Proceedings of the Standing Senate Committee on
Foreign Affairs
Issue 3 - Evidence, February 12, 2003
OTTAWA, Wednesday, February 12, 2003
The Standing Senate Committee on Foreign Affairs met this day at 3:46 p.m. to examine and report on the Canada- United States of America trade relationship and on the Canada-Mexico trade relationship.
Senator Peter A. Stollery (Chairman) in the Chair.
[English]
The Chairman: I welcome our witnesses from the Canadian Chamber of Commerce and from the Canadian Council of Chief Executives.
Mr. d'Aquino, please proceed.
Mr. Thomas d'Aquino, President and Chief Executive Officer, Canadian Council of Chief Executives: Mr. Chairman, we are pleased to be here today. We have long been admirers of the work of this committee.
I am joined today by Mr. George Haynal, who is our senior vice-president, policy and who joined our organization during the course of the last year. He has a virtual lifetime of experience, having had a distinguished career in the Department of Foreign Affairs and International Trade. We also have with us our senior economic advisor, Mr. Sam Boutziouvis, who has worked on Canada-United States-North America and global economic issues for as long as I can remember.
I am delighted to be accompanied by them and I dare say that, when they find my logic faulty, they will jump in and add wisdom to the testimony.
Mr. Chairman, in planning this appearance before the committee, we felt that there were many approaches we might take. The Canadian Council of Chief Executives is known to most of you by its former name, the Business Council on National Issues. We officially changed our name at the beginning of last year, in part to reflect a trilateral mandate on the part of our organization — Canada, North America and the world. That is how we divide up our resources, our assets, our time and our priorities.
The organization is made up of the chief executives of our largest 150 companies, 35 of which are responsible for the vast majority of exports to the United States and into North America. The 150 companies collectively administer over $2.1 trillion in assets and are responsible for the vast majority of trade, investment, research, development and training in Canada. Our collective stake in Canada, as an effective trading power, is absolutely enormous.
I will speak briefly to a new initiative that we recently launched in January at the council. We call it the "North American Security and Prosperity Initiative.'' I can promise you that you will be hearing more about it in the months ahead because it represents the culmination of some serious work during the course of the past 12 months on trying to answer the question of where Canada should go next in its relationship in North America. In other words, how do we deal with the new "Rome on the Potomac?'' Also, how do we deal with a very rapidly changing security environment as well as an economic environment?
I do not have to tell people around this table the degree of integration that Canada and the United States economies achieved since the signing of the Free Trade Agreement. I notice that Senator Carney is here today. I am delighted to see her because she and we know that the darkest prognostications made about the effects of the FTA have happened in a stunning degree of reverse.
The total trade since 1994 has more than doubled to close to $2.3 billion a day. The United States now accounts for more than 80 per cent of Canada's exports, and we also buy about one quarter of all American exports — more than all 15 current members of the European Union combined and three times as much as Japan. More than half a million people and 45,000 trucks cross our common border every day. The flow of goods across the single border point between Detroit and Windsor is greater than the total United States trade with Japan.
We hold a whopping 19 per cent of the U.S. import economy. That is larger than Europe and larger than Japan. While some people might be fearful of that and want to make apologies for it, most of the world would kill to have that position in the U.S. market.
The terrorist attacks of September 11 exposed the shared vulnerability of our two societies. The clear need to put security first in the wake of the attacks, as you know, had an immediate and devastating impact on traffic across the border and led quickly to plant shut downs and wide economic losses in both countries. At the same time, the attacks highlighted the extent to which our two countries share core values, history, institutional roots, and therefore the need to confront the newly global challenges as members of a North American community.
The Smart Border Accord signed by Deputy Prime Minister John Manley and by Homeland Security Secretary Tom Ridge in December 2001 marked an extremely important step in working together to ensure that the physical security of the citizens of both countries in a way that does not impair their economic security.
The council sees a much broader opportunity to build on this work. In January we, therefore, launched our North American Security and Prosperity Initiative, NASPI for short, to accelerate progress on both economic and security issues in forging a new Canada-United States partnership.
While the strategy advocated by our council is sweeping in scope, it does not advocate any form of political union between our two countries, ruling out a single legislature, a single high court or a single armed force. Nor are we proposing a European-style common market with overriding supra-national institutions.
While the suggested reduction in differences in Canadian and American treatment of third country trade may eventually illustrate the benefits of a full customs union, neither this option nor a currency union are parts of the strategy that we are currently putting forward. Instead, the council focuses on five key areas. Let me quickly summarize them.
The first of these five key areas is what we call "reinventing the borders,'' something you have heard a great deal about in this committee. To achieve what the Canadian government has described as border that is "open for business but closed to terrorism,'' we believe that our countries need to create a zone of cooperation encompassing the continent rather than focusing security efforts on the line that separates us. To do so, we must emphasize protection of the approaches to North America while eliminating regulatory, procedural and infrastructure barriers at our internal border.
The effectiveness of borders in a globalized world is a matter of process more than geography. To ensure our shared security and prosperity, we have to build on the Smart Border Declaration of 2001 and develop shared approaches to commercial processing, infrastructure, intelligence and policing, a North American identity documents and a shared institution to provide oversight. This would enable us to transform, in effect, the internal border into an effective, but shared, checkpoint within an integrated economic space.
The second component of our strategy is "maximizing economic efficiencies.'' As our economies are so integrated, many of our regulatory systems are redundant. For standards, inspection and certification procedures, for example, our two countries should be able to apply a principle of "tested once'' for purposes of the Canada-United States market. To this end, we should establish shared technical groups that would examine our regulatory frameworks sector by sector and provide advice to governments in both countries on where differences could be bridged through mutual recognition or other forms of harmonization.
As part of this effort, three issues of significant sensitivity must be addressed. They are enormous but of critical importance: the use of trade remedies within a de facto integrated market, regulatory restrictions on access and ownership in major industries, and, probably a longer-term objective, impediments to the mobility of skilled labour.
The third component of our strategy is ensuring "resource security.'' Canada and the United States benefit from a rich and interdependent resource market including oil, natural gas, electricity, coal, uranium, primary metals, forest products and agriculture. The securities of our countries depend on the assurance of uninterrupted flows among us.
We believe that a major initiative is needed aimed at removing the threat of trade disputes, and, in particular, resolving once and for all the controversial issues of resource pricing and subsidies. The initiative should lead to a resource security pact based on two core principles: open markets and the compatibilities of regulatory frameworks.
The fourth component is very important and very much debated today both within governments and outside. It is a "North American defence alliance.'' Our militaries play a critical role in protecting our continent, but the United States is carrying a vastly disproportionate part of the responsibility for doing so. Canada must both reinvest in its defence capability and ensure the inter-operability of Canadian and United States armed forces on land and sea and in the air.
Building on the more than 40-year record of cooperation through NORAD, our countries should strive to create a North American defence community of sovereign nations. The new structure would expand our alliance to defend the continent from missile attacks and other airborne threats; share naval protection of the approaches to North America more effectively; protect critical infrastructure such as pipelines, electronic networks, railroads, bridges and transmission lines; and, enable us to react together to natural and manmade disasters on both sides of the border.
An enhanced Canada homeland security capability within North America will enable Canada to contribute more effectively to the global war on terror.
The fifth component of the strategy is the need to develop "21st century institutions.'' The dynamic Canada-United States relation is no longer adequately served by existing national and bilateral rules and institutions. North America needs a new partnership based on cooperation and mutual respect for the sovereignty of each country, not a European- style model characterized by supra-national institutions. Specialized joint commissions could be created to address the four areas targeted for action in this strategy: reinventing the border, maximizing economic efficiencies, ensuring resource security, and building a more effective North American defence alliance. The institutional framework needed to manage a closer Canada-United States partnership will, however, require careful consideration.
In concluding, Mr. Chairman, I will mention the North American dimension. The council attaches great importance to Mexico's role as a North American partner. Canadian business has invested vigorously in Mexico over the last 10 years. We have discovered Mexico and Mexico has begun to discover us. The economy and society of Mexico are already closely linked with that of the United States, and the relationship with Canada is building.
There are great opportunities for the three countries to build on the foundation of the NAFTA and each country brings unique assets to the partnership. When people ask why we are so high on Mexico, I tell them that it is a country of 100 million people and one-half of that population is under the age of 30. A much greater number of young Mexicans are being educated today and Mexico will be a force to be reckoned with. However, Mexico will also present some serious challenges to the continent.
Our countries should move forward in a practical way and at a pace that suits our respective interests. If all three countries agree on an individual initiative, they should move forward together. If any two countries can do so, the third should be free to join when it makes sense to do so. This approach was effective in developing the FTA and the NAFTA and it can work in the future.
A more elaborate version of this statement can be found on our Web site. I tabled a fairly detailed number of recommendations but we also made reference to a longer-term vision that we have been talking about internally for the better part of one year, which is the concept of a "treaty of North America.'' The treaty being something the three countries could commit to as broad objectives but which would allow, in meeting those objectives of 8, 10, or 15 years, the countries to proceed toward the attainment, each in its own way.
Over the last year, the council has carried out studies, has consulted widely and has established a working group with counterparts in the United States and Mexico. We have launched a first paper at the APEC leaders meeting in Los Cabos, Mexico. A second paper, dealing with the issue of NAFTA plus, will emerge before long. Our American colleagues prepared the first paper, our Mexican colleagues prepared the second paper and our task is to deal with the beyond-NAFTA vision.
We believe the time has come to transform ideas into action. We are advancing the strategy described here so that we can generate discussion and real progress toward the goal of forging what we think would be an unassailable economic and security alliance between our two countries and, in a broader context, involving Mexico.
The foundations for the council's initiative are being laid as we speak. We are establishing a set of committees that represent the major sectors of Canada, all led by chief executive officers, that would encompass capital markets, automotive, the resource sectors and transportation. This, as is the tradition in our organization, will involve CEOs working directly and without substitution in our various committees. We will also consult widely with government and with all those who are interested across the country.
We realize that the decisions have to be made by government and not by the private sector but we want to be constructive. It is interesting that, on September 10, 2001, we had a meeting of our so-called "ginger group'' on this issue. We Canadians were bemoaning the fact that the President of Mexico, Vicente Fox, was on his way to Washington to confer with the new Bush government, which seemed to be totally preoccupied and enamoured with the Mexicans. The next day was September 11 and the tragedy in the U.S. The relationship between the U.S. and Mexico changed quite dramatically that day. Today, it is quite a different kind of relationship.
One of the reasons it is different goes to the real heart of what I think the security challenge is. It also offers Canadians an enormous opportunity — to use security as the bedrock for building a new relationship. However, I would argue that the relationship would have to meet the national interest test in Canada, which, we would argue strongly in accordance with the five-point strategy that we have tabled, could very well meet our national goals and objectives.
The Chairman: Thank you. Mr. Keyes, please proceed.
Mr. Bob Keyes, Vice-President International, Canadian Chamber of Commerce: It is a pleasure to be here and, as you noted, I am accompanied by Alexander Lofthouse, who is one of my staff who spends too much of his time on Canada- U.S. issues. It is almost a full-time job.
On behalf of the board and the members of the Canadian Chamber of Commerce, we are happy to be here this afternoon. The Canadian Chamber is coast-to-coast organization that comprises 170,000 businesses in its family. They are big and small and they cover many sectors from coast to coast to coast. Not unexpectedly, Canada-U.S. issues have been discussed at our board and committee meetings more than just a few times.
You would not be surprised to know that there is a great diversity of views on our direction on this issue. There is no diversity of view on the importance of the relationship with the United States but there are, obviously a range of views on where we go next.
I have tabled with the committee a short paper that will have more details on some of the points that I will raise.
The Canada-U.S. relationship is one that we have often taken for granted. We are neighbours, economic partners and allies. We are comfortable with each other and we have strong links in commerce, infrastructure, power grids, highways, financial markets, distribution networks, tourism, families, military, et cetera. We also have many hands- across-the-border things that we do.
Arguably, on some matters, we have stronger north-south ties than we have east-west ties. For example, look at our power grid. You might argue that, given some of the internal trade barriers of this country, it is easier to do business north-south than it is to do business east-west. With Mexico, Canada has a deepening economic partnership through the NAFTA. Trade and investment between the two countries continues to grow. Canada and Mexico face common challenges in dealing with the U.S.
In 1988, the Free Trade Agreement, FTA, with the United States was a bold step. Completion of the North American Free Trade Agreement, NAFTA, in 1994 enhanced the relationship and brought Mexico firmly into the North American family. The next challenge is: Where to from here? Do we have a vision for an equally bold step or for dealing with an incremental approach? Do we have a firmly defined goal for the future or are we trapped in "ad hocism'' and "incrementalism''?
The answers are not clear and we do not pretend to have them. However, we must have the debate over where we are heading; we must look at the full range of possibilities. Our members have clearly told this to us time and time again. At our last meeting in September, the resolutions they passed and the debate on the floor sent a clear message that we must have this discussion. We have to think by design and not leave events to default.
My remarks are basically short-term and longer-term. In the short term, to reflect on border issues for a moment, we have taken much for granted. Essentially, our border was rife with benign neglect until September 11 occurred. The pace of trade grew rapidly, our border machinery and infrastructure capacity were tested and, in some places, it was found to be quite creaky.
However, there were good plans in hand. In 1995, we had an accord on our shared border but it never really, despite the best of intentions, bore fruit. Similarly, the Canada-U.S. Partnership, CUSP, agreement, launched by Prime Minister and President Clinton was a good initiative but never got the momentum.
Then September 11 happened and the scenario changed dramatically. Security became the watchword. The business community and governments on both sides of the border had to work very hard to ensure that the proposed new security measures did not throttle the economic lifeblood of the societies they were meant to protect. We have had success. The 2001 30-point Action Plan has become the catalyst for moving ahead on new ideas and approaches, including ideas that had been around for a number of years. We applaud that.
The priority now is to fully deliver on that action plan and get those measures into place and implemented as thoroughly as possible. Despite the progress, there is still a great deal to be done. This is a continually moving target.
Allied with that plan is the allocation of the infrastructure funds. The infrastructure funding that has been promised complements these initiatives. All of the good ideas, such as NEXUS and FAST, will not be successful unless the infrastructure spending is there and we increase the capacity of the border. As helpful as these current initiatives are, they are essentially decongestants. However, the medicine cannot be successful until we get to the root problem, which is that there are too few approaches to the border. In Windsor, for example, the primary access to the Ambassador Bridge and the tunnel is through downtown streets. This illustrates the problem.
We also called for pushing border security outward by shifting customs inspection activity and paperwork away from the 49th parallel and the physical internal border. For Canada, a functioning border is absolutely essential. If we want to position ourselves as a launching pad for investment into NAFTA, we have to have a border that works.
We get approached a number of times by European embassies. I am closely involved with the International Chamber of Commerce, and I interact with people from around the world. I am asked what is happening with the Canada-U.S. border. Will it stay open? Will it get clogged? There is a vital message to which we must listen.
I cannot leave this topic without saying that recent developments coming out of the United States — plans for entry- exit systems such as new administrative requirements, pre-notification — put us at risk of backsliding on some of the gains that we have made. Notwithstanding the best of intentions, current jitters and the security situation, we are on a bit of a slippery slope.
Our president was in Washington last week, as was Mr. d'Aquino, and they were told that the commitment to the 30-point plan from U.S. authorities is strong. However, in the heat of the moment when security issues come up, we could, potentially, have problems.
With the declaration of the Code Orange alert last weekend, the trucks backed up at Windsor to a two-hour wait. Today, the Windsor Tunnel is fine, but the Ambassador Bridge delay is 45 minutes; Blue Water is 75 minutes and there is a 60-minute delay at the crossing into Vermont. If we go to a higher level of alert, we can expect problems, and this is where crunches will come. Business has a part in this too. We are looking at ways to remind our business members that they are part of the solution and they have to take security and vigilance seriously.
I will turn to the longer-term context. How do we leverage this relationship, and where do we go? The relationship is getting deeper day by day. De facto integration is here whether many Canadians realize it or want to accept it. The reality is that we have companies with production lines with a border in the middle. They are producing products for an integrated market that, with the passage of time, becomes more homogeneous. Many of our members look at North America as a single marketplace.
How will the institutions respond? We hear of a continuum of possibilities: convergence and harmonization, customs union, common market, total economic integration, dollarization, expansion of NAFTA, a new North American governance framework, and continental political institutions. These are just a few.
These ideas are worthy of thought and discussion. However, realistically, it would be a long time before any see the light of day. They also raise substantive political and sovereignty issues. We do not expect the big picture change will happen. It is not realistic to think that it will. It will take years to negotiate.
Why do we mention them? We think that we have to start somewhere. We have to start thinking outside the box.
The Canadian business community's view is clear: No-one wants or expects the border to disappear. It defines our territory as a country. It has symbolic, political and sovereign dimensions. Moreover, North American union is not on the agenda.
Let us look at four practical things that can could done in terms of business recommendations to government that would make the process of doing business between Canada and the U.S. easier.
The first one is mutual recognition agreements. We feel that there is a need for Canada and the U.S. to examine their respective regulatory processes and standards. Companies are producing for an integrated market, why do we have parallel, overlapping, duplicate systems of approvals. It is not appropriate. For companies, this causes delays, increased cost and frustration. Regulations can be streamlined. Minister Pettigrew has talked this way. In a recent address, he talked about the work already being done in areas such as pesticides, aviation, biotechnology and pharmaceuticals.
Last year's report of the House of Commons Standing Committee on Foreign Affairs recommended that Canada NAFTA partners implement mutual recognition schemes for existing regulations. We support this thrust and idea, and we urge the government to vigorously pursue this approach with the U.S. and, where possible, Mexico and get the business input.
Do we need regulatory systems that duplicate each other in an integrated North American market? We suggest that we do not.
This does not mean that we would automatically adopt U.S. standards. Let us look at the best model, the best way to do things. It is not a race to the bottom. It simply means that it does not make sense for two governments to collect the same information or perform the same health or safety test. As a start, it could be useful for governments of Canada and the U.S, in cooperation with the business sector, to select two or three sectors where MRAs make the most sense and move forward. It should be done without getting into a long, involved paper exercise or audit. Let us move this agenda forward.
The second idea is a customs union. It is a complicated idea, but worth examining. This is an idea that comes up frequently. The most common accepted definition of a customs union involves removal of border tariffs between the participants and agreement of common external tariff. There are many definitions of what a customs union is, depending on which economic or trades text you use. The definitions are more an art than science. Canada and the U.S. have already moved a long way down the road towards common tariffs. We have dismantled many tariffs on industrial goods. Under the NAFTA schedule, the remaining ones will be phased out soon.
The basic goal of a customs union would be to encourage goods to move freely by reducing he need for inspection at the border, leaving aside the security issues; eliminate paperwork; and, perhaps, even reduce the uncertainty and cost associated with the rules of origin. The latter is an arcane subject but vitally important to the structures.
This is not to suggest that a customs union would solve all the outstanding issues between the two countries. No single agreement or institution could hope to do so. There are many issues to be covered, including Canada's external tariffs. We have different systems than the U.S. We recognize different countries and we also have a Commonwealth system.
There are also issues to consider that have little to do with tariffs. What would happen to the United States' cherished anti-dumping laws and trade remedies? Barriers such as health inspections and safety requirements might or might not be done under a customs union. Restrictions on the movement of people would remain. How would we act at international trade discussions such as the WTO and the FTA?
There are many angles and issues around this notion of a customs union. Let us talk it out as a step to looking toward where we go. It is not something to be considered lightly, but neither do we think that it should be simply tossed aside without consideration. There is no consensus in the business community on this, but people say, "Let us look at it and see what it holds.''
The third idea is sectoral agreements or sector tariffs. Could this be a first step? It is worth noting that the European Union began its process of integration with a few institutions in specific sectors: the European coal and steel community and the atomic energy agency. The European process has been different, but in looking at the North American context, one suggested candidate has been steel — a market which is highly integrated, companies with plants on both sides of the border, and materials that are shipped back and forth. However, the trade institutions that apply in terms of dispute do not fit the integrated market, and in resorting continually to the plethora of antidumping and countervail actions that we have seen in the CITT and the international trade commission, huge amounts of time and money and aggravation are being put into this. Why not look at the idea of a sectoral tariff agreement? Why not look at steel as one example?
The fourth is trade remedies. One of the key elements and shortcomings, unfortunately, of FTA and NAFTA is that each of the partner countries retained the right to fully apply their respective trade remedy mechanisms in addition to the dispute settlement mechanisms put into the agreement. Of course, the private sector is able to take full advantage of these.
Trying to make further progress on these mechanisms is a key part of unfinished NAFTA business, and not an easy one to move forward. It is on the agenda in the FTA and WTO. There was resistance within Congress. This was a very contentious issue whenever the trade promotion authority was accepted. It is a very complex issue. On a multilateral scale, will we really be able to take serious progress on that?
It is interesting to note that the DFAIT committee contemplated the creation of bodies that would start to build the foundation of permanent NAFTA bodies. These are ideas that should be considered and studied in detail. They talked about, under Recommendation 19, a North American antidumping and countervailing mechanism under NAFTA 1907. They talked about a permanent court on trade and investment disputes. These ideas will not bear fruit immediately. They are long-term ideas that take a good deal of time to develop and they need the right consensus and political and economic climate. The point is, though, that integration is coming and institutions have to respond.
Canada has to be a full and active partner in the bilateral relationship. If we do not want to be led, we have to lead. We have to be aggressive and seize the agenda, much as we did in the design of the 30-point plan with the United States following September 11. Canada carried that agenda and, against a very slippery slope and strong odds, took a lot of these ideas to the United States, and they gained currency.
The business community is not waiting to move ahead. It has seized the opportunities under the NAFTA and FTA, and the trade investment statistics bear witness to this. In de facto terms, our companies are voting with their trade and investment dollars. Canada cannot afford continental drift; this relationship is too important for that to happen. We must think proactively, creatively and carefully, notwithstanding the frustration and angst that comes our way on various fronts.
There is not a strategic approach to these questions. There is not a broad or bold vision to the context in which integration is happening. We have no single government department or policy or plan managing this integration. It is just happening.
We are looking for a hands-on approach. We are looking for a careful study of outside-the-box ideas. Let us define our priorities, needs, interests and goals, and let us do it on our terms and with our needs in mind.
I look forward to the results of the committee's discussions and your questions.
The Chairman: Thank you.
Senator Grafstein: I want to start with a simple proposition or an observation. Watching Canada-U.S. from the days of Senator Carney's distinguished occupation of the important trade post, I have noticed that without energy from the business sector, we cannot move forward on any trade front. We need not only political leadership; we also need parallel political energy from large and small business. I say that because as a Manchester liberal and in studying Manchester liberalism, I know that you cannot be a free trader unless the local community is pushing you. Your participation here is vital to all the questions we have with respect to how we deal with this complex relationship, both NAFTA and post-NAFTA. I want to start with the post-NAFTA question and then come back to NAFTA.
Post-NAFTA, looking forward together, Canada, U.S., Mexico, we look at how we expand our marketplaces and the obvious targets are Europe, Mercosur, Japan, China and Asia — markets where we can ship value-added goods.
Yesterday we received some startling evidence from a witness. In his brief, he said that Canada's initiation on all those fronts is really being marginalized. Mexico is moving forward with a free trade agreement with Japan. We are nowhere to be seen. I do not know where the United States is, but they are not far behind. Mexico is moving forward with a free trade agreement with the EU. We are certainly nowhere there. There is an iron curtain between Canada and the EU. Mexico is moving forward smartly with the Mercosur, and we all know the reluctance, particularly on the part of Brazil, to engage with Canada in terms of a free trade agreement. Where do you see us going, and how do we energize ourselves on the NAFTA plus? Where next, for those markets?
Mr. d'Aquino: Senator Grafstein, I think you put your finger on something extremely important, something that personally has greatly concerned me for a long time. We all know around this room that the countries can only achieve breakthroughs, whether politically or economically, if they are really prepared to "think outside the box'' and to be somewhat contrary. It is true that our initiative on "free trade one'' — if I may call it that — was not only a novel and important innovation, but at the time, those negotiations were launched, the era of multiple free trade agreements was only nascent. If one looks at the work we did between Canada and United States, it set the framework for what we now take for granted.
The second thing we know from what was a very bold and highly controversial exercise is that it does require courage at the top, vision, and a real determination to push. It also needs the support of the economic community and, more broadly, of the public.
What the Mexicans have been able to do in the last 10 years has been truly stunning. This was a country that, 12 or 15 years ago, was one of the most inward-looking, a country that was cartelized, a country that had an historic enmity with the United States, a country run by a small number of elites. They not only have been able to do remarkable things in North America, but as you pointed out, Senator Grafstein, they have reached out to the world. How have they done this? They did it by having a political leadership that asked, "How are we going to make our mark? We are not just going to make our mark by having done the deal with the countries to the north, where we hope to become the hub for the hemisphere, but we have to reach out more boldly to Europe and Japan.'' They had a combination of a very clear vision, strong leadership at the top and a business community that was committed and prepared to do the legwork. For example, my good friend Juan Gallardo made something like 26 visits to Europe as the unofficial point man on behalf of the Mexican business community, banging on the doors. I remember asking Pascal Lamy, "Why Mexico and not us?'' He said that it is because the Mexicans wanted it so badly. When we had a similar conversation with the chairman of Toyota, with whom we have been working closely, he said because the Mexicans have been here so often and they want it so badly.
I come back and underscore what the senator has said. If we want this, we have to be clear; but I should say I am encouraged now. Why? It is because we have had reports coming out of Parliament that make it clear that we are prepared to think boldly. I think we have a much higher degree of consensus in the country that Canadians can make it than was the case in the early 1980s. The level of support for NAFTA is the highest here among the three countries. I think a combination of public support — support coming from good work that has been done by people in these chambers — and support by the business community can really make things happen.
The Chairman: We have Mr. Keyes waiting patiently.
Mr. Keyes: In answer to your question, senator, I agree with much of what Mr. d'Aquino had to say, especially on Mexico's drive to reach out and do things. They have beaten us to the punch on things and full marks to them for what they have done.
In terms of the Canadian context, where are we putting our apples? Are we putting them into regional agreements or are we putting them into the WTO? I had a conversation with David Crane the other night from The Toronto Star. I do not know if you saw his article last week. He went after us for not paying attention to WTO issues and said how important it was. I agreed that it was important. I did not agree with him when he implied that we were ignoring it, because we are not.
Where do we put our priorities? Are we in WTO or in the regional agreements? You might even say: Where are Canada's trade priorities? What have we been negotiating recently? CA4, Costa Rica, now we are in the Dominican Republic, we are looking at an Andean pact; these are small markets. They are niche markets that are important to some companies, but this is not where you get an awful lot of leverage. When we ask our trade officials where their priority is, it becomes clear we have a scattered priority. I think we are doing some of these trade agreements for political reasons rather than trade reasons.
The Chairman: Thank you. Mr. Keyes. I think you have made your point very well.
Senator Carney: I wanted to concur with Senator Grafstein's comment about the industry input. It was my predecessor, James Kelleher, who organized the SAGITs, which was the largest consultative process ever set up to get opinion across all sectors of society.
I forget what SAGIT stands for; it has become a word in itself.
Mr. Keyes: Sector Advisory Group on International Trade.
Senator Carney: Thank you. There were many of them, both large and small companies, and we could not have done the FTA negotiations without them.
I have two questions that I would like to direct to both witnesses.
In your paper, Mr. Keyes, you have put your finger on the two problems that have not been resolved. There are many constructive points that have been made by both of you in dealing with Canada-U.S. relations. However, until we get better migration policies in labour, and until we resolve the countervail anti-dumping trade remedies and their use against our industries, there is no point in doing much more in this area. These are industry-driven barriers. Countervail and anti-dumping are brought by industry, not by governments, in the final analysis.
What would motivate the Americans — your counterparts — to follow your ambitious plan?
Mr. Keyes: On the immigration and labour points, North American companies are moving people back and forth. It has to be demonstrated that it is in their interest to make this work. We have a lot of unfinished business even under Chapter 16. Some of the barriers are still there. We have government departments in the way and businesses on both sides, but the immigration authorities are resistant to change. There are many issues around this and we fully understand that.
With regard to the countervail and anti-dumping issues, we have an increasingly integrated market on both sides of the border — we are the largest trading partner for 38 of the 50 states. Surely, there has to be self-interest in the United States, as this market grows, to look at things in a different way. These trade remedies are held near and dear to American hearts. I think you have rightly pointed out, senator, this will be a very tough nut to crack. It will be interesting to see how it goes in the FTA and the WTO — if enough pressure will be brought to bear on a very broad basis to see some change.
Mr. d'Aquino: Senator Carney, at a meeting with our CEO counterparts in June of last year, when we more or less warned our American counterparts that we were coming, we said: "This relationship is a lot bigger than softwood lumber. It is a lot bigger than wheat. It is a relationship based, first and foremost, on security concerns.'' We put everything we talked about in the context of security and we talked about a grand strategy. As we walked through the various steps and talked about inter-operability, defence of the continent, a resource pact, energy supplies, food security, labour mobility, trade and investment, I asked them, "Where, in such a vision, is there room for trade remedies? Gentlemen and ladies, we believe that trade remedies — and these were my exact words — have to be consigned to the wastebaskets of history. There is no room for them.''
So long as we try to negotiate softwood lumber and wheat, we will not get anywhere. The only thing that will be able to capture their attention is something that is so big, so all-encompassing, that these other things will gradually dwindle away. The price of a deal would have to be what we all sought 15 years ago, the elimination of trade remedies. There is no reason for trade remedies in our relationship.
Senator Carney: You do not have to persuade me. I am asking you what the Americans are doing because it is the smaller producers who are not at your table who are bringing these trade remedies and using these things against them.
I think you have made your point.
The Chairman: Senator Carney, would you like to continue with your second question in the interests of time? I do not mean to pressure you.
Senator Carney: In the interests of time, we could all leave and that would solve your problem. However, it would not be of much use for Senator Grafstein.
My second question is the issue about the joint commissions because you do not deal with the issue of accountability. You are suggesting that the management of our relations between the U.S. and Canada would be increasingly turned over to joint commissions. There have been successful joint commissions set up on controversial issues.
I would like to know whom you envisage as the membership of these joint commissions. Are they political or business appointments? Where would the accountability lie? As a former colleague in DFAIT, I think that our foreign affairs people do a very good job. I do not know if there is anyone here from the Department of Foreign Affairs and International Trade, but you are suggesting that, in effect, these independent commissions would replace much of their mandate. I would like to know what you envisage their membership will be and where the accountability would lie, for Canadians, particularly in area of joint jurisdictions of the provinces and the federal government. That is a comprehensive question and you cannot respond to it in three minutes allotted by the chair but I would like you to try it.
Mr. d'Aquino: Senator Carney, you have put your finger on a critical set of issues that relate to the joint commissions.
First, our proposal that we examine the potential of commissions is not the end of the game but it is the beginning of the game. We looked to joint commissions because there is one commission — the International Joint Commission, which has been in operation for close to one century. It has been bought into and has been quite effective on both sides of the border. You may think that that applies to only a limited area.
Our strategy is to build on things that the Americans have seen to work. Thus, while Article 10 of the act grants a broader potential jurisdiction to the International Joint Commission, the issue of accountability is still important. We are not suggesting that the experts supplant the ability of Parliament or the Congress but we are saying that much of the detailed work could be done by panels of experts, if you want to call it that. They, in turn, would be responsible to the political authority. This is not a case of saying, "we delegate authority to you and you will run the relationship.''
Obviously, the joint commission is only one possible way of doing this but leaving it entirely to Parliament and to Congress, or to committees thereof, is not the way to run a relationship of such great complexity. The issue of accountability is of enormous importance and we are looking at that right now. Over the course of the next six to 12 months, we will work on the institutional side, and we will be delighted to come back to share our ideas with you.
Senator Carney: Those are two of the most important barriers to implementation of some of the interesting ideas of our witnesses.
Mr. Keyes: The accountability issue, obviously from your perspective and as a senator and former minister, would be a clear one. We are talking in terms of permanent bodies dispute settlement tribunals that are given powers with experts on either side. Clearly, at end of the day, they are responsible to the political authorities. We have binding panels, for example, in chapter 11 disputes under the NAFTA are done under an arbitration kind of system. It is to bring those kinds of people together in a permanent secretariat that would take much of this on. They would develop jurisprudence and a track record in dealing with these issues. Surely, there could be the appropriate accountability mechanisms put into place. It is a good issue.
Senator Setlakwe: Mr. d'Aquino and Mr. Keyes, I was not quite satisfied with your answer to Senator Grafstein's question in respect to our position concerning Mexico and its ability to negotiate free trade agreements with Europe, as they have done already. They are currently negotiating with Japan and the Americans are doing the same. I am not so sure that we have not done our level best. It is just that the Europeans take us as the tail of the dog and they do not consider us to be a serious factor?
We do have the former Minister of International Trade who sits as chairman of the Canada-Europe Round Table. We did have a Pearson initiative and a Trudeau initiative; and now we now have a Chrétien initiative. No one seems to be listening to us, especially in respect of the Europeans. I wonder to what extent we can do more than we already have done. Roy McLaren has suggested that we should stop talking to Brussels and start talking individually to sovereign states. Perhaps, they could relay the message back to Brussels. It is a complicated procedure. What is your view on that?
Mr. d'Aquino: Senator Grafstein has reminded me, from time to time when we run into each other in elevators, that the business community has been derelict in its attention to Europe. I always say to him that that is not the case.
Our involvement in trying to promote the idea of something bigger with the Europeans goes back 20 years. We have worked directly with people such as Sir Leon Britton. We have met three times with M. Pascal Lamy. We were fully supportive of the various initiatives that went forward. The Prime Minister gave a speech before the French Senate. Mr. Roy McLaren proposed a North American Free Trade Agreement. In our bilateral meetings with our business counterparts, we have pushed it. We received the French last August and we pushed it. We recently had a meeting with the Swedes, where we talked about it.
The real issue is this: I hate to say it because it was not the case 20 years ago but we are now relatively small fry to the European Union. They are enormously preoccupied with their own agenda of growing the internal market first and now growing the community.
The second problem is that they very much see us tied to the Americans. They have a great deal of difficulty seeing that there is a distinction. They, too, know the numbers that we have discussed today about the level of integration. How much real independence is there?
The third problem is that dreaded, horrible word, "agriculture.'' We raised that item with Pascal Lamy: Why Mexico and not us? I even went so far as to be somewhat provocative by saying that Canada put two divisions on the shores of Normandy, the Mexicans did not; and we were founders of all of the key, trans-Atlantic institutions, the Mexicans were not. I say that with great affection for my Mexican friends.
However, the fact of the matter is that agriculture, coupled with other issues, in my view, creates the situation that we are in. They came back after this last summit and said that we would do something better than the old free trade agreements. We would now talk about new-age agreements. This is just an attempt to placate us. I do not think we will go anywhere with the Europeans until we see some form of transatlantic agreement between North America and the European Union.
Mr. Keyes: In addition to the points that Mr. d'Aquino made, with which I agree, the tariff situation between Mexico and the EU was different. The Mexicans had many high tariffs that the Europeans wanted to attract and they saw Mexico as a launching pad into Latin America.
Now, with the Europeans, we need to focus not only on tariff issues, which continue to decline, but also on non- tariff barriers. We need to get a handle on those non-tariff barriers to attack them and we need to leave aside the grand architecture. We need to get on with this in a practical fashion and meet some of these regulatory, process and marketing issues head on.
The third issue, at the moment, is that somebody in the EU said to me that they would not unilaterally disarm until the WTO had dealt with some of these issues. In the middle of the WTO round, who would give away anything serious, at the moment? The agriculture issue is huge in this whole equation.
Senator Graham: Out of curiosity, how much interaction is there between your two organizations?
Mr. d'Aquino: We were referring to each other yesterday, senator, as comrades. There is, in fact, a great deal of interaction between our two organizations. Ever since the founding of our organization, the chairman of the Canadian Chamber of Commerce has sat on our board as an ex officio member.
Mr. Keyes: There is an excellent working relationship, absolutely.
Senator Graham: To your 150 big, big, super businesses, Mr. Keyes brings 170,000 —
Mr. Keyes: Big and small.
Senator Graham: I have a question about the customs union.
Mr. d'Aquino, in your paper on the topic of your council's strategy, you say that while the "suggested reduction in differences in Canadian and American treatment of third-country trade may eventually illustrate the benefits of a full customs union. Neither this option or a currency union are a part of the strategy being put forward by the council.''
Mr. Keyes, you made a rather compelling argument for a customs union. At the end, you sort of weakened, and said, "Politically, it would clearly be a significant step and the time is not ripe for such an initiative.''
Mr. Keyes, why? Mr. d'Aquino, why is it not in your strategy?
If I remember well, last week you mentioned Roy McLaren who said that it is not in the cards. Another witness said it was not on. Another witness said that it was unrealistic. One of our witnesses was very much in favour of a customs union.
Perhaps both of you would like to comment.
Mr. d'Aquino: Senator Graham, I strongly favour a customs union. I think it is realistic and doable. However, we are not advocating one because every time in the course of the last three years that we have raised the issue of a customs union, even with members of the U.S. business community, we have been met with "No, can't do it.'' "No it sounds too institutional.'' "Congress will never buy it.'' It will erode our sovereignty. "Politically, it will not work.'' We learned from that.
While it happens to be a strong preference of mine and many of my colleagues who would not wink their eye twice about the ideas of a customs union, we have decided that as part of our strategy, it is not tactically desirable to go forward with it.
We will achieve our same ends, in our view, by not appearing before the Americans and saying to our CEO counterparts that we come with a proposal for a customs union. However, if we move ahead in all the areas we have mentioned, we will achieve a de facto situation that will equate to a customs union.
Just as common currency is rejected out of hand, a customs union is rejected by a great number of people because the mindset in the United States is not there.
In the autumn of 1981, when we first put forward an idea of a free trade agreement with the Americans, it was rejected out of hand, as well. It took us until 1984 to get our CEO counterparts to sit down with us to have a discussion about something called an FTA, because they said that they were not comfortable with this thing and did not know what it was, et cetera.
We have learned many lessons from the past. Are we in favour of the idea? Absolutely. Does it make sense for the continent? Without question.
Senator Graham: Is it something you intend to pursue?
Mr. d'Aquino: We have done a lot of work on what the elements of a customs union are. We are talking within our family here, although I know it is part of the public record. We are trying to achieve, via the backdoor, what we do not think we could achieve via the front.
Mr. Keyes: The reasons and issues that we have raised in our paper as to why it could be problematical are standing in the way. Around the issues of sovereignty, our countries are different sizes. Whose rules would prevail — especially when you start to negotiate on a common external? Will it be U.S. rules or our rules?
There is an unequal weight between the elephant ant mouse. If we thought we could have the leverage and the negotiating power and the bargaining power to be able to get our views to prevail on an equal basis within that customs union and deal with the sovereignty and those kinds of issues on the margins, then we might be much more optimistic than we are. Clearly, in our own membership, we have pros and cons; some people think that this is the way to go, and others disagree.
We are saying that we should have a look at how to do it, the pluses and minuses and get our head around this idea. It may well turn out to be the bold step, just at FTA was in 1988.
Mr. Alexander Lofthouse, Policy Analyst, The Canadian Chamber of Commerce: By saying that, politically, the time is not right, we meant that when we are under an orange alert, it is not the time to talk about a customs union. God willing, this crisis will not last forever.
Once the crisis has passed, we will have to move on and think about the future of North America. We will need to take a look at what is in the toolbox and what it would mean for Canada. We would want to discuss it publicly and look at options when we are ready to move on.
The time is not ripe at this moment. However, we have to talk about it. We have to assess the option before we know whether we can move on it.
Mr. d'Aquino: Normally I agree with almost everything my good friend Mr. Keyes says. However, we are not really concerned about these differences.
Why do I say that? Look at the degree of integration between our markets — capital market, automotive markets, steel markets, and food markets. The fact is that the level of integration is great. Our tariff structure, with a few anomalies we are close to being able to come up with what I would call a uniform regime. That does not mean we buy the U.S. rule; we buy a common set of rules. Why are they common? We are a common economy. We are an integrated economy.
There would be a few rather difficult exceptions. However, we could sit down tomorrow and reach an agreement in the context of that customs union that I think would encompass 90 per cent of the economy. We might have to fight about 10 per cent, but so what? We can reach agreements on the 10 per cent.
I do not think this differentiation — given the level of integration — really works. Our multinationals are integrated, and we are working so closely together.
Senator Graham: In so many areas, we will have a customs union.
The Chairman: I do not know that that is the case, but it is a proposition.
Mr. Keyes: Mr. d'Aquino is absolutely right on the business side. We can see much that stitches us together. The governmental institutions are the tough nuts to crack. People will stumble of the processes, institutions and sovereignty questions.
Senator Di Nino: First, I would like to suggest that after the witnesses are finished, we have a five-minute in camera session. I think that there are some issues that we should deal in relationship to our trip out west next week.
I am hearing that we have a relationship, which, by all standards, can be described as successful. However, we do have irritants. I wonder if I am correctly interpreting both of you gentlemen when I understand you to say that there are concerns about where this relationship is going, whether it is going forth in a positive manner and perhaps that there is an absence of political will in trying to solve these problems? Am I correct at this point?
Mr. d'Aquino: I would say that there is reluctance among Canadians — not only among some Canadian political elites — but also among many influential people about taking the next bold step. Our argument is that Canadians today, because of our great success — and the polls support this — are much more confident about how we feel living next to this country. We are concerned now about Iraq and red alerts and so on, but let us put that aside.
We feel that the great security imperative that September 11 created has generated a huge opportunity for us all. We have to pull it all together. It is not the business community that will pull it together, and it will not be journalists who will pull it all together. It has to be a government that pulls it all together.
Getting back to something Mr. Keyes said, the reason for going forward so aggressively with our strategy is that we believe that if we can get a clear idea of what we want by way of a strategy — what I call a winning strategy — it is we who have to take it, develop it and sell to the Americans. I think we have the basis for being able to do that, but it does require a government, a leader, a consensus in our political parties to examine questions such as, "If we do not do this, what is the price?'' Will the Americans impose their sovereignty on us because we are unable to affirm it? Will the ability to have a credible defence capability somehow besmirch our ability to do things on the economic side? That is what I am hearing in the United States. Will an incompatibility on how we deal with people and security issues put us at a disadvantage?
We should not be doing this for the Americans. We should come up with our strategy — a winning strategy that passes what I call the national interest test — and then sell it to the Americans. As distracted as Rome on the Potomac is, if we come up with a winning strategy on people, defence and resources and borders and common approaches to terrorism, we can do something that we never would have been able to do before September 11. However, it does require strong political leadership and strong consensus in the country to move it forward.
Mr. Keyes: I basically agree with what Mr. d'Aquino is saying. I think he has put his finger on where we do go. We do not have an integrated agenda. We are doing a lot of issue-by-issue management and a lot of "ad hocism.'' The issues have been focused on the border, and I give Mr. Manley full credit for what he has done with the border.
Where does this fit in with the larger picture? Canadians do not have theirs heads around that. That is the step we are missing. The kind of work that came of the SCFAIT committee and the kind of questions that this committee is asking are examples of the kind of discussion we must have so that we can stitch something together and move on and get the political commitment from the top and go.
Senator Di Nino: You just touched on the second part of my question, which is one of the critical components to the success. Senator Grafstein talked about the business community. You just said Canadians do not have their heads around it. It reminds me of a comment made by a number of people. You said that integration was happening. One of our other witnesses suggested there is a silent integration with the U.S., and he followed up by saying that Canadians do not mind.
I suspect that as part of trying to deal with this problem, we also need some sort of communication strategy to bring Canadians to this so they fully understand. It seems to me that that is missing. Am I reading it correctly?
Mr. Keyes: You are. I do not think Canadians appreciate the extent to which we are so integrated and that this is where our future is, whether we like it or not. We will not change our geography.
The Chairman: I have a question along the same lines as those posed by Senator Grafstein and Senator Di Nino. Have we not backed ourselves into a situation where we have become hostages? We are not in charge; we are hostages.
The Americans are under attack. It is a world story that they are talking about going to war. We have about 86 per cent of our exports going to one country — 35 per cent of our GDP. I know about security matters. This occurred to me immediately. I have spent much of my life in places where they have big security problems. We have been told that every two and a half seconds, a truck crosses that border. I ask, what happens if it becomes every five or ten seconds? We do not control that at all.
I may not agree with some of the directions that the Americans have taken. I may be a member of what appears to be the large majority, but just the same, here we are talking about customs unions and fundamental changes to things that I would think they would be not very interested in right at the moment.
The Mexicans have gone to a lot of trouble. I speak Spanish, and I know Mexico fairly well. They have a free trade agreement with the European Union, and they are working on one with Japan. They are trying to get themselves out of being a hostage. I know it is a comprehensive free trade agreement with Mexico, because Ambassador Phillips told me.
Does this not give us some cause for concern that we are, in fact, dependent on a country that is at war with a whole lot of people? We are dependent on trading with them across a border that has to be practically open for I do not know how many million Canadians jobs. Mr. Keyes, what do you think about that?
Mr. Keyes: I think it is important in the Canadian interest and from a trade policy perspective that we diversify our trade pattern as much as possible. Having all your eggs in one basket is a great ride while it lasts.
The Chairman: Yet the ride has ended.
Mr. Keyes: No, the ride has not ended, not at all. The ride is continuing. We have some, hopefully, short-term issues on how to manage things in a better way.
I think being next door to the largest and most dynamic market in the world is a good advantage. Let us maximize that leverage. That is what we have been trying to do and what the business community has done since the FTA and NAFTA. The numbers show it. That does not mean diminishing your efforts to diversify your trade pattern absolutely wherever you can.
The Chairman: Mr. Lofthouse pointed out, with great accuracy, that until the WTO negotiations — which do not seem to be going well — end, no one will do anything, because positions are taken in the larger picture. There is the issue of the border. There are three kilometres of trucks along the 401 — what concerns does that raise for someone who is sending "just-in-time'' goods to a market?
Mr. d'Aquino: You have described a glass half empty. Let me give you the glass half full argument. Last year, 225 million people crossed that border both ways, and 13 million trucks crossed that border both ways. As a result, in particular of September 11, our security between Canada and the United States, has now become totally indivisible. Thirty-seven states count on us as their most important market. Our economies are much more heavily integrated than most people already know. When it comes to critical areas such as the Internet, financial backbone structures, hydroelectric power, energy — however you want to cut it — do not think of us being hostages to them. We are extremely important to them as well. It cuts both ways.
The Chairman: We are 2 per cent of their GDP, and they are 35 per cent of ours.
Senator Grafstein: We supply 18 per cent of their energy.
Mr. d'Aquino: When you say 2 per cent of their GDP, that is a very big number. The GDPs that cross the Belgian- Dutch border or the Italian-Austrian border are peanuts by comparison. It is significant in real terms, and we have to be smart and take advantage of this interdependence.
This interdependence will become clearer as we go from code orange to code red, as we fight this war on terror and as integration continues and is irreversible. Have we been good at selling that argument? No. Have we been clever at getting our ducks together and going at them with a strategy that works? Not yet. We did it once when there was a great threat. This time the threat is global terror and the possibility of the border shutting down. The last time we had this great debate in Canada, it was the great threat of U.S. trade protectionism. The free trade agreement did not solve everything, but look at the numbers today. They show that we solved a great deal.
This is time for another bold step. Just like we Canadians were the engineers of the last great step, we have to be the engineers of the next great step. If we do not do it, we will go from code orange to code red and Mr. Ashcroft and Mr. Ridge and everyone else will say regardless of those 30 million people to the north, we will do whatever we have to do to look after our interests. That is why we have to define the interests for them and do it on our terms. That is what we are asking for.
The Chairman: Thank you very much. It has been an interesting meeting.
The committee continued in camera.