International Trade Committee on May 17th, 2007

[The Chair, Conservative, Leon Benoit]

We'll go to the vote.

(Motion as amended agreed to)

[The Chair, Conservative, Leon Benoit]

The members who would like to attach a dissenting opinion have 22 minutes to get it to the clerk.

Let's carry on with the business. There's one other issue on the orders of the day, on committee business, and that's a press release on travel.

There has been some discussion, some media, on committee travel and the cost of travel. The question is simple. It's whether the members of this committee would like the committee to put out a press release explaining why this travel is important.

We'll have Mr. Temelkovski.

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

Mr. Chair, I've been on the committee since the election of the 39th Parliament. I don't remember our authorizing any trip to Washington or any other trips. What I saw in the media, in my opinion and view, did not reflect the true numbers for the expenses the committee has authorized.

I'd like to see a financial statement of what we have spent and authorized as a committee. What was reported were some huge numbers and trips to Washington that do not reflect, I believe, the travels of this committee.

As you remember, I'm a big proponent of this committee travelling, because international trade cannot be done in Ottawa. We must travel. But it's ridiculous to see in the paper that we've travelled where we haven't travelled, I believe. Where they're getting this information, I don't know.

I'm also of the opinion that we should not be provoking them further, the media, because they're not totally aware of the operation of the committee, and their information has proven to be wrong already, I believe.

[The Chair, Conservative, Leon Benoit]

Are there any other thoughts on that? Is there a general desire, then, that we just leave this alone and have no committee response?

Okay, agreed.

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

I don't think Mr. Temelkovski asked the question.

[The Chair, Conservative, Leon Benoit]

Well, he's seen the costs. We've had these budgets out and dealt with them several times. We have a copy here.

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

This does not total what's reported in the paper, nor the trips.

[The Chair, Conservative, Leon Benoit]

The question is whether the committee should send out a press release explaining why we're travelling and giving some information to correct some misinformation.

Am I gathering there is no desire to do that? Right?

Mr. Julian.

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

Thank you, Mr. Chair.

I don't get the sense there's a desire to do that. I do think there's a desire to follow up on Mr. Temelkovski's question about where they got their figures and how those correspond with what our actual budget allocation has been.

[The Chair, Conservative, Leon Benoit]

Well, we have the numbers here. That's another issue, I think.

So let's get on, then, with the business of the committee today.

We have about an hour and twenty minutes for the witnesses. We are dealing with a study of the machinery of government and the implementation of Canada's trade policy.

The Standing Committee on International Trade is undertaking a study examining the machinery of government and how we can create a better trading strategy that makes Canada more competitive internationally for our citizens and businesses. The objectives of the study are to evaluate how the machinery of government delivers trade and investment services and promotes Canadian products and businesses overseas and the idea that Canada is a marquee destination for investment.

We have two individuals as witnesses today. First is Carl Grenier, associate professor, Department of Political Science, Laval University. Thank you very much for coming today. Also here today, from the Centre for Trade Policy and Law, Carleton University, is William Dymond, senior executive fellow.

We will have your presentation of eight minutes first, and then we'll go directly to the questions.

Could you, Mr. Grenier, start with your presentation. But first of all, welcome here, and thank you for coming. Let's make the best use of this hour and twenty minutes we possibly can.

[Carl Grenier, Associate Professor, Department of Political Science, Laval University, As an Individual]

Thank you very much, Mr. Chairman.

I would like to thank Committee members for inviting me to make a presentation on this today.

I want to point out, right from the start, as I did with the Clerk, that I am appearing today as an individual. I want that to be clear because I am concerned that some Committee members may believe that I intend to talk about softwood lumber again. I obviously have discussed this with you a number of times in the past, and I do intend to use softwood lumber as an example to illustrate some of the points I will be raising today. However, softwood lumber is certainly not the main issue I wish to discuss with you today.

Having read your report entitled “Ten Steps to a Better Trade Policy”, which was passed and tabled in the House last month, I have chosen to deal with two points that you touched on in your report, but which are not really addressed in detail, and I understand why.

To begin with, I would like to talk about the federal-provincial dimension of developing and managing a Canadian trade policy. For that, I will obviously rely on my own experience, both at the federal level and working for the Government of Quebec, a number of years ago, as it relates to trade policy issues. I would then like to talk about the role of industry and how to involve it in discussions leading to the development of trade policy and in its management which, of course, includes conflict management.

Let me begin with the federal-provincial dimension. We all know—although I think it is worth reminding people of this—that the Canadian Constitution is perfectly clear: the federal government and the federal Parliament are responsible for trade policy. However, that was the case for a very long time without there being any real issues in terms of federal-provincial relations, up until about the 1970s. At that time, developments in multilateral trade negotiations, particularly the GATT at the time, meant that the issues being discussed for the purposes of negotiating and possibly concluding agreements directly affected areas of provincial jurisdiction.

As early as the 1970s—in April 1973—the Quebec Minister of Industry and Trade, Mr. Guy St-Pierre, as well as the Alberta Minister, I believe, asked the federal government to establish mechanisms whereby the provinces could provide input and express their views with respect to Canada's policy, as the Tokyo Round was beginning. That was done primarily through a committee of federal-provincial deputy ministers who would meet regularly to bring forward and discuss issues that would be negotiated. That process went beyond the Tokyo Round, but in mid-1980s, when the Free Trade Agreement with the United States was negotiated, things changed.

Why? At the time, it was envisaged that a very broad agreement would be reached with our main trading partner, and the provinces were even more concerned than usual about the need to be onside with the principles. As you know, the then government, led by Mr. Mulroney, had established the principle of full and complete participation by the provinces in the negotiation process. That did not mean that the provinces were at the negotiating table, but a certain number of mechanisms had been put in place, including more frequent First Ministers and Ministers meetings—that last mechanism was used only once—and even more frequent meetings of the Riesman Committee, named after Canada's Chief Negotiator. That committee met literally once a month to conduct a detailed review of positions being discussed at the negotiating table.

I have to say, having been involved at the time, that this mechanism was effective. That obviously does not mean that everyone agreed. You may remember the very strong and serious opposition expressed by a number of provinces, including Ontario and Manitoba, which continued to be opposed—adamantly opposed—to some things that were on the table, right up until the very end.

Immediately following the negotiations, in 1988-89, the provinces sought to formalize these mechanisms. It was believed—and I think the provinces were pretty well unanimous in that regard—that these mechanisms had worked very well. The idea was not to continue to hold frequent First Ministers meetings, as was the case while negotiations were ongoing, but there was most certainly a desire to maintain the kinds of consultation mechanisms that were developed at that time, particularly as regards officials.

Those discussions lasted almost a year and resulted in a codification, in a very short document, of practices followed for several years. Unfortunately, that exercise did not yield the desired results, because the then federal Minister of International Trade, Mr. Crosbie, refused to ratify the work that had been carried out by federal and provincial officials at the time. Provincial premiers made representations to the federal Prime Minister, Mr. Mulroney, who allowed Mr. Crosbie's decision to stand. Thus, the mechanisms established at the time were never formalized.

Several years later, in the mid-1990s, following the broadening of the Free Trade Agreement to include Mexico, the provinces made another attempt to formalize collaborative mechanisms. That basically resulted in the system we now know, which involves consultations and meetings. However, these consultations and meetings are never held within a formal framework. For example, there are no exchanges of letters between ministers or federal-provincial agreements. There is none of that—just minutes of a meeting chaired by an assistant deputy minister in December of 1998. In fact, that is the basis for the mechanism being used today.

I would also add that this mechanism and its description are confidential, which is strange, because they are part of the minutes of a meeting of what is known as C-Trade, the main federal-provincial consultation mechanism. This refers to a quarterly meeting of federal and provincial officials with responsibility for trade policy issues.

As regards negotiations, the mechanism is working well. However, it still poses certain problems with respect to dispute management. Let me give you an example. Federal officials have decided that there are two types of disputes: offensive and defensive disputes. With respect to offensive disputes—when Canada takes the initiative of raising an issue at the World Trade Organization—the provinces are not included in the Canadian delegation, even if they have an interest in it. If it is a defensive dispute—when a foreign country attacks Canadian policies that may, for example, be provincial policies—the Canadian delegation includes provincial officials. Of course, they do not have the right to speak, unless the head of the Canadian delegation asks them to comment.

It's strange. For example, in the case of softwood lumber, when we raised the issue with the WTO—it was perceived and defined as an offensive dispute, because Canada was challenging an American measure. So, the provinces were not included in the Canadian delegation, which is rather ridiculous. I'm sure you will agree, since provincial actions are really at the heart of this dispute. So, there is definitely a need to adjust this mechanism so that it better reflects reality.

I would like to move on now to mechanisms for consulting industry. At approximately the same time, in the mid-1980s, two additional mechanisms were also formalized—

[The Chair, Conservative, Leon Benoit]

Mr. Grenier, we had allowed eight minutes for the presentation; we're almost at ten. Could you wrap it up fairly quickly?

[Carl Grenier]

I only need another minute or two.

[The Chair, Conservative, Leon Benoit]

A minute or two? That's great. Thank you.

[Carl Grenier]

There were two mechanisms, including a very broad based committee dealing with more horizontal issues, called the International Trade Advisory Committee, or ITAC, and 15 or more sectoral groups established with a view to gathering more detailed feedback on the issues under negotiation. That mechanism worked for a certain number of years. It has fallen out of favour in recent years, which means that there is no longer any real formal mechanism in place. However, there is more of an opportunity for industry groups to use websites and the Internet, for example, to present their views to government. That is not a bad thing, but it does not replace the mechanisms that were in place previously, and it most certainly does not provide an opportunity to bring together different points of view.

Once again, I will use the softwood lumber example. Unfortunately, there is no industry organization that represents the entire Canadian softwood lumber industry. That means that a lot of people have to be invited if you want to know what the industry's views are. In the case of the last dispute, the last meeting where everyone was around the table was in April of 2003. As you know, the issue remained on the table until October of 2006. In those three and a half years, there has not been a meeting which brought together all the stakeholders. I believe that is a partial explanation for the amount of time the dispute lasted. There again, I believe there is a need to restore these same consultation mechanisms and change them, if need be. There is absolutely no doubt, however, that the current approach is really not satisfactory.

I would like to make one last point. When anti-dumping measures are being discussed and we have to come before the WTO, the Canadian team does not include industry lawyers, unlike the U.S. team. That is clearly a problem, given that the expertise with respect to dumping is within the industry, as opposed to federal departments here in Ottawa.

I read your report with great interest. It makes a lot of points that I would like to comment on, but I don't have the time to do that now.

I am now available to take any questions you may have.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Grenier.

I will now go to Mr. Dymond.

I will allow you an equal time, Mr. Dymond. Go ahead, please.

[William Dymond, Senior Executive Fellow, Centre for Trade Policy and Law, Carleton University]

Thank you, Mr. Chair, and my thanks to the committee for the opportunity to appear.

I should say at the outset that I bring to this committee on this question much of the same background as my old friend and colleague Mr. Grenier. I could not count the number of hours I spent with him in the sea trade and other manifestations.

The question of machinery and implementation raises, in my mind, the question of the basic objective of Canadian trade policy. You cannot shape the machinery until you know what the objective is. So I'd like to offer a few reflections on that and then just comment on one aspect of Mr. Grenier's presentation.

In my view, Canadian trade policy now rests on some very outdated assumptions about how international trade is conducted. That outdated assumption is essentially that trade is a matter that occurs between firms and individuals in one country and unrelated firms and individuals in another.

It leads us to a view that a successful trade policy is one that expands exports, minimizes imports, and generates a positive trade balance, and following from that—as this committee has done, repeating in fact, I think, what the government has thought over many years—that there is a need to increase the resources for trade negotiation and increase the resources for trade promotion, all with a view to expanding Canadian exports. It's that assumption that I think is outdated.

How is trade actually taking place these days? That is the question.

It's now taking place within firms or among related parties or in related networks. We know, for example, that as much as two-thirds of Canada-U.S. trade is of this character. We know that trade increasingly comprises parts and components for assembly into end products. We know that the global fragmentation of production to take advantage of low-cost labour and specialized skills and access to critical inputs is now the dominant characteristic of international trade.

We can see the spread not only in sectors that we know well reflect this dynamic, such as the auto sector or the aviation sector. We're now seeing it creep into the resource sectors, as indeed we learned during the BSE affair with the United States. In fact, this old model of international trade, which we could witness in softwood lumber—which Mr. Grenier mentioned—now applies to an ever-diminishing number of sectors where the export sales from Canada are virtually wholly the production of Canada.

What are the new dynamics of international trade, what should our policy be, and how should we structure our machinery to reflect it?

In my view, the critical factor is the intersection of firm value and location value. Countries now compete in promoting policy settings congenial to mobile slices of production by removing barriers and providing incentives. Trade negotiation priorities, trade promotion priorities, and resources allocated to them that focus on particular countries could lead to serious policy errors and adverse economic consequences.

Just to give one example, if a Canadian firm—and we know this exists in the aerospace industry, for example—is part of a supply chain supplying components to other firms, which intend to further manufacture them and assemble them into final goods that are then blocked through trade barriers in third markets, with which country does the responsibility lie to negotiate the elimination of those trade barriers? If Canada were to decide, in order to favour the development of that sector, to negotiate free trade agreements with countries that are three or four steps down the line in the production process, rather than focusing on attracting that investment itself, we would probably lose it.

What are the issues, then, that we have to deal with in thinking about the trade policy for today?

Participation in global value chains is the key to the future, in my view. Canadian participation in global value chains is inevitably anchored in the United States, as producer, as consumer, as a source of inward investment and a destination for outward investment, and as a source of technology.

We have to understand that imports in this mix are as important as exports. If we orient our trade policy and the machinery related thereto to what happens on the export side while ignoring the import side, we will deny the opportunity for Canadian firms to participate in the value chains.

What are the issues, then, that we have to get our minds around? They are no longer those of the classic market access issues—tariffs, quotas, and so forth. They are issues of border administration. How well does your border work? How well does your customs system work? They are issues of product standards. They are even issues of immigration. What is your access to critically needed skills? They are issues of investment. They are issues of intellectual property enforcement.

A good many of the issues we need to confront in order to have a coherent and successful trade policy are within the power of the Government of Canada and the government of our provinces to deal with, and what we need to do is start hacking away at those barriers that impede it.

Let me offer you a quote from the executive chairman of IBM, Mr. Palmisano. He points out that the new dynamic means putting “people and jobs anywhere in the world based on the right cost, the right skills and the right business environment. And it integrates those operations horizontally and globally—work flows to the places where it will be done best, most efficiently and to the highest quality. The forces behind this are irresistible. The genie's out of the bottle and there's no stopping it.”

What about our machinery? I entirely agree with what Mr. Grenier has said about what we do with the provinces. I think now there is a critical gap, and let me reinforce this moment on the private sector. We have now no regular mechanism of consulting the private sector on these issues. Departments that I talk to are fearful of convening meetings, because it gives a suggestion that a particular government initiative is in play on which views are needed.

I was one of the officials at the origin of the SAGIT and the ITAC mechanism, developing proposals for the government to consider. I think it functioned extremely well, because what it enabled you to do was to consider issues without attaching expectations to them, without attracting attention to them. These would occur in quarterly or semi-annual meetings.

The previous government gave this up in favour of a multi-stakeholder consultation. In my experience, the business sector will not participate effectively or substantively in that. One recommendation I would make is the system of private sector consultations, with whatever changes to update it, since it was invented 23 years ago, ought to be urgently reconsidered by the government.

Thank you, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Dymond.

We will now go directly to questioning, to the official opposition Liberal, Mr. Bains, for seven minutes.

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

Thank you very much, Chair.

Again, I'd like to thank the witnesses. This is the second meeting in a row where we've had to deal with some housekeeping matters and it's gone a bit longer than we anticipated, but I guess it's a reflection of this committee and its eagerness to move forward on some key issues.

Mr. Grenier, in your testimony, not only today but also in the Senate, you mentioned the machinery of government, and you talked about the softwood lumber agreement in your remarks. I'm glad you brought that forth, because that's something I want to use as an example, to talk about the machinery in government and lessons learned from that particular agreement.

You indicated in your testimony in front of the Senate committee this month that “the agreement is overly complex, it has needless punitive measures against Canada, and left too many loose ends that are open to interpretation.” That was one remark you made, followed by:I guess the biggest frustration from our perspective is that the federal government viewed the signing of the agreement as the end of the process, it was just the beginning. The government has offered minimal help to industry in interpreting the agreement, resolving tax issues. In the six months since the pact was signed, they weren't around. They disappeared.

The concern I have—and I was trying to discuss this in the last meeting as well when we discussed the machinery of government with Mr. Siegel, the president of EDC—is about the refund process. He indicated some of the success stories around that and how industry received its refunds in time.

There's another concern that was raised, which is the misunderstanding of how the surge provisions were calculated in the province of British Columbia, for example. They interpreted it giving one perspective and the federal government had a different perspective on it, and my understanding is that the U.S. had a different perspective on it.

So how can departments better coordinate that? First of all, I want you to comment if there was a misunderstanding, and secondly, if there was a misunderstanding, how was it resolved?

[Carl Grenier]

Thank you very much, Mr. Bains.

You quoted some of the comments I made before a Senate committee, approximately a week and a half ago, with respect to the history of the softwood lumber dispute. However, I did not make the comments you attributed to me. In fact, they are comments made by the former Canadian negotiator, Mr. Waddell, and a representative of Weyerhaeuser, and I obviously fully endorse them. In a way, you are right to attribute them to me.

As regards the differences in perspective that you have referred to with respect to a part of the Softwood Lumber Agreement that was implemented on October 12, I was not intimately involved in discussions on those matters, for obvious reasons. All I can say is that this is second-hand information. As a result, I prefer not to make detailed comments in that regard. As was reported in the media, I believe there is still a difference of opinion and that this difference of opinion will eventually—and, most certainly very quickly—be referred to a board of arbitration, as provided for under the agreement.

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

I agree with that, but when you're saying “difference of opinion”, could you elaborate that difference? It doesn't only exist with the U.S. and Canada but it's also within Canada, between the provincial governments and the federal government. Is that correct, or am I misunderstanding the situation?

[Carl Grenier]

I believe you may be right but, as I already stated, I was not sufficiently involved in that to be able to provide further clarification in that regard.

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

Speaking again with respect to the machinery of government, developing policy, implementing policy, and again using the softwood lumber agreement as an example, there is an anti-circumvention clause that exists and that dictates to a certain degree the terms of our policies. That concern has been raised.

How do you think the machinery of government can deal with that? Doesn't it tie Canada's hands, in effect, in what kinds of policies it develops and how it implements them, basically? Some people have described it as compromising our sovereignty in terms of developing policy here.

[Carl Grenier]

The anti-circumvention clause in the agreement is, indeed, one of the reasons why the Free Trade Lumber Council opposed the agreement at the time. It is a very worrisome clause.

For example, will this prevent the provinces from changing their policies? Probably not, but it will certainly be a constraint as to the type of changes that the provinces can make to their policies. And, if the new policies do not suit our American adversaries, they obviously now have an instrument—that they themselves developed—with which to go after us.

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

Yes. You see, that's what surprises me. Any policy that we develop has to be now vetted by the U.S., and if they don't agree with it, they can use the consultation and arbitration process to hold us to what they view as consistently in line with how they believe the agreement was administered, which is, “These are our terms and you cannot go outside those terms”. It really compromised us a great deal. I think that's a concern many people have expressed in industry as well.

The question I have to this is with respect to the fact that this deal is so complex. Again, going back to the machinery of government, in your opinion do we have sufficient resources in the department to manage option A, option B, how it's calculated, how it's administered, how those tax levels are determined? Do we have the resources?

I know there was a concern raised by the Auditor General that there's a lack of strategic direction when it comes to human resources. There are issues around departmental resources. In your opinion, because this deal is so complex, does the department have the necessary resources? If not, should the government have provided additional funding in its budget for additional resources for this very complex deal?