International Trade Committee on Feb. 8th, 2007

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Julian, for seven minutes.

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

Thank you, Mr. Chair.

Thanks for coming here today.

Many of your recommendations are things that we can all support, primarily because Canada needs to have a different trade strategy. The one we have now hasn't worked demonstrably, part of the problem being that we've put all our eggs in one basket, and that's the American market. When 86% of our exports are dependent on going to one market, we have the kinds of vulnerabilities that lead to concession and capitulation, such as we saw with the softwood lumber sellout. Obviously we need to diversify our markets. Everyone around the table could agree to that. We certainly need to put a lot more emphasis on South America and Central America.

What is happening in South America, as you are well aware, is that there is a rethinking of trade agreements and how to approach them as a country, how to ensure that the benefits of trade actually go to the entire population rather than the very narrow fringe of the wealthy. That was a major issue in the American mid-term elections. We saw that the Republicans, who have a very limited, superficial approach to trade, were largely defeated by Democrats, who were pushing an approach to trade that was much fairer. In South America, as you know, there is a whole host of social democratic governments that are approaching the issue of trade hand in hand with social policy and looking at the whole issue of social-labour-environmental standards as part and parcel of how trade agreements should be structured.

We had a hearing with some social democratic countries earlier this week like Norway and Iceland, which have also succeeded in doing that. We had the ambassador of Chile here, who was also very strong in emphasizing that element.

My first question is this. Because South America has very clearly taken a movement toward social democracy, toward trade agreements that enhance and bring up the population as a whole, does that not mean that Canada should be shifting the way we structure trade agreements and what we should be looking at when we talk about trade agreements, so that with a country like Brazil, for example, we should be looking at social standards and labour standards and environmental standards as part and parcel of what is discussed around the trade table?

[Kenneth Frankel]

I agree with your points, and it's an interesting question. I think that everybody except the diehard monolithics, who want to talk in categorical statements, would agree that the concept of trade agreements and liberalized trade is a complex issue that has a number of nuances to it.

It's true what you say about some of what's going on in Latin America. We might disagree as to whether or not that was the deciding issue in the U.S. mid-term elections. I think there was something a little bigger than that.

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

In a number of key areas.

[Kenneth Frankel]

Fair enough, but with that said, the reality is, yes, there is a rethinking of aspects of how free trade agreements work, how the trickle down is working or not, and what the chasm is between the haves and the have-nots. Not all of that can be hung on free trade agreements; there are a whole lot of other issues that affect how the economies have been working.

With all of that said, the Latin American countries are pushing for free trade agreements. It's not as if they're backing away from it. Uruguay, which is run by a former Tupamaro guerrilla, is pushing hard to have a free trade agreement with the U.S. right now, and there are discussions going on. Lula, and you know his background, is very much for free trade agreements. Their big sticking issue is with agricultural issues, but it's not a recoiling from the concept of having free trade agreements. It's the same thing in Central America, the same thing in Peru, with Alan Garcia, who is from the left. It's an acknowledgement that issues have to be worked out, but at its base it's a concept that needs to be explored and finalized.

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

When we're talking about trade, two different models are developing. I don't use the words “free trade” because that's often used by the Republicans in the United States. It's investor rights to the exclusion of everything else. Essentially, we're talking about fair trade agreements.

In fact, the Europeans were very clear about that. Social policies and social-environmental-labour standards are all included in what they discuss around the table. They want to bring people up. When you talk about Lula or other social democratic governments in South America, they are pressing for trade agreements that include those kinds of components. They're not looking at simply enhancing investor rights to the exclusion of everything else.

That's really my question. Does that not mean Canada needs to change its approach and understand where South American countries are coming from when the democratic will of the people has said yes, we want trade, not on the right-wing Republican free trade model but something that enhances the benefits to our population and preserves and enhances the environment as well?

[Kenneth Frankel]

That's a good point.

The concept of free trade and the trade agreements have obviously become a little bit more nuanced, but I might take exception with how you characterize the Latin American view of some of it. That's not to say I disagree with a lot of what you said, but I think what we're talking about in Latin America and the economic policy is that free trade is one component of economic policy--just one component. I think a lot of what you're understanding in Latin America about some dissent or some discomfort is with the whole neo-liberal model, as it's been called—whatever that means—or the Washington consensus. When you're talking about equity and trying to bridge the chasms between the haves and the have-nots, it's not all at the feet of free trade, not by a long shot.

Chile, which has had involvement in free trade agreements, has supplemented its economic policy, and it's a very neo-liberal model, with—

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

With strong social policies.

[Kenneth Frankel]

Absolutely, but that's not necessarily hung on their free trade agreement; that's hung on their overall economic policy. I'm not saying it's not a component of it, but I think they're looking at the overall economic policy, the whole neo-liberal model, and what can be implemented to make it fairer.

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

I appreciate this discussion, but you still haven't answered the essential question, which is this. There is a movement toward social rights, labour rights, and environmental standards as part of trade agreements. Does that not mean Canada needs to think again about the type of model we've had, which is basically a NAFTA chapter 11 investor-style model that is being used as a template by Foreign Affairs and International Trade for any other agreement that comes forward?

There's only one template that DFAIT uses for any discussion or any negotiation, and because of that, a lot of Canadians have difficulty with that sort of monoculture approach to trade. Essentially, if we provide for the understanding of the diversity in South America, we would have to look at other approaches to trade. That's really my question. Should we not look at other approaches to trade that include those important components, social, environmental, and labour rights?

[Kenneth Frankel]

Your question is on other approaches to trade agreements, is that correct?

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

Yes.

[Kenneth Frankel]

I can't answer on exactly what the Canadian government's model is for free trade agreements. I know the NAFTA has been used. My understanding is that the free trade agreement with Chile, although I haven't looked at it recently, is not that far off. The NAFTA model was the model for Mexico's negotiation with the European Union. So a lot of people think the NAFTA model, in certain respects, was very forward-thinking.

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

However, in Mexico, as you know, there's a huge division of opinion on that in a very real sense. Coming out of the Mexican election, you now have two governments and a real uncertainty around the legitimacy of the current Mexican government because of the dispute around what was a hotly contested election.

That reinforces my point that there is in South America a tendency or a movement toward a much more progressive approach to trade, a much more social democratic approach to trade. Should that not influence how Canada approaches enhancing our trade with South America?

[The Chair, Conservative, Leon Benoit]

Mr. Julian, your time is up, but if the witness would like to answer you—

[Kenneth Frankel]

Sure, I'd love to.

I think the short answer is yes, if you're asking me if a number of things should be on the table to try to balance these other concerns when negotiating a free trade agreement. Is that a good policy for Canada and other countries? I would say yes, sure it is. But what we're saying is that we're not even at the point of discussing anything with anybody.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

We'll now go to the second round, and to the official opposition, with Mr. Bains, for five minutes.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Thank you very much, Chair.

That was a healthy discussion around fair trade, and I think Mr. Julian will have an opportunity to continue that discussion.

I have a different perspective that I'd like to pursue. I know you know all this stuff, but I just want to reinforce again that the purpose of our discussion today is really to highlight the importance of trade and what it means to Canada, in light of the fact that 40% of our economy is based on exports. A vast majority of that is predicated on SMEs. I'm glad you mentioned that in your presentation, because 97% of the export that is done is really on the backbones of small and medium-sized enterprises.

The emphasis on Central and South America is important, because we also have not only an economic angle that we want to pursue or economic ties, we also have similarities in cultural communities that are represented here. Strong cultural communities are represented in Canada, so we have that expertise that we can leverage as well to get a better understanding of culture, language, heritage, and so forth.

My concern is just the region itself. Idealistically, when we speak of the Andean community, for instance, it has Bolivia, Colombia, Ecuador, and Peru. There seems to be a diversion of views on how they want to approach free trade. I'm not sure if it was discussed before my arrival here, but that is something I wanted to ask you about.

There seem to be two schools of thought. Venezuela is no longer a part of it, but at least Bolivia wants regional integration, and you have Colombia, Ecuador, and Peru that want a true liberalizing of trade. Is that still a factor today, and to what extent?

[Kenneth Frankel]

Is it still a factor? In other words, is that schism—

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Does that still exist between that cluster of countries, where you have two diverging schools of thought? One wants to pursue free trade and the other one wants to pursue local and regional integration. There seems to be hesitation, for example, from Bolivia.

[Kenneth Frankel]

Clearly, Peru and Colombia would be liberalizing in free trade. Peru is already involved with the U.S. in a free trade agreement, and Uribe in Colombia would favour that as well.

In Ecuador, we'll have to wait and see. With the recent election of Correa, we'll see where he's going with this.

We've already discussed briefly where Venezuela is, and I imagine we may get into that whole Venezuela question again before the next hour is out.

In Bolivia, Morales seems to be somewhat swayed by Chavez's vision of more of a regional pact among South Americans.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Exactly.

[Kenneth Frankel]

Those are the words he's using, and we'll say he's sort of lining up with what are the interests, theoretically, or the politics of MERCOSUR. At the same time, you have MERCOSUR nations that are talking about going into free trade agreements with the U.S. and wanting to go ahead on not a dissimilar model to what has been presented up until now. I think it's unclear where Morales is going to go on this.

[Navdeep Bains, Liberal, Mississauga—Brampton South, ON]

Ideally, I'd like to see the free trade area of the Americas, for example. If we can somehow cement that deal in the foreseeable future, that would make us the largest trading bloc in the world, next to the European Union. That's the ideal thing, but there are many issues below that. Venezuela seems to have strong connections with China. There seems to be substantial investment by Chinese companies in Venezuela. Peru and Colombia have signed deals with the United States.

Where does Canada fit in all of this? That's my question. How do we strategically place ourselves to play a meaningful role in promoting trade? That's the purpose of this discussion. We want to identify other emerging markets, aside from China and India. Brazil you alluded to, which we all know, but there are other markets that we want to pursue. How do we fit with the Chinas of the world, and with the United States, and how do we play a meaningful role? Which bilateral trades should we pursue, if you had to prioritize them?

We have the Caribbean community's fifty members that we're dealing with. There's Central America that we're dealing with. We have the Indian community that we're dealing with. How do we prioritize, and where do we fall within the Chinas and the United States of the world?

[Eduardo Klurfan]

I'd like to mention that Canada's interest and focus of attention in Latin America and the Caribbean has been more toward investment than trade. In the last ten years, investment by Canadian enterprises has grown by about 11% per annum in Latin America. Investments there today are more than double the investments that we have in China. However, the trade is the opposite. Our volumes and levels of trade with China are much larger than those with Latin America. For some reason or another, investment in Latin America has caught more of the attention of Canadian enterprises than trade has.

On the other hand, the regional agreements are very interesting. But we have to remember that the entire region is very diversified. There are many different countries, with very many different cultural trails. Except for Brazil, they all speak the same Spanish language, but with very different pronunciations and, sometimes, vocabularies. If you look at the populations in countries like Ecuador and Bolivia, you will find a very large indigenous pure Indian population that is very different from what you have in Chile, Argentina, or even Brazil or Mexico.

So the characteristics of the countries and their economies are very different. And then you add to that the political events of the last many years.