International Trade Committee on Feb. 20th, 2007

[Piers Cumberlege]

Russia's membership in the WTO represents certain very important issues for certain Canadian industries, particularly in the aeronautics sector, an industry where Russia has very high protectionist tariffs. Membership in the WTO should lead to a lowering of those tariffs and those barriers. That would probably be harder to achieve merely through bilateral negotiations. In the lever and in the counterweight to the negotiation, our colleagues from the United States—with Boeing spearheading the effort—or from Western Europe have other things to put on the table that are very important for Russia. In particular, I'm thinking of steel, on the one hand, and access to a gas market and agreements in that area, on the other.

So I think it's quite important to continue these negotiations at the WTO. There is a desire in Russia to join the organization. Russia doesn't want to be excluded from a club. In addition, it thinks it will have more influence and be in a better position to exercise its international power more effectively within, rather than outside, the WTO. That's true for Russia's membership in the G8. It is putting a great deal of emphasis on the importance of belonging to it. That's very important.

So I think we can very well have bilateral agreements, but, with regard to certain very important issues, I think that the WTO is critical.

[The Vice-Chair, Liberal, Lui Temelkovski]

Thank you very much, Mr. Cardin. You're well over your time.

Mr. Menzies.

[Ted Menzies, Conservative, Macleod, AB]

Thank you, Mr. Chair.

My compliments to our vice-chair, who is filling in capably in the absence of our regular chairman.

Thank you, gentlemen, for your appearance here today.

As my honourable colleague on the other side mentioned, we are in a long-term study on what is going to benefit Canada and what is going to benefit Canada's industries, and this is an integral part of it. We talked last session, in the 38th Parliament, about emerging markets. We had a study on that, and talked about all of the potential in these emerging markets. I would like to get beyond that language; maybe we are just emerging with regard to realizing that there are markets out there. Russia, to me, is an opportunity more than an emerging market.

To comment on the consular closures, Mr. Cumberlege, as we've seen Canada evolve and change, and as we've seen our communications and infrastructure improve, I sense that's why we're looking at rationalizing—

What we have is a limited budget. We're trying to cut back on the excessive waste of taxpayers' money. We want to make sure we're doing it properly. So we're rationalizing some of these consular facilities around the world, but we also don't want to jeopardize the potential for companies to have the support they need. We look at EDC as being a pivotal part of that role, and we think it is an ongoing study as to what the proper position is.

You know, Toronto used to be the centre of the universe, if I'm not mistaken. I think it's now Fort McMurray. But not everybody here will agree with me on that.

So those things are changing.

To Mr. Dupont, we have an old foreign investment protection agreement, or FIPA, with Russia. Should it be updated? It's the old OECD model. Do you sense it perhaps leaves some of our Canadian companies vulnerable? We've heard about potential corruption. Do we need to update that to protect our Canadian investments?

[Luc Dupont]

Thank you, Mr. Chair.

From the EDC perspective, we are actively engaged in the protection of Canadian foreign direct investment through a specific program, which we call our political risk insurance program. Through this particular program, we do not feel at this juncture that companies are penalized by not having an updated foreign investment protection agreement.

[Ted Menzies, Conservative, Macleod, AB]

So you don't think there are some vulnerabilities to the old model?

[Luc Dupont]

I think there are. Under FIPAs there are some measures to seek remedy if issues arise in the context of a dispute, but to be more specific on this I would need to refresh and get back to you in terms of the specifics in relation to the FIPA. I think it would be safe grounds to get back to you on this point. However, as a general principle, through the existing FIPA and through the existing political risk insurance program that we have, we believe we can provide appropriate support to Canadian investors engaged in the Russian market.

[Ted Menzies, Conservative, Macleod, AB]

Okay. Thank you.

I'll go back to comments about Russia's accession to the WTO. They have a lot of homework to do. We watched China evolving to the stage at which it had worldwide support for its accession to the WTO. What support does it need? Should we be supporting it? Does it have the desire to meet the criteria that are necessary?

That is a question to either of you.

[Piers Cumberlege]

Over the process of the last four to five years, Canada has actually played a very efficient role as an honest broker in the WTO accession negotiations between Russia and other states. Canada has been recognized as playing that role, and Russia's quite grateful for it.

There remain some big hurdles, and they're big blocks. They require a certain amount of popular movement within Russia. They are changes that, frankly, the president is not prepared to make at this stage, and he is not going to be making them before the presidential elections next year. I may be wrong—I've been wrong many times before—but I see the presidential elections next year as the decision-making fulcrum. The elections are a done deal, but at the same time there doesn't want to be any risk of popular concern that certain big Russian industries may be threatened by the WTO.

That said, on a legislative basis, the Russians have made immense amounts of enabling legislation for the WTO--they've just been pumping it through the system in the last couple of years--and they've done an awful lot of the domestic tidying-up that needed to be done, leaving key issues out there that essentially become political decisions, as opposed to administrative issues related to WTO.

Once the political will is there and the political agreement is there, implementation of accession can be extremely rapid, but I think we missed an opportunity—we collectively, the WTO and Russia—to close it last year. I think if it had been done last year, it would have been sufficiently far ahead of the presidential elections for it not to have a risk of tarnish. I think, though, that now it's going to be difficult before 2008.

[The Vice-Chair, Liberal, Lui Temelkovski]

Thank you very much, Mr. Menzies.

We'll move on to Mr. Maloney at this time.

[John Maloney, Liberal, Welland, ON]

I want to zero in again on the closure of the consulate in St. Petersburg. Rationalization generally takes place when business is slow or business is down. With respect to Russia, in fact the contrary is true; it's increasing, and there's the potential for further increases.

From a very practical perspective, does the Canadian embassy in Moscow have the human resource infrastructure or physical infrastructure to service not only St. Petersburg but, I would assume, all of Russia? Would that be our only consular or diplomatic office in Russia?

[Piers Cumberlege]

Very simply, Russia has 11 time zones, from east to west. It is a huge country. The Moscow embassy does not have the resources to cover the whole of the country, from Vladivostok, which is physically much closer to Vancouver than to Moscow, and across to St. Petersburg. Those resources, not only commercial but also consular—That someone has to go 11 time zones in order to process a visa is a rather complicating thing if you're trying to invite business people over to Canada.

I fully recognize that there is a question of focusing government resources in particular areas, and that closures happen. What I think is unfortunate is the timing—I really do find it quite unfortunate—and the fact that there's not a contingency plan in place. As I said, we at the association are prepared to try to continue the commercial activity there. We have asked International Trade for the opportunity to sit down and ask whether we can provide ongoing support for Canadian businesses in St. Petersburg, essentially providing continuity to replace what is closing at the end of March. We're looking forward to a response or an invitation to sit down and discuss it with them. That hasn't happened yet, but we're hoping to do so, because we think it's very necessary.

[John Maloney, Liberal, Welland, ON]

Is there another factor? I understand there's a keen rivalry between Moscow and St. Petersburg. Is it possible that St. Petersburg would be left out of the loop because of the need to service Moscow and the rest of Russia as well? Or is that not a factor?

[Piers Cumberlege]

A rivalry between the cities?

[John Maloney, Liberal, Welland, ON]

Yes.

[Piers Cumberlege]

Oh, I don't think so. St. Petersburg will see it as a downgrading of their significance. They are very proud people, and they will be upset—

[John Maloney, Liberal, Welland, ON]

Will that impact Canadian business people trying to do business with the Russians?

[Piers Cumberlege]

It will impact the image, there's no doubt. St. Petersburg is twinned with Quebec. It has a twin-city relationship with Quebec. Eighty per cent of Canadian exports to Russia go through the port of St. Petersburg. Bombardier--BRP now--has major activity in St. Petersburg through distribution of products. There are Canadian companies bidding for large transportation contracts in St. Petersburg. There are factories being built with Canadian capital, by Canadian businesses, in St. Petersburg. Pratt & Whitney has a very large technology centre in St. Petersburg.

All of these are going to inevitably suffer a bit of the effect that Canada is not actually interested in St. Petersburg: “Oh, what are you still doing here?” There's a bit of that, unfortunately. It's very unfortunate.

[John Maloney, Liberal, Welland, ON]

Mr. Dupont, with all the restrictions you have, would Export Development Canada be able to associate themselves with the Canada Eurasia Russia Business Association to step into the gap left by the departure of the consulate?

[Luc Dupont]

We are actively working with CERBA to develop outreach programs in Canada, and occasionally in Russia, so that we can foster a greater understanding about Canada in Russia and Russia in Canada.

Mr. Cumberlege mentioned a very important point in his presentation, that in the past you had state-to-state relationships. Now one of the challenges is fostering business-to-business relationships. From that perspective, I think EDC can play a key role in engaging with associations like CERBA.

As for what you referred to as “the gap”, EDC works within the scope of the mandate of a given government. We engage with the given government, and we essentially work in collaboration with them. We pursue and fulfill our mandate through this process. That's the limit of our involvement.

[Piers Cumberlege]

I endorse what Luc is saying. CERBA and EDC work very closely together.

I would have thought, given that EDC has just opened its permanent presence in Moscow, that it's perhaps a little early for them to be considering opening one in St. Petersburg alongside us. But we at CERBA would certainly like to feel that perhaps if we were taking on that role in St. Petersburg, maybe in a year or two's time we would be offering EDC the opportunity to have a shopfront in St. Petersburg as well, through the presence that we would like to establish there.

[The Vice-Chair, Liberal, Lui Temelkovski]

Thank you very much, Mr. Maloney.

Monsieur André.

[Guy André, Bloc, Berthier—Maskinongé, QC]

Good morning. I'm very pleased to see you together here today.

You said that Russia is a major oil producer. You're familiar with the major questions that have now arisen on the use of hydrocarbons and the production of greenhouse gases.

How are the questions concerning CO2, the Kyoto Protocol, the reduction of greenhouse gases and the survival of the planet being considered in Russia today? I know part of the answer, but I'd like to hear what you have to say on the subject.

You also talked a little about the manufacturing sector. Is there what's considered a soft sector, like the textile sector, for example? We call the more vulnerable sectors soft sectors. In Quebec, for example, we're talking about the textile and furniture sectors, which are more vulnerable to the global economy and Asian competition.

How is that being experienced in Russia?

What are working conditions? What about human rights, the union movement and all the living conditions of people currently living in Russia? I ask that question because of competition. We currently have Asian competitors in certain sectors, and the result is often a degree of unfair competition. Wages, environmental standards and standards relating to working conditions are not the same. These people are competing with us. The question will arise in Russia as well.

I'd also like to hear your comments on that subject.

[Luc Dupont]

It's very important to understand that our specific mandate is to support Canadian exports and Canadian investments. When we at the EDC review a proposal in which we are asked to take part, we do so on the basis of a specific transaction, such as the issue of greenhouse gases or the Kyoto Protocol.

What interests us are environmental standards. Does the project for which support is being sought comply with environmental standards established in the international agreements? Then we use an analytical framework, and, if the project doesn't meet our project's support standards, it's difficult, even impossible, for us to support it. That's done in the context of a specific transaction.

Furthermore, we also have a framework concerning what we call corporate social responsibility. We also conduct an evaluation to determine whether the transaction with which we are associating meets what we call social responsibilities. For example, we check to see whether there is any child exploitation. Following our evaluation, if the transaction meets our code of ethics and our code of corporate social responsibility, we may be in a position to support the transaction. That's done in the context of a specific transaction. It isn't a general engagement strategy.

[The Vice-Chair, Liberal, Lui Temelkovski]

May we have a short comment, please.

[Piers Cumberlege]

There was a major debate in Russia concerning the Kyoto Protocol, and Andrei Illarionov, who was the president's economic éminence grise, left two years ago after failing in his attempt to have Russia join the Kyoto accords. That was a major disappointment for all of us because he was someone very competent, but he was fired from the circle, from the Kremlin.

I believe that Russia would like to improve its activities throughout the environmental sector. In some cases, standards are very strict in Russia, not only in theory, but also in practice. I don't think that's the Russian government's first concern at this time.

A soft sector? There aren't any, as such. There isn't a textile industry in Russia, as such.

As regards working conditions, unions and unfair competition, there is one very important point that must be considered: the skill levels of the Russian labour force are very high. There is a very high technological and scientific level compared to what you conventionally find in soft sectors, in southeast Asia, for example, where people with very little education are paid very little and work in very hard conditions.

Quite skilled labour is used in Russia. In fact, industrialization is relatively structured. There aren't a lot of unions; there aren't any union activities. On the other hand, you don't find any sweat shops in the same way as you'll find them elsewhere in the world.

So it's not really unfair competition; it's a very high technical level for low wages.