

    So I think we're going to see some of this whole issue of transparency being dealt with in the future. But it just shows the challenges you have, as we enter this whole new arena of services.

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

    Mr. Valeri.

    Mr. Tony Valeri (Stoney Creek, Lib.): Thank you, Mr. Chairman.

    I have a couple of questions for the exporters. You alluded to the issue of negative lists just a second ago. I just want to make sure I understand, or at least have an appreciation of your thinking behind the negative list.

    Are you suggesting you require, like in the GATS, that there be a listing of what you are prepared to trade in, along with a list of what you are not prepared to trade in--that one or the other, on its own, is not going to be sufficient in the trade agreement?

    Mr. Mark Boudreau: My thinking is that it leaves ambiguity when it's not there. If education is not in, let's clearly state that--or health or public service. I think there'll be a lot of pressure to do that.

    Mr. Tony Valeri: Is your thinking behind that, though, if we do not state that health care or health care services is not an area that we are prepared to trade in, if that is not stated in a negative list, then you will continue to feel some sort of pressure from another trading partner to try to infiltrate in that area, and that if it was black and white--

    Mr. Mark Boudreau: As soon as the government passes the line and you do something, then if it becomes a private sector function in some way, the fear is that it becomes subject to the rules of the GATT. As you know, we've been very cautious about water, for example, but if we let it flow by private sector across the border, then all of a sudden it could be. You'd have to take it to a panel ruling to see if that's the case, but certainly that could happen.

»  (1700)  

    Mr. Tony Valeri: Or there's the issue of health care in Alberta, where people talk about the overnight stays or the health care services and whether that now will become challenged or subject to some sort of trade dispute.

    Mr. Mark Boudreau: If you let an American firm in and you're treating them with national treatment and the right to establish, then there's a good case to be made that it could be subject to the WTO rules.

    Mr. Tony Valeri: So a positive list and a negative list basically improves the transparency and removes any doubt of what you are prepared and not prepared to trade in?

    Mr. Mark Boudreau: Yes.

    Mr. Tony Valeri: The other question I had has to do with the anti-dumping and countervail measures. In your document you talk about how:

at the very least 'dumping' needs to be redefined so that duties are imposed only when market-distorting practices... are clearly identified.

    I'm not a trade lawyer, but I thought duties are imposed when dumping causes injury. I think there was a recent case in the steel sector where dumping was found, but it was deemed by the CITT that no injury occurred and therefore there were no duties or tariffs imposed.

    You've redefined it to just “market-distorting practices”. Do you want to eliminate the injury test with this recommendation?

    Mr. Mark Boudreau: No, not at all. Each country has a different regime it's playing by. The U.S. has a different regime. We have a different regime, and hopefully if we had a similar regime that was agreed to by all the partners and was maybe a little more clearly defined, then we wouldn't be into the softwood issue that we're in today.

    That trade dispute has been around for 15 years and obviously the rules haven't worked for that. We weren't able to achieve that under the Canada-U.S. Free Trade Agreement either. So maybe the GATT round will provide us with this opportunity to better define them.

    Mr. Tony Valeri: So when you say “better define” you're also suggesting that somehow we try to find a consensus or agreement whereby the anti-dumping and countervail measures, or the process they use to get to that point, for each of the parties to the agreement would in fact be mirrored?

    Mr. Mark Boudreau: Yes.

    Mr. Tony Valeri: That's interesting.

    So CITT should be a bit more like ITC or vice versa?

    Mr. Mark Boudreau: The partners would have to come up with a framework and--

    Mr. Tony Valeri: With some sort of negotiation.

    Mr. Mark Boudreau: I think that's going to be a tough one, because the Americans are very reluctant to give up any sovereignty on that issue of being able to set their own rules and--

    Mr. Tony Valeri: So you are not suggesting that you eliminate anti-dumping and countervail measures, you're suggesting that partners should have similar measures so that you don't get into this discrepancy among partners?

    Mr. Mark Boudreau: Discrepancy of what--

    Mr. Tony Valeri: Thank you.

    The Chair: Questions?

    Monsieur Laframboise, avez-vous des questions?

    I have a couple of questions concerning investment, and both of you can respond.

    We have in Canada over 30 different investment protection agreements with other countries around the world, and every time we have a chance we just put it on the table to get countries to sign. Over 87% of our trade is with the United States, and we have what we call the NAFTA panel as well as other bodies to go to when we have disputes. One would say that this probably is why Canada is pushing for some sort of a multilateral system to solve those investment disputes that arise from time to time.

    If you were to give the Government of Canada one or two specific items of advice in terms of a position when we go to negotiate in that area, what would they be? Probably both of you can comment on that.

»  (1705)  

    Mr. Mark Boudreau: We had our run at this with the MAI, as you know. I think both this and competition policy are going to be very difficult issues to resolve in that large forum. I'm not optimistic we'll get an agreement on either.

    Trade ministers, I think, have signalled they're going to wait until the year two or so, when they're going to take stock of this issue and see whether a consensus can be reached. It may be that we continue in these agreements through a bilateral as opposed to a multilateral route. The same is the case with competition policy. I cannot see the suitability at this stage of the GATT being involved in the affairs of private sector firms. Can you imagine the WTO involved in the Microsoft issue? This might be overloading the WTO, to some degree. At CME, we would welcome a multilateral investment agreement, but I'm not optimistic we'll get one this round.

    The Chair: Mr. Knight.

    Mr. Jim Knight: My advice is somewhat of a different nature. To succeed in these matters, the Government of Canada will have to equip itself with a communications capacity that's as powerful and successful as those who oppose these agreements. You have not achieved that level of excellence at this time. In fact, I don't think you realized until recently that was even a matter to be considered.

    Certainly, in respect of my members, you weren't in the ball game. You're getting into it, but you weren't in it initially. Communications is central to your success going forward on these matters.

    The Chair: At the WTO meeting, one of the concessions the United States have made is to look at this whole issue of using internal laws to penalize other countries that are exporting into the U.S. One would think, though, from a Canadian perspective--notwithstanding anything--as it is now, what else do we have to lose? If the worst is just next door to us when it comes to fairness for trade and investment, what more danger can any other member of the WTO pose to us to keep us from proceeding, for example, with a “yes” strategy, saying this is a “must do”-- an international standard for investment, an international standard for competition?

    Mr. Mark Boudreau: I think you're right about that. I don't think we have anything to fear. I think reaching a consensus between developing nations and the developed world is going to be pretty difficult, unless they see some real gains in these negotiations and can make a trade-off here.

    As you know, these negotiations are tied to different areas. If we're willing to give on agriculture, on textiles and tariffs, perhaps we can get them on side. But you have to see what the whole package will be. I think ministers know this is an up-hill battle, and so does the business community. We didn't anticipate the kind of backlash the MIA produced. Certainly, now that a new round has been launched and the fast track authority is well on its way in the United States, I think you're going to see the Canadian business community much more engaged in the dialogue than they were before, when the MIA was being negotiated.

    The Chair: Mr. Valeri, you want to jump in. Go ahead.

    Mr. Tony Valeri: I just wanted to pick up on the initial question and your response to it--and Mr. Knight, please, feel free to jump in if you feel you have an answer to contribute. If you feel there should be a positive list and a negative list, essentially, what should be on the positive list, what should be on the negative list, and what areas of service are you not sure of? In essence, what should be the Canadian negotiating position on services? Where should we go first? It's a broad question, but I think it's a fundamental question.

»  (1710)  

    Mr. Mark Boudreau: I think it's a fundamental question you have to ask Canadians.

    Mr. Tony Valeri: I'm asking you. You're a Canadian.

    Mr. Mark Boudreau: Okay. I won't say I'll take off my CME hat.

    Mr. Tony Valeri: Well, from the CME perspective, then.

    Mr. Mark Boudreau: Health and education are certainly within the government's domain and should remain so. Water is a very sensitive issue for Canadians. So those are three that I would seriously look at.

    Mr. Mathew Wilson: Can I just add one thing to the discussion?

    One of the problems you're going to have in Canada is that the discussion on health care and education and water services, environmental services, and a whole range of things is going to be rather interesting. Canada has some of the highest-quality service providers in the world in the private sector. They can sell those services internationally and do a very good job, and they are selling them internationally right now. Think of Queen's University, which has a university located in the United Kingdom. They actually have a campus in the United Kingdom.

    Canadian companies are the leading class in these areas. The Canadian government is going to have some problems when it comes down to negotiating. Although you want to protect a certain level in Canada to ensure they're under public control, especially for education and health, Canadian companies are on the leading edge in the world and can sell a lot of their services internationally.

    I just wanted to raise the fact that we are on the leading edge there. I don't know where the divide is, but it is a big problem for Canada because we do have some of the best service opportunities in the world to expand our markets. So I just throw that out.

    The Chair: Mr. Knight, do you have a comment?

    Mr. Jim Knight: I just want to underline the complexity of this. An effort has been made to define what is a government service in GATS, but it's not persuasive. In fact, one of them is a double negative. It's not this and it's not that. What is it?

    The public sector is very complicated. It's not a simple thing and it's not going to be easy to find definitions. Of course, you're faced with cultural differences between countries. What is private somewhere is public somewhere else. It's not easy.

    We just want to protect municipal prerogatives in Canada. That's our interest. That's why we're here.

    The Chair: That's a good point.

    Mr. Wilson.

    Mr. Mathew Wilson: Can I add one thing? The CME also chairs a loose coalition known as the Canadian Services Coalition. Last February we released a study and a report on what the Canadian private sector and negotiating priorities should be for the GATS. We submitted it to the clerk at the beginning of the session. Unfortunately, because it was a year ago, we only had one or two copies left. So we did bring one. Again, I apologize that it is only available in English. Parts of it are translated. If you'd like some of that material, we can send more to the clerk. It's a much more detailed study on services and it may answer some of your questions.

    Mr. Tony Valeri: I think that would be helpful. On the one point you made, from a negotiating standpoint I think it's a weak position. The inconsistency in this approach would be.... Let's look at health care, for instance. You talk about Canada being on the leading edge in terms of service providers in the health care service, but the agreement doesn't prevent you from requesting another country to open up that market in their country and keeping it closed or protected in our market, right?

    Mr. Mathew Wilson: Yes.

    Mr. Tony Valeri: Obviously there would be a lot of pressure on you to trade in that service.

    Mr. Mathew Wilson: Because of the GATS request to offer, you can request anything from anyone and not offer them anything. You can do it that way. I just think that puts Canada in a difficult situation.

    Mr. Tony Valeri: We'll have to send our best negotiators there.

    Mr. Mathew Wilson: You'd better.

    The Chair: Mr. Burrett.

    Mr. John Burrett: Just to follow on what Jim was saying, from our discussions with the department, as you'll see in the full-sized brief we gave you, really what we're looking for here is the ability to do things that heretofore have been called reasonable under domestic law. We want to be able to limit the number of service suppliers or maintain business arrangements, like monopolies or exclusive service suppliers, where that serves the public interest. We want to be able to contract for environmental services, apply land use controls, quantitative limits, commercial density, things that are in the public interest, without being seen as being unreasonable and unfairly limiting competition that could otherwise be supplied internationally.

    It's important that we not be constrained in reasonable regulatory activities by a rule that says our regulations must be no more burdensome than necessary without a very clear understanding of what something like that means.

»  (1715)  

    The Chair: Mr. Berg has a very intelligent question for you. Did you know I was going to ask him to ask it?

    Mr. Peter Berg (Committee Researcher): That's fine. It's for Mr. Boudreau, actually.

    You mentioned dispute settlement under broad priorities. You were trying to get around the retaliation problem. An option would be to liberalize trade. In other words, a country could offer to liberalize trade, perhaps in some other sector, instead of having retaliation--or sanctions, as you call it--against that country.

    The department told us that one of the major problems with this is that, if this trade liberalization is offered to a particular country, it would have to be offered to all other countries on a most favoured nation basis. This rather limits the ability to go this route. There is the option of financial assistance in some other form.

    I understand the motivation here--and it's a good one--to get around retaliation. Do you see some of those practical difficulties with trade liberalization? Are there any other options that don't have these difficulties?

    Mr. Mark Boudreau: No, those are the only three I can come up with. It's either compensation, offsetting trade liberalization, or sanctions. I would say that if somehow offsetting trade liberalization was possible, then the country could select from a menu.

    One of the ideas about this whole offsetting trade liberalization thing is that, if sanctions are imposed from outside, then the Europeans can say that those guys in Canada are making them do it, etc.; then they don't have to take any blame when their industry is being hit. But it makes it a little more difficult when they have to go back and choose and tell their own industries that, by the way, we're going to block the softwood lumber decision, but we have chosen this one of our industries to be hit with some offsetting trade liberalization.

    Selling this is not going to be very feasible for them. It would be an enforcement mechanism for living with the panel decisions. Since the new Uruguay Round, most of the decisions have been implemented and are working fairly well.

    Those are the only three I could come up with.

    The Chair: Here's another one. What if you have some sort of a penalty box system? If a country commits an offence, it is put on the outside; it can't complain to the WTO, or through whatever dispute mechanism there may be, for a two or three years or whatever.

    Mr. Mark Boudreau: Until it changes its....

    The Chair: Behaviour.

    Mr. Mark Boudreau: Yes.

    The Chair: Is this something worth looking into?

    Mr. Mark Boudreau: It's worth thinking about. I'm a little worried about it eroding the member country's interest in staying in the WTO, but certainly it would be a pretty good incentive for it to implement the panel decisions.

    The Chair: Economic sanctions are not much different from political sanctions in the sense that if a country is named, sent a warning and a second warning, it could then be put in the box. You could name most of these offending countries. There's one not very far from here. Over and over again, when we win it goes back to the other side. It's very interesting.

    Mr. Wilson.

    Mr. Mathew Wilson: I want to comment on this other country not too far from here.

    It's very difficult to put it in the penalty box. That's the problem. Its economy is so big and it's so strong, and it can dominate the agenda so much, that I don't think it really matters to it that much whether it's in the penalty box or not; it'll keep doing whatever it wants to do.

    So it may work for some countries, but it is going to be pretty difficult to do it across the board with every country. Trade sanctions, or the WTO rulings, work for many countries; they don't work for others. There are two in particular that Canada has had problems with. They just don't operate the way we would like them to or the same way other countries do.

    It's a good idea, but there would probably be the same problem following up on it. I just throw this out.

»  (1720)  

    Mr. Mark Boudreau: But we constantly have to remind ourselves that probably 80% to 90% of the trade goes fairly smoothly. As long as I've been in the trade game, steel and softwood lumber have been the two big issues, and very politically charged issues. Our fear is that by the United States doing that, it then spreads to other countries. If they're not going to implement panels or rulings, it then becomes a thing. This is why I think some sort of international regime for what constitutes subsidies and dumping has to be... I think there will be a lot of pressure brought to bear on the Americans that this will have to be part of a package this time around.

    The Chair: It's fair to say that there has been an unequivocal statement, over and over again, by the WTO that education and health are not on the agenda, as well as that water is not on the agenda. I'm just trying to figure out, in how many different ways or shapes does the WTO secretariat or do WTO members have to make that statement so that it will sink into the minds of groups, agencies, and individuals that it's not on the agenda? There's no intention of putting them on the agenda. What else do you think they should do in order to have an understanding in the community?

    Mr. Mathew Wilson: When meeting with the Department of Foreign Affairs and Minister Pettigrew, one of the things we've been asking for is for the minister and the political leadership in Canada to stand up and start saying those things. There has been a resistance, I guess, from the political leaders in Canada to do that--at every level; I'm not just pointing that at any one level.

    When Prime Minister Blair came and addressed the House of Commons last year, he stood there and challenged everyone to say that free trade was good for everyone and liberalization of trade made a big difference. He was willing to stand up and say those things. I haven't heard many political people at any level in Canada say those things. From our perspective, I think we've been encouraging Minister Pettigrew to do that. Anyone, really, within the federal government or provincial government who is willing to stand up and say those same things outside of a bureaucratic level is very helpful. It goes a long way.

    The Chair: Mr. Knight, and then...

    Mr. Mark Boudreau: I think also there's now realization that the government alone won't carry this, that the private sector has to be engaged and there has to be good dialogue between the NGOs, the private sector...

    Unfortunately trade agreements are written in legalese. You're trying to put down concepts, and there will always be challenges to say this word means that, or this clause is open to this kind of interpretation, like any legal agreement. That's why a dispute settlement mechanism that works well is very important and why I think there has to be greater transparency in those dealings, to the point where maybe NGOs can make submissions to say “We feel that this is having an environmental impact on this issue”, and be heard in that decision-making.

    The Chair: Mr. Burrett.

    Mr. John Burrett: On the subject of water, and specifically on the GATS, I would love to be contradicted by somebody from the department, but it seems that water isn't completely off the table in a number of ways. It's not currently a Canadian commitment under the GATS; however, there are things that have been committed. For instance, there are complete commitments on fully integrated engineering services for the construction of water supply and sanitary works turnkey projects. So it's part of water.

    In terms of new obligations that might result from the current rounds of negotiations or ongoing negotiations, the European Union has proposed a new subsector for water services as part of environmental service commitments. EU representatives confirmed in May 2001 at the Transatlantic Consumer Dialogue conference in Brussels that European water supply service firms have a competitive advantage, and the EU seeks market access commitments in the area.

    There are other ways that water can be affected--for instance, disputes over the kinds of technical standards that could bring you to reach a given water standard.

    The Chair: We're talking here about building a facility. We're not talking about exporting bulk water of some sort. We're not talking about having rivers flowing from Canada to Mexico through the United States. Those are two completely different issues. The main concern has been, consistently, shipping a whole a pile of water collectively and sending it abroad, whether through pipelines or some other mechanism. That unequivocally is not and has never been on the table, and everyone's statement is that this isn't going to be on the table.

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    Mr. John Burrett: I would concede that point, but if you were a municipal manager trying to design a water distribution system to some kind of new environmental standard, with new technical ways to reach it, what I'm talking about would probably be more your concern.

    The Chair: Mr. Valeri, do you want to jump in for a final comment? Then we're going to close.

    Mr. Tony Valeri: Mr. Wilson piqued my interest there. He mentioned how governments were not talking about how liberalization of trade was a good thing. We were talking about the United States, so I thought I'd ask this question, just to get your feedback.

    We have NAFTA. There is a recognition that in terms of a North American market, Canada and the U.S. are continuing to integrate much more than the government at times is prepared to recognize. But certainly in the private sector, people who work each and every day recognize the dependence on the larger market--and 25% of trade from the United States comes into Canada. So there is an integrated approach there.

    In terms of a North American perspective, could you just share with us, perhaps, what we should be doing? Should we be going NAFTA-plus? Should we be dealing with a steel sector agreement and a specific softwood sector agreement on a bilateral basis, sector by sector? Should we really be looking at some type of continental integration, where we start to mirror our anti-dumping countervail measures and measures on external terrorists, which brings us to a customs-type union?

    You know, always preparing and arguing against a political union... We're not talking about a political union, a currency union, or anything like that, but in terms of the actual market transactions, why do we not have products flowing transborder? I'd like to say the way it flows across provinces, but it doesn't flow very well across provinces either, so I can't use that analogy, but you understand what I'm saying.

    Mr. Mathew Wilson: Yes.

    Mr. Tony Valeri: Should we be pursuing that aggressively?

    Mr. Mathew Wilson: I'm glad you brought it up, because NAFTA is obviously our most important market. Well over 90% of our trade, and I guess about 42% of our economy, is directly related to NAFTA, so indirectly it's well over 50%.

    There are probably a couple things we need to do for NAFTA in moving NAFTA along. First is to get rid of the trade disputes we're continually having now over softwood lumber. I know where you're from, and steel is obviously a massive issue for you. We work quite closely with Dofasco and Stelco in steel to get these issues hammered out and out of the way, so we can move forward.

    We're moving along in other areas of integration. The Canadian government's commitment, with the U.S. government, to transform our borders will change a lot about the way goods flow between our countries and that relationship. I hate to say it, but business is quite ahead of where government policy is, and it always will be. It's just the nature of business.

    We have moved a long way toward a complete integration of manufacturing facilities across North America. We need to see if there is a way to get around softwood lumber and steel and other contentious issues like that, to build on NAFTA and go to the next step. There are all kinds of issues around regulatory reforms, where there are two different sets of regulations dealing with the same thing.

    In the short term, we'll probably be calling for some type of conference to look at best practices and regulations between the two countries, because there is a real difference. I'm not saying Canada has better regulations or the U.S. has better regulations, but there are better ways of harmonizing them or creating a best practice regulation. I think industry is moving down that road far enough now that you'll have to look at the regulatory impacts and what they're doing to investment into Canada, to make sure Canada remains as competitive as it needs to be in this integrated North American economy.

    Does that answer your question?

    The Chair: On that note, I want to thank our witnesses. You have done a marvellous job. I want to commend you also for the submissions you have made. You've certainly given us a lot of good ideas and good suggestions. If you have any additional comments, please leave them with our clerk, and we'll be happy to include them as part of our proceedings.

    We will adjourn until Wednesday, March 20, 2002, at 3:30 p.m.