International Trade Committee on Nov. 21st, 2006

[Ted Menzies, Conservative, Macleod, AB]

Thank you very much to all of the witnesses representing the three different countries. This has been most enlightening.

I would like to bring it back to the reason why we invited you and many other guests to appear before this committee. We wanted to see some examples from other countries that Canada could use to help industries within our country.

I was most encouraged to hear your comment, Ms. Lackey, that you actually do consult with your businesses before you talk about free trade agreements. I find that most encouraging.

I was happy to hear all three countries comment about the fact that you recognize that protectionism has to stop. Countries can't out-protect each other. We can't outspend in protectionism. To remind you of the number that I'm sure you're all aware of, $360 billion every year goes to protect farmers. The sad reflection on that is that less than $60 billion goes out in foreign aid. That's a number that has to change, and I was encouraged to hear you all talk about that.

There are lots of agricultural issues, I know, and those seem to be the largest stumbling blocks we find in any negotiation. To whoever wishes to speak on behalf of each country, I'd like to ask what criteria you use when you're looking at a free trade agreement. Yes, we all hope that the WTO gets back on track again in the next few weeks, and I do hold out a great deal of hope for that, but what plans do you have here? You've talked about some of your FTAs, but when you're looking at future ones, how much emphasis do you place on labour negotiations or labour inequities between these other countries? We've talked about some here in Canada, and we seem to run into a lot of problems with international labour standards. Is that critical or will that balance itself? Do you wait for your small and medium enterprises to ask your government to initiate FTAs? Or what criteria do you base those on?

I would ask all three countries to comment on that.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Fisher.

[William Fisher]

Perhaps I might go first, and maybe my colleague, who's been involved in the negotiations of these, will come to my assistance.

I think the first requirement when you are negotiating FTAs is to find a willing partner. That's not a given. There are not all that many countries around the world interested in FTAs, so when you find a valid partner, pursue it.

In Australia, we have negotiated FTAs successfully now. Obviously we have a bedrock one with New Zealand, which is in a class of its own. But we have FTAs with Singapore, with Thailand, and with the United States, vastly different countries. We now have FTAs under negotiation with China, with the Gulf Cooperation Council, and possibly shortly with Japan.

In the case of very big economies, obviously the opportunities offered are considerable, particularly where there are barriers to be reduced. Often the barriers to be reduced are asymmetrical in that, for example, with Singapore, not a country that exports much in the way of agriculture, but it did have a lot of interest for us in services. So we were interested in an asymmetrical series of openings of our markets with Singapore on that basis. Similarly, in the case of China, its interest in Australia is probably more on the commodities side, and our interest there is very much as well on the services side. So we need to maintain action on both things.

Say we were to open negotiations with Chile, one of the countries we are considering at the moment. There is not a great volume of trade, but there are lots of opportunities. We're considering an agreement with Brunei, again a very limited content of trade, but when you look at the opportunities that are opened in various sectors, it becomes something that is quite possible.

Essentially, I think, rather than try to draw up a strategic list, we've reacted and sought out partners who we feel have governments that are interested in pursuing FTAs. I think it's political will that is the most important issue, because sometimes the industries concerned are enthusiastic about this and sometimes less so. What does have to be done, though, once you have negotiated an FTA, as our colleague from Switzerland was saying earlier, is to assist and direct your industry to the benefits and to take advantage of it.

[Tony Huber]

To add to what Bill said, we obviously go through a few checks and balances to make sure that our dance partner is the right one. We scope out the commercial process. We make sure there is comprehensiveness of scope when we go to the negotiating table, and we always choose partners that we assess we can close with. For example, before any negotiations commence, we have a study or an analysis of the FTA partner to see where it will go. That helps us to prioritize, and then we move on from there with a process of negotiation.

Ted, I think you asked about labour and equities. I'm not sure what you mean by “equities”, but labour definitely...in our consultation process we do involve NGOs, we do involve business groups and partners. I think the commercial imperative is number one, though.

[The Chair, Conservative, Leon Benoit]

Ms. Lackey.

[Kate Lackey]

Thank you, Mr. Chair.

Let me first of all touch on the element of Mr. Menzies' question about criteria for looking at FTAs. This is beginning to sound a bit like a dance studio, but like Australia we look at a variety of possible partners. One of the key things we look at is long-term potential, and not just short-term gain. You have to be thinking ahead.

We've also taken a strategic approach when we've looked at FTAs. One example of that is one I mentioned, this P4 agreement we have between Chile, New Zealand, Singapore, and Brunei. That might seem rather an odd grouping, but what it does is provide a bridge from Latin America across to the Asia-Pacific region. One of our big concerns about the new emerging architecture in Asia-Pacific is that a line might be drawn down the Pacific that would exclude those countries in the Americas with a Pacific coast.

Beyond that, we insist that our FTAs be comprehensive, and they need to be transparent and open for others to accede to.

We, like Australia, are currently negotiating with China. That is very tough, because the Chinese initially had a whole bunch of issues they said they wanted to take off the table. We, like Australia, had to say, everything stays on the table; this is a negotiation.

Finally, on labour and environment, we always bring labour and environment objectives into our trade policy approach. It obviously poses complications when you're negotiating with, for example, a country like China, but labour protection and sustainable environmental issues are fundamental to New Zealanders' beliefs about themselves. These, again, are always on the table when we begin a negotiation.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Wild.

[Claude Wild]

Thank you.

First of all, how is it initiated in Switzerland? Consultation with the industry is very close. I mean, nothing is made in cabinet only. From the very beginning, representatives of the industry often have brainstorming meetings with the unit of the government, preparing the strategy for a free trade agreement. We are basically at the service of the industry and are not imposing some bureaucratic plan on the industry.

The federal state is quite weak in Switzerland. We are a provider of services. Most things are done at the provincial level, but foreign economic policy is clearly a federal competence.

We work with the industry simply because if we have an agreement that goes against significant interests in the country, those interests would trigger a referendum and it would be challenged on a popular vote. They have more money than the state, and they would win the vote. We would have lost four years. We as a government have an built-in interest from the start to take our partners from the industry on board and to take the provinces on board. Those are often the most difficult negotiations. Once we have a position, then we stick to it.

Why do we need free trade agreements? As I said before, the ideal world would be the when the World Trade Organization and the Doha Round are actually working. It's not happening now.

In the meantime, you have to be present worldwide. As for Switzerland, if you are not ready to conclude free trade agreements openly, with as many partners as possible, others will conclude these agreements, resulting in the creation of a preferential zone where our industry will be discriminated against. Our mission here as a state is to watch, anywhere in the world where we can, that our industry has the best possible access.

Then again, how do we want these free trade agreements? We want them to be comprehensive, as I said before in my presentation, not only for exchanges of goods but for services and horizontal issues, competition, fiscality, and droit des sociétés, as pluridimensional as possible, with the problem always being agriculture because that's something special.

I take the case we have now in the negotiations with Canada. Canada actually wanted a free trade agreement with EFTA, the European Free Trade Association, which Switzerland is a part of. They initiated the negotiation in 1998. It was almost concluded, and it was blocked because of one chapter. Shipbuilding was a very big issue in the Maritimes. It was not an issue at all for Switzerland, of course. But here, we have to be loyal to our EFTA partner. It's an industry in Norway that was perceived as being threatening for some industries in the Maritimes.

This chapter only blocked the negotiation for four years. Luckily, we have been back on track since this autumn and negotiations have started again. We are really close to succeeding, and we hope we can finally yield results with Canada in the coming months.

But here again, you see that agriculture is creeping in. Canada is now trying to bring an agricultural dimension to this mostly industrial free trade agreement, and that's fair enough. As long as it's maple syrup, horse meat, and blueberries, we have no problem. But if Canada comes to us with sugar beets or potatoes, it will be a problem for Norway and Switzerland. We are willing to have some agricultural aspect in this agreement where it does not challenge our agriculture at all.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Menzies.

Thank you all very much for your answers.

Mr. Julian, for seven minutes.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you, Mr. Chair.

Thank you very much for coming here today. We may agree with some of your comments and disagree with others, but the presentations were uniformly excellent. We appreciate the time you're taking.

Let me get back to the issue of overall benefits. What we've seen in Canada since we started the free trade regime in 1989 is that 80% of Canadian families, the bottom 80%, have actually seen their income go down. In terms of real income it has declined for 80% of Canadian families, and the phenomenon we've seen in Canada is that incomes in the top 20% of income levels have skyrocketed. Overall, folks may say that average income has increased, but what we've actually seen is an increasing gap between the very wealthy and the rest of Canadians.

My first question is, in your countries is that a concern? Have you seen, for the lowest 20% or the second lowest 20% of the population, real income decline? This took place in Canada at the same time as overtime increased by more than 33%. What we're seeing is that most Canadians are working longer hours and are actually getting less back.

The question around good jobs is an important one. Have you seen that same dynamic in each of your countries? If so, what kinds of mechanisms have you put in place to try to adjust for it, or to put in place a safety net?

My second question arises from Mr. Wild's comments on the concentration of Swiss exports to the European Community. You said that 60% of your exports go to the European Union. The dynamic is the same for Canada: 86% of our exports go to the American market. Yet, this market is often closed to exports, for instance, in softwood lumber and other sectors.

My question is for all the witnesses. Have you developed strategies to diversify your current exports, to avoid putting all your eggs in one basket?

[The Chair, Conservative, Leon Benoit]

Mr. Julian, could you relate your first question to trade in some fashion? I didn't get the connection, but if there was one, could you just state it so that we're on topic?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

It was very clear, Mr. Chair. It's a question of good jobs. How do you assure that you have good jobs for middle- and working-class people in each of those countries?

[The Chair, Conservative, Leon Benoit]

Okay, we'll go ahead. Who would like to start?

Mr. Fisher.

[William Fisher]

Thank you, Mr. Chairman.

I confess that I don't have at my fingertips the exact figures on who has benefited most from free trade, but I'm happy to provide them. I'll dig out statistics and send them to you. My very strong impression is that everybody in Australia, with very few exceptions, has benefited from the reforms in free trade.

I know we always talk about the rising tide lifting all ships, and I think that has very much been the case in Australia. The average income has gone up. Income levels at the top have gone up dramatically, but incomes at the bottom have gone up considerably too. I recall seeing in the press recently some figures to support that.

And that's what you'd expect too, I must say. If you move people out of uneconomic areas into competitive and economic areas, then they're going to do better. They may not be doing better in the same sector, but they will move to areas that are doing better because they're economic areas.

I think that has been the benefit of free trade to us. It's not just that you get better access internationally, but that the focus of economic production within your own country goes to the more efficient sectors, and the more efficient sectors pay better. I recall seeing several studies about people who moved out of the dairy industry, for example. After a short period—and it may be a short period of two or three years—they moved to another sector and are doing better, which is what you'd expect because they're in a more efficient sector.

So we would have no doubts about the benefits, right throughout the economy, of efficiency and globalization and better allocation of resources. This is just economics 101.

You asked secondly about strategy to diversify exports. Of course, like Canada, we are a free market economy, so I'm a bit reluctant to talk about government strategies in one sense. But in the other sense, I suppose it's true to say that if you allow market forces to operate, your industry and your exports will diversify according to the market. In Canada every now and then, bless you, you drink the odd bottle of Australian wine, and good for you. This is itself a function of the diversification of the Australian economy. It has only been a few years since we've been exporting wine, and the reason we're exporting wine is that people have moved from other sectors that were less efficient and into wine production, which has been more efficient.

We used to have a very extensive citrus industry a few years ago, but it was nowhere near as efficient as the Brazilian citrus industry, so it failed and the citrus producers moved into other areas. One of the areas they moved into was olive oil production, and we now have a very dynamic, efficient, and beneficial olive oil industry.

So the diversification of Australian exports has really come as a result of free trade and a result of globalization, because they have been obliged to move into areas that are dynamic and naturally efficient.

[Tony Huber]

I'd just like to add that our GEP has risen from fifteenth in 1995 to eighth this year. I think that says what we believe in: that we're happy with our performance.

Thanks.

[The Chair, Conservative, Leon Benoit]

Mr. Wild.

[Claude Wild]

Thank you.

On your first question, there is a consensus in Switzerland for an open economy. We have a socialist party in Switzerland that is the biggest in terms of votes in the population. They do not challenge this open and free trade economy we have, because they can see the benefit. But they also participate in shaping our open economy. They have helped to build a lot of safety networks into that policy to make sure their fundamental beliefs are not threatened.

Swiss open policy is not the wild west, where only 2% get.... Switzerland is a country that is really based on the middle class. We have a few who are extremely rich, but they are usually foreigners. We have a few poor people, that's true, but it's really a middle class society. It is shown in all the diversity of our policies, and this consensus really exists.

How do we make sure we can sustain this policy? One important thing is that with globalization you see shifts in work. Today the working population of Switzerland is not the same as it was 50 years ago. Now the big emphasis is on education innovation. That's our motto.

We know that the producing part will be done somewhere else, where labour costs are lower. But as long as we can produce a good education system, we have guarantees that our industries, if they are not taxed too much, will be able to innovate. As soon as they are able to innovate they will create jobs, and if people have the level of education needed they will get these jobs.

So there is a consensus in the way we are doing it now, from left to right, in the population.

As for our diversification strategy, I would like to point out a slight nuance concerning your dependence on the United States compared to our dependence on the European Union. The European Union is not a country. It happens to be 27 countries—27 as of January 1—that form a market, but as third states, they can all take a different position.

Officially, we speak three languages in Switzerland. This gives us an enormous advantage in terms of opening up different markets. If we lose a few markets in Ireland, we can make them up in Poland, because the dynamics are different. It is a market with standardized regulations, but implemented differently by each country. We obviously benefit from these advantages. Our dependence is therefore not completely analogous with your dependence on the United States.

Another policy we use to ensure our presence in the world is of course to create free trade conditions wherever we can and to offer development assistance to our partners. If we invest in Ukraine, that costs us money now, but in the future, we will do business there. The history of global economics has proven it. Korea today is not the same Korea of 45 years ago. We can all do business in Korea today because that country was able to develop and reach a certain level, which we can all benefit from today.

[The Chair, Conservative, Leon Benoit]

Ms. Lackey.

[Kate Lackey]

Mr. Chair, just briefly, on the question of income distribution, I mentioned in my presentation that New Zealand currently has 3.8% unemployment, which i effectively full employment, because there will always be a number of people who, for one reason or another, can't or don't want to work. That means that anyone who wants a job in New Zealand gets one. Employers are desperately looking for extra labour. Indeed, we rely quite heavily on young overseas backpackers to do a lot of work in horticulture or whatever.

I think, also, one would note that opening up our economy has brought benefits to all consumers. On average, New Zealanders are now spending $1,000 a year less on clothing than they were before we opened our markets. Our workers are also moving up the value chain, as that's where we focus increasingly on economic endeavours. Workers are becoming more skilled. They command a higher premium. Unskilled labour, as I say, is done largely by foreign visitors who come in and have working holidays. Working holidays work wonderfully in New Zealand, because there's tonnes of work. Meanwhile, New Zealand workers are making good money.

On diversification, I'd just like to support the comments of my colleagues. Business people in the private sector, and not government, diversify markets. If you're producing products of the right quality and at the right price and you get on a plane or on a bike or whatever and go out and sell them, that's how you diversify. Have quality and price, and people will buy.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Now we'll go to Mr. Maloney for a short period of time. You have maybe three minutes or so, Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

Thank you, Mr. Chair.

I would like to deal briefly with the supply management system that we have in Canada. Our supply-managed commodities are about the only part of our agricultural sector that is not in distress. Most of the other commodities are; sometimes it's cyclical, up and down. I have yet to be convinced.... They're protectionist, but there's a good stable supply of high-quality product. As I say, they are the only ones who are not coming to government with their hands out.

I appreciate the position of those who would like to enter Canadian markets, and gradually they can with a reduction in tariffication, but I have yet to be convinced to abolish supply management.

Taking another tack, I'd be very interested in knowing about your trading infrastructure. Is there federal assistance for your rails, your roads, or your ports, and if so, to what extent?

In conjunction with this, we also have trade missions, which are really part of your trading infrastructure as well. For all these areas for which you've talked about bilateral free trade agreements, do you have many trade missions in these countries? Do you have additional ones here in Canada that would be interesting to know about, as well?

Particularly to Mr. Fisher, when your citrus farmers transitioned to olive oil, was there federal assistance to assist them in doing so?

[The Chair, Conservative, Leon Benoit]

Mr. Fisher.

[William Fisher]

Thank you, Mr. Chairman.

Firstly, on the bilateral issue, like Canada, we have an export promotion arm of government whose job is--on a fee-for-service basis, I might say--to assist companies looking for markets overseas. It's very much the same system, I think, as you have in Canada. They can be contacted by a company and can arrange visiting company representatives to have a program in another country. We have tended to focus those missions in places where it's difficult to do business as a foreigner, in countries where English is not spoken. Obviously in a place like Canada, where doing business is very much like in Australia, you don't need much government assistance. But wherever you do get government assistance, you're going to pay for it. That's the basis of our trade promotion effort.

You asked about railroads and ports. I'm not entirely sure what the question is, but obviously the government is involved in building railroads and ports, sometimes on a purely governmental basis and sometimes in what in Australia we call a 3P--private-public partnership. There's a Canadian word for it; I think it's P3. You've been experimenting with that...well, not experimenting, because you have a very successful enterprise in Vancouver now with the Sea-to-Sky Highway, which is done with an Australian company. The 417 Highway around Toronto was also done with an Australian company. I don't think the position is much different between Australia and Canada on rail or roads, and God knows we need to work harder on ports, which has also been a hard sector to reform. We are about halfway down that track.

You were talking about sectors in distress. As I mentioned, we have had sectors in distress, and very often when sectors are in distress, they ask for protection. For a long time in Australia we gave protection to sectors in distress, and we found by the mid-1970s that the result of that policy--and I think my New Zealand colleague spoke very eloquently about this--was a gradual decline down the economic ladder. The worst thing about this is that it's very gradual. We found we were just gradually sinking down on the list of OECD countries in terms of per capita income, and we realized it was a dead end--in Australia's case. I'm not making any suggestion about Canada, but in Australia's case we realized it was a dead end. As my colleague has mentioned, the process of reform has reversed that trend, and we have now, for the last 15 or so years, been climbing up the list of countries in terms of income per head, and that is clearly directly related to the economic reforms we have undertaken.

Finally, you asked about transition for the olive oil sector. I'll have to get you statistics on that; I'm afraid I don't know offhand. But we have had a number of areas.... Motor vehicles is one where it was very highly protected, a sector that fought quite strongly against being opened up. It was opened up and still is in the process of being opened up, and the result has been that we now have a dynamic and very successful export of motor vehicles throughout the Middle East. Ten years ago, I would have been the first to say that this would be impossible, but in fact, one of the results of bringing international competitiveness to bear in that sector was to open it up and send it outwards.

People in Canada have often talked to me about the success of your own wine industry, something that I appreciate very much as a great buyer and enthusiastic promoter of Canadian wines myself. I know that the NAFTA effect, I'm told here, had the effect of greatly stimulating your own wine sector and sending it into new markets very admirably. I can tell you in my household there's one of those markets too.

[The Chair, Conservative, Leon Benoit]

Thank you for that, Mr. Fisher, and thank you for your answer.

We only have about six minutes left. Monsieur Cardin, do you have a short question? Yes, go ahead.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chair.

Ladies and gentlemen, it is a pleasure to meet you here today.

In the context of globalization and international trade, everyone wants to do the best they can, because we know very well that economic growth depends on trade. Everyone aims for trade surpluses. Mr. Wild talked about fairness. We also talked about not exploiting the work force and respecting the environment. In my view, we need to talk more about fair globalization so that everyone can play by the same rules in the context of globalization.

Mass production is concentrated for the most part in Asia, specifically in China. However, I believe that the economy of the future will be based more and more on a knowledge based economy, on innovation, the modernization of production and the choice of specific niches that others cannot fulfill.

We could discuss a number of topics, but I would like to come back to agriculture because it is perhaps the sector that is the exception to the rule when it comes to the opening of markets. There is a risk involved in the agricultural sector. What country does not want to manage its agriculture autonomously? If agriculture is liberalized, certain non-competitive sectors would most likely be completely eliminated in our territory. Foreign countries would control our agriculture. However, as we all know, agriculture is essential to the population, to our people.

What do you think of the possible safeguarding of the food sovereignty of countries? In other words, should we deal with agriculture differently than we do other sectors?