Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 3 - Evidence
Ottawa, Tuesday, June 4, 1996
The Standing Senate Committee on Foreign Affairs met this day at 4:00 p.m. to examine the consequences of the economic integration of the European Union for the national governance of the member states and the consequences of the emergence of the European Union for economic, political, and defence relations between Canada and Europe.
Senator John B. Stewart (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, we have with us today the Honourable Art Eggleton, Minister for International Trade to assist us in drawing our work on this reference to a conclusion.
Mr. Eggleton, please proceed with your opening statement, and then we will have some questions for you.
Hon. Art Eggleton, Minister for International Trade: Thank you, Mr. Chairman. I am pleased to be here today with my officials. With me are Jean-Pierre Juneau, Assistant Deputy Minister, Europe Branch; Gordon Venner, Deputy Director of the European Union Division; and Paul Haddow, Director of Tariffs and Market Division.
[Translation]
I do not need to remind honourable senators of the importance of the European Union. It is a vital market for Canadian exports of goods and services.
[English]
The EU is also Canada's second-largest market, second only to the United States. Canada's exports to the Union grew by 33 per cent in 1995, reaching some $16 billion, almost three-quarters of which were fabricated materials or end products. Canada's imports from the Union amounted to some $22.5 billion, which represented an increase of 23 per cent over 1994. While the balance is still in their favour, our exports are increasing.
A large percentage of our exports are high-value-added goods and business services, an ever-increasing sector. While there has been a decline since 1985 in exports of certain categories of food or inedible raw materials and fabricated products, there has been a steady increase in exports of high value-added manufactured or end products.
The Union is also Canada's second-largest foreign direct investor and the second-largest destination for Canadian investment abroad. The EU's direct investment into Canada reached $36.2 billion in 1995 and represented 22 per cent of the total stock of FDI in Canada. Here I should note that the investment from the EU has been in areas of traditional importance to Canada such as financial services and industrial production. On the other side of the coin, our investment into the EU amounted to $28 billion in 1995, representing 20 per cent of total Canadian FDI abroad.
Canada is a profitable home to over 4,000 subsidiaries of European companies. Many hold regional or global mandates for research and development or manufacturing and then export into those markets as part of that mandate. These small and medium-sized subsidiaries act as important channels for transfer of management expertise and advanced technologies to Canada.
Given the tremendous volume of Canada-EU trade and investment, the percentage affected by irritants is minimal; however, issues that do arise generally prove very difficult to resolve.
We were able to make substantial progress last December when we negotiated an agreement with the Union on a broad range of outstanding trade issues. We successfully completed negotiations with the EU under Article XXIV:6 of the GATT, which deals with compensation to Canada for the latest round of EU expansion to include three new countries. This agreement also settles Canada's outstanding rights on barley stemming from earlier EU expansions, beef countervail and cheese quota issues.
In addition, that agreement provided for an interim solution with respect to the EU's implementation of its obligations on grain under the Uruguay Round dealing with agriculture issues.
We are also looking at the consequences of future expansion of the EU eastward. By 2025, a union of some 25 to 27 member states could have a population approaching half a billion persons -- third in size after China and India. The economic potential of such a vast and wealthy market is enormous. Canada must be ready to take advantage of union expansion by encouraging Canadian business to look eastward toward Central and Eastern Europe.
Developments in the Union, such as expansion and monetary union, will form the basis of some of the fundamental issues that Canada must face with regard to the European continent as we enter the next century. Therefore, a detailed examination of a maturing European Union is required which will entail in-depth research and analysis. With this in mind, my department is in the process of conducting a number of studies which should be completed by March 1997.
A top priority for Canada is an EU directive that would ban the import of fur from 13 species of animals, effective January 1, 1997. We are working on with other countries to deal with the issue of leg-hold traps, and we hope to meet that deadline with a resolution.
Other trade irritants we are currently managing include the European Union's ban on imports of untreated lumber and Italy's efforts to restrict imports of bovine semen. The EU also continues to object to a Canadian countervail on beef shipments, our failure to comply with their requests in terms of wine appellations. Provincial liquor board practices are also of some concern to them. These are not, by and large, major concerns but they are still irritations.
We do share some concerns, particularly about extraterritorial application of U.S. law. Measures in the Helms-Burton Act set a dangerous precedent that could seriously damage the international investment system and global trading environment. The European Commission and Parliament has also criticized the U.S. legislation. The EU Parliament passed a resolution which condemns the Helms-Burton Act and all the unilateral measures adopted by the U.S. against world free trade.
It is important that international pressure be maintained on the American administration to exercise its discretionary authority and to minimize the effects of the Helms-Burton Act on third countries. Canada is considering amending its Foreign Extraterritorial Measures Act to counter the effects of the Helms-Burton Act. If other countries take similar action, this would increase pressure on the United States.
Canada and the European Union rely on the World Trade Organization to provide the framework for our rules-based trading relationship. Since 1976, we have also relied on a Framework Agreement for Economic Cooperation to manage bilateral economic and trade relations. The agreement provides for annual consultations at the ministerial level as well as an extensive series of consultations among officials responsible for various economic sectors. The last such ministerial meeting was held on March 18, in which I participated with Sir Leon Britten from the European Union.
Canada remains one of very few nations in the world which must export to the Union over the full common customs tariff. The United States, Japan, Australia and New Zealand are the others in this category.
Even after reducing tariffs under the Uruguay Round, the Union will still levy significant duties on such products as aluminum, copper and other nonferrous metals, chemicals, telecommunications equipment, fish and consumer packaged-fish products, agricultural products, and wood products. Duties on these goods range from 3 to 10 per cent and up to 25 per cent for certain fish products.
Canada could better compete in the European market if we had a level playing field with other countries already granted preferential entry. I raised this matter at the quadrilateral meeting that was held recently in Kobe, Japan, and hopefully we will be able to make some progress in some of these areas before long.
The accelerated pace of change that has taken place in the Union over the last few years, the consolidation of the single market, the recent enlargement and the implementation of a series of free trade agreements with Central and Eastern European countries have also changed the nature of the marketplace in Europe. These changes also present great challenges to Canada. It means tougher competition, non-tariff barriers and increased competition with Canada when it comes to foreign investment.
On the other hand, the single market and the transition to market economies in Central and Eastern Europe will promote growth and stimulate demand for imports, creating greater opportunities for Canadian business. The Canadian government is closely monitoring the European Monetary Union process. Because it is still not certain how EMU will be implemented -- for example, how many European Union countries will be joining it -- the implications for Canada are not yet clear. Projections are highly speculative at this point, which is why we are engaged in an in-depth study on this issue.
Given the size of our trade and investment relations with Europe, there is now a need to move from a transatlantic structure defined primarily by strategic imperatives to one that is increasingly defined by our shared economic interest, reflecting trade liberalization efforts in other regions of the world, APEC and the Free Trade Agreement of the Americas, et cetera. The new transatlantic initiative is designed to serve that purpose.
[Translation]
At this moment we are at a critical stage in our negotiations for a political declaration and action plan with the European Union.
[English]
We have narrowed our disagreements down to some very key issues. We are at a critical stage in the negotiations, with the ministerial meeting of the European Union occurring in a few days, on June 18. If an agreement is to be reached before the end of the current Italian presidency period at the end of June, then you can readily understand that the negotiations now under way are critical. We have to come up with a good agreement for Canada; otherwise, we will not be able to proceed in the desired time frame.
We have suggested the agreement include a joint study on transatlantic trade liberalization, or the transatlantic marketplace as it has been referred to in the United States action plan. We also seek language which will recognize our key role in transatlantic economic relations with the European Union and the United States. We also have proposed important initiatives in the cultural field, particularly in audio and audio-visual cooperation and films, which we would like to see reflected in the agreement.
The resolution of these issues and others will determine whether we do, in fact, reach an agreement. There is also, of course, the matter of the United Kingdom's fight with the European Union over the mad cow disease and resultant boycotting measures that will come before the ministers.
Our efforts to expand Canada's trade horizons do not stop with Europe. As you are aware, opportunities for export growth and investment in the American hemisphere are quite good. If current trends continue, by the year 2000 our hemisphere will boast a combined population of over 750 million and a GDP of over $9 trillion.
Canadian exports to Latin America almost doubled in four years, from $2.6 billion to $5 billion. This is more than our exports to France and Germany combined, just to give you some perspective on it. Canadian investment in the Americas has also grown from $6 billion to $13 billion over the last four years.
The extensive bilateral activity and dramatic pace of unilateral trade liberalization in the Americas has led to the objective of creating a free trade area of the Americas, or FTAA, which would link the continents and the islands in the Caribbean under a single trade and investment regime. When leaders met in Miami in 1994, they committed themselves to the goal of completing negotiations on an FTAA by 2005, a very ambitious schedule. That means that substantial progress would have to be made by the end of this century, and Canada is seeking early concrete progress on the creation of the FTAA. We believe that we have to be in a position to start negotiations toward the agreement next year if we are going to meet this very ambitious time frame.
We are also engaged in the negotiation of an interim bilateral free trade agreement with Chile. Negotiations are going on right now in Ottawa which will further Canadian trade and investment interests and act as a bridging arrangement pending Chile's full accession to NAFTA. The United States is not able to fast-track the Chilean negotiations at this time, so we are proceeding on a bilateral basis.
Chile, I should point out, is one of the strongest, most stable and fastest-growing of the larger Latin American economies. Two-way Canada-Chile trade has more than doubled over the past decade, reaching a high of $665 million in 1995. Canadian exports to Chile are at $386.1 million, up 20 per cent over 1994. Even more impressive are the investments, both those that are in place and those that are planned, which total some $7 billion. Chile is clearly a strong economy where Canadians can do business successfully.
Mr. Chairman, let me conclude with a word about the Pacific dimension of our economic and trade relations. Rapid growth in the economies of the Asia Pacific region has increasingly caught the attention of observers. Building on high domestic savings rates and soundly managed economies, the Asian tigers -- Hong Kong, Taiwan and Korea -- and the ASEAN countries have followed in the footsteps of Japan. In all of these cases, growth in imports to these economies outpaces overall GNP growth by a considerable margin. Rapidly expanding middle classes bring the promise of continuing consumer demand.
Canada's foremost window in this dynamic region comes via our participation in APEC, the Asia Pacific Economic Cooperation forum. At the 1994 meeting of APEC, leaders set the challenging goal of achieving free and open trade in the region by the year 2010 and by the year 2020 in the case of the developing economies.
In 1997 Canada assumes the chair of APEC for that year, and we have designated 1997 as Canada's year of the Asia Pacific. We hope to work actively with partners in the private sector and NGOs across the country. Our objective is to have a legacy of greater Canadian engagement and activity in Asia which will help build growth and prosperity in Canada into the next century. The active support of this committee through 1997 will be an enormous asset in supporting our efforts. We need to create a greater awareness about the potential in that market for Canadians, not just out on the West Coast, where there is a greater awareness, but throughout Canada.
[Translation]
The Canadian government is vigorously engaging the European Union, South America and Asia to develop closer political and economic ties.
[English]
Mr. Chairman, I now welcome your questions.
The Chairman: Thank you, minister.
Senator Andreychuk: It seems that, as the European Community expands, we are increasingly being marginalized to a position of compensating for the markets we are losing. When the Foreign Minister of Poland was here recently, I asked him whether Poland had thought of increasing trade and investment with Canada rather than looking to Europe and to joining the Union where they might have march to that tune more than their own initiatives. He said, quite candidly, that their first priority was to join the Union and that all else was secondary.
Our experience has been that, when the expansion occurs, we have to fight for our fair share or compensate for our losses. Are there any new strategies or initiatives in your department to get ahead of the game? My concern is that we are losing ground and perhaps not getting first dibs on those markets where we might have some unique perspectives, and that we are losing opportunities in commodities and services for small and medium-sized areas of the country which desperately need these markets.
While global figures indicated that our overall trade is increasing, are there any statistics which indicate how individual regions of Canada are affected?
Let me give you an example. We were exporting potatoes to Europe, but to only three countries. When other countries joined the European Union, we began to lose our fair share, which had a dramatic effect on Atlantic Canada.
How can we take advantage of the expansion and, at the same, ensure that we are not losing investments and opportunities for small- and medium-sized industries in all regions of Canada?
Mr. Eggleton: As I indicated earlier, this is one of the areas where there are studies under way. I will ask the officials who are engaged in those studies to respond further, if they wish.
Mr. Gordon Venner, Deputy Director, European Union Division, Department of Foreign Affairs and International Trade: We have had some success in our compensation negotiations in not only protecting our traditional exports but also in gaining improved access for some products. In December, for example, we were able to sign an agreement on oats for racehorses for a small production facility in Western Canada. Not only were we able to gain access to preserve the existing exports into the EU market, but we also obtained a quota that probably will lead to an increase in those exports. That is a difficult thing to do, but every time you can do it, it adds up.
In terms of what we are doing proactively, the minister referred to the action plan and the efforts being made to liberalize trade between Canada and the European Union in the long term.
Senator Andreychuk: I am pleased that you mention in your notes that the Helms-Burton Act is not a Cuban issue, but that it is a violation of international law which has long troubled you. I agree, and I am pleased to see that you are moving in that direction.
Mr. Eggleton: We are continuing to pursue that matter. We are getting a great deal of support and cooperation from the European Union on that matter; as well, we are pursuing it through NAFTA.
It is a violation of international law, but also a violation of our trading agreement with the United States and Mexico under NAFTA; therefore, we would support Mexico in pursuing that as well. We are also looking at possible amendments to the Foreign Extraterritorial Measures Act to protect Canadian businesses which are lawfully doing business in Cuba.
The Chairman: You mentioned in your opening statement that a number of studies are ongoing concerning the influence, the results of European Union enlargement and of monetary union, which are to be completed by March 1997. Could you give us a list of those studies. It would be interesting to know whether that work is being done within the department or whether some of it is being contracted out.
For example, are you examining the effects of the enlargement of the European Union on international agencies or the allocation of voting power at the International Monetary Fund? Are you examining the whole question of the composition of the G-7, or do the Europeans have it both ways? When they are considering an international agency, each of the major countries counts as one; however, when they confront us on trade matters such as we have just discussed, they say that you cannot have special arrangements with, let us say, France or Germany or Great Britain, but that you have to deal with the European Union as a whole, as one. Do you have a study on the influence of the enlargement of the Union on international, political and economic institutions, perhaps even the UN?
Mr. Eggleton: The short answer to your last question is yes, but let me indicate to you what the four studies are: first, the effect of monetary union on Canada's global competitive position; second, enlargement of the European Union to include Central and East European countries, Malta and Cyprus, possibly resulting in a diversion of trade and investment flows from Canada; third, the effects of European enlargement on international organizations; and, fourth, development of the European Union common foreign and security policy.
Mr. Jean-Pierre Juneau, Assistant Deputy Minister, Europe Branch, Department of Foreign Affairs and International Trade: The question of the European Union situation is a complex issue. For example, when we speak about trade policy issues, it is quite clear that the whole responsibility to negotiate on behalf of these European countries has been transferred to the European Commission. That is why we meet every year with Sir Leon Britten who has the mandate to negotiate those issues.
Voting rights and international organizations are also a complicated issue. For example, when they were looking for a new secretary-general for the USC, Canada took the decision to support any candidate coming out of Central or Eastern Europe. They could not agree on that. Then the European Union decided to present an Italian candidate. We presented our own candidate just to prove the point that we do not accept that in these organizations. It is fair for the 15 members of the European Union to vote as a group for the same candidate. Obviously, our candidate was not elected; the Italian candidate was elected. More and more countries are sensitive to that particular problem.
The United Nations Security Council is a complex issue. It is difficult to see how the Security Council is going to be expanded in the future, and nobody is seriously considering the possibility of replacing France and Great Britain by one EU representative that would have a right of veto. The same thing applies with the G-7 countries. In fact, as far as the G-7 group is concerned, eventually this group may be restricted to basically the United States, Japan and the European Union. The European Union is already there, but there is also Germany, Italy, France and the United Kingdom. This is a question that we are following closely.
At the OECD we are successful with our candidates from time to time, but it is a complicated issue and a delicate issue. Therefore, we want to study it a bit further to see the implications it can have on the role of Canada in international organizations.
The Chairman: I suppose the G-7 example is a fairly dramatic one. The European Union has four of seven places in the G-7.
Mr. Eggleton: Yes. However, on trade issues they have only one voice: they are one of four.
Senator Grafstein: First, let me welcome the minister to this committee. I had the opportunity to travel with the minister in his previous capacity as mayor, when he led the twinning of Toronto with Chungking, which was quite a pioneering effort. I was privileged to be the deputy chairman of that delegation. Then we travelled together to Germany when Toronto twinned with Frankfurt, to ensure a great commonality of financial interests. I was also deputy chairman of that delegation.
I can tell you that the minister comes with superb negotiating skills in many languages and in many regions, and I am delighted that he has taken on this complex and difficult portfolio, which is crucial to those of us who live in the greater metropolitan region.
Having said that my sense is that we don't quite have our priorities articulated on the question of public policy, maybe because things are moving so quickly on so many fronts. For instance, despite the fact that Canada's dollar is low, we are in a deficit position in Europe with respect to services, trade and investment, while at the same time we are in a surplus position with the United States.
I am not clear as to whether the policy of the government has established Europe as a priority in terms of dealing with these rather fundamental issues. In other words, we have not had a better time to be in a surplus; yet, we are in a deficit in places where we should be the most comfortable, much more so than Asia and other places. I am not clear about that. I am not clear about where our priorities are. I am not clear about why or if we are lagging behind Mexico and the United States with respect to our respective action plans.
I understand that Mexico was about to enter into a relationship with the EU this week, but that it was deferred because of the mad cow disease. Canada's friends in Europe are ready to help, but I understand that England is slowing down the culmination of our action plan with the EU in order to clog up the decision-making process at the EU because of the mad cow disease.
Where is the government's priority in terms of moving forward -- and I know that we cannot move forward on all fronts at the same time. Where do we think the biggest pay-off is going to be in terms of exchange, export of services, export of trade, export of investments?
Mr. Eggleton: In terms of our priorities, we are positioned geographically as a Pacific nation, Atlantic nation, or in the Americas. We are next door to the biggest trading country in the world and we have all sorts of opportunities which we want to explore. We are not shutting the door on anything, you are quite right that we do have to set priorities.
My priorities are threefold. One is to manage our relationship with the United States which is our biggest trading partner, with over 80 per cent of our exports and our biggest two-way investment, amounting to a billion dollars a day. Our exports to the European Union are approximately $16 billion; that equates to 16 days' worth of trade between Canada and the United States. It is big and it is important to manage that properly. That is where our businesses prefer to go; that is where they have the greatest comfort level, and we are there to facilitate their doing that. That is priority number one.
Number two is to expand trade liberalization within the framework of the rules-based system of the World Trade Organization, a fledgling organization which has come out of 50 years of GATT discussions. It is a little more than a year old and still has a big agenda to deal with. Not everybody that came through the Uruguay Round has implemented the Uruguay Round. Of 120 members, actually less than half have done it. Some of them are in progress and some have not even started.
We have a built-in agenda at the WTO because there are things left over from the Uruguay Round that have not yet been dealt with. Canada is playing a key role in helping to set the agenda to sort through all this. I offered to do that at the Kobe meeting of the Quad, and that offer was taken up by our partners.
The liberalization of trade within a world rules-based system is the second priority.
The third priority is to champion Canadian products, services and investment opportunities abroad and to provide the best possible services we can to Canadian entrepreneurs, to get them out in the field and more proactive about getting the information they need to compete.
I find that Canadians are becoming more competitive, that they can get out there and win. We need a lot more of them out there. Thirty-seven per cent of our GDP is in exports, up from 26 per cent in four years. We are certainly a trading nation today, but we are not a nation of traders because about 100 companies account for half of those exports, with 5,000 companies in total. We have a lot of room for improvement
The objective of doubling the number of exporters by the year 2000 was set by my predecessor, Roy MacLaren, and he passed it over to me, so that is a high priority.
Where does the action plan fit into all of this? Where does the European Union fit into all of this? We actually started the discussion with the European Union before the United States. The United States got their action plan out of Madrid last December. Last December we were not about to get anything in terms of an action plan out of Madrid, because we were still coming out of the fish war. That issue is still on the table. We felt quite strongly about that situation, and I think we have been proven right in the position we took on that matter.
The action plan also flows out of comments that were made by the Prime Minister when he was appearing before the French Senate in 1994. He suggested that we should look to improvement of transatlantic opportunities through perhaps a NAFTA/Union free trade agreement. I do not think the Europeans are particularly interested in advancing that far at this time; hence the term "action plan." It is a step in that direction, but it is a step that we want to take in terms of trade. We want to ensure that the provisions that were in the action plan with the United States are in this action plan; otherwise, we risk getting behind.
We are not behind the Mexicans. In fact, at one point it appeared that they were not going to proceed with an action plan, but they have been able to catch up. Now everybody is caught in this current circumstance of the United Kingdom vetoing everything that comes before the Council of Ministers, and that is bothersome for both of us. We are still going to push ahead with this and try to resolve the outstanding issues.
It is a priority when we look at it along with the other things we are doing -- APEC and a free trade agreement of the Americas by 2005 -- if we put them into the context of the world trading system, if we put them into the context of leading to greater liberalization of trade worldwide, if we put them into the context of being complementary to the WTO efforts, and we were particularly sensitive to that.
There is a committee of the WTO that looks at all these regional trading plans and agreements to ensure that they do funnel in that direction, and the Canadian Ambassador to the WTO is the chair of that committee. We are quite cognizant of how this fits into that second priority that I mentioned.
Senator MacEachen: Mr. Chairman, I join Senator Grafstein in his warm welcome to the minister and his, no doubt, deserved compliments.
As you know, this committee is examining what impact European developments, particularly the EU, will have on Canada. I was interested in the structure of the speech because for a time in contemporary history the Europeans had the view that Canada had gradually lost interest in Europe. That was not only fuelled by our intense preoccupation with the United States, but continental trade policy dominated Canadian politics for virtually 10 years. The Europeans were obviously reacting to what they thought was Canada's declining interest in them and in our obsession with the U.S.
We are taking some steps to reassert our interest in Europe and to resist the impulse that comes from specialized groups in the country to say that the new frontier is Asia-Pacific, the new frontier is the Americas, and that there is no value added in European activities.
I wondered why, as you were attempting to stress the importance of the European Union, you concluded your statement with reference to the Americas and Asia-Pacific. I wondered whether a European who might read your statement might say, "Well, obviously we are not strong enough as a single topic; we have to be buttressed by Asia-Pacific and by the Americas."
Is there a strategy there to say that we never talk about Europe, that it is not important enough in itself, that we have to roll in other regions of the world? I hope there is not a strategy there, because, as you pointed out yourself, this is a huge market, it is going to be bigger, and it is dynamic. No matter what people may say about the current spasms within the European Union arising from their trade problems, it has an internal dynamism that is going to push it ahead for a long time. That is my belief and, therefore, I appreciate the fundamental importance you attach to the European Union.
I was interested also, in addition to the structure of your speech, in the reference to this transatlantic structure, that we are to move away from a transatlantic structure, which is based upon security, to a new transatlantic structure which is based on economics. Are we going to move away from a transatlantic structure defined primarily by strategic imperatives -- and I would assume that by "strategic imperatives" we mean security considerations; maybe I am wrong -- to one increasingly defined by our shared economic interests? It is my view that the political importance of Europe and its problems have been clearly demonstrated in Bosnia, and that, no matter how much we would like to move away from the strategic imperatives, events are pulling us back.
I would appreciate some comment on that paragraph at page 3. My view would be that, obviously, we ought to create an economic transatlantic structure, but not at the expense of our political strategic interest in Europe. Maybe I misunderstood.
Finally, I was pleased that you made a visit to Germany last month, and I read your speech which you gave in Cologne. I thought you stressed very well the importance of Germany, and you did say that it was the economic motor of Europe. It is not only the economic motor of Europe, but it is in a sense the political force. Either awake or sleeping, it is the political giant certainly in Western Europe, and we have to watch it.
You stressed the importance of Germany, and I wondered whether in the achievement of your objectives in Europe and the European Union you find it more useful to work in Brussels or in Bonn?
What is the strategy? Is there a strategy there that we follow with respect to the European Union? Is it Brussels or Bonn together? And how do we capitalize on our association with the member countries in advancing our interest in the Union as a whole? I am sure that is all worked out, but it is true to say that members of this committee discovered, when we went to Europe, that the country that had the most interest in Canada was Germany. Is that right, Mr. Chairman?
The Chairman: That was certainly my impression.
Senator MacEachen: That was my impression as well. And the country that had the most readiness to open its heart to Canada was Germany. I just wonder how we relate these strengths, such as Germany -- and I do not exclude any of the others -- to our overall strategy.
The minister may comment if he wishes. I am just venting my views.
Mr. Eggleton: Thank you, senator. I should point out that, while my appearance here today is primarily to talk about the Union, I was also asked by the chairman to make a comment on the FTAA and the Chile endeavour, and I felt that it was only fair that I mention APEC, to give a broader picture of what we are doing. That is why I did that.
In terms of the importance of Europe and whether we are ignoring Europe, as I indicated in my opening remarks, we are seeing some quite healthy increases in the level of trade. Our exports are up 33 per cent, and our imports are up 23 per cent in 1995 over 1994. As Senator Grafstein pointed out, though, we are still in a deficit situation, and added to that is the fact that we are actually losing market share in most of those countries. That figure concerns me more than anything else because, when we take all of our trade together, our merchandise trade account has a very healthy surplus, a record surplus of $28 billion last year largely because of the United States situation, but still very healthy, and it contributes to improving our current account situation quite dramatically. Nevertheless, I am concerned that we are losing market share and that we need to put more time and attention into Europe.
I have been in this job for four months. The first month I did not do much travelling, but in the last three months I have been to 12 countries, virtually one a week. Of those 12 countries, ten of them are in Europe, so I have spent substantial time in Europe, not just in the European Union countries. I have been to the Czech Republic, as one example of central Europe. I have been to Greece, Portugal, France, the U.K., Germany and Turkey. Turkey, of course, straddles both Europe and Asia. I have been on the European continent three times, and I think that is some indication that I believe that there are some good opportunities for Canada there.
The transatlantic situation is changing. That is not to suggest that security and political issues are no longer important. However, since the end of the Cold War, there has been more of a shift toward economic issues.
The action plan is a political and economic action plan, and it has three pillars. One of them is political and security issues -- and, of course, there are security issues; we are dealing with them right now in the former Yugoslavia, and there will continue to be a lot of issues to be discussed.
Trade is another one, and that, of course, is more my focus.
The third pillar in the action plan is the justice and home affairs issues, as the Europeans call them, which deal with international terrorism, international crime or issues with respect to migration of people.
There is a wide range of issues involved in this action plan. Of course, I am looking more at the economic and trade ones, as is natural with my portfolio, but my colleague Lloyd Axworthy, the Minister of Foreign Affairs, spends more time on the other aspects, particularly the political security aspects, as does the Minister of Justice.
The statement about moving was to say that there is now a need to move from a transatlantic structure defined primarily by strategic imperatives to one that is increasingly defined by our shared economic interest. That is an inclusionary shift, not an exclusionary statement, as far as I am concerned, because these other issues still require a lot of time and attention on our part.
You asked about the relationship of Brussels versus Bonn or the Union versus individual countries. It is two-track. We want to develop this action plan with the Union, but that will not take us away from bilateral efforts. Germany was a recent call for me because I see very good opportunities there, particularly with respect to investment in Canada. That is what I pursued on my most recent trip to Bonn, Cologne and Munich, and it will probably take me back to Germany sometime this fall.
There are many benefits to be gained by going to both Brussels and Bonn, to be able to pursue the Union as well as the bilateral arrangements. I will also be going back to Central and Eastern Europe where there are more opportunities. There is still a lot of work to be done in getting their economies in better shape and bringing about the reforms that are necessary to give confidence to our business community, but I think we can help push that agenda along a little farther, and that is part of what I will endeavour to do.
We are working in all these different areas, but not to the detriment of Europe or in any way to suggest that Europe is not important to us. It is important to us. We have priorities, but within that framework we are giving a lot of time and attention to trying to increase those numbers even farther from their record levels.
Senator Bolduc: We still have duties with the Union. The average is about 3.6 per cent, I understand. On aluminum, for example, it is 6 per cent. In telecommunication materials, we had a company called Newbridge Networks here who told us that there was an increase in the duties from 4.5 to 7.5 per cent fairly recently.
Do you see any possibility of using the leverage we have with our defence input and our aid to some of the Eastern European countries to try to make some deal, rather than waiting for the next multilateral negotiations to get those tariffs down?
Mr. Eggleton: Our practice overall has not been to use that linkage. We feel that the different areas in which we are of assistance should be borne in mind when we get to some of these issues such as tariffs, but I am not aware that we have actually linked things such as defence assistance with tariff barrier removal. In some of these areas, if you establish a favourable climate in one area, it can have an indirect beneficial effect in another area, but it has not been our policy to link them.
Senator Bolduc: I am not talking here about a formal tying of those things, but I think those people should know that we are doing our share.
Mr. Eggleton: I hope so.
Mr. Paul Haddow, Director of Tariffs and Market Division, Department of Foreign Affairs and International Trade: If I may elaborate on what we are doing on those specific issues, the EU aluminum tariff has been a long-standing problem for Canadian exporters, predominantly as a result of the pressure from the French industry. Representatives from Alcan have recently proposed to FAIT officials a two-year strategy where government and the industry work together to build some alliances in Europe to reduce those tariffs. We have tried in every negotiation that is available to reduce the EU's aluminum tariffs, and it is just a very difficult issue for the European industry, particularly in France.
With respect to telecom equipment, there is an initiative that the minister spoke of earlier, of an international agreement where tariffs on information technology products as well as on telecommunication equipment would go to zero. We are pursuing that initiative within the quadrilateral process and hope to see it implemented by December in Singapore at the WTO ministerial meeting. That is how we are addressing those specific issues you raise.
Mr. Eggleton: The transatlantic marketplace concept is also one of the areas that we want to have in the European Union plan, as it is in the United States plan, including a study as to where we can reduce these tariff barriers.
Senator Bolduc: How about the international recognition of technical norms in, for example, telecommunications? There are not many big players. Normally, they should agree on the standards. I do not see why our products are not recognized. What is the motivation?
Mr. Eggleton: I do not see why, either. That was raised and we discussed that at the quadrilateral meeting in Kobe, and I think there is a good chance of moving farther in that direction. We certainly want, through mutual recognition agreements, to be able to respect each other's standards where there has been sufficient testing. Hopefully, there is a lot of work that we would not have to duplicate, for which we could get acceptance, and we are working in that direction. I think there is a good chance of advancing that in terms of telecommunications equipment.
Senator Bolduc: Some of us had the impression when we met the Europeans that, if there is a monetary union, it will probably lower the monetary unit so that it would be good for their international trade and bad for ours. What do you think of that?
Mr. Eggleton: That, again, is one of the areas that is under study. I will ask the officials if they want to add anything to that.
Mr. Venner: We prepared a short list of seven quick reasons that we think monetary union is important for us. The first one is that European currency traders are more likely to buy the Canadian dollar as a means of diversification once there is only one European Union currency.
The second one is that it is obviously going to be easier for our exporters to deal with just one exchange rate.
The third is that when you have a huge market that has no exchange rate risks, it becomes extremely attractive to foreign investors. We have to compete with Europeans for investment from Asia and, for that matter, from Europe.
There is also the question of whether we might be marginalized in international monetary policy coordination. The G-7 meets, for example, and there are three currencies represented and then the Canadian dollar, and it is not clear where we would fit in.
It is also quite clear that, if the Euro is created and succeeds, that would send a very positive signal to world markets and could lead to some growth, which would be beneficial for Canadian exports. And the opposite is true: a negative signal to world markets would be bad for us.
The final point is that a lot of people in the European Union who are opposed to monetary union are also opposed to trade liberalization and, if the monetary union fails, it could be seen as a sign that the protectionists were coming into ascendancy, and that would make it more difficult for us to export.
Senator Ottenheimer: To what extent in the negotiations for the action plan between Canada and the European Union and to what extent in our dialogue with Europe in general, based on trade and, I suppose from Canada's perspective, enhancing and improving opportunities for Canada to export and for investment in Canada and for Canadian investment in Europe, is there a consciousness or a concern with respect to going to east of Europe? To what extent is there concern with respect to relations with Russia, with other former Soviet republics -- and I do not mean the Balkans, but other Soviet republics in Caucasus and indeed in Asia?
I know that we Canadians are pretty small players, but we have always had something of a reputation or considered we had a vocation as internationalists. To what extent, at least in the dialogue between Canada and the European Union, is that taken into consideration, or is there any consensus on what can be done in that area?
Mr. Eggleton: Let me give you a couple of examples. In Germany a couple of weeks ago we talked about the Ukraine. There is a lot of German interest in the Ukraine, and in this country there is a fairly large Ukrainian community that has an interest in possible investment over there. In many of these cases we can do partnerships or joint ventures in third countries.
This is something that we explored quite regularly in other parts of the world as well, and I think there are opportunities to go that route. The Ukraine still has some way to go, as do many of the other former Soviet republics, in terms of reforms to create a confidence level for our major businesses to make moves into those areas. I think we can advance the agenda and, if we can advance it with what the Germans say in this case, then I think that can be quite helpful.
I was recently in Turkey and Istanbul. There is a subsidiary of Northern Telecom that exists there. It is quite a successful company in Turkey, and it is already branching out into some of the former Soviet republics. We have people who are closer to the markets, who have a greater understanding of the markets in the former Soviet republics, but it is taking Canadian technology into those countries. It is benefitting a Canadian company that is the majority shareholder of the company in Turkey.
So there are many different opportunities that we will continue to explore in terms of moving into those markets, if not by ourselves, certainly with other players.
It is also important that we try to bring these countries under the world trading organization disciplines. China, of course, and Russia need to be brought in. These are major economies that should be part of the world trade regime, but they have to come in under the same rules that apply to everybody else. As they do that, there will be greater confidence levels and greater opportunities for Canadian business in those countries, and we are working to help bring about those accessions.
Senator Stollery: I am one who thinks Europe has important potential for Canada and who believes that our trade situation has become seriously unbalanced and that balance should be the goal of a proper foreign policy.
I understand our commendable efforts to expand our trading opportunities everywhere because we are trying to put some balance into an unbalanced situation. I think it is important that we work with Europe. We talk about the U.S. as being the largest single market, but the U.S. is one country. The European community is the world's largest trading block and one of the wealthiest when you look at the annual incomes.
You mention in your presentation that our exports grew last year by 33 per cent, but at the same time you said that we are losing market share. I also note that much of this is in fabricated materials and things which probably are important to those of us in Southern Ontario.
Could you rationalize those two observations. First, to whom are we losing the market share? Is it to the U.S. or is it to some of the Asian exporters?
Mr. Eggleton: I suspect that in a lot of other countries you would find some healthy increases in terms of trade as well, with greater liberalization of trade and markets opening up. There is more and more trade activity. The numbers have been increasing for a lot of countries, and they have been increasing for us in a great many places. Some of the numbers are starting from a low volume though, so you have to look at it in that context. It is easy to wield around numbers of 40, 50, 60-per-cent increases but, if they are on a low base, it does not mean nearly as much as it does in the case of Europe where there is a healthier base, although not nearly as big as the United States.
You are quite right that the European Union is combined, but the United States is still the biggest.
What is happening is that some countries are increasing their market share faster than we are. We are losing ground.
Mr. Venner: If you look at the trade statistics for the countries in central and eastern Europe, you will find that their trade has been reoriented dramatically in the last ten years away from Russia and the former Soviet COMECON trading block toward the European Union. They are making tremendous gains in the European Union and they do sell some of the same things we do.
Senator Corbin: I have a brief comment on the statement the minister made on Canadian furs.
Does the current ban on Canadian furs have to do mainly with the European perception, or is there, in fact, a concern on their part about trapping methods? In looking at European-made programs and people like Brigitte Bardot, you are dealing with fundamentalist animal lovers who have a huge impact with their representatives.
What is the real barrier you are trying to overcome here? I know Canada likes to take an international pact approach in resolving these problems, but do you think you will be able to counter current European obstinacy with respect to the importation of naturally harvested or commercially produced Canadian furs? What are the real facts behind the scene?
Mr. Eggleton: I think you have a good handle on the situation. The dispute involves leg-hold traps and humane trapping. A lot of people in Europe and in the European Parliament are dead set against furs being imported from Canada because of the leg-hold traps. There are some NGOs which feed in information which leads to negative impressions and can also distort the reality.
We have indicated there that we want to have an agreement based on humane trapping practices. We are working with the Russians and the United States as well, because they will be affected by such an agreement, and we have obtained an extension. There is not a ban yet, although the Netherlands did jump the gun on it, so to speak. They have been criticized by the union for doing that, and I understand that they use leg-hold traps as well.
In any event, the union has put it off until January 1, 1997. Meanwhile we are trying to come to an agreement and to deal with the issue of humane trapping.
There will always be some people who will just never accept trade in furs. However, from what I have heard so far, the European Commission and the Council of Ministers and perhaps the majority of the European Parliament will accept reasonable measures where we indicate that, in fact, humane trapping is taking place.
We are also getting a great deal of help from our aboriginal community on this issue. I think there is some sensitivity to the fact that this is part of a long history and tradition, and there is a respect for our native community in Europe. Some of them are actually finding it rather difficult to work out in their minds as to how they can assist the native community, which they seem to want to do, while, on the other hand, they are concerned about leg-hold traps.
We hope to come up with a position that the majority can accept, but the discussions are still at a very crucial stage. Time is running out. We have to move quickly on this issue, but there will always be difficulty in getting anything that we do in terms of trapping accepted by some people.
Senator Bacon: One of the major concerns of the committee is the effect that European Union enlargement will have on Canadian trade in the European market. We were told that the best way to deal with EU enlargement is to constantly raise the floor of international agreements reached with the EU. How can international agreements prevent the EU from reducing access for Canadian products under future enlargements?
Mr. Venner: In short, if a country enters into an agreement which is compatible with Article XXIV of the GATT, it is not required to extend those benefits to third parties any more than we are required to extend the benefits of the Free Trade Agreement with the United States to third countries. If the European Union enters into an agreement with central and eastern European countries, then in theory, pursuant to the WTO, it is not obliged to extend those benefits to us.
Mr. Haddow: I heard your question somewhat differently: How do we address the issue so as to avoid consistently requiring compensation, because obtaining compensation from the Europeans is not an easy task. Last year, int the context of the EU enlargement to include Sweden, Finland and Austria, we were within half an hour of cabinet approval for imposing retaliatory tariff increases on imports from the EU. That is not the way we prefer to do business.
One way to do what you envisage is simply to get the European Union to reduce its tariffs through the WTO. The current problem is that, when new countries join, they have to increase their tariffs up to the level of European tariffs. Then Canada and other exporting countries are owed compensation. For example, Sweden's tariff was low before they joined, and now it is high. The trick is going to be to get the European tariff down.
It would be difficult to do that bilaterally simply because Canada does not have the negotiating clout. The best way is through the WTO where we are joined by Japan and the United States in trying to get world tariffs down. That is why in the recent quadrilateral trade ministers' discussions, Canada, Minister Eggleton in particular was pushing the other quad countries to continue to reduce the MFN tariffs under the WTO. In that way, opportunities for harm to Canadian exporters in the future from these further EU expansions will be reduced thereby avoiding the need for retaliatory action.
Senator Bacon: Have you done any studies on the potential effects of European Union enlargements on Canadian exports to Europe?
Mr. Haddow: Except for the most recent enlargement, I have not.
Mr. Eggleton: That is part of the four studies that we are undertaking now.
Senator MacEachen: Mr. Minister, you said that one of the objectives, with which I agree, is to bring big countries like China and Russia under the discipline of the rule of law. That brings to mind the United States. Would you not include the United States in that category?
There is no committee in Ottawa that has more experience in trade than this one. We started with the Free Trade Agreement. We went through that whole process and listened to the expectations that were laid out for the rule of law to be established by the FTA. We certainly know it did not happen, and you said so in some of your more irritated moments. Still a big job is to get the United States to submit to the rule of law, whether it be the WTO or the FTA. How are you getting along on that front?
My second question is more pacific and less belligerent. We are producing a report on Europe and Canada, and maybe some of you who are here today have some ideas. What kinds of item should we deal with so that it would have a positive effect on our broad relationships with Europe, so that we do not fall into difficulty, so that we treat the right topics and make the right sounds, consistent with our own interests? Do you have any ideas about how we ought to treat this subject, with all due deference to our researchers and ourselves? Have you any thoughts on how we ought to approach this so that it is a positive for Canada and, particularly, that it creates the right impression in Europe?
Mr. Eggleton: Let me start with the first one. I do not know whether you really wanted me to answer on the United States being in the WTO or not.
The United States, to pay them their due compliment, has played a leading role in the last 50 years in GATT discussions and in opening up fairer and freer trade around the world. It is unfortunate, disappointing and worrisome to see them pulling back at this time -- not getting fast track for Chili, the Helms-Burton law and other pieces of legislation that would have similar effect of unilateral decisions that affect third countries such as Canada. These are quite worrisome, and I believe they are outside the context of the WTO and international law and NAFTA, and they are going to be pursued.
They have signed these agreements. They are part of them. We expect the United States, like all the other countries, to live up to their obligations.
The European Union is specifically engaging the U.S. at the WTO on the Helms-Burton law and we are doing it at NAFTA, but we are supportive of each other's efforts.
I must say, though, that, as worrisome and as much of an irritation as it is, by and large we have a fairly healthy trading relationship with the United States. Ninety-five per cent of our trade is without any problems, hassle free, day in and day out. It is the other 5 per cent that gets all the media attention and, of course, is bothersome -- this one, in particular, because they are acting in a unilateral way which is outside the multilateral trading system which they were so instrumental in implementing and now are flying in the face of that.
I think it is important to pursue that to make sure that the United States does live up to its obligations. After they get out of this election year, we hope they will again take a leadership role in the multilateral trading system.
I am not quite sure about the other question you were asking me, senator, in terms what we might do to expand our opportunities in Europe. In my opening remarks and in answer to other questions, I hope left the impression that we do place a lot of priority in Europe. We cannot be scatter-gunning all over the place, but we do have a lot of things going. I am devoting as much time and attention as I can to where I see good opportunities.
I saw a good opportunity in Germany. My predecessor appointed a man by the name of Bill Waite, who was a former president of Siemens of Canada, to go over there and comb the market. He had a lot of networking already in place and, as a result of that, I think we are going to get a lot of business, with a lot of investment coming to Canada. In fact, I went over there to help him follow up on some of those leads.
I would like to see us do more of that in Europe. We have people in this country who have origins in those countries, who understand the business, the culture and the language, and who have the kind of networking that the Bill Waites of the world do. I would like to use those resources that we have in our country. I am sure there are many retired businessmen or about-to-be-retired businessmen who have been executives of European subsidiaries in Canada. Let us use that model to advantage. I certainly intend to explore that idea as part of a strategic plan to develop these opportunities with Europe.
The Chairman: What is the current situation with regard to the access by European fishing fleets to Canadian Atlantic ports?
Mr. Eggleton: They are now allowed. The announcement was actually made on Friday. It will take one month to change the regulations, but on Friday it was announced that the Canadian ports are once again open to European fisheries.
The Chairman: Minister, we realize the bell is calling, and your mind is moving to another place. Thank you for your attendance here today. We will detain your officials for a few minutes.
Perhaps the officials could tell us a little more about the Atlantic ports. You say that the announcement has been made, but that it will take a month or so to rewrite the regulations.
Mr. Juneau: The announcement of the government's decision to reopen the ports to the EU vessels was made on Friday. Apparently it takes one month to amend the regulations so that this measure can be implemented. Basically we can expect the first European ships, if they so wish, to appear in our Canadian ports by the beginning of July.
The Chairman: What developments took place which made it possible for the Government of Canada to make this decision?
Mr. Juneau: The decision to reopen the ports vessels is part of what we call normalization of our relations with the European Union in the field of fisheries. As we speak, an action plan is being negotiated, along with a political declaration with the European Union, by which we want to demonstrate that we are developing increasingly friendly and fruitful relationships. We did not feel that it made sense to maintain that measure which was adopted in 1987, when basically we had no cooperation on the part of the European Union in the fishing area.
As you know, we had an agreement with them that ended the fish war one year ago. We feel that this is a measure which will be beneficial not only for the European countries, but also for us.
The Chairman: The implication is that European ships are conforming to the appropriate fishing practices. Who is establishing what is appropriate as a fishing practice?
Mr. Juneau: That is basically the agreement that we have within NAFO. Each European fishing boat fishing off our coast has to have an inspector from the European Union to follow the activities that are taking place on the boat. That was one of the major points we achieved in negotiation with the European Union after the so-called fish war.
The Chairman: This question is based not on any great knowledge of what happens on European boats, but what sometimes is alleged to happen on Canadian boats. One hears that very often these observers, not the ones that you are talking about, find it necessary to spend a great deal of time in their bunks. Is the implication of reopening the ports that the government is satisfied that the observer program is working properly insofar as European ships are concerned?
Mr. Juneau: We are certainly satisfied that the new arrangement that we have with the European Union is working properly. It is not perfect; activities may happen on these boats that we cannot control. However, it is certainly interesting to note that, in theory, when a European boat comes into a Canadian harbour, it can be inspected in the Canadian harbour. That will be an additional incentive to make sure that they behave properly.
It will be interesting to see how much time it takes before they begin to call in our ports because they have developed different practices.
Senator Bolduc: Some do not come at all.
Mr. Juneau: Some do not come in at all. They are refuelled by tankers coming off our coast, and they unload their ship.
Senator Bolduc: You have accepted the mutual recognition of inspectors?
Mr. Juneau: Yes, we accept that the European inspectors are capable.
Senator Bolduc: They are not Spanish inspectors on Spanish ships?
Mr. Juneau: From time to time they can be Spanish, because you cannot be discriminatory. The European Union cannot decide that a Spanish inspector cannot inspect a fishing boat. They can be Spaniards, but they can be also British, Irish, German.
Senator MacEachen: I want to follow up on a question I put to the minister about the report this committee will produce.
Mr. Juneau is negotiating with Europeans, and the Europeans watch to a certain extent and the Canadian ambassadors in Europe watch what we do. They read these reports. What kind of a report, in your mind, would be positive to advance the Canada-Europe relationship?
Senator Bolduc: Assuming there is bipartisan politics.
Mr. Juneau: I will give you my personal view about that. You have been visiting all these European countries, so you would have a better idea than I do about how to approach this forum.
Certainly one of the problems we have in this country is ensuring that people in Canada understand the importance of Europe. Whether we like it or not, the European Union is becoming more and more important all the time. Obviously, this is a process which has been evolving over the last 40 years; sometimes quickly and sometimes more slowly, but it has always been evolving toward increasing the importance of the European Union.
I would suggest, first, senator, that your report should aim at demonstrating the importance of the European Union which is not very well known in Canada. The second point, I think, would be to establish a better understanding of the economic importance of the European Union for Canada, the fact that the European Union is the second most important trade and economic partner of Canada. Many people think that it is Asia Pacific, but the figures demonstrate that European investors in Canada are ten times more important than any investors from Asia.
There is also what I call values history culture. There is not one area of the world where we share values as we do with the European Union -- and when we do speak about the European Union today, we are speaking about what we used to call Western Europe. We share the same democratic values, human rights, cultural values, in terms of French and English, and other values.
It is important to stress that, while we certainly enjoy a good cultural relationship with the United States and with the other parts of the world, the relationship between Europe and Canada is fundamental.
My last point is that, if we do not get more involved with European Union, life will go on for them and we will be marginalized. Basically, we are fighting against marginalization of Canada in our relationship with Europe and in the perceptions that the Europeans have of us. If Canada is to remain an interesting partner for them, we have to remind them of our importance. We have to have more visits similar to the visit this committee had in Europe.
Those are four suggestions that I would have for your report, and I am sure that you will wish to add other points, in terms of your own interest in Bosnia and the contribution that Canada has made there. We do not link what we do on the military side with what we do on the security and defence side, but we do not shy away from mentioning to the Europeans that our contributions to peacekeeping in former Yugoslavia has reached $750 million, which is a lot of money. We remind them of that to make sure that they understand the importance of their developing a good and valued relationship with Canada.
The Chairman: Thank you for your testimony. It has been most useful to us.
The committee adjourned.