International Trade Committee on May 17th, 2007

[Carl Grenier]

Well, you're placing me in a strange position, because if I say yes, they should have more resources, I'm arguing for more people to manage trade. Yet I work for something called the Free Trade Lumber Council. So I don't think you should be given more resources to manage quotas.

But to answer your question, obviously they didn't have enough people, because the quota option, option B, was not implemented on October 12. It was only implemented two and a half months later, because it's complex to allocate quotas and it is complex to manage. It's not the way we should be going, obviously, but it's the way we've gone, the way this government has decided to settle the dispute.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Bains. Your time is up.

Just before we go to Mr. André, I would like to ask all members of the committee to indicate clearly to the clerk, or to the chair, when you would like to be up to ask questions. Too often the clerk is having to go to the members and ask if they want to ask questions. If no one indicates to us that they want to ask questions, I'm just going to bypass that party and go to the next party. I encourage you to cooperate.

In the case of Mr. Julian, you really don't have to indicate.

Please go ahead, Mr. André.

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

Mr. Benoit, we shouldn't be changing all the Committee's rules at this meeting.

Mr. Grenier and Mr. Dymond, I was very interested in your comments with respect to international trade institutions and our trade. I have a question for Mr. Grenier, and Mr. Dymond may want to add something.

We believe there needs to be greater democratization of the results of our processes for negotiating and ratifying trade agreements by Canada and, of course, by the Quebec nation, by requiring, for example, that important agreements be approved by the House and that the civil society be consulted through the work of a parliamentary committee, before Parliament decides on an important treaty. Furthermore, in both offensive and defensive situations, the national government should hold mandatory consultations with the provinces and the Quebec nation before negotiating an agreement that falls within their jurisdiction.

Mr. Grenier, you gave us a few examples. Perhaps you could say a little more about that and Mr. Dymond can add some comments of his own, if he likes.

[Carl Grenier]

Thank you very much for that question, Mr. André.

I don't know that what you are proposing is very different from what already exists because, to my knowledge, both in Ottawa and Quebec City, as well as in some of the other provinces, parliamentary committees have been used in the past, and are used regularly, to look at issues relating to international trade negotiations.

As regards consultations with the provinces, there is no requirement to do that at this time. That is one of the things we should be trying to formalize. As I said earlier, this proved impossible in the early 1990s, as well as in the late 1990s. There is only an informal agreement in place.

However, we are talking here about a much broader question. This is really a constitutional matter. The Constitution is clear: the federal government has jurisdiction over all matters relating to international trade. There is no doubt about that. But, in many cases, the issues under negotiation in future will involve areas of shared or exclusively provincial jurisdiction. That is certainly a marked trend that will be even more evident in future.

Without a formal mechanism, Canada runs the risk of being incapable of taking a position that is truly in the national interest, since it will not have had an opportunity to properly analyze all of its interests. It is very difficult to do that when negotiations are ongoing. Once the negotiations have begun, it's a little late to start designing a tool. It is far better to do that between negotiations, when you have an opportunity to look calmly at what has been done in the past and what it would be possible to do in future. That is my suggestion. There are a number of ways of making improvements that do not involve amending the Constitution.

[William Dymond]

Thank you.

I would urge against tinkering too much with the present situation. I think it works well, and it works on the basis of ad hoc solutions to specific problems.

We ought to bear in mind that in some areas Canada does not have a lot of discretion. Let me give you an example. Based on what I've read in the budget and in some speeches by Mr. Emerson, we are on the verge of entering into or proposing free trade negotiations with a number of countries, in addition to the list that we already have. Whether the government will proceed, I don't know.

Those are clearly voluntary decisions. Consultation is clearly indicated. And my experience as a trade negotiator tells me that you'd better make sure that the business community is really interested in those free trade agreements, or don't waste the resources doing them. If you do them, there won't be a business response and you'll have spent a lot of time.

Multilaterally, where 150 countries agree on the progress or not progress of multilateral trade negotiations, the option for Canada to hold up the process is about zero. The idea that, as a result of consultation with the provinces or with civil society, Canada at that point would say no, we will not participate in multilateral trade negotiations seems to me to be quite unthinkable.

One of the things we've learned over the years—and I sense we now embrace this quite vigorously—is that nothing is to be lost from transparency. Everything is to be gained from transparency. There's very little that's secret out there. The government has far more to gain by opening the doors and letting people come and talk and tell them what their interests are. Trying to do it in one big group with all of civil society, I think, is a mistake because people won't say what they think.

The more time that officials, ministers, and members of Parliament spend listening to people, the greater will be the rewards. But don't formalize it in the sense that the government has to have this consultation before it can do that, where if the consultation were against it, the government would not enter into a multilateral round of trade negotiations or not participate in a big regional agreement. I think that would unnecessarily restrict Canadian flexibility.

My last point is, as Mr. Grenier says, don't do any of this until we know what our interests are. My presentation has argued that our interests are changing and we need to get our minds around how we're going to address that.

[The Chair, Conservative, Leon Benoit]

Thank you. Merci, monsieur André.

We'll go to Mr. Cannan for seven minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks, Mr. Grenier and Mr. Dymond. It's good to see you again. Thank you for sharing some of your wisdom and experiences on the machinery of government.

I know that this committee has been discussing this issue over the last several months and we've been told by several witnesses that our country is falling behind in forging new trade relationships around the world. We continue to examine the different ways government functions, how we're organized and looking at the mechanisms, as we're discussing today, and how effective we are in facilitating Canada's ability to reach trade agreements.

I'd be happy to hear from you in a minute about how you see this fault, whether it lies with the machinery of government, or is it an uphill battle? One of the things we talked about earlier in the meeting was convincing the media and the public, Canadians, about the importance of forging relationships with other countries, that it is critical to trade in the global economy.

The machinery of government does seem to come to a grinding halt because of the negativity and the partisanship that's played out whenever we talk about concern. Even in the House earlier this week, the Prime Minister alluded to some of the great initiatives within our budget, that we have the strongest economy for over...unemployment close to record low levels in four decades, and the initiatives we've put into the manufacturing sector to try to expand our trade.

But specifically, from the committee's perspective, I'd like to hear from you, Mr. Dymond, on my point that government officials need to do more travelling, get more feet on the ground, and tying that in to the mechanisms of the different departments and how politicians can play a role to effectively enhance our trade, and whether this is hampering our progress in trade, or is it really a fault of the machinery of government? Or is an extremely negative and partisan climate hampering our ability to move forward?

[William Dymond]

Thank you.

Mr. Chairman, let me draw to the committee's attention a piece of news that I find amazing. It is that earlier this week a deal was reached in the United States Congress to approve four pending free trade agreements that are negotiated with changes—Peru, Panama, and so forth.

The political atmosphere in Washington, as we know, is poisonous. We have a Democrat-controlled Congress. We have a Republican White House with an incumbent who is desperately unpopular, and we are in the middle of presidential politics. We have all the conditions for gridlock, and they reached a deal to approve four of these agreements.

We have two agreements pending, one with four countries of Central America and the other with the countries of EFTA. They have been around for the last four years and they aren't moving. Indeed, the blockage occurred during the days of our previous majority government. These blockages began to appear in 2002-03, when there wasn't the type of political atmosphere that necessarily might apply in the situations we have now, yet there was no movement.

Why was there no movement? It was because very powerful—if small—lobbies, one in the area of textiles and the other in the area of shipbuilding, have blocked this. In my experience, governments and parliaments know how to deal with opposition; what they have difficulty dealing with is the absence of support.

When the government of the day—the successor government of Mr. Martin and the current government—looked to see who would support the government if they took these decisions to say no to the textile industry and no to the shipbuilding and they were not going to protect them, nobody supported them. And they don't support them because the kinds of things that we are able to negotiate in these free trade agreements are of very little positive interest to the business community, to the people who would benefit.

When we negotiated the free trade agreement, we had massive support from the business community and some isolated opposition in corners of the business community. Why? It was because they could see their interest, and we could see what their economic response to it is.

Now, when we have a trade policy that's focused on maximizing export access with a range of countries when our principal interests continue to lie with the United States, you cannot look to the business community to come before the committee and say not to listen to the textile industry or to the shipbuilding industry because they have larger national interests of the type my colleague Mr. Grenier spoke about. The reason for that is that the trade agenda no longer matches the economic interests of the country. It therefore no longer draws those people who are prepared to come before this committee, to go before ministers, or to write letters to Mr. Julian and say they want this agreement and they're prepared to invest political coinage in doing it.

It's not a machinery of government problem; it's an agenda problem, an agenda that is not matching the interests of the country. A machinery of government response, in my opinion, will not provide the route out.

Thank you.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I have a supplementary question.

I appreciate that clarification. Your biography shows you have many years of experience working overseas, so your prospective agenda is one area. You had comments about the softwood lumber agreement, and it's very important to my community in the interior of British Columbia. The certainty and stability, the paying back of the $5 billion in duties, and the providing of jobs in my community are very important. That is one of the aspects of an agenda and a government getting things done.

The other aspect is internal, working for the Department of Foreign Affairs and International Trade and with other departments. From your experience, how would you describe the working relationship?

[William Dymond]

Thank you.

It's interesting; when I began my career in trade policy, which is now almost forty years ago, only two departments of government counted: the Department of Finance, which controlled the tariff, and the Department of Trade and Commerce, which was the export department. They also controlled the Export and Import Permits Act. When agriculture issues were discussed, which was not frequently, the Department of Agriculture was clearly important. The Department of External Affairs had an overall coordinating role, but no authority to do anything.

The last time I looked, at least 24 federal departments and agencies were involved in the trade agenda, whether it's multilateral or bilateral. That's because the scope of trade agreements has grown. The scope of coordination, the task of coordination, has grown more complex. I dare say the task of members of Parliament in assessing these agreements has become more complex. Once you begin to add services and intellectual property and investment issues, it becomes more complex. This complexity is replicated at the level of the provinces because, as Mr. Grenier says, you have an increasing footprint of international trade agreements upon areas of jurisdiction that are either shared or exclusive.

In my experience, does the machinery cope with that? Yes, it does. We know how to do this. Departments of government know they need to talk to each other. They know that bad things will happen to them if they don't. They know that a properly functioning Privy council Office will ensure that this coordination occurs. It operates in an informal, ad hoc way. Most of the practitioners I think would hesitate to introduce formality into the process.

Remember that anything that happens, happens under the authority of the cabinet and in accordance with legislation adopted by Parliament.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Cannan.

Mr. Julian, go ahead, with seven minutes of questions.

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

Thank you very much, Mr. Chairman.

I want to thank our witnesses.

I would like to begin with you, Mr. Grenier, obviously, regarding softwood and the implementation of our trade policy. We just heard Mr. Cannan say that the Softwood Lumber Agreement has been fantastic for his community. I am from British Columbia, and that is not at all what we are seeing on the ground. We have lost 5 000 jobs since that agreement was implemented. So, this is extremely problematic.

I would like to explore with you the difference between the principles behind our trade policy and the reality of its implementation. With NAFTA, there was a dispute settlement process that was supposed to protect us. Then we had the softwood lumber dispute.

This is my first question: What action should the government have taken when the softwood lumber dispute arose between NAFTA countries?

Second, lumber companies had launched a legal process which resulted, on October 13, in an Act Respecting the Implementation of International Trade Agreements with the United States, a process which Canada effectively won.

Once again, there is a difference between the principle and the implementation. Rather than focussing on the ruling, we focussed on the agreement.

My second question relates to that difference. What could the government have done with respect to that ruling on the agreement?

Third, the Softwood Lumber Agreement was implemented. In British Columbia, it was absolute chaos at the border, where people were not sure what tariffs to apply. It is quite possible that tariffs were doubled.

How could the government have set about implementing this decision to sign the Softwood Lumber Agreement? What could it have done better to avoid job losses?

And, at each of these three stages, what could the government have done to better implement our trade agreement?

[Carl Grenier]

Thank you very much.

With respect to your first question about action the government should have taken at the outset, I have to say that it did exactly what it was supposed to do. In 2001, when the previous 1996 agreement ended, the government immediately stated, with the industry's unanimous agreement, that it would use all legal means and take any and all steps needed to defend the Canadian industry, while continuing to explore the possibility of reaching an agreement through negotiations. This was what is called the two-track approach.

That worked quite well to a certain point. Why? For the first time, in August 2005, the highest level of government in the United States refused to enforce a ruling which should have been final. Obviously, throughout that lengthy period, the monies paid by businesses at the U.S. border were quickly accumulating and becoming more and more considerable. That money, which still belonged to Canadian industry, began to hold enormous potential, and there is no doubt that many companies were suffering.

The softwood lumber file evolved very quickly under the new government. Having virtually rejected the legal approach, Mr. Harper's new government made the decision to put practically all its eggs in the negotiation basket. That sent a very clear signal. Our American adversaries and the U.S. administration understood that immediately. And you saw what happened next. It still took a number of months to negotiate this agreement and, as happens whenever there is a policy change, the government machinery followed but was a little further behind. We know that the final moments of the negotiation were quite highly political, as opposed to bureaucratic. That is just the way it works.

That brings me to your third question. There were obviously a number of hiccups initially, in terms of implementing this agreement. I already mentioned that those provinces that had chosen option B had to wait several months for it to become available. For a while, all provinces and all businesses in Canada were paying the export tax, rather than being subject to a quota and a tax.

The infamous dispute settlement process, which we had secured after a lengthy struggle during negotiations on the Free Trade Agreement, was working. But, like all dispute settlement processes of international scope, it is based on the fact that the parties to the agreement will enforce the decisions. If one party—in this case, the United States—does not enforce the rulings or finds all kinds of loopholes, the process breaks down.

It is unfortunate that we did not carry the process through to its conclusion. Only a few months ago, we had almost reached the end of the process, particularly in front of the American courts. Indeed, you referred to the decision handed down on October 13, where the judges, announcing their ruling one day after the agreement was implemented, clearly signaled to both governments that they did not agree with what had happened.

All of that is behind us now and, unfortunately, we are facing a situation in which industry is more at risk now than it was previously. Why is that? Well, it is because the entire softwood lumber issue has now been taken out of the Free Trade Agreement with the United States, to be handled, if a dispute arises, by an arbitration tribunal, the London Court of International Arbitration. That court of arbitration will have to interpret the agreement as it is currently written, without considering rulings we might have been able to secure through NAFTA, the WTO or the American courts. All of that has been set aside and the agreement, as currently drafted, gives a significant advantage to the United States.

That is not hypothetical: we will end up in arbitration sooner or later, and sooner rather than later. I am extremely concerned that the clauses of the agreement may be interpreted in a way that is not favourable to Canada.

With respect to your last point, unfortunately, even though under NAFTA and in front of U.S. courts, the industry has standing to represent itself and defend its own positions—the same applies to the provinces—that is not the case with the London Court of International Arbitration. Only the two national governments—the United States government and the Canadian government—will have an opportunity to make representations before that court of arbitration.

I do not believe that anyone in Canada would say, had they been closely following these issues, that the industry's contribution to softwood lumber litigation we have been a party to in recent years was not significant. However, we now will have to go through the government. We will have to wait and see how that works, because we really don't know at this time.

The mechanisms I talked about earlier, that have been established for the purposes of negotiating NAFTA, and which were used on occasion in [inaudible], no longer exist.

[The Chair, Conservative, Leon Benoit]

Mr. Grenier, could you wrap up very quickly? Okay, thank you very much.

Thanks, Mr. Julian.

We will now go to the five-minute round, starting with Mr. Temelkovski.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

Thank you very much, Mr. Chair.

Thank you to the presenters.

It's nice to see you again, Mr. Dymond.

Now, you mentioned that the atmosphere in the U.S. is toxic, yet they have managed to sign four more agreements. Maybe the recipe for signing agreements is a toxic atmosphere. Do you think the atmosphere in Ottawa is toxic enough for us to sign a few agreements?

[An hon. member]

It's getting really close.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

I say that seriously.

[William Dymond]

I'm sure it would it be wise of me not to comment on that.

One assignment I had in my professional career was to spend five years in the embassy in Washington, through the days after negotiations of the free trade agreements were announced. It really is a truly remarkable political environment to understand and to function in as a diplomat, quite different from our own.

If you had asked me several weeks ago whether the United States would have a trade policy to speak of until the election of a new administration, I would have said no. Congress now is dominated by Democrats, suspicious of trade agreements and suspicious of trade liberalization. The political authority of the President to do things is weakened for a variety of reasons, not the least of which is that he's a lame duck, as is traditionally the case for second-term presidents.

Yet they've cut a deal. These agreements have not been signed, but they've cut a deal on the basis of which the Democrats and the Republicans will agree, with some changes to these agreements, to adopt them according to the procedures of the trade promotion authority. The contrast between the ability to act in those circumstances and our inability to act—

I go back to the days prior to the 2004 election, when there was a very strong majority government. Even then the government felt unable to overcome the opposition of two small sectors. As they say, governments understand opposition; what they don't understand is the absence of support. And that's what we're facing: the absence of support.

[Lui Temelkovski, Liberal, Oak Ridges—Markham, ON]

We're seeing more and more border difficulties between the U.S. and Canada. The States, as our largest trading partner, poses large problems for our goods and people moving across the two countries, and even further to the next NAFTA member country.

It appears that most of the trade of the U.S. and Canada is going to be north-south as opposed to anywhere else. That may be the more logical way of thinking, as we've seen in the European Union, there being an enhancement in the market in Europe for them to trade with each other.

Do you see that maybe we should pay more attention to our north-south corridor? Or do you see that maybe the Asia-Pacific gateway should be pursued?

[William Dymond]

It's a question of choice, Mr. Chairman.

What happened to the Canadian economy under the impact of multilateral trade agreements, partly, but certainly under the impact of free trade with the United States, is that it was reoriented on a north-south basis and on the basis of integrated production networks. And that is evident not only in the auto sector but also in many others.

The only thing I can tell you on that is to recall a meeting I attended several years ago with Mr. MacLaren, who was the trade minister at the time and present with a number of Canadian business executives. Mr. MacLaren was talking about the Asia-Pacific and other things. And one very senior executive said, “Look, Minister, our interests are in the United States. If you have any time and energy and resources left over, spend them on the United States, as that's where the problems are. Unless you fix those problems, other markets don't matter.”

So is this only for the trade department or the trade committee? No. We're talking about the gamut of public policy issues that we have to manage on a daily basis with the United States. And clearly we have to manage them better, because you're quite right that the border is beginning to thicken and become more difficult and more costly for Canadian companies to penetrate.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Temelkovski.

We now go to Monsieur Cardin, for five minutes.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning. Welcome to the Committee.

Canada has concluded a free trade agreement with its most important trading partner, but is also seeking to diversify its trading partners, in keeping with its international trade policy. In that regard, Canada is seeking to conclude more and more bilateral agreements, either free trade agreements with other countries or other kinds of agreements. The government wants to ensure that these can be dealt with as quickly as possible. As part of these processes, is there any analysis or are any impact studies carried out to determine the potential effect on industry and the provinces?

You have been talking about possible consultations with the provinces. I may have misunderstood what you said, but I had the feeling, at times, that you were saying there was consultation, but at other times, I wasn't quite so sure—perhaps you were trying to say that there was consultation, but that it wasn't particularly helpful. Under these agreements, many partners—be they the provinces, Quebec or affected industries—are seeking to protect their interests. Are they adequately represented to be in a position to defend their interests or positions, before final decisions are made?

[Carl Grenier]

I have in fact noted Canada's desire to negotiate a certain number of bilateral agreements with countries that are much smaller and less important to Canada in terms of trade. I believe that is related to the fact that our neighbour and main partner began to do that before we did. I believe that people have appeared before you to provide testimony on that. If the United States signs a free trade agreement with Costa Rica which favours their exporters over our own, our exporters will be at a disadvantage if we don't do the same thing. There is no doubt about that.

However, I do not see these agreements as the culmination of an in-depth analysis of our real needs. In my opinion, Canada's view is that if the United States are doing this, then it has no choice but to do the same. There in something inevitable about all of this, and that is unfortunate. Indeed, I believe, and others also believe, that it would be far better to turn our energies towards ensuring a successful conclusion to the Doha Round at the WTO. That would be far more advantageous for everyone. But, as you can see, things are somewhat different in the real world.

Having said that, I believe our international exports to the United States, which rose considerably following the conclusion of the Free Trade Agreement, are now going down. There have been a number of articles in the newspapers about that, but the fact is that few people have even noticed. Our international exports to the United States had risen to almost 86 or 87%. It is difficult to imagine their going much further than that. Now the rate has dropped to about 81 or 82%. It is also worth noting that prior to the Free Trade Agreement, they were at 78 or 79%. So, this is really a kind of realignment.

I think that is most certainly due in part to what my colleague mentioned—in other words, the fact that the border is becoming thicker, primarily for security reasons. However, that is not the only reason. I believe there are other factors at play, including the fact that Asia is a rising power. That reality is causing a realignment everywhere, and in many different ways.

As for consultations with the provinces, I believe they are occurring. But there again—and this goes back to the point made earlier by Mr. Dymond, that I fully agree with—the real issue is not the fact that some groups are opposed, but rather, that there is a lack of support from the business community at large, which is preventing these agreements from going forward, even though they are probably advisable in the real world of which we are a part.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cardin.

To Mr. Lemieux, for five minutes.

[Pierre Lemieux, Conservative, Glengarry—Prescott—Russell, ON]

Thank you very much, Mr. Chair.

I'd like to ask some questions about consultation. It's something I've been dwelling on for quite some time, not just on this committee but on other committees, because I take to heart the comments you made, Mr. Dymond, about consultation and how the government consults. I think there certainly is an opportunity for misunderstanding, just from the way it's carried out.

Some of my thoughts on this are that there is definitely consultation going on at all sorts of different levels. For example, as an MP, I have formal and informal consultations with businesses in my riding. But also, as MPs, we get national groups coming to see us to explain their points of view on something or the concerns they might have.

There is the departmental level. We had officials here, and I asked them this question about consultation and about what sorts of consultative mechanisms they have in place. They confirmed that they do consultations at different levels—some formal, some informal, some at conferences, and some here in the government. There are all sorts of different mechanisms and different levels.

Of course, there is the ministerial level. The minister himself or herself is either lobbied or in fact reaches out to industry or accepts meetings from industry.

There is the committee here. We call in witnesses. We study a particular topic. And of course, we have to pick and choose who comes, and we do the best we can.

And of course, there are still reports and position papers. Oftentimes companies or organizations and associations that represent a particular sector publish reports.

Where I think some of the confusion sometimes comes in is that industries at certain levels don't realize that all this consultation is going on. So in other words, if they're not part of this picture, even though this consultative process is taking place, they feel that it's not taking place, because they don't know about it. So I think there's a communication issue that might hinder this.

The second thing is, for example, if they're not invited, because everyone has to pick and choose. Not everybody can participate in everything. So if they're not invited or they don't actively plug into the consultative process through these different mechanisms I spoke about, it can leave them with the feeling that the process that's in place isn't working. Or they may feel, actually, that they have limited time and resources and they can't plug in, because as you know, it takes time and effort to prepare your position and present your position and participate in a larger setting to communicate it. They may just feel that the payback isn't worth it for a company of that size or in that sector, or whatever.

I notice that you both have experience within our government. You have experience internationally. I wanted to ask both of you how other countries deal with this idea of consultation. I would start by asking if you agree with what I've said here. And do you have recommendations as to how this might be improved?

Second, are there models in other countries that you've experienced? Are there good things we could pick from those other countries?