[Recorded by Electronic Apparatus]
Tuesday, May 7, 1996
.0909 
[English]
The Chairman: Order.
We have with us Mr. Gordon Smith, the Deputy Minister of Foreign Affairs. We've got with him Barry Carin, who is the Assistant Deputy Minister for Trade and Economic Policy; and from the Department of Finance, Tom Bernes, who also has spoken to us before on international financial institutions matters.
Welcome. Thank you very much for coming.
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The purpose of this meeting is to review the G-7 summit of last year, about which we produced a report, as you'll recall. Then Mr. Smith will bring us up to date on what the prospects of this G-7 summit are.
I have one other housekeeping matter. As you know, we are in this room until 10:30 a.m. only. Then we go downstairs.
Mr. Smith.
Mr. Gordon Smith (Deputy Minister of Foreign Affairs, Department of Foreign Affairs and International Trade): Mr. Chairman, thank you very much. We appreciate the opportunity to come before you today and to talk to you about the preparations for the Lyon summit, but also to talk about what has happened since the Halifax summit. We all appreciate very much the interest this committee has taken in the summit process. I think we can show you that in fact we've made some real progress.
One of the things very much in our minds as we approached Halifax was that in the public there seemed to us to be growing skepticism about summits, amongst some of the press maybe even cynicism, a feeling that they were big events with a lot of publicity, the leaders were there, there were many photo ops, but there was no substance. For us the G-7 process is so important we felt it was essential there be some concrete outcomes in Halifax. We achieved that.
You are all well aware of what's in the communiqué. I won't go through it.
What we did after the Halifax summit was to ensure there was a follow-up. We actually established a work plan. Although this is part of the internal plumbing, I think the plumbing in this case is important to the result, so I mention it. We had two unusual meetings of sherpas in the last half of the year where we were able to ensure a follow-up. You see in the report we've provided to the committee this morning that we've been able to have some real achievements.
I'd like to say a word or two as well about some events that have taken place in the first part of this year. I think they will be of interest to the committee.
First of all, there was in Lille a G-7 employment conference. That included ministers, two or three from each country, in our case Messrs. Manley and Young, to talk about employment issues. This was an initiative the French wanted, based on the precedent that had been created in Detroit in 1994. I think that was a useful initiative.
I'd like to say a little more about the Moscow nuclear summit, because that's really quite unusual. I was going to say ``unique'', but one uses the word ``unique'' carefully because sometimes what you think is unique gets repeated. But I really do think this was a unique event.
President Yeltsin, members will recall, at Halifax last year invited his colleagues to come to Moscow to talk about nuclear issues - nuclear safety and nuclear security issues. So this really relates to the safety of nuclear reactors, the disposal of nuclear material, and the protection of nuclear materials, including material that comes from weapons, so particularly in a turbulent situation such as one has in Russia these don't fall into the wrong hands.
Again, because we presided over the summit last year - our presidency went until the end of the year - we were very much involved in the preparations for the Moscow meeting. Again, we had some tangible outcomes. I would mention several.
First of all, we had a clear commitment to a culture of nuclear safety. Members will recall that in fact Prime Minister Chrétien went to Moscow, having been previously in Bucharest, where he inaugurated the nuclear reactor that Atomic Energy of Canada built at Cernavoda, where, I might add as well - although you would all be able to assume this - the question of nuclear safety culture is first and foremost in AECL's mind.
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There is a strong commitment now to enhance the nuclear safety culture in central and eastern Europe, and Chernobyl, which we have now just passed the tenth anniversary of, only serves to show how important that culture is.
But there were other achievements as well: getting Russia to agree to adhere to the Vienna Convention on Civil Liability for Nuclear Damage, to join the international Convention on Nuclear Safety, and to join the 1993 amendment of the London Convention banning dumping of nuclear waste at sea. These were all important achievements, and the summit in Moscow helped that process.
In addition, the leaders endorsed a program for combating illicit trafficking in nuclear materials.
At this meeting in Moscow, President Kuchma of Ukraine was present, and there, mentioning the Chernobyl reactor again, the Ukrainians confirmed their commitment to implement by the year 2000 the memorandum of understanding that we negotiated, that was signed in this very building, on the closing of Chernobyl. These are all important achievements.
As we move towards the meeting in Lyon, I must underline the importance of one issue that does not appear anywhere on the agenda. This is the participation of Russia. Again, members will be aware that the Russians have been making a case that they should be members of a full G-8, yet the reality is that this G-7 summit in Lyon will take place immediately, a few days, after the first round of the Russian presidential elections. The view of the G-7 countries is that this is not the time to agree to full G-8 membership of Russia, that during our presidency of the G-7 there was an advance in terms of Russian participation and there would be a further advance in Lyon in that at the end of the Lyon summit there will be - unusually, I might add, and again probably uniquely - a meeting at which the Secretary General of the United Nations and the heads of the International Monetary Fund, the World Bank, and the World Trade Organization will be present.
There are two reasons for that.
One reason is that it flows directly from the consideration that took place at Halifax of the functioning of the Bretton Woods institutions, the relationships amongst the institutions, and the relationship to the United Nations and the whole goals of institutional reform on which this committee did such valuable work. So it's very useful to have the leaders there to be able to ask them what has happened since Halifax.
The second reason is that the theme that President Chirac has selected for Lyon is that of development. While the original concept - some of you will recall what President Chirac said - focused on development assistance, in the discussions that have been taking place there is a broader definition. For reasons we all know, the reality is that official flows of development assistance are declining, and that's a situation that is not likely to change in the next few years. So it's important for one to look at development in the broader context of globalization of the world economy, of increased flows of private capital, of the need better to integrate the developing countries into the international trading system. So it is a broad definition.
I might add that some of the work we have done in the area of information technology, on which there is to be a special meeting in South Africa very shortly, is also relevant to the question of integration of the developing world into a broader international trading world where these countries can benefit to the maximum from investment opportunities and from trading opportunities.
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In short, I think the general view is that development is more and more going to be governed by the capacity of the developing world to participate in the global economy. Therefore these countries simply can't rely strictly on flows of development assistance as a means of helping them pull themselves up by their bootstraps; rather it will be their own pulling up by their bootstraps. It's the question of integration into the global economy that is really critical.
At Lyon the issue will be addressed in terms of a partnership between the countries represented in Lyon and the developing world, which will include in it the broad range of issues.
This meeting at the end with the heads of the international institutions is very important in terms of therefore looking not only at the integration of the developing countries into the world economy but also at the question of international institutional reform. There we really do feel progress has been made. My colleague Mr. Bernes can certainly comment on meetings he has attended in that regard, where G-7 finance ministers are still moving forward on the agenda that was effectively set at Lyon.
In Lyon we will of course address more broadly the issues of trade liberalization and confirm our position. There we really do play, I think it's fair to say, a leading role in underlining a commitment to a rules-based system and making the multilateral trade regime under the WTO effective. This is important leading up to the Singapore World Trade Organization ministerial in December.
[Translation]
I should also mention that a meeting of ministers of Environment will begin tomorrow and will continue until next Friday. We held a meeting of ministers of the Environment in Hamilton last year, and in Florence, Firenze, Italy, the year before that. So ministers will be meeting for the third time to discuss the issues in preparation for the meeting in Lyon.
[English]
I won't spend much time on this, but I could add that work is also being done in the areas of organized crime and combating terrorism. On terrorism, I might mention that at the Sharm el Sheikh special summit, which dealt with the issues of terrorism in the Middle East particularly but also more broadly than that, and which Prime Minister Chrétien attended, we used the declaration on countering terrorism that we agreed on last December as a way of trying to broaden support for that declaration. Again, I think that was a significant contribution.
If I can link back now to this question of Russian participation, de facto the Russian involvement is increasingly going to include a broad range of global issues, and it may be that further progress will be made in that regard. In other words, the Russian participation in the summits that had been restricted to the political issues is in fact broadening to deal with issues such as crime and terrorism. But my prediction is that precisely because of the uncertainty in Russia, but also because of the reality that Russia really doesn't confront the same sort of macroeconomic problems that we do, Russia will not be a full member of the G-8. A better way of putting it is that the G-7 will not become a G-8 for some time still to come, but I expect that will be an issue that will play out over the next few weeks.
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Mr. Chairman, I think it might be useful if Mr. Bernes, who is the finance sous-sherpa -Mr. Carin is the foreign affairs sous-sherpa - added a few words, because the ministers of finance have been very active in the follow-up to the Halifax summit.
The Chairman: Mr. Bernes, if you have a minute, you might tell us a little bit about the reforms of the international financial institutions. As you know, we heard from the vice-president recently and we'll have Mr. Wolfensohn here shortly, so that's a topic that's of interest to this committee. Thank you.
Mr. Tom Bernes (Assistant Deputy Minister, Department of Finance): Thank you,Mr. Chairman. I'll just make a few observations further to what Gordon has said.
When we appeared before you last time I briefed you on the agenda that came out of Halifax, which is in many ways now seen as a watershed, both through the work that is being done and the lead up to Halifax. A number of events, such as the Mexican crisis and Barings crisis, have really galvanized people and institutions into action. There has indeed been a considerable amount of progress since that time.
As you may recall, last time I indicated there were a number of agreements. One was to help identify problems before they reached crisis proportions. Here the IMF has strengthened its surveillance procedures through stronger and more candid and earlier analysis of members' economic policies.
Secondly, at the interim committee of the IMF that just met two weeks ago, ministers agreed on a new set of data standards to be published particularly by countries that borrow on international capital markets. Canada was one of the first countries to fully subscribe to this ambitious standard to better inform markets of financial and economic developments.
The IMF established a new procedure, the emergency financing mechanism, to allow the fund to respond more quickly to crises with the ability to bring greater resources to bear. Discussions have also advanced on strengthening the fund's financial resources to deal with emergency situations through the establishment of new financing arrangements to complement the resources available under the General Agreement to Borrow.
As Canada's G-7 deputy, I've been chairing a G-10 working group on doubling the resources, currently 17 billion SDR or roughly $35 billion U.S., to $70 billion, through contributions from the G-10 countries and from other countries that, although currently not participating, have the capacity to support the international economic system.
Progress has been achieved on the initiative and agreement has been reached on broad principles that will guide the final design of the new arrangements. Discussions are continuing; indeed, there will be further meetings over the next couple of weeks with a view to concluding this initiative as soon as possible. We certainly look towards Lyon to provide further impetus to bringing this to a conclusion.
Last year in Halifax G-7 leaders invited finance ministers and central bank governors of the G-10 to review procedures that might be considered for the orderly resolution of solving liquidity crises. A G-10 working party was established to examine all aspects of this question, and it reported to ministers in Washington, once again two weeks ago. Ministers and central bank governors approved the final report of the working party.
The main messages of the report were: the terms and conditions of debt contracts should be fully met; neither debtor nor creditor countries should expect to be insulated from adverse financial consequences of a crisis by an official bailout; international bankruptcy procedures are not feasible or appropriate in the foreseeable future, for in certain circumstances a temporary suspension of payments by the debtor may be an unavoidable part of the crisis resolution process; and clauses should be introduced into standard contracts of sovereign debt instruments to facilitate conciliation and cooperation between a sovereign debtor and its creditors in the case of a crisis.
.0930
This working report, after approval by ministers and governors, was released. We are now engaged in a process of consultations with major international financial participants to see how to advance this further.
The Halifax communiqué also called attention to the importance of close cooperation among financial supervisors as a complement to the reform initiative. The breaking down of geographic boundaries and sharp distinctions between different types of financial institutions has clearly created new opportunities but also has made the job of financial supervisors more complex. Closer cooperation and closer communication among supervisors are the best way for supervisors to match the scope of the institutions they now oversee.
As a follow-up to the Halifax summit, G-7 finance ministers asked the Basle Committee on Banking Regulations and Supervisory Practices and IOSCO, the International Organization of Security Commissions, to report on their efforts to improve cooperation among their members. Their reply to ministers describes an impressive amount of recent and ongoing work.
Following the discussions at the Halifax summit, supervisors for banks, securities firms, and insurance companies set up a joint forum to deal with the challenge of supervising financial conglomerates. The Basle Committee and IOSCO have also generally intensified the links between them and have agreed to a joint initiative to promote cooperative arrangements.
In the lead-up to this year's summit G-7, ministers will be reviewing this report and will be looking at ways to ensure that the momentum given to improving cooperation among supervisors is maintained.
I turn briefly to the World Bank. As you know, Mr. Wolfensohn, the new president, will be in Ottawa on May 30, 1996, meeting with a number of you. Under his leadership a program of far-reaching change has been initiated at the World Bank. The president is taking steps to make the bank a more client-focused and less bureaucratic institution, one that can respond more flexibly to evolving global challenges. Many of the changes currently being introduced draw on recommendations coming out of the Halifax summit and received strong and widespread endorsement from ministers at the spring meetings.
These measures include taking steps to improve the integration of private sector activities across the World Bank, the International Finance Corporation, and the Multilateral Investment Guarantee Agency. This improved cooperation is expected to result in a more integrated approach to the private sector in the bank's country assistance strategies.
Another measure is decentralizing operations so more work is done in the field and less in headquarters. The new president wants bank staff to work directly with those impacted on in order to create a greater sense of ownership of bank projects. To this end an increasing number of country offices are being placed in field missions. In particular, I think Mr. Wolfensohn has placed a great deal of emphasis on the question of partnership and has spent a great deal of his time in his first year in office reaching out, trying to open up and become more transparent in working with NGOs, to this purpose.
Additionally, steps are being taken to improve coordination with other multilateral banks through such means as establishing a working group to move towards common evaluation methodologies. Further action in this area is expected in response to the recommendations coming out of the recently published report of the Multilateral Development Bank task force, of which I was a member. This report encourages the World Bank and the regional banks to work together more on country economic analysis and assistance strategies as well as on data collection and assessment. These recommendations were endorsed by ministers two weeks ago and I think will find reflection in Lyon and provide a context and a backdrop for the discussion heads will have.
I turn to one last issue, which was an initiative out of Halifax and which will carry on through Lyon. That is the question of multilateral debt.
The debt burden of certain highly indebted poor countries, particularly in Africa, is clearly an important issue and in many ways the last element in completing the evolving debt strategy. In Halifax the G-7 leaders called for the Bretton Woods institutions to develop a comprehensive approach to assisting countries with multilateral debt problems and to make better use of the World Bank and IMF resources to advance this objective.
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At the spring meetings two weeks ago, the institutions presented a comprehensive proposal. The basic framework was approved by the interim development committees, although significant details have yet to be agreed upon. These include appropriate burden sharing between bilateral and multilateral creditors, and the timing of access to and eligibility for exceptional multilateral assistance. These details are being worked on right now in the G-7 finance process, and we expect they will be reported to the heads of government in Lyon, and that an opportunity to move this initiative forward will be provided, hopefully bringing it to a conclusion by the time of the fall meetings of the IMF and the development committee.
Thank you, Mr. Chairman.
The Chairman: Thank you very much.
Are there any questions?
[Translation]
Mr. Bergeron.
Mr. Bergeron (Verchères): As the chairman mentioned, the committee has had a particular interest in the reform of international financial institutions for a number of months.
The second recommendation in the committee's report, entitled From Bretton Woods to Halifax and Beyond: Towards a 21st Summit for the 21st Century Challenge, spoke about an overall public information strategy on the issues discussed at the Halifax Summit and on the follow-up to decisions made at the Halifax Summit.
There was also a suggestion that an in-depth study of the reform of international financial institutions should be done by the national forum on international relations, which was held in Toronto last September. That did not happen. The reform of international financial institutions was not the focus of the work done at that forum.
Our report also mentioned an overall information strategy. On the basis of experience in Halifax and what happened afterward, it appears that the leader of the G-7 did not pay much attention to the issue of international financial institutions at the G-7 summit. There were a number of political issues on the agenda which stole the limelight at the summit, so to speak.
The summit was supposed to focus particularly on the reform of international financial institutions. My comments are based on what was visible from the outside. So I'm putting the ball in your court when I say that what was visible from the outside was the result of the strategy that you set up.
What we saw from the outside was that in the end the issue of international financial institutions was relatively secondary at the Halifax summit.
Moreover, we did not really think that the recommendations made in the report of the Standing Committee on Foreign Affairs and International Trade were acted upon at the Halifax Summit, nor in the time since then.
Of course, in the document we were given about Canada's year chairing the G-7, we were told about improvements that were underway concerning the sound management of various international financial institutions. However, we're still waiting for greater transparency in the operations of international financial institutions; for the priority that is supposed to be given to sustainable human development; for the democratization of these institutions, particularly as regards a greater involvement of recipient countries; for the elimination of overlap on the part of various international financial institutions; and for less restrictive structural adjustment programs.
There was a little mention of Canada's year chairing the G-7. Unfortunately, it ended at the end of 1995, with no very tangible results with respect to initiatives for change or the reform of international financial institutions.
What do you think will happen under the current chair? And what do you think will happen at the upcoming summit as to the follow-up that was supposed to result from the Halifax Summit?
Can we really expect any results in the medium or long term with respect to the various subjects that I mentioned? Since the Halifax Summit, we are rather doubtful about the results that may be achieved.
.0940
Mr. Smith: I would ask Mr. Bernes to assist me with answering this question. I should say that in Halifax, although other subjects, including Bosnia, came up at the last minute, the leaders nevertheless had a good discussion. I was there as a sherpa on this topic.
Reforming international financial institutions requires co-operation on the part of the seven member countries of the G-7. The leaders had done some significant preparatory work before Halifax, and they told their officials to push certain points and gave some directions for the future.
Following the summit, we set up the coordination mechanism for the management of the four organizations. However, we should remember that in the case of three organizations - I am excluding the United Nations - particularly the World Bank and the IMF, there are a number of other member countries. Consequently, we have to show some sensitivity; the other countries do not appreciate at all the idea of a board of directors. There is no board of directors. We are trying to advance our ideas, but we are doing so in co-operation with the other countries.
Mr. Bernes might like to add something because this is an important issue. We actually worked more with the other countries than through public information programs, which are less able to influence the decisions made by the organizations.
[English]
Mr. Bernes: I recall that the question that leaders addressed and answered in Halifax was a question of whether or not the international financial institutions were up to the challenges of the next century. The conclusion they reached was that these institutions were. They were not perfect; they had made mistakes, but had corrected some of those. There were important areas for progress, but fundamentally the structure was sound. Against that context, they identified a number of recommendations, a number of which were indeed in your committee's report to the government.
It's always the question of whether a glass is half full or half empty. Clearly, there's further progress to be made, but if one thinks that it has been less than a year since the Halifax summit and, as Gordon said, given the need to bring the whole international community along, one cannot, just like the G-7, say that this is the way it's going to be. I think the progress has been really quite remarkable for international organizations, and certainly in the context of the IMF.
As I cited, we can look at just the number of decisions: the changes in surveillance practices; the new data standards; the emergency financing mechanism; progress both in the eleventh quota review and enlarging the resources available under the GAB; the question, as part of the debt strategy, of how to extend the ESAF, the Enhanced Structural Adjustment Facility, while at the same time bringing a greater focus on social concerns as part of ESAF programs.
On the question of more publication of data, there have already been steps taken. We, Canada, would like to see them go further. Mr. Martin, in Washington, called for the release of article 4 reports by the IMF. There is a problem here, but it is not so much with the G-7. It's with a number of the developing countries, which frankly don't want their reports to be released because they have concerns about such a frank analysis being made public.
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As I said, in terms of some of the other organizations - through the G-10, through the work on orderly workouts, and through the Basle Committee on Banking Supervision and IOSCO - there have been specific follow-up decisions that are now before ministers and that will be given further impetus at Lyon, with a view to conclusion.
In terms of the World Bank, as I indicated, the new president has, over the last year - and you'll hopefully have an opportunity to ask him this question directly - put a great deal of focus and effort into increasing the transparency of the World Bank, partly in response to the Halifax push, but I think it's also because of his own predisposition. This has been done for the purposes of working with all concerned stakeholders to make sure, where possible, that individual countries take the lead and responsibility for the development of country assistance strategies; that there is a broad process through participation in those countries; that the questions of governance are addressed; that poverty reduction is clearly emphasized; and that the resources that go out to programs should increasingly have a commitment to poverty reduction and social concerns.
So as I said, I think that in terms of your report and in terms of the forum, a lot of the themes were not only endorsed in Halifax, but there has been a significant follow-up if you want to compare it to any other effort. Having said that, though, clearly the job is not yet finished. There is more work to be done.
The Chairman: Thank you.
Mr. Morrison.
Mr. Morrison (Swift Current - Maple Creek - Assiniboia): I have no questions.
The Chairman: Mr. Flis.
Mr. Flis (Parkdale - High Park): I guess my first question is for the Deputy Minister of Foreign Affairs.
When the Prime Minister went to Moscow for the nuclear summit - and I think we all agree that such a summit was overdue, because it's time that we did start addressing such things as dumping nuclear waste into the seas, etc. - there was also a discussion of what we do with the plutonium when we disarm the nuclear warheads. Is it true that the Prime Minister promised to look into the possibilities of taking that plutonium and burning it in our CANDU reactors? How much research has gone into that proposal? Did we prepare the Prime Minister well for such an undertaking? Would this offer not open Canada to all sorts of infiltration, of terrorism aimed at stealing the plutonium for ulterior motives, etc.? I wonder if you could address that issue.
Mr. Smith: Mr. Chairman, as members of the committee and Mr. Flis will know, a staggering amount of plutonium will be available from the number of nuclear weapons that are to be dismantled. There is an obvious worry about making sure this plutonium is controlled or, even better, that the plutonium is transformed or utilized in such a way that there will never be a danger that it can be used for weapons. The international community has been examining a variety of processes. Vitrification is one, but another is the transformation of the plutonium into something called MOX, which in fact could be burned relatively easily and efficiently in a CANDU reactor because of the kind of reactor that it is.
What the Prime Minister indicated - and we have done quite a bit of work on this subject - is that, yes, he was prepared to see more work done on this idea, that it seems to make sense. But more work is required to ensure that from an environmental and a safety point of view the material will be adequately protected.
.0950
It's important to understand that it will not be plutonium that will come to Canada. It will be a transformed substance that is of no use to anybody wanting to build a weapon.
So our view at this point - and I underline ``at this point'', because further work has to be done to make sure this is absolutely safe - is that there in fact is no great danger and there certainly is no risk that once it's here that material could be diverted to somebody who wants to build himself a bomb. But more work is required on the various techniques, more work is required on the safety and handling aspects, and more work is required on the environmental questions.
In one way or the other, our CANDU reactors require fuel. This is a kind of fuel, as opposed to some other kind of fuel.
As I was saying earlier, the reality is that a certain danger comes with nuclear reactors. We believe that in this country, with the type of reactor we have and with the types of controls we have through the Atomic Energy Control Board, those risks are very well managed and under control and nuclear power is safe.
So it is only with that assurance, that any arrangement would be entirely safe, that at the end of the day the Canadian government would agree to burn this MOX fuel in our CANDU reactors. I'm confident in saying this.
Mr. Flis: Looking at the budget estimates, not in this department, we see that they've been cutting back substantially on research and scientific work at Chalk River. If we're going to get into this, why are we destroying the scientific capacity to handle this thing at the same time as we're undertaking these extra responsibilities?
Mr. Smith: Mr. Chairman, I would invite you to have here my predecessor as deputy minister, currently the president of Atomic Energy of Canada Limited, who I'm sure would be delighted to talk to you about this. I'm really not competent to address what the consequences of the reductions in AECL's research program will be.
The Chairman: Perhaps it was more of a rhetorical question.
Mr. Flis: Perhaps we could take advantage of the deputy minister's presence here and ask for some guidance as this committee moves into developing a national and foreign policy on the Arctic, because of the summits that have been held about nuclear dumping into the sea and other environmental issues. There are nuclear submarines sitting somewhere in the waters there now.
Is that an area into which this committee should look, or is it an area that's pretty well covered and we shouldn't be wasting our time on it in the process of developing a Canadian foreign policy for the Arctic?
Mr. Smith: In general terms, it would be well worth while - in my own judgment, but I think my minister, Mr. Axworthy, would subscribe to this judgment - for the committee to spend time in looking at Arctic issues and Arctic cooperation.
As Mr. Flis, having been parliamentary secretary, is aware, we have made cooperation in the Arctic a major priority.
We have achieved the agreement of a number of countries to participate in an Arctic council, and we will inaugurate meetings, at the ministerial level, of the Arctic council sometime early in July.
There will be a number of dimensions to that cooperation. Environment will be part of it, because, again, we're all only too aware of how sensitive the ecology is to any kind of environmental disaster. As you have said, clearly there are occasions on which nuclear submarines are in the Arctic, and that could be one particular dimension of the work.
Personally, Mr. Chairman, I would indeed urge, in response to Mr. Flis's question, that the committee should spend time on what our objectives and our priorities ought to be with respect to Arctic cooperation, the way in which the Arctic council is going to operate.
.0955
Mr. Flis: Thank you.
The Chairman: Thank you. Mr. Assadourian.
Mr. Assadourian (Don Valley North): Thank you very much.
I have three brief questions. One of them I think you answered briefly. It was about the G-7.5 to G-8. I'd like your comments. Why can't we put conditions on Russia? For example, we could say that they have to meet the conditions in five years, and we can tell them we're going to review their status then. We can say, if you meet those requirements we put forward to you, then you may join the G-7 to make it the G-8. That's my first question.
My second question has to do with nuclear safety again. In this report, on page 6, you mentioned that four countries - Russia, Ukraine, Lithuania and Bulgaria - have nuclear power plants that are as dangerous as the one in Chernobyl. I think Armenia is one of those countries too.
Can you confirm if the Medzamor nuclear plant in Armenia is working? How do you rate it as far as safety for that region is concerned?
Last, each G-7 country has separate standards to measure economic indicators such as employment levels, inflation levels, or what have you. Why can't we have a uniform standard to measure those things so that it would be easier to communicate information? It would be much more accurate. The way we measure unemployment here is different from the way they do it in the States. If we were to apply our standards to them, maybe they would have higher unemployment than we would, or the other way around. If we can get the G-7 countries on a uniform measurement scale, I think it will go a long way towards having a true picture of the economic situation in the G-7 countries.
Thank you.
Mr. Smith: Thank you very much.
Mr. Chairman, first of all, with respect to Russian involvement in an eventual G-8 or, I might add - because I think it's relevant - with respect to Russian involvement in the World Trade Organization or the OECD, to take two, I think the international community finds itself somewhat caught. It's obviously in our interests to have Russia as a full member that is fully integrated into the international system, because we all want to ensure that Russia stays on the route to democracy and towards a market economy.
The question therefore becomes one of ensuring that Russia can meet the standards. It's not a question of changing the standards. You can't change the standards for Russia and not change the standards for someone else. China in the WTO is an example. You have to have consistency. That is an important question. How does one balance what those standards are and how they're applied against the enormous importance of fully integrating Russia into the global system? Obviously Russia is very sensitive to these questions.
With respect to G-7 or G-8, the reality is that even though there may be differences among us in how we define unemployment and other economic indicators - and I will ask Mr. Carin to comment on that in a second - even though there may be such differences, at least we're all in the same ballpark. Yet you just need to see the situation in Russia with your own eyes, and you realize that the kinds of issues that the Russians are facing, such as employment, reform and social safety nets - and the kinds of questions Russians are facing - international finance, financial stability and the ruble - are qualitatively different.
I think what we have said to the Russians - and the Russians accept this but they obviously would like to accelerate the process - is that in the case of the WTO or the OECD there are certain norms they must meet, and with respect to the G-7, we're not averse - indeed, it's the opposite - but their economy must get to a point where we're talking about the same kinds of things.
We've not set a deadline. The risk of setting deadlines is that it is enormous pressure, not just on them to get there, which could be desirable, but on you, as to whether they've actually got there or not. After you've set a deadline, there could be a lot of very negative consequences if you have to say no, I'm sorry, but you didn't make it and we need a second period of five years.
.1000
I'm not sure that actually setting a deadline is possible, but I do agree entirely that it is important to set clear criteria and that they know what the criteria are. Therefore, one can make a judgment as to whether progress is being made and how much more remains.
With respect to the nuclear power plant in Armenia, I would like to get back to the chairman with a precise answer, unless any of my staff has it. My belief is that the plant has been restarted, and we're not entirely happy with that. We have talked to the Armenians about that fact. Before anybody acts on what I have said, I would like to come back with a clear response, and you will have that by tomorrow morning.
Again, Barry, if you have any more on that, please add it. Perhaps you can answer the third question and maybe help me on the second.
Mr. Barry Carin (Assistant Deputy Minister, Trade and Economic Policy, Department of Foreign Affairs and International Trade): We'll have to get back to you because I don't know if it's operating today.
I do know that in terms of the safety concerns with respect to Medzamor when there was some issue 15 or 18 months ago about reopening it, the nature of the concerns had more to do with the prospects for violence and civil strife in terms of the difficulties it was having with Azerbaijan and also with respect to earthquake design. There was a considerable effort made by the Armenians to try to alleviate western concerns.
A former vice-president of AECL - Mr. Mooradian, I believe - was involved in representations that were made. I think the impression they finally managed to convey to the experts in Vienna was that the safety concerns were of a different order of magnitude. They were still concerns, not up to western standards, but not of the same nature of priority concerns as those in the four countries mentioned.
We'll have to get back to you on the precise details.
The Chairman: Thank you very much.
Mr. Smith: Do you have anything on the economic criteria, Barry?
Mr. Carin: I can only echo what Mr. Smith had to say in terms of the actual nature of the discussions if you look at the topics that were on the agenda of Detroit or the Lyon employment conference. If we're talking about unemployment or employment problems, which really are the pith and substance of the parts of the summit that deal with our domestic policies, the kinds of the questions that are dealt with are the efficacy of payroll taxes, sharing working time, early retirement, and small and medium-sized enterprises.
These are the kinds of issues we would discuss amongst ourselves or in the OECD, but there's no partner to discuss them with in terms of the Russians. They don't have any infrastructure along those lines. They don't have the same nature of...
Mr. Assadourian: What about within the G-7, though?
The Chairman: He's asking about the criteria within the G-7. Go ahead, Tom.
Mr. Bernes: I mentioned earlier that one of the conclusions of the interim committee two weeks ago was approval of a new set of data standards by the IMF. Indeed, this is a step in the right direction. Clearly you've identified a problem, which is that the statistics are not always comparable. The new data standards that have been approved attempt to move that process forward in terms of the categories of data to be provided, the periodicity, and some progress on trying to ensure there's a common framework. We're not all the way there yet, but it's a major step forward, which should help us.
The Chairman: My understanding is that quite often there's a huge discrepancy between our export trade figures and those of the United States. They'll produce one set of figures and we produce another set of figures. If we can't get that in order, what's going to happen with Russia?
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I wonder if I could follow up on Mr. Assadourian's point about Russia being a full member of the G-7. Is there any concern about what Russia's role as president would be if it were admitted as a full member of the G-7, when its time came on? We in this country made a point of having some control over the agenda of the G-7 when we had the presidency. Is that one of the reasons one would be concerned, or is it just assumed that once they have themselves coordinated with the economies the rest will follow?
Mr. Smith: I think you're right, Mr. Chairman, at this point in history. I think it's significant that although the Moscow nuclear summit was hosted by President Yeltsin, there was a co-chairmanship between President Yeltsin and President Chirac and the French took a very active interest in the management of the agenda.
The other thing I would add is that as G-7 members look at this issue, it is not certain President Yeltsin will win the next election in Moscow; the second round. Mr. Ziouganov might. That would itself pose some rather complicating questions, were that to happen and were one to be in a full G-8 mode.
The Chairman: Thank you.
Mr. Penson.
Mr. Penson (Peace River): I want to ask you to address the issue of the debt problems, our involvement through the IMF in restructuring debt. Perhaps you've covered this. I'm sorry I was late for the committee.
I would like you to comment first of all on our involvement through the Paris Club and what our commitments are there in terms of debt write-down, what we are committed to. Also, my concern is that when we are talking about writing off debt to Third World countries, it shouldn't be written off. I believe it should be suspended until they have the ability to pay. At some point in the future...
In the past we've seen heavily indebted countries restructure and they have been able to get their economy going. Then they have the ability to pay that back. I don't believe there's a constituency in the Canadian public for a complete write-off of debt, especially when we're indebted as a country ourselves.
So I'd like you to comment on what our commitments are through the Paris Club, what we've committed Canada to, what that ongoing commitment is, and how you view this business of debt write-down as compared with suspension of debt.
Mr. Bernes: The Paris Club does not normally engage in debt write-down. In fact, it is a rescheduling, as you've suggested as a better course of action, with which we agree. It's a negotiation to restructure the debt so it is sustainable. So while it is repaid over a longer period, although there may be a grace or suspension period, the money does come back. I don't have the precise numbers with me for the Paris Club activities, but certainly we could provide those to you.
The Paris Club meets to review cases essentially on a monthly basis. They've just concluded an agreement on the Russian debt. I would stress it involves no debt write-off. It's a rescheduling over a longer period. The private banks, through the so-called London Club, have also agreed to do that.
About multilateral debt, I did mention this in my opening remarks, but following the call at Halifax for a comprehensive multilateral strategy to deal with the debt of the poorest countries to the multilateral institutions, the IMF and the World Bank presented to the ministers in Washington a couple of weeks ago a proposal, the broad framework of which was endorsed. Some significant details are still to be worked out. That will be part of the lead-up to Lyon. One hopes to be in a position to reach some final decisions by the time of the fall meetings of the IMF-World Bank.
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While bilateral official debt can be handled through the Paris Club, private sector debt through the London Club, and you still have the multilateral component. It is critical for some of the poorest developing countries. This will complete that strategy. We're confident there will be progress this fall.
Mr. Penson: Just to follow up, last year, when Canada wrote down debt to Poland on Canadian Wheat Board loans and I think on loans issued by the EDC, were they not written off as opposed to rescheduled?
Mr. Bernes: That is correct. It wasn't in fact last year, although the numbers appear in the public accounts because of the accounting practice. Essentially that decision was reached about five years ago.
There were two countries involved: Poland and Egypt. Because of the circumstances, because of the enormity of the debt burden those countries faced and because of a broad-based international consensus that encompassed a degree of burden-sharing amongst the major industrial countries, there was a decision to write down some of that debt. As I said, that gets reflected in the public accounts each year as debt becomes due and the agreed amount is written down.
Those are two exceptional cases. The general rule is sovereign debts are sovereign debts and they are to be repaid.
Mr. Penson: Can you comment on what our commitment is to the Paris Club agreement? What is Canada actually committed to in terms of amounts we would be prepared to reschedule or write down?
Mr. Bernes: The discussions take place on a country-by-country basis, and it varies greatly.
What happens in the Paris Club is there is general agreement on a framework with respect to a particular country, and then individual countries negotiate with the debtor country their own precise arrangement under the general umbrella, which, as you pointed out, involves, in our case, usually EDC and/or the Canadian Wheat Board debt.
I don't have the details with me, but certainly I'd be happy to provide you and the committee with what reschedulings have taken place over the recent period.
Mr. Penson: And if there's some framework for guidelines as to what we are prepared to... Or are you saying that whatever debt those countries have incurred with Canada would be subject to a Paris Club agreement at some point, if that were necessary?
Mr. Bernes: That's right; it could be, if there's broad agreement. Once again, there's a negotiating process amongst the creditors. The objective of all creditors, including governments, is to ensure they get paid. The question is how do you ensure that a heavily indebted country is in a sustainable position that will allow it in fact to repay the debts?
The Paris Club is a very informal process. There are no official rules. Various broad guidelines have been reached in the past in terms of how, and how much debt, one is prepared to reschedule, and these provide a context. As I said, the individual negotiations very much come down to a country basis.
Certainly I can get to you and to the committee the general guidelines in any recent reschedulings we've been involved in.
Mr. Penson: Just to finish up, Mr. Chairman, my point - and I think you got it - is I believe we should be suspending or rescheduling rather than writing off, because some of these countries in the future may have the ability to pay that back. Considering that we are fairly heavily in debt ourselves, it seems ironic that we would write it off completely.
The Chairman: Mr. Bergeron.
[Translation]
Mr. Bergeron: From Mr. Bernes' answer, I understand that a great deal of work remains to be done. However, I'm afraid I did not hear you comment on your expectations regarding the current chair or on the reform of international financial institutions between now and the next G-7 summit.
Mr. Smith raised an important issue about the G-7's role in the process of reforming international financial institutions.
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This is an important issue, and one our committee has studied on several occasions. To what extent was the G-7 able or unable to initiate a reform of international financial institutions? Who should initiate the process? The G-7? The United Nations?
We have wondered about the representativity of the G-7. A few moments ago, mention was made of the fact that Russia might join the group. Is the G-7 a sort of club of the seven most industrialized countries that ends up playing a political role? Or are we now going to make the G-7 into a more political body by allowing Russia to join?
Furthermore, if the only criterion is the most industrialized countries, would Spain not be eligible for the G-7, since its economy is now larger than Canada's? Might the G-7 become the G-8 or the G-9? Finally, what is the G-7? What role can the G-7 play regarding the reform of international financial institutions?
Mr. Smith raised an important point, one that we have wondered about ourselves. Once we decide that there can be a G-7 summit on the reform of international financial institutions, we take for granted that the G-7 can play a role. In fact, that is why we wrote a report on the reform of international financial institutions as initiated by the G-7. If the G-7 claims to be able to play a role, it should not say that it cannot initiate these reforms so as to justify the fact that it has done very little in this regard.
Mr. Bernes dealt with the issue by saying that it depends whether you see the glass as being half full or half empty. At the moment, I don't even think the glass is half empty.
I come now to my question. I have very little information about the results of the Halifax Summit and the follow-up that occurred. Is this not flagrant proof that the public information strategy that the government was supposed to set up was defective, in that people do not feel that any interesting results came out of the summit itself, nor out of Canada's chairmanship? There is also very little hope regarding the chair of the G-7 as we move toward the next summit.
Mr. Smith: I expect that in Lyon, the emphasis will be on institutions, including the United Nations, and on development.
The G-7 is in a position to initiate reform, to suggest ideas and to reach agreement among the broader membership of the organizations. In the area of international trade, it has been agreed that there should be leadership from four countries, including the Commission of the European Union.
It has also been agreed with respect to the other two institutions in Washington, that the G-7 play a leadership role, involving its ministers of finance. However, we have to work with the other members to reach an agreement designed to change the direction of an institution.
My final point concerns the possibility of new members of the G-7. This morning we are talking about the G-7 and the G-8. Some countries may think that it would be advisable for China and other countries to some day become members. However, we must look at our interests quite closely, because if we end up with a G-9, a G-10, a G-11 or a G-12... I can tell you that there will be no discussion of important international economic issues if the group contains many other member countries.
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I think we should focus on the G-7 or G-8 and the issue of Russia, and not talk about the possibility of admitting Spain, as you mentioned. I think we have to take our own interests into account. Canada's interest is to remain a member of a club that discusses international economic issues.
[English]
Mr. Bernes: I think Gordon has answered your first question in part, which was the French perspective. The reform agenda was proudly endorsed, and the discussions in which I participated under the French chairmanship are designed to carry on the process launched in Halifax and bring it to its conclusion.
I think the sense is that with respect to the IMF there's been a lot of progress, with respect to the World Bank it's somewhat less, and the focus on development, which will tie the World Bank and the other institutions together, is very much in the French mind.
On the question of information, it is always a problem that maybe there is inadequate information about what has been achieved. I think we had provided to the committee Canada's year as G-7 chair, which attempted to go through the Halifax conclusions and indicate what follow-up there has been. Certainly it's been a subject when both Gordon and I have appeared before this committee before, and again today we are here to talk about it. Ministers have addressed the questions in speeches.
We are in the process of finalizing the annual report on the Bretton Woods institutions, which is required to be tabled to Parliament by the end of May. Certainly those documents will address the reform process over the last year.
So we are trying to get the information out. If there are ways in which we can improve that process, we're more than ready to look at them.
[Translation]
Mr. Dupuy (Laval West): I'd like to come back to the G-7's nuclear program.
[English]
The G-7 countries are pursuing three fundamental objectives in their nuclear agenda. One is non-proliferation; the second is security; and the third is safety.
Under non-proliferation, all the instruments and the policies are of long standing. They've been put in place. There of course is adhesion to the NPT full-scope safeguards and the London exporters club, and all this functions in a very coherent way.
Under security, there are all the disarmament measures, including the test ban and of course efforts to prevent diversion to unauthorized uses or unauthorized users.
Under safety, basically the issue is improvement of the handling of nuclear equipment, material, or waste.
Each of these objectives is pursued with a very coherent system, but when you look across, there are some inconsistencies and some incoherence. The basic problem focuses around China, India, and Pakistan.
The Chinese of course present less of a problem, because since they are a declared nuclear weapons state, everyone can say that they are within the NPT. But under the security heading, they still give indications of wanting to test. For what it's worth, there is evidence that they may be transferring material, equipment, and technology, at least to Pakistan.
On safety, the problem is even more acute with respect to India and Pakistan. Ideally, our policies should bring these two powers, which are significant nuclear powers, within the whole loop and within the whole system, but our pursuit of non-proliferation tends to drive them out. So there is an inconsistency there.
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Moreover, about safety, two countries belonging to the G-7 had a specific problem, the United States and Canada, because we built reactors in India. The United States built a reactor and we did too. We have built a reactor in Pakistan. To ensure these reactors work safely we have to have a certain degree of cooperation, which is prevented by the non-proliferation approach. Our reactors are closed down, and I gather the American reactor is in trouble.
First, is there some validity in the analogies I just made? Secondly, is there any evidence in the discussions now going on among the G-7 countries that they are prepared to review or look over certain aspects of their policies to strengthen the system as a whole rather than to strengthen some aspects of the system, thus increasing what may be important divergences in the whole system?
The Chairman: Deputy Minister, in your answer, I hope you can assure us this is the only area where your department has any inconsistencies. Or perhaps ``inconsistencies'' is a theme with which we can pursue much of our discussion.
Mr. Smith: I haven't yet acknowledged, Mr. Chairman, that there is inconsistency. But I will seriously acknowledge the validity, in my judgment, of Mr. Dupuy's analysis.
Quite frankly, I think what ``we'' - not Canada particularly but the western countries - have done is, as you say, put our emphasis on non-proliferation, not wanting to deal with the reality in India and in Pakistan but elsewhere as well. Israel is one you didn't mention. The reality is there are nuclear weapons capabilities in more places than people sometimes like to acknowledge.
I would just add to your analysis that there are also periodic indications - I mean recent ones - that both in India and in Pakistan there are preparations for further testing. The Indian and Pakistani governments say they will not test. Nonetheless there are sometimes indications that pressures are coming from their own military.
I would agree with Mr. Dupuy's analysis that one needs a comprehensive policy. The hope is that this year the Chinese will in fact sign on the CTBT with the Australian definition: no testing at all. It may be very hard for India and Pakistan to resist. But as you know well, the Chinese, the Indians, and the Pakistanis have always felt when the other nuclear powers discuss nuclear issues they really don't come to address their security issues, and that's one of the reasons they've maintained their own nuclear programs. So there was discussion in Moscow about China. There wasn't as much discussion about India and Pakistan.
But I would agree, Mr. Chairman, with Mr. Dupuy's analysis that these issues need to be brought together as part of a coherent policy, and I would like to take back these thoughts to the department and think how we can approach these ideas leading up to Lyon, where of course there is also a political declaration, which can help us deal with some of these subjects.
The Chairman: Mr. English.
Mr. English (Kitchener): The report you gave us here has a considerable section on UN reform, which was on the agenda of the Halifax conference. Of course last year was the fiftieth anniversary and we had a whole pile of studies, some of them Canadian, on UN reform. In the last couple of months the Secretary General has been writing articles that don't talk about reform; we're talking now about potential collapse.
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I notice that you say the UN financial situation continues to weaken UN capabilities and undermine reform initiatives and may reach a crisis point in mid- to late 1996, so it requires ongoing, high-level attention. What is the situation now, and what are you preparing for? Is reform dead, and what attention is going to be required?
Mr. Smith: I don't think reform is dead. Indeed, the reform process goes on. If there were more time, Mr. Carin could elaborate on that.
Coming to Mr. Bergeron's question, there have been meetings amongst the eight, including Russia, on the reform agenda. They have taken place both amongst the Foreign Affairs sous-sherpas, of which Mr. Carin is one, and in the headquarters of the various UN organizations. It is going ahead.
The problem is the looming financial crisis. The UN is now taking money from the peacekeeping fund to maintain a basis for paying its bills. There are indications now that, as a result of the agreement reached with the American Congress, the U.S. is going to be repaying its arrears, perhaps at a bit higher rate than we had anticipated, which is good news, and that there are other arrearages around that are also going to be paid.
This crisis is always ahead, but we thought it was going to occur this spring, so it may not even occur in the fall, or it may.
But in the American congressional mind... I know an important meeting will take place between Canadian parliamentarians and American parliamentarians, in which - if I may, as a public servant, give gratuitous advice - the whole question of the United Nations is a critical subject to raise. Americans seem to forget that the effective functioning of the United Nations is very much in the American interest. While the UN is not the paragon of efficiency, fewer people work in the UN than work for Congress alone. I'm not speaking of the whole U.S. administration, but of Congress. Let's get it in proportion.
Where we disagree with the Americans particularly is that they should use the payment of their arrearages as a lever on reform. We think that's wrong. We're prepared to work with them to have the UN both more effective and more efficient, but not to use that as a stick.
It is very important, if I may say so again, that we do all we can to ensure the American political elite don't have this, to my mind, really quite misguided conception of the UN as somebody else's problem and somebody else's asset. It's theirs.
The Chairman: Thank you very much.
I don't consider your comment at all gratuitous. I'll be chairing the committee with the Americans that will be dealing with this very issue of financing international financial institutions. Mr. Assadourian will be there, Madame Debien from the Bloc will be there, and I think Mr. Grubel's coming from the Reform Party. We'll all be speaking to our American colleagues to try to encourage them to ensure that Congress is willing to continue to support these institutions.
Thank you very much, Mr. Smith and colleagues, for coming. We appreciate it.
It's nice to see somebody here from the finance department, Mr. Bernes. If we could get you back more regularly, maybe we could solve more of our problems.
Thank you very much. We're adjourned until 10:45 a.m., when we will be downstairs in room 112 north, where we will continue our study of the circumpolar north. We'll break again at 12:30 p.m.