Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 26 - Evidence
OTTAWA, Tuesday, June 11, 2002
The Standing Senate Committee on Foreign Affairs met this day at 5:00 p.m. to examine such issues as may arise from time to time relating to foreign relations.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I would like to call the meeting to order.
I welcome Mr. Pierre Pettigrew, Minister for International Trade. As so often happens, we have the unexpected: the minister has to vote at 5:30 and senators have to vote at 5:50. I suggest that Minister Pettigrew please proceed.
The Honourable Pierre Pettigrew, Minister of International Trade: Thank you. I am pleased to hear that the committee intends to change its name in the near future to reflect its renewed interest in international trade issues.
I would like to thank the committee members for the substantial and substantive work that they did on Bill C-50 last week while I was in Mexico at the NAFTA Free Trade Commission Meeting and the APEC Ministers' meeting. I met with President Fox to discuss our trade relations, in general, and with the United States, in particular.
I would like to offer you an overview of our trade successes, current challenges, and trade policy objectives for the future.
As most of you know, in May 2000 I launched a new product: a comprehensive annual report on Canada's trade performance, which we tabled in the House. This report is essentially the government's report card on international economic activity for each year. I would like to bring to your attention the highlights from the 2002 State of Trade Report, which I recently released.
[Translation]
The 2002 report recounts a decade of outstanding Canadian trade success and clearly shows how trade has been the principal driver of Canada's economic growth. As we are all aware, the year 2001 was a tough one for the global economy. Despite global economic impediments created by an economic downturn and the attack of September 11, our trade performance continued to be strong and remains one of the primary catalysts of economic growth.
Canada's `new economy' played an increasingly important role in our overall trade success. Consider the following: Canada's exports account for 43 percent of our GDP. Last year we enjoyed the longest post-war uninterrupted economic growth cycle in Canadian history — 10 years of growth; 167,000 jobs were created in Canada last year, many related directly or indirectly to trade. Canada remained well ahead of other trading partners — Mexico, Japan, the EU and China — in the key U.S. market.
Canada attracted $42.8 billion of new foreign direct investment in 2001, a new record high, which was especially impressive in view of the marked decline in mergers and acquisitions from the year before.
Also, Canadians invested a near record high of new direct investment abroad of $57.3 billion last year, reflecting the dynamism of and opportunism for Canadian investors in a difficult economic environment. These were remarkable achievements in a generally difficult year.
To put it plainly, in 2001, Canadians, in general, had more jobs, better opportunities, improved productivity and international competitiveness, and more income.
[English]
Let me point to another source that reinforces our position that our trade and economic policies are working well. For the third year in a row, Canada has come out ahead of other industrialized nations in KPMG's 2002 report. The report ranks Canada as the leading cost-competitive industrial country. That is a very impressive ranking indeed. I will ensure that Canada's trade and economic success continue through two means: a pursuit of fairer, rules-based trade and aggressive trade promotion activities.
The cornerstone of our trade policy remains the WTO. Our success in Doha, Qatar, last year was the first step in a long process that will ensure a rules-based international trading system that addresses the needs of poorer countries, while at the same time fostering greater prosperity for developing and developed countries alike.
One of our most important priorities in 2002 will be to push these WTO negotiations forward to promote Canadian interests in areas such as agriculture, services and industrial products.
I would like to take a moment to focus on services because they are part of a built-in agenda activity that began last year. The service negotiations are more advanced than those in other sectors. Services are playing an increasingly prominent role in Canada's export growth. Exports of commercial services such as value-added services with a focus on high-technology have grown by 62 per cent since 1995 and are responsible for most of the increased employment over this period. That is why our negotiations at the WTO are so important to Canada. They hold the promise of opening up new markets, while at the same time respecting the rights of countries to maintain their domestic policies.
I am happy to announce an approach to our services negotiations that will ensure that Canadians continue to be among the best-informed citizens in the world regarding trade negotiations. Canada has been a leader in ensuring more openness and transparency in trade negotiations. In Buenos Ares just over one year ago, we called to release draft- negotiating texts for the Free Trade Area of the Americas. We will continue this tradition with our approach to GATS negotiation. Canada will make public the conditional offers it puts on the table during the GATS negotiations. These offers are the proposed guarantees of market access that we are ready to offer to other countries in exchange for greater access to their markets.
We will soon release a description of the initial market access requests that Canada will make to other countries. It will provide a detailed snapshot of the barriers our companies face and the sectors where we are asking for openings. This information has been compiled after consultations with Canadian stakeholders.
While the details of Canada's initial offer will be worked out in the coming months, we can be clear on one point right away; Canada's health, public education, social services systems and culture will not be on the table.
If there is one thing that is absolutely clear, it is that a small country like Canada needs a rules-based international trading system. We have demonstrated time and again that when we meet on equal ground, we can take on, and beat, the biggest countries in the world.
In fact, nothing illustrates more clearly the need for a strong, rules-based international trading system that applies evenly to all states than our trade relationship with the United States. The recent rise of protectionism south of the border is more than a little disquieting. Softwood lumber and agriculture are two areas where Canadian interests need to be forcefully advocated. We must manage effectively and confidently our trade relationship with the United States.
Our long and historic relationship with the United States is, to a very great extent, an excellent one. Our two-way trade with our largest trading partner is $1.85 billion per day in goods and services. Canada's exports to the United States represent 82 per cent of our goods and services exports.
[Translation]
The recently announced Primer Minister's Task Force on Canada-United States Relations will help us enhance this relationship. By examining the relationship and considering ways to strengthen and improve dialogue between elected officials in our two countries, this task force has the potential to encourage greater understanding between the two nations.
As we look ahead to the future of the Canada-U.S. trade relationship, there are two things that I can say with near certainty: both our countries will continue to benefit a great deal from our trade ties, and we will continue to have disagreements on various issues. I believe that a rules-based system remains the most effective mechanism to ensure disputes are less frequent and more fairly addressed. It is the key to truly free trade, which benefits us all.
As I mentioned earlier, trade policy is just one way to ensure Canada's continued trade success. The other is trade promotion. Over my time at the Department of Foreign Affairs and International Trade, I have led trade missions to 12 countries, most recently to India and Mexico, and have participated in several Team Canada Trade Missions. These missions have been a great success, helping to expand Canadian markets by exporting Canadian innovation and ingenuity. The government will continue to lead business delegates to key existing and emerging markets around the world.
It is important to remember that in our discussions of trade policy, statistics and economic indicators do not tell the whole story. Trade is personal; it impacts directly on the lives of Canadians and citizens globally. Freer trade is ultimately about ensuring an improved standard of living — in developed and developing countries alike.
History has shown that over time, trade has provided the resources that have enabled governments to protect the environment, strengthen the social safety net and promote our core values — generosity, and the rule of law.
With this in mind, I will look forward to continuing on the path we have begun, toward a freer, fairer, rules-based global trading system and continued trade success for Canada.
[English]
The Chairman: Thank you, Mr. Minister. I call on Senator Austin. Five minutes, please.
Senator Austin: I would like to discuss the rise of protectionism in the United States that has been criticized by Joseph Stiglitz the American economist.
Last Sunday, Mr. Stiglitz, who is a Nobel Prize winner in economics and the long-time chief economist for the World Bank, attacked the U.S. farm bill. Over the next nine to 10 years that bill will provide subsidies of $190 billion to American farm communities. Mr. Stiglitz sees the bill as an outrageous piece of American protectionism and argues in his New York Times article that it destroys U.S. credibility.
U.S. economic leaders argue for open markets, currency convertibility, and the value of market competition. The United States Congress has however, turned their backs on their long-standing arguments about the way the world economy should work.
Paul Krugman, an internationally recognized expert on world economics believes that the steel tariff demonstrates an unprecedented contempt for international rules. He believes the tariff to be short sighted.
The National Post headline for May 16 stated: ``Bush lacks `nerve': Pettigrew.'' When I read the article I did not see the word `nerve' used and I sometimes wonder about newspaper headlines. You have said that the world lacks pull in influencing United States trade policy.
It seems to me that the Doha round is being very seriously threatened in terms of U.S. participation. Mr. Zoellick has been turned up-side down in terms of his representation of U.S. policy.
What is our strategy concerning the agricultural sector? How can the Canadian agricultural community compete with the American subsidies?
Mr. Pettigrew: The word ``nerve'' was not used in the National Post article, and that same article was reproduced across the United States stating that I said that Bush was ``not courageous.'' Washington was very upset that I had personally attacked the President. I did not say it. However, those things happen from time to time.
It was a reference to an article saying that Prime Minister Jean Chrétien could not deliver in Washington. I had to call the gentleman and explain to him that the Prime Minister of Britain had visited Crawford, Texas and British steel had not been exempted from the U.S. action. It was a more complicated story than just personal relationships because the Prime Minister and the President work well together.
The problem is the American system and not a matter of personal relationships. It is a problem of the American system getting in the way of fairness. Senator Austin, you are saying that U.S. protectionism regarding the farm bill, softwood lumber, and steel are destroying the U.S. credibility. You are right, and it is doing more than that. It is slowing down the American economy. When they deprive themselves of steel, they harm the transportation sector and other sectors as well. When they deprive themselves of Canadian softwood lumber they slow down the residential construction sector. That sector kept their economy going last year. They are not only losing their credibility, they are harming their own economy.
In my view, the U.S. is really shooting itself in the foot.
Regarding your first question, we have had two important ministers of trade meetings.
When the OECD ministers met in Paris it was a bad moment for American diplomacy. Mr. Zoellick was not there because he was voting on the trade promotion authority in the Senate, which he got. It is now in conference.
However, at the APEC meeting, the mood was more constructive and Mr. Zoellick was present. He tried to reassure every one that the United States was still very much there. We tried to believe him because it is the best thing we can hope for in the international trading system. We hope that the Americans will shake up during the summer and reassert the leadership that we need from them.
Mr. Zoellick put their national trade laws on the table early at the Doha conference in November, thereby exerting great leadership. I congratulated him for bringing to the Doha conference the flexibility that allowed the launch of a round.
However, events that have occurred since the conference need to be corrected. I am still confident that the Doha round can proceed, and that the Americans will play their appropriate role, but they have complicated the story for themselves.
What is necessary for Canadian farmers is a question that should be put to the Minister of Agriculture. Minister of Agriculture, Lyle Vanclief, is working with agricultural communities and with the farmers. He is an expert on what we can do to help Canadian farmers. I support my colleague.
[Translation]
Senator Bolduc: There is an agreement between the European Union and Mexico. Why isn't there one with Canada?
[English]
I would like to know the state of negotiations with the —
[Translation]
— FTA, Norway, Switzerland and with Singapore as well.
Mr. Pettigrew: With regard to the European Union and Mexico, Canada would be in favour of a free trade agreement except that our European friends do not have the same appetite. They have free trade agreements with developing countries. Canada not being an emerging country, they prefer that we continue in the same multilateral context or in bilateral arrangements, but not with a full free trade agreement. Yet, this is still something we are still working on.
Senator Bolduc: Is this because of influence in Africa?
Mr. Pettigrew: I do not want to blame anyone. We have some supporters but each time I speak to a new minister, I get a new alignment of countries. Sometimes, we hear that the English and the Spanish are on our side and that it is the French and the Germans that are the most resistant and other times we hear that it is the Germans who are most in favour. It is therefore quite difficult to follow the situation.
Senator Bolduc: If we cannot trade with them, 80 or 90 per cent of our exports will go to the United States, as is currently the case. Are we going towards a kind of common market with the Americans or a customs union or a monetary union? Does this scare you?
Mr. Pettigrew: If we look at all the countries of the world, they export 80 per cent of their goods and services to within 1,000 miles of their borders. Canada is no different than Germany. The cost of transport and knowledge of cultures are easy for them since they have 8 to 14 countries within 1,000 miles of their borders. They have a good balance. In Canada, we have only one neighbour. Even to the North, we're far from our customers. I'm talking about our Russian neighbour. Canada is no different from the others in exporting 80 per cent of its goods and services to within 1,000 miles of its borders.
Our success on American markets is spectacular and remarkable. Unfortunately, we do have some big problems — like softwood lumber — that are extremely painful for Canadians. We must admit that the American market is very receptive to our products, except when we run up against a lobby like that one.
Still, that does not stop our trade missions to other countries from trying to open new markets for our exporters. We are aware of the importance of finding other opportunities for our products.
Now, I am not afraid of the success we have had on American markets. On the contrary, I am proud of it and we must continue to do the best we can.
With regard to the FTA, I will give the floor to Don Stephenson who is the chief negotiator for Canada. One year ago, we stopped the negotiations because we ran into a problem with shipbuilding yards in the country.
Senator Bolduc: You mean with the FTA?
Mr. Pettigrew: I am talking about the FTA. I could discuss Singapore afterwards.
Senator Bolduc: Seafood products, that is because of Norway?
Mr. Pettigrew: Yes. I must excuse myself to go for a vote. I will be back right afterwards.
The Chairman: Very well. We will wait for you and in the meantime, we will hear from Mr. Stephenson.
Mr. Don Stephenson, Director General, Services, Investment and Intellectual Property Bureau, Department of Foreign Affairs and International Trade: There are no ongoing negotiations. They were suspended over a year ago to allow the Government to study issues raised concerning shipbuilding.
We resumed negotiations with industry last December. I toured Canada to talk directly with industry representatives in April and May. At this time, we are working on an inter-ministerial basis to try to find solutions to the problems and concerns raised by the industry. There are no negotiations for the moment.
Senator Bolduc: Norway has a veto, has it not? What does Switzerland say about it?
Mr. Stephenson: I cannot take position with regard to negotiations with other countries. An agreement without the shipbuilding sector would not be acceptable.
[English]
The Chairman: Senators Graham and Setlakwe have yet to speak, but the minister had to depart. With all respect to the officials, should we suspend the hearing for a few minutes?
Senator Bolduc: Could we take that time in camera and finish the matter regarding the Ukraine?
Senator Corbin: There is no problem with putting questions of fact to the officials. Policy issues could be dealt with by the minister when he returns. We could make progress that way.
The Chairman: There is another reason not to mix the topics, Senator Corbin. We must clear the room for an in camera topic.
Senator Corbin: A few years ago, we had problems selling our potatoes to the Americans. Have you gentlemen had anything to do with resolving that issue? The Americans invoked strange reasons for why they would not allow the potatoes into the U.S. In your opinion, was that a bona fide attitude on the part of the Americans or was it just another reason to limit free trade between our two countries?
Mr. Claude Carrière, Director General, General Trade Policy Bureau, Department of International Trade: Senator Corbin, I believe you are referring to the recent actions in 2001.
Senator Corbin: P.E.I. was badly affected.
Mr. Carrière: The U.S. was legitimate in taking action to protect itself. However, we feel that they exaggerated their position and took excessive action. In the end, they did modify the measure, and trade has been allowed to resume.
Senator Corbin: There was no harm done to the Americans.
Mr. Carrière: That is correct. They will argue that the reason there was no harm done to them was that they prevented the spread.
Senator Corbin: It was a pre-emptive measure on their part, like a lot of other things.
Mr. Carrière: We feel they exaggerated.
Senator Day: The Canada-Chile agreement did not include our right to complain about Chile dumping farmed salmon into the United States. The U.S. is our primary salmon market. That hurt our Atlantic fishing industry. Can you update me? What negotiations are being conducted to try to work this out, either between Canada and Chile or Canada and the U.S.?
Mr. Carrière: We have been working with the aquaculture industry in New Brunswick on this issue and have raised the problem with the Chileans. There has been a problem with exporting to the United States. As you know, there has been a slowdown in the U.S. market since September 11 and the price of salmon has dropped. This has had a significant impact on our trading interests there. Chile has been exporting significant quantities of salmon to the United States and is facing an anti-dumping action.
Senator Day: Was that initiated by the United States?
Mr. Carrière: Yes, that is correct. Next year, Chile will likely face higher dumping margins. Fortunately for us, prices in the United States have begun to firm up and have increased recently by some 30 per cent. As the market picks up, the problems should be reduced quite significantly. In any event, we are discussing the matter with Chile. The question is the U.S. market and we do not have a great influence on it.
Senator Austin: Do we have ongoing discussions with respect to a modification of the Chapter 11 provisions that allows actions by corporations if they believe that they have been unfairly dealt with by a host government?
Mr. Stephenson: Yes. At the NAFTA commission meeting in Mexico there was an agreement to direct officials to take up those discussions again and they will start in about ten days. The officials will provide further information to deputy ministers and then to ministers by the end of October.
Senator Austin: I am concerned that Canadian forest companies have taken proceedings under Chapter 11 with respect to the softwood lumber dispute. I take it that the discussions would provide a so-called ``grandfathering'' of actions taken up to now under Chapter 11 between the three countries.
Mr. Stephenson: It is unclear whether any clarification or interpretation of NAFTA that right might arise out of those discussions would be ``grandfathered'' or have a retroactive effect. It depends on what ministers would decide.
There is only action against Canada and just a few days ago, in the Pope and Talbot case, the tribunal assessed a final award on damages. Against an original award in excess of U.S. $500 million against Canada, the tribunal found damages of less than U.S. $500,000. That is not in respect of its administration of the softwood lumber agreement but simply with respect to how we handled an administrative audit of the firm.
Senator Austin: Is that relating to the quota entitlement of Pope and Talbot?
Mr. Stephenson: That is correct.
Senator Graham: How would you characterize the current European appetite for a free trade agreement with Europe?
Mr. Carrière: The Canadian appetite?
Senator Graham: No, the European appetite for a free trade agreement.
Mr. Carrière: With Canada?
Senator Graham: Both ways.
Mr. Carrière: The Europeans have been unenthusiastic about the notion of a free trade agreement with Canada. They have not said ``no,'' but they have not said ``yes.'' They have frequently pointed out the absence of benefits for them to have a free trade agreement with Canada.
Senator Graham: What is our position?
Mr. Carrière: Our position has been that there is great potential for improving our position in Europe. That is why we have been quite sympathetic to the notion, as a number of parliamentary committees have mentioned.
The Chairman: This committee has been active in that area.
Mr. Carrière: They have indicated that, in their view, there would be significant interest in a free trade agreement with Europe.
The Chairman: I noticed what has been going on at the fisheries commission in Brussels. It was somewhat of a story because it impacted the Spaniards and their irritation over fisheries policy. What have they done at the fisheries commission of the European Union? Does that residue from the fisheries dispute with the European Union still hang over us in our important attempts to try to have a free trade agreement with the European Union? Is that still around? There have been articles The Financial Times and in the European press about what went on at the fisheries commission.
Mr. Carrière: Mr. Chairman, I am sorry. I am not familiar with that particular incident. However, it has been mentioned that the Spanish have been suspicious and still have a memory of what went on.
They are not probably not the top ally that Canada would have in a campaign to convince the Europeans of a free trade agreement.
Senator Graham: Is the Canadian government working with the objective in mind to develop a business case? Is that correct?
Mr. Carrière: We have been working on an assessment of the elements that could be included in a free trade agreement or free trade negotiation with Europe. We have been looking at the upside and downside of such a negotiation. That assessment has not been translated into what you would call a business case. A business case would tend to be something that would focus more on the benefits only. We have looked at both sides. This remains an internal assessment for the government.
There are certainly some significant benefits that we have identified, but there are also some potential drawbacks to such a negotiation.
Senator Graham: Would it be fair to ask when that assessment might be completed? Have you objective time lines when you are working on these proposals?
Mr. Carrière: At this point, no. We are still working on it.
Senator Austin: Honourable senators, on a point of order.
I believe that once the bell starts to ring, this committee is required under our rules to adjourn. I have just begun to hear the bell.
The Chairman: We will suspend. We will not adjourn.
Senator Austin: I understand the vote is at 5:50. We should be able to resume at 6:00.
Senator Day: Would the permission we got in the chamber —
The Chairman: Not for a vote.
With the greatest of respect to our witnesses, I will suspend the meeting for about 15 minutes. We will return downstairs as quickly as we can.
I remind honourable senators that we do have important business at the end of the minister's appearance that I am told we will be able to do expeditiously.
The committee suspended.
The committee resumed.
The Chairman: Honourable senators, we can now reconvene.
[Translation]
Senator Corbin: I have learned that there was a big flight of capital and investments from the United States. In your presentation, you said that in 2001, Canada had received over $48.2 billion of new investments. First of all, is there a direct link between these two events? And secondly, does Canada profit from this flight of capital?
Mr. Pettigrew: I have not seen any precise analyses regarding the source of these investments, many of which are American. A link is likely but we have not noticed any significant change with regards to normal trends.
Senator Corbin: It is well known that there has been a severe withdrawal of foreign capital from the United States since the events of September 11.
Mr. Pettigrew: I agree, but I cannot confirm that fact. I am not aware of that issue and do not know whether, on the other hand, Canada has seen a large increase. I do not have the data from the last three months of the year.
Senator Corbin: That is what I heard on Radio-Canada last weekend and that is also what I read from other media.
Mr. Pettigrew: Be careful, Senator Corbin, our journalist friends are joking.
Senator Corbin: I know we must always be wary of analysts.
[English]
Senator Graham: The Canadian government has been challenged by some people, jurisdictions and analysts, to link the softwood lumber dispute to possible trade restricting action in other economic sectors. The example is always the energy exports to the United States. It reminds me of a situation here a few years ago when people from one section of our country were saying to another section to let the Easterners freeze in the dark.
Might the minister outline the advantages and the disadvantages of this kind of linkage option?
Mr. Pettigrew: I recall those unfortunate remarks, but they were made in another context. I believe we have a far more united country today and more harmony in our federation.
The senator is correct in stating that there are individuals who ask why we do not link. In my view, linking should remain a temptation more than a policy. We have a $90 billion trade surplus with the United States. If we begin to play ``tit for tat'' that would be going beyond what the WTO would allow in retaliation. We will do what the WTO and NAFTA allow us to do in our trade relationship and we will prevail. In my view, it would be delicate to begin to minister justice ourselves. That is why we are believers in a rules-based system. We should not try to enforce justice ourselves.
The Prime Minister has said that the Americans should think about both the energy and softwood lumber sectors. It is important to play it the way the Prime Minister has been putting it rather than turning it into a policy.
Senator Graham: The Americans should think about it not just for the present, but also over the long term.
Mr. Pettigrew: You are correct.
Senator Andreychuk: We have just dealt in this committee with Bill C-50. We did not have the benefit of your presence or a parliamentary secretary or anyone else to defend the policy. I trust that in the future this will be an exception and not the rule. I felt that the bill was very important and one that deserved the kind of dialogue we could have had with you.
Mr. Pettigrew: The honourable senator may have noticed that I addressed this issue in the first paragraphs of my remarks today. I want senators to know that I would have liked very much to come to the Senate at that time. I volunteered my parliamentary secretary and I was told that he was not considered suitable; they wanted the minister. I offered to change the date and to come at the first possible date after my return from Mexico. I like to work constructively with the Senate.
Senator Andreychuk: Mr. Minister, thank you for putting that on the record. I was not aware of that.
The Chairman: Nor was I aware of that, senator.
Senator Andreychuk: It did not appear to be the way you normally operate so it was a bit of a surprise to me. We should make certain that we accommodate you to the extent that we can. The situation should not occur again.
I want to return to rules-based economies and rules-based trading systems, which I have been advocating and been part of for more years than I care to mention. We have made some inroads concerning the agriculture sector where we have preached about a rules-based trading system. The fact remains that we have not made sufficient inroads to make it a viable policy. If we are to have a rules-based system we need to have some mechanisms of enforceability that we can rely upon. As near as I can see, we were still relying on the political goodwill of our neighbours.
We have to reflect upon other enforceability approaches other than the mechanisms that we have in place. I am old enough to remember when we got into the Cairns Group as one answer to GATT.
My concern is that while we continue to say rules-based and we continue to encourage others, we are losing ground and we are losing farming communities. These latest subsidies in the United States are probably more beneficial to large corporate interests than they are to the farming communities. We will force ourselves out of the market if we continue to take more years. I look at the European Community timetable for adherence to a more open and flexible agricultural policy and see that it is putting us at a disadvantage.
I hope that the Minister of Agriculture comes through with something to counter, but that is stopgap. I hope there is a new approach in your thinking and not simply the usual enforcement mechanisms of judgments that are coming down.
Is there any creative thinking to further what I think is a good policy but one that is not working?
Mr. Pettigrew: It is a very complex situation. We are looking into whether the American farm bill respects their international trade obligations. We are not sure it does, although they say it does.
Senator Bolduc: We had a Canada-U.S. meeting about two weeks ago in Rhode Island, where a Congressman told us that, in the American bill, there is a provision that the Secretary of Agriculture can modify the tariff to be in accord with the World Trade Organization.
Senator Grafstein: The American Congressman said there is a provision that allows the Secretary of Agriculture to exempt. The strong indication that we obtained was that it would be better to pursue that after November.
The Chairman: Please allow the minister to respond.
Mr. Pettigrew: I had a discussion with Ambassador Bob Zoellick in Mexico two weeks ago on this subject. They respect their international trade obligations and the level of subsidies allowed by the U.S. farm bill is within the amber box negotiated earlier at the Uruguay Round. I object most strongly to their subsidization of pulses, which is an important crop for many developing countries. It is the first time that a country has subsidized pulses. I think that they are headed in the wrong direction with that policy.
We will have to carefully monitor how the American administration implements this within the limitations of the bill. As Mr. Carrière mentioned earlier pulses are also important to Saskatchewan. We do not subsidize pulses, which is reprehensible from our point of view and that of developing countries.
In the United States they have legislated not far from the level that they had in 1995 and 2000. We must watch this carefully. First, we do not like the fact that it is legislated because it makes it more difficult. Does that now become the new standard for further ad hoc investments that will further meet their international trade needs — the amber box, et cetera.
As to the substance of the question concerning stronger disciplines, I share your viewpoint. At the WTO, Canada supports a free trade area of the Americas and strong mechanisms for discipline. A dispute settlement mechanism must be strengthened and improved.
The problem with agriculture is that we have not had many rules to implement thus far because we have only dealt with agriculture. There has been a waiver on agriculture exports that was demanded by the United States in 1954. We have not developed the rules to deal with international trade in agriculture before the Uruguay Round. We dealt with that first but not in much depth. It was just the ``first kick at the can.'' We hope that we will be in a position, at the WTO, as a member of Cairns and others with our partners to build better rules for international trade in agriculture.
The Chairman: In respect to 86 per cent of our trade with one country, what do you think about the risks to our sovereignty? This is something that is talked about in Canada. I understand that we have always had large trade relations with the United States and I read the MacDonald report. I was on this committee when we did the free trade agreement, so we have a long background on this subject.
I am sure you have given this a great deal of thought because the question must come up quite often. Are there risks to our sovereignty? Does it not make our ability to manoeuvre internationally more difficult by having 86 per cent of our trade with one country in this huge surplus, but with only one country?
Mr. Pettigrew: I do not see it that way. I believe that Canada has defined its identity while sharing the North American continent with the United States. We are always influenced by our neighbours. Every country has defined its identity according to its neighbours and its continent. Canadians have built an extraordinary country while taking into account that we were sharing this continent with the United States. However, that may be my own reflection as a Québécois who has had to think a great deal about sovereignty. The fact that we have such vibrant trade with the United States and that we are so successful in the United States market makes us a far more sovereign nation. I believe Canada is more sovereign because we are doing so well in the American market. It allows us to build the social programs we want because that trade brings the prosperity we need in Canada. Doing well in that market allows us to have better cultural institutions and investments. Canada exports 38 per cent of its GDP to the United States. Today, we export 46 per cent of our GDP in total, and that figure was only 25 per cent 10 years ago. We have moved up the bar from exporting 25 per cent of our GDP to exporting 46 per cent of our GDP. We are, of any industrialized nation, the most successful in exports.
The United States exports only 11 per cent of its GDP. Japan, which is known as a world economy, exports only 13 per cent to 14 per cent of their GDP. Nations such as France, Britain and Germany export about 25 per cent. We export 46 per cent, which allows Canada to be without a deficit and even to have a surplus. At the heart of our sovereignty is the fact that we are doing so well in the U.S. market.
The Chairman: In the late 1950s our deficit was not very great. We started all of our social programs in the 1960s, when our trade with the United States was, I suspect, in the 60 per cent range and not at 86 per cent. It has been going up, which, to many people, makes us more dependent on one market than any other country in the world.
Mr. Pettigrew: At that time, we had the Commonwealth preference and the imperial system of preference. The United Kingdom became a member of the European Community in 1973. Mexico has the same ratio of trade, so we are not the only country in the world.
The Chairman: Mexico is a Third World country.
Mr. Pettigrew: We have influences, of course, but at the same time, it gives us a great deal of freedom. If we are to have only one neighbour, better it be the United States than many other countries.
Senator Austin: Minister Pettigrew you led a trade mission to Mexico and you have just returned from there. I would like to have your comments on two-points. One is the expressed concern that Mexico is more a rival than a partner. There is a concern that Mexico, over the next five to 10 years, will become an economy that will export to the United States at roughly the same levels that Canada does today. I am referring to a speech by Anne Golden, President and Chief Executive Officer of the Conference Board of Canada.
I know you met with President Fox, who has been pushing a vision that calls for a customs union and common market in North America. Did he raise those issues with you? What would the tenor of such a discussion be?
Mr. Pettigrew: President Fox has expressed a long-term view of where we should be going. He believes we should be adopting a sort of European approach to integration. In my discussions with my Mexican counterpart and with the President, I expressed to them that there is not much of an appetite in Canada at this moment to formalize another sort of arrangement. Canadians are very pleased with the North American Free Trade Agreement that we have with Mexico and the United States.
We are strong supporters of the InterAmerican Bank of Development. That bank allocated $40 billion for capacity building in Latin America, including Mexico, for infrastructure projects. From a Canadian point of view, this reflects where public opinion is at this time.
The President always refers to 30 years from now, but in 30 years I will be 81 and no longer a senator. I will be gone by that time.
The Chairman: So will President Fox.
Mr. Pettigrew: He has only six years and he already has two under his belt. I do not buy the idea of Mexico being more of a rival than partner. People look at us and say that Canada has an economy that has reached the $1 trillion mark. We export 38 per cent of our GDP to the United States. That is a huge and impressive figure. The Mexicans have an emerging economy, but they are still far behind us. Some people believe that in 20 years if these trends continue, they will export more to the U.S. and we will no longer be the number one exporter to the United States.
Every American President who has come to this country has referred to Japan as the number one exporter. Americans do not know we are the number one exporters. I will ask the members of the press not to remind the Americans because it creates more problems for us.
The better the Mexicans do in the United States, the happier I am. Why? I am happy because they buy more Canadian goods.
When Mexico succeeds in the U.S. market they will become good clients of ours, because we have a good relationship with the Mexicans. We are in this free trade together and we have many affinities with their societies. Maybe that will change some of the numbers you were talking about, Mr. Chairman. I do not want to go down with the U.S. ever. I want to go up with them as much as possible. In my view, the Mexicans are not rivals but partners. When they do well in the United States, even if they eventually catch up to our numbers, it means they will be better clients for us.
Senator Grafstein: I have spent a fair bit of time on the Canada-U.S. front. Let me raise one issue. When we examine our trade surplus with the United States, it should come as a bit of a surprise to most senators that the bulk of our surplus is based on our energy exports. It is true that we are competing effectively with the Americans in terms of trade, but the bulk of our surplus is really energy and probably the bulk of that is gas.
Mr. Pettigrew: Another 20 per cent is agriculture.
Senator Grafstein: I want to separate the two. If I have more time, I can deal with the agriculture.
The issue confronting the Americans is different today than it was before September of last year. That is, the Americans are now talking about security of supply, SOS, as opposed to cost of supply. That puts us in a very unique position to proceed as quickly as possible to build not one pipeline but two. I say that because the Americans will finance the pipeline. It has the added advantage of bringing alive our steel industries both in Canada and in the United States. We are also the best pipeline makers in the world.
Has the government decided to move aggressively ahead on both pipelines at the same time in order to change the export potential of energy to the United States? This would certainly improve the job situation with respect to steel and related issues in Canada.
Mr. Pettigrew: No, we have not made a decision to pursue both pipelines at the same time. As you know, there have been discussions. This is a decision that the National Energy Board must make at one stage or another. I will take note of your opinion. Perhaps the Minister of Energy could answer that question. I will not go into too much detail because I do not want to contradict him. I can be clear that we have not made that decision.
Senator Grafstein: There are huge opportunities in the United States.
Mr. Pettigrew: I will take note of it and we will pass it on to the Minister of Energy.
Senator Grafstein: In regards to agricultural subsidies both Canada and the U.S. are in the same boat. We are facing the largest protectionist subsidies in the world. The EU puts 60 per cent of its budget in farm subsidies. We encourage our Canadian and American farmers to be competitive, but they are not able to compete with the Europeans because of protectionism.
There are two ways to combat this problem: One way to combat the problem is to attack those subsidies politically. The second way to combat the problem is to enter into a free trade agreement with Europe. Has Canada or the United States tried to do either of those things? Where do we stand on both those issues?
Mr. Pettigrew: We plan to attack the subsidies in the Doha round of negotiations. That is a top priority of our government, our Cairns partners and of the United States as well. You are quite correct in stating that the European subsidies are extremely high and create adverse results for both American and Canadian farmers.
A free trade area might not be negotiable between the European Union and the United States and Canada because of agriculture. The reason that the Europeans have a hard time envisaging a trade agreement with us is because of agriculture. Once the United States is put into the equation you really lose it all with the Europeans.
The Chairman: Thank you very much, minister. We will have you back. It was interesting. The committee is about to embark on this subject and I want to thank you very much.
The committee continued in camera.