Foreign Affairs Committee on April 13th, 2017

[John McKay, Liberal, Scarborough—Guildwood, ON]

Ambassador Heinbecker, I was going to ask you a question on previous testimony by Professor Sands concerning the Ogdensburg agreement, and particularly the Joint Board on Defence. He suggested that, given that it's the 60th anniversary of NORAD, and that defence and security are a preoccupation of the Americans, this would be an ideal time to look at and review, overall, the functioning of the Joint Board on Defence. I have a personal interest in this question, because I am Canada's co-chair in this meeting coming up in June.

I would be interested in your thoughts with respect to not only the larger issue of whether the whole Ogdensburg agreement should be reviewed, but also whether there are specific agenda items that you think Canada should be putting on that board meeting in June.

[Paul Heinbecker]

The Permanent Joint Board on Defence has been around since the Ogdensburg agreement. In its earliest days, it was, I think, a more vital organization than it is now. At the same time, it's useful. Military and political diplomacy is particularly helpful right now, because, among many other things we don't know, we don't know what Trump's attitudes on this are, either. He came to office with a kind of international expertise that he had gained at New York City cocktail parties, and his basic interest in international relations was the kind of thing where whatever he heard from somebody interesting the night before was what he believed—and what he still believes, apparently.

It's in Canada's interest that the PJBD continue and that it meet on a regular basis. I don't know that it needs to do much more than to be. It's easier to keep something running than it is to create it when it's gone. I think that that's largely the case with the PJBD. It brings senior military people and senior political people together, and it creates a degree of common understanding that you wouldn't get otherwise. It's insurance against the day when it might be needed.

As for putting things on the agenda, one of the things that we may yet find on the Canada-U.S. agenda is the issue of defence spending. A couple of years ago, we had an exercise in our Arctic at about the same time as the Russians had an exercise in their Arctic. Our exercise was 200 Canadian Rangers. Their exercise was 30,000 Russian troops, 14 warships, and all kinds of military equipment. If I were the Americans, what I would want on the PJBD agenda, and perhaps even in a NORAD context, would be to know what the Canadian Army was planning to do about that. We are at the lowest level of defence spending since the Second World War, at least according to Granatstein a couple of years ago. We are at one of the lowest levels we've been at in foreign aid. Making the case that we are effective internationally is undermined by the resources that flow into those two areas of our foreign policy.

From a Canadian point of view, I guess I would like to see greater interest in the Arctic. I'd like to see more co-operation with the Americans, but I would like to see a stronger Canadian hand in that co-operation.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Thank you.

Professor Momani, on the softwood lumber agreement, the bane of every trade negotiator's existence, we seem to be going around in dizzy circles. The major reason for going around in dizzy circles on this agreement is that it's a managed trade and the American lumber industry has a veto. We don't seem to be able to break this. We can continue to do what we do, which is to negotiate, to possibly go to the WTO, where we have a massive settlement in our favour, which apparently, one way or another, we give back, or we can do something different.

One of the differences could be that when we open up NAFTA—Mr. Trump seems to be enthusiastic about opening up NAFTA—we insist that softwood lumber goes into NAFTA. There may be other ideas. I'd be interested in your thoughts as to how to manage this extremely vexatious problem.

[Dr. Bessma Momani]

I can't say that I'm an expert on that at all, to be honest with you.

I'd only say that the WTO dispute settlement mechanism...versus what I think one of the positions we should have is that of really trying the strengthen the NAFTA one.... I think that works to our favour. One of the possibilities, or the good news, of opening up NAFTA is that we could strengthen the dispute settlement mechanism in that. The WTO one, I think, has worked well generally.

Of course, in this particular situation with the Trump administration, the whole unpredictability, and frankly, what is a protectionist tendency, mean that anything we can do to ensure that the DSM is used in either form is I think really valuable to our positioning, because it's unjustifiable what we're seeing coming out of the American government.

[John McKay, Liberal, Scarborough—Guildwood, ON]

Let me then pick up on your Dodd-Frank comments and ask you to expand on your worry there. I know that they're dumping the Cardin-Lugar amendment so that corruption can be well and truly hidden again. What are your other worries with respect to how the effective practical repeal of Dodd-Frank is going to impact on Canadian financial institutions?

[Dr. Bessma Momani]

That's a good question. To be honest with you, I can't tell you what the effect would be on the Canadian financial institutions. There is a global economic worry, I think, that money generally will flow to the U.S. in a hunger for increased returns.

Capital, as we all know, is very excited about the idea of finding new ways of repackaging some of what were called the “toxic assets”. The whole fiasco of repackaging those toxic assets was in essence what motivated the Dodd-Frank to come in: to prevent that kind of creative packaging. My worry is on a global scale: that in fact we will start to see capital move from some of these real estate assets into these kinds of potentially lucrative financial returns. We can see this in the worries about the housing crisis today, and we can see this in other places where there is fear of bubbles percolating in different housing markets.

The worry should be more on a global scale. I'm not saying that the repealing of Dodd-Frank is going to usher in other international financial crises, because there are some new safeguards that have been put in at the international level, at the Bank for International Settlements level and in the Basel III accord. There's a lot of good stuff going on internationally to prevent some of the same things happening, but there is what we in international public economics call a “casino capitalism” kind of view of the world right now, whereby there is a hunger.

You couldn't find any more excited people than those who are on Wall Street today, who see that in fact they may just see a return of exactly the same conditions of 2006 and 2007, which, again, looked very similar to what we have now, that is, really high real estate prices, an extension in the mortgage market and a lot of people who shouldn't have mortgages having mortgages, and all of the same sort of global hunger for high returns—that frankly aren't coming from other markets—rushing into the United States.

There are these sorts of global factors that worry me. It's the global aspect that I think could have a negative potential for the Canadian banking industry specifically.

[The Chair, Liberal, Bob Nault]

Thank you.

We'll go to Madam Laverdière, s'il vous plaît.

[Hélène Laverdière, NDP, Laurier—Sainte-Marie, QC]

Thank you very much, Mr. Chair.

I sincerely thank the two witnesses for their substantive and interesting presentations.

I must mention two of President Trump's tweets this morning. I will read the first one, verbatim:

“Things will work out fine between the USA and Russia. At the right time everyone will come to their senses & there will be lasting peace!”

In the other tweet, he says he has

“confidence that China will properly deal with North Korea. If they are unable to do so, the U.S., with its allies, will!”

We always get the impression that he runs hot and cold, and we never know which way the wind will blow. Of course there are repercussions on bilateral relations, but there are also repercussions on a global scale, and Canada will be affected. We hear talk of a potential economic crisis and about the whole issue of global security. Canada's geographic position, starting with the North Pole, is not necessarily a very comfortable one.

I have a strange question for you, but I can't help asking it. What can Canada do, in co-operation with its European allies, Mexico, Japan and other countries to bring a bit more predictability and stability to the current situation? I know it is a strange question, but I had to ask it.

[Paul Heinbecker]

What can Canada do about the uncertainty that Trump creates, and what impact does that have on Canadian foreign policy with the emphasis it puts on multilateralism—the World Bank, the IMF, the UN, and NATO? NATO is now not obsolete, but it could be obsolete again soon if the Russians have their...and the Americans get along, as President Trump is predicting.

I think there are two or three things.

One, it's not in every case, but it seems to be the case that whoever got to Trump earliest got him to change his mind. Prime Minister Trudeau got there very early, I think, with a very sound strategy, with some things that were interesting to him and to his family. I think it has set relations on a course that is much less fraught than it might have been otherwise. I don't think that's all the story. There are people.... I'm thinking particularly of future secretary Ross and negotiations of NAFTA, where the list seems to be getting well beyond a tweak and a tweet.

I used to be at the embassy in Washington, and before that, I was director of U.S. relations in the foreign affairs department. I think the government has handled it about as well as it could be handled. I'm not saying that for partisan reasons.

The Prime Minister was there early. It was constructive. Ministers were spending a lot of time in Washington cultivating people, going up on the Hill, seeing all the people they could see. Provincial premiers have been enlisted. Everybody is on the job in order to make sure the American relationship doesn't go off the rails. Job one for any Canadian government, job one in foreign policy, is relations with the United States. I think that's going pretty well. I think it's important that people go to see him.

I don't think you can say that in every case it has gone well. I don't think it went especially well with Mrs. Merkel, for example. Frankly, I do not believe that you can put the Chinese President at your dinner table, have the cameras turned on, and let him know that rockets or missiles are flying at Syria. It would make him look complicit. I think there's going to be trouble from.... That's not going to be readily forgotten. I don't think that was considered to be hospitable.

Generally speaking, the President's sophistication is that which you would find among New York business people, but his learning curve is pretty much straight up. The people around him in the State Department and the people around him in the White House are being sorted out. I think he's finding out, as many governments have found out, that the people who get you elected are not the people who keep you in office or get you re-elected. We're seeing a shakeout there that's very important.

As one of your preceding witnesses—Mr. Sands, I think—said, very few people have been appointed. Everything depends on the sophistication, the stamina, and the capacity of the people who are directly in the White House to just keep on working. Fortunately, there are obviously some warhorses—maybe that's the right word—who are working there.

What we can do is continue with that kind of policy, make sure there's nobody significant on the Hill who doesn't understand what we're talking about.

By the way, as a comment on the importance of the States, we have a good story to tell about 35 states whose major international economic relationship is with Canada, and about how many jobs depend on that. But bear in mind, that's a tiny percentage of their GDP. If that were to disappear, it would be very regrettable, but it wouldn't be crippling. We're in a position where, as always, we're much more concerned about our relationship with them than they're going to be about their relationship with us, no matter what we do.

I guess a last point, and one could talk all morning about this, is that I think we need to be careful not to throw the Mexicans under the bus. I don't think it's in our interests to do that. Trump may be here until the end of the world, but most likely he has eight years, or four. He'll be gone, and the Mexican and the Latin component of American politics is going to be even bigger at that time.

We need to take a look at the long game here as well. It's in our interests to make sure that whatever we do, the relationship with Mexico is not sacrificed for an interest that may disappear four years from now.

Thank you.

[The Chair, Liberal, Bob Nault]

Thank you.

I'm going to go to Mr. Saini, please.

[Raj Saini, Liberal, Kitchener Centre, ON]

Good morning to both of you—two people from my hometown—and thank you very much for coming today. I'm very happy to have you both here today.

I believe I only have time for one question, so I'll ask this question to Professor Momani.

I want to talk about Bretton Woods, and the IMF specifically. As you know, Bretton Woods was established to increase the liberal economic international order. We also know of the formation of the World Bank and the IMF.

One of the key principles that emerged from that agreement was that we would reduce the concept of beggar-thy-neighbour, and that became a very important concept in making sure there was an increase in free trade. We had comments made yesterday by Christine Lagarde, who has said that restricting trade would be a self-inflicted wound.

With the the American administration now, especially with President Trump's sort of movement towards recusing himself from certain world institutions, and also having people on his Treasury team who are not huge supporters of the IMF, how are we going to maintain this liberal international order if the U.S. is not necessarily in favour of the IMF? How is that relationship going to produce a global relationship?

Could you give us your commentary on that?

[Dr. Bessma Momani]

I couldn't agree more.

Indeed, the Americans have just appointed the under secretary of the Treasury, who will be in charge of the IMF file, and the history of this individual is quite troubling in terms of how critical he's been of the IMF.

The truth of the matter is that with the IMF, just like the UN, the Americans benefit far more than anybody else. Frankly, in the case of the IMF, they put in 17% of the resources—that's how much of the IMF's quota they supply—but it's an enormous gain to American companies and to the American trading position. So it's a peculiar position that the Americans have in terms of their anti-IMF views. It stems from the belief that somehow they are disproportionately providing 99% of the funding.

There's a very strong, right-wing Tea Party view about the IMF, that somehow it's a global bailout or welfare to countries. What it doesn't realize is that it's quite the contrary. It is not a bailout. Countries borrow money from the IMF. In fact, making sure that those countries don't bankrupt ensures that they're able to continue to buy goods and survive as countries and as functioning members of the global economy.

[Raj Saini, Liberal, Kitchener Centre, ON]

As you know, the terms of reference are that the IMF president must be European and the World Bank president must be American. Do you think there could be tension there, because it's led by a European, that they may not be as supportive as they are toward ....

I haven't heard any comments that they've made about the World Bank; most of the comments have been directed towards the IMF.

[Dr. Bessma Momani]

Yet, it's ironic, because the World Bank, frankly, is where there is far more waste. If you want to talk social welfare and sort of be a right-wing analyst on this view, there is far more valid criticism about how the World Bank doesn't right a tight ship as much as the IMF does. It's really quite peculiar.

I don't think so. I've watched executive board deliberations, and I don't think there's that view. Of course, it plays well in Congress that the Americans are the ones who get to appoint the World Bank president.

On that front, President Kim has been reappointed. The Obama administration made sure it was done early. It was a five-year term, so that the American administration that came in, potentially Trump, wouldn't try to put in someone else who was disastrous like they had in the previous years, people like Wolfowitz and others. I mean, they don't....

I don't think that's a big issue to be honest with you, but it definitely plays into the right-wing element of Congress, for sure.

[The Chair, Liberal, Bob Nault]

Thank you very much, Professor Momani and Ambassador Heinbecker. We very much appreciate this opportunity to have you as witnesses.

This is the beginning of a very long discussion in this foreign affairs standing committee on what we consider to be a very important topic, but at the same time, we realize the unpredictability and the changing landscape day by day even more so than week by week. We want to follow this very closely on behalf of Canadians, and your information today was important, so thank you very much.

Colleagues, that's the end of our second hour, and I want to thank you. Good luck over the next two weeks as you go back to the ridings. I very much appreciated your time. See you in two weeks on the Tuesday.

This meeting is adjourned.