International Trade Committee on June 5th, 2006

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We are here today pursuant to Standing Order 81(4) to deal with the main estimates for 2006-2007, votes 15, 20, 25, and 65 under the Department of Foreign Affairs and International Trade, referred to this committee on Tuesday, April 25, 2006.

Before our committee today we have the Honourable David Emerson, Minister of International Trade, appearing for the second time in our short existence.

I'd like to welcome you, Mr. Minister, and thank you for making yourself so readily available to the committee.

If you would introduce the people with you, make any statement you'd like to make, and then we'll get straight to the questioning.

[David Emerson, Conservative, Minister of International Trade]

Thank you very much, Mr. Chairman.

Honourable colleagues, it's good to be back here again.

I have with me today the people with all the real answers--to the hard questions, that is. With me are Marie-Lucie Morin, my new deputy minister; John Gero, the chief trade negotiator for the Government of Canada at the WTO and indeed across all of our trade negotiations; and Kathryn McCallion, our chief financial officer, who grumpily takes care of all the numbers and makes sure they're right.

I'm not going to read a written statement, Mr. Chairman. I thought I'd make a few brief comments.

How many minutes do I have?

[The Chair, Conservative, Leon Benoit]

You have ten minutes or more, Mr. Minister.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Let me just give you a little bit of an overview. I've been in the portfolio now for about three and a half months, and I think it's probably timely to give you a perspective as to what I'm thinking about in terms of priorities and Canada's trade position, where we've been, where we are, and some of the issues that I, as minister, and you, as a committee, need to turn our minds to over the next few months.

I would say, first off--and this will come out as part of an international trade report we'll be releasing on Thursday--that Canada's trade performance and our economic performance has been really quite good, if not stellar, the last few years. You'll see on Thursday that our exports are going to exceed $516 billion for the year 2005, which is a record. Our current account surplus is going to again be of record scale. When you look across the economy, we've seen a very strong macro-economic performance in Canada, whether you're looking at job creation, the unemployment rate, or the growth in investment in retail sales.

Generally, throughout the economy there has been in Canada a very strong economic performance, but I would caution members of the committee, and I would caution you in the following sense: that a lot of the economic strength that we have seen, both in terms of trade and in terms of the macro economy, has really been strength that comes from a couple of sources that we cannot be sure will be there and provide the same kind of momentum going forward.

First off, committee members will know that we've had very strong commodity markets over the last few years, particularly in energy, but extending to a variety of commodity products. That has created an enormous economic stimulus in Canada. It's a stimulus that is welcome, and it has provided all kinds of opportunities for Canadian companies that have the opportunity to participate in the natural resources play, but it also has some other implications. People will realize that the Canadian dollar has risen dramatically in the last three or four years. Indeed, I think we've seen something like a 40% appreciation of the Canadian dollar, and most analysts will attribute the performance of the Canadian dollar largely to what's happened in the natural resources economy. The rise in the dollar, then, has repercussions for the rest of the economy, the manufacturing sector in particular, so we've seen some of the ripple effects of the strong economy showing up in pressures on manufacturing. It starts to translate into regional pressures, because manufacturing tends to be regionally concentrated in this country. So we have had, on top of a stellar performance, some emerging frictions that we should talk about as part of today's deliberations.

We've also had a very strong boost in economic activity, employment, investment, and just general economic activity over the last eleven years pursuant to NAFTA. We entered into the North American Free Trade Agreement on January 1, 1995, I think, and over the last eleven years most would say that NAFTA has been very good for Canada. Unfortunately, in spite of 97% to 98% of our trade under NAFTA being very positive and trouble-free, we've also had some NAFTA-related frictions, of which softwood lumber is the most prominent.

Unfortunately, in the United States, in Canada, and indeed in Mexico, NAFTA has been seen by much of the public not so much in terms of the very positive aspects, but in terms of some of the trade frictions. Here in Canada we hear all the negatives about NAFTA in terms of the trade frictions, and on the American side of the border it is not any better. There are a lot of misgivings about NAFTA on the U.S. side, and the same applies in Mexico.

Looking forward, we're going to have to give a lot more attention to how we secure and improve and fine-tune the North American Free Trade Agreement to ensure that the opportunities NAFTA has created for Canada continue to grow in the future.

When you look around the globe and look at the context in which Canada will have to be a successful trader, we also observe that the process of globalization has fundamentally altered the international economic landscape. We're now in a world where you don't think so much about what to export to whom; you think in terms of global supply chains.

Global supply chains mean that we are often exporting and importing massive amounts between countries in the same industry. We're in a world where the global economy is served through supply chains, which entails investment, often in multiple countries around the world.

That creates a new world in terms of international trade and how Canada can continue to participate, going forward. Because it really means that for Canada, it's not good enough to focus only on exports or imports or the trade balance. We have to turn our attention to the flow of international investment. And it's not just the flow into Canada, which we clearly value and would like to see grow. It's also the flow of Canadian investment into other countries, because without that two-way flow, we are simply not going to see the trade performance or the development of efficient global supply chains in which Canadian companies and workers can participate.

Those are the kinds of challenges we're facing, going forward, and it really means for Canada that we have some serious work to do. When I say serious work, I'm thinking in terms of the architecture of our trade agreements.

We all know, almost by rote, that Canada depends on a stable, secure, rules-based trading system. That's really what allows a small trading economy like Canada to prosper in a global economy with giants like the United States and emerging giants such as China and Europe and others, and to participate in a reasonably fair and somewhat more equal way.

So we have to focus on the WTO, which is the framework within which rules-based trade is established multilaterally. It really is the only framework in the world where there is a genuinely international legislative framework that defines the rules of trade and investment.

NAFTA has been extremely important, as I said earlier. But we have to remember that NAFTA is not an agreement based on a transnational legislative framework. NAFTA is an agreement among the three partners, but disputes under NAFTA, as we know all too well, are adjudicated on the basis of domestic laws.

When people talk about chapter 19 and dispute resolution in NAFTA, what they're really talking about is whether the Americans are applying their own laws correctly. Those who would say, for example, with respect to softwood lumber, that we should fight it out, we should litigate, we should look for endless legal victories, and that will save chapter 19 of NAFTA are really kidding themselves. Because what they're really doing is creating an environment in which a protectionist Congress will simply start to look at its own laws and make adjustments, or pass new laws, and make it much more difficult to win chapter 19 and dispute resolution cases.

That's dispute resolution under NAFTA. It's not pretty, but it's what we have and it's better than nothing.

There are advantages to having NAFTA chapter 19, as I said the last time I was at the committee. It gives us an opportunity to recover duties after we win a dispute. But NAFTA needs some more work; it needs collaboration, and it needs good will among the partners in order to make it a more effective instrument in going forward. That will be a critical priority.

I would also point out that Canada has fallen behind over the last ten years in terms of launching bilateral free trade agreements with other countries. When you look at the United States and Mexico, you're looking at countries that have entered into a multitude of free trade agreements with other countries. The United States has 12 free trade agreements with 18 countries. Mexico has 13 free trade agreements with 43 countries. Australia has been aggressively forging free trade agreements. Canada has really only entered into one free trade agreement in the last five years, and that was with Puerto Rico,

If you believe, as I do, that Canada and our prosperity is going to be fundamentally driven by international trade, we have to re-energize and focus on a successful WTO round. We also have to hedge our bets and look at more aggressive negotiations of bilateral free trade agreements. The free trade agreements of our trading partners are creating advantages for our competitors in third country markets. We cannot sit back and simply allow Canadian companies to be discriminated against as a result of what has become a competitive proliferation of free trade agreements.

Perhaps I'll end on the general issue of competitiveness. People will realize that there's been a lot of talk about productivity performance in Canada in the last few years. Our productivity has not been great. Our competitive position, even though we've had a strong macro economy, has not been very strong and we've been falling behind the United States, not to mention some of the really fast-growing, high-octane economies in the world.

As part of our trade development program in going forward, we're going to have to focus on the nexus between trade and competitiveness. It will mean that we'll have to look at a lot of domestic policy issues running from taxation through to regulation, infrastructure investment, gateway transportation logistical systems, and infrastructure in terms of broadband and access to the information economy. All of those areas of public policy are going to be central to ensuring that Canada's competitive position is strong when going forward.

The bottom line is this. Canada is the most trade-dependant economy of the major industrial economies, which means our trade performance will cause us either more happiness or more pain when going forward, depending on how we do in relation to competitiveness and how we do in relation to evolving trade agreements. It will be a fundamental driver of the Canadian economy, wealth creation, our ability to fund social programs, and our ability to provide the kinds of employment opportunities that our kids and our grandkids are going to aspire to.

Thank you, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Minister.

It was a very good summary of what's happening in your area. It's a bright picture, with some dark clouds and some caution over the horizon.

Before I open it up, I want to comment on the bells. The votes are apparently at ten after. If we don't get information to change that, we should leave at about five after.

I'd like to have as many questions asked of the minister as possible, so we'll go right to the official opposition, followed by the Bloc and the Conservatives.

Mr. LeBlanc, go ahead.

[Dominic LeBlanc, Liberal, Beauséjour, NB]

Thank you, Mr. Chairman.

Thank you, Mr. Minister, again, for making yourself available to the committee. We had a discussion on softwood with you some weeks ago. You came back very quickly on the main estimates—I certainly appreciated that—with your officials, who we also welcome to the committee.

Mr. Chairman, I had two questions for the minister, and if there is some time remaining before we move down, or go to the vote, I know Mr. Maloney also had some questions, or perhaps he'll come to them on the second round.

The previous government had looked at a proposal called CAN-Trade. I know you were familiar with that in your previous capacity. In my understanding—and you would perhaps have more details than I had—it was a proposal for about $470 million over five years to increase the budget of your department, to communicate challenges of new markets to small and medium-sized businesses, to showcase Canada as a potential high-tech joint venture partner and a place in which to invest in order to access NAFTA, to help some of the small and medium-sized businesses break into some of these new and emerging markets, and also to increase the presence of trade commissioners and people who work in your department, who from my experience do phenomenal work in difficult circumstances, in places like China.

One of our colleagues was suggesting increasing from five posts to 25 in China, because there are 53 Chinese cities with over a million people, for example. You would know this, Minister, better than the rest of us. I'm wondering what your department's plan is with respect to the CAN-Trade initiative. Do you see that increased funding on the horizon, and if so, how would you be using that additional money to improve, as I say, what I think is the phenomenal work that your department does at various posts around the country and here in Canada?

I have a second question, and I'll give it to you, Minister, so that you can perhaps answer without my having to interrupt you again. When you were here, we talked about remanufacturers with respect to softwood lumber. You said--and I thought that was very positive--you hoped to perhaps appoint a person who could really address directly the concerns of the remanufacturers. I know that they still have major concerns with respect to the potential softwood deal. I'm wondering if you have appointed somebody who is now in place to work with them on a thing like, for example, a carve-out quota, or some provision so they don't end up getting a haircut inadvertently in some future deal.

Similarly, you had talked about looking at options to get some of the deposit money into the hands of Canadian companies, which I know are in very difficult circumstances, sooner than perhaps the normal mechanism, complicated as it is, might allow. You said your department was looking at options or something, recognizing that perhaps six, nine, or twelve months may not be acceptable. I'm wondering if you have an update on what that might be.

Thank you.

[The Chair, Conservative, Leon Benoit]

MInister, I have to caution you that you're limited to four minutes for a response to keep within the time allotment.

Thank you.

[David Emerson, Conservative, Vancouver Kingsway, BC]

Is that four minutes for all of his questions?

[The Chair, Conservative, Leon Benoit]

Yes, it is.

[David Emerson, Conservative, Vancouver Kingsway, BC]

On CAN-Trade, we are doing a strategic assessment right now. I would say I am, and have been in the past, very positive and supportive of more resources to be put into trade development. That's a combination of International Trade and Foreign Affairs, Export Development Corporation, Canadian Commercial Corporation. We need more boots on the ground and we need more people who understand what the value proposition is to the private sector to have government people providing them with information to open doors for them, to help them identify and execute joint ventures, and all that kind of thing. I'm very supportive of that.

I believe the way we need to approach it, however, is to start with the architecture of our trade agreements. In other words, in the case of China we really do need to make more progress, and we are making good progress on a foreign investment promotion and protection agreement. The architecture needs to be put in place. We're very close to signing a science and technology cooperation agreement with China. Again, we need to create the policy trade investment architecture under which we can then encourage our entrepreneurs and businesses to participate in foreign marketplaces.

The first priority is to focus on the architectural fixes that need to be put in place. We are developing some proposals that will be not dissimilar to CAN-Trade and will be considered by the government going forward. I can assure you that it is something we've got to put our shoulder to.

On the remanufacturers, we have appointed on contract a gentleman by the name of Doug Ketchison. His job is solely to focus on remanufacturer value-added issues and to look at how we can, in the fine-tuning of the agreement going forward, ensure they are treated in the most advantageous way possible. There are complexities, as you perhaps know, because some remanners actually have forest tenures. That creates complications, as you know, because it's the tenure holders who are really the target of this protectionist attack to begin with.

On the matter of deposits, we continue to examine in the context of finalizing the legal detail of an agreement how we might be able to ensure a more rapid payout of deposits than what might otherwise be the case. As you know, if we carry on with litigation it will be years before people see money, or it may be never. We think we can create a basis for an accelerated payment and we're looking at options for doing that.

[The Chair, Conservative, Leon Benoit]

Thank you very much.

Mr. Paquette, for seven minutes. We'll get about five in before we leave and you can have the remaining two after.

[Pierre Paquette, Bloc, Joliette, QC]

Very well then. Thank you.

Thank you, Minister, for joining us. Since we are talking about credits, I'd like to broaden the discussion a little. I too have several questions concerning the softwood lumber agreement negotiations. First, however, I'd like to know two things.

Firstly, the International Policy Statement put forward by the former government contained an international trade component. Does this statement still have some merit, or is the Conservative government planning to formulate a new policy on international affairs, one that, obviously, would have an international trade component? If so, how will parliamentarians be involved in the process?

Secondly, you pointed out that protectionism was on the rise in the United States and that throughout the Western world in general, and I might even venture to say, everywhere in the world, people are wary of globalization and market liberalization. This is evident at the WTO. It's not just the protesters who are leery. I'm talking about countries like Brazil and India that are bucking the strong trend that prevailed several years ago. The notion of a Free Trade Zone of the Americas has been completely dismissed, particularly by MERCOSUR. Even NAFTA is being challenged throughout North America, and in Mexico in particular. People are highly distrustful of the Security and Prosperity Partnership of North America; they do not understand its full implications.

This brings me to the following question: how transparent will government's and the department's ongoing negotiations at the WTO level with Korea and the countries of Central America actually be? Without wanting to point any fingers, we often feel that we're chasing after information. With respect to services, negotiations are again moving forward. I met with Mr. Gero and put the question to him. That's the response he gave me. It's not that he was unwilling to provide me with an answer. I hadn't had the opportunity to put the question to him.

In my opinion, we need to develop a mechanism with parliamentarians and civil society groups, in order to get a clear picture of what's at stake and of the ongoing negotiations.

The CAW is currently campaigning against a free trade agreement with Korea. They are concerned about the automobile sector. Is their concern justified? I can't answer that question, but no doubt this agreement would adversely affect a number of regions, particularly some in southern Ontario, if it lacked transparency and if the concerns of the public were disregarded.

My other question concerns the legislation to implement the framework agreement with the U.S., as you just alluded to. When I put a question to you in the House about this very subject, you also hinted at a notice of ways-and-means motion. Therefore, provided there is still some time remaining, can you talk to me about these two initiatives and what role they will play?

[David Emerson, Conservative, Vancouver Kingsway, BC]

First off, on the international policy statement, it's not my primary mandate to deal with that, other than the trade-related component. I would say this: we are not contemplating any fundamental changes or rethinking. What we're looking at is assessing within that policy statement what our priorities ought to be.

We may look at some adjustments in terms of which countries ought to be in what priority and in relation to what particular type of negotiation, but by and large I would say we are looking at continuity from the international policy statement that was in place before. Any changes, I would think, would be largely incremental, and we would be communicating them with Parliament, through this committee, for example.

I would just also say that with respect to trade negotiations generally, WTO and bilaterals, I'm perfectly willing to have our officials come and give complete briefings, as complete as they can give them subject to the fact that these negotiations are constantly in motion. Things are constantly changing. We are prepared to be as open as we possibly can and make sure that we are not springing anything on Parliament without some buildup of communications.

I think the Conservative government is also committed to a relatively forthcoming involvement of Parliament in international treaties. That, of course, is subject to some better definition, but I understand, as a general matter, our party is committed to an involvement of Parliament in treaties.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Minister.

We'd better go for the vote now; we have about three or four minutes to get there.

Mr. Paquette, you'll have about a minute and a half after the vote—

[Pierre Paquette, Bloc, Joliette, QC]

This is in answer to my question concerning...

[The Chair, Conservative, Leon Benoit]

And we'll carry on as soon as we have three people here, I believe the requirement is, including the questioner.

So let's break for the vote.

[The Chair, Conservative, Leon Benoit]

Let's resume the meeting. The minister has to leave at 5:30, so we will question him until that time.

Monsieur Paquette, you have a minute and a half left, so go ahead.

[Pierre Paquette, Bloc, Joliette, QC]

I think you need to brush up on your French, Mr. Emerson.

I have a question for you. Some time ago, you spoke to us about legislation to implement this export tax. I put a question to you in the House about this very matter and instead, you alluded to a possible notice of ways-and-means motion.

How exactly do you plan to proceed? By way of legislation or by way of a notice of ways-and-means motion, or both?

If you opt for a notice of ways-and-means motion to bring in an export tax, then such a tax would take effect immediately. There would be no need to vote on this initiative right away. Does that mean that even before the actual agreement is finalized, a tax could be in place, obviously, if prices fall below...?

Could you shed some light on the subject for us?

[David Emerson, Conservative, Vancouver Kingsway, BC]

We think that we will probably do both. We would like to get a ways and means motion, at a minimum, in the House before the summer. On legislation, we'll have to see how our negotiations progress and how legislative drafting progresses to see if we can get that done. We believe, and I am advised, that we will need both a ways and means motion and legislation, but I would think ways and means would come first.

[Pierre Paquette, Bloc, Joliette, QC]

If an export tax is brought in by way of a notice of ways-and-means motion, would this tax take effect immediately, assuming the price of lumber falls below the $355 threshold?

[David Emerson, Conservative, Vancouver Kingsway, BC]

That would be my hope. My hope would be that we could get moving to access the deposits as quickly as possible, and put the new framework in place as quickly as possible, but my deputy minister may have a different view.

[Marie-Lucie Morin, Deputy Minister, International Trade, Department of Foreign Affairs and International Trade (International Trade)]

Thank you, Mr. Paquette.

First of all, we need to finalize an agreement with the US. However, the ways-and-means motion takes effect once it has been tabled. That's how it works.

[The Chair, Conservative, Leon Benoit]

Thank you, Monsieur Paquette.

To the Conservatives now, for seven minutes. Mr. Lemieux.

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

Thank you very much, Chair.

Minister, thank you very much for your briefing today.

I have a question that's not on softwood lumber. It's a question to do with the integration of International Trade Canada and Foreign Affairs Canada. As you are aware, these two organizations have basically been acting independently, and our government made an announcement in February 2006 that we would reintegrate these two departments. So just looking at the estimates, I'm wondering what sorts of costs will be associated with the reintegration of the two departments. I'm also wondering if you could enunciate for us the benefits to Canada and trade by re-amalgamating these two departments.

[David Emerson, Conservative, Vancouver Kingsway, BC]

We think the costs of reintegration will run at roughly half a million dollars and that they will be absorbed within existing budgets.

In terms of the benefits, I think the benefit is that we will have a more integrated, more seamless, more informationally efficient face to the world, and feeder system from it, for bringing information back into Canada to serve our various constituencies and stakeholders. The more that foreign affairs and international trade people are interacting, the more informed their decisions and advice are going to be. Generally speaking, I think we will have a much more holistic presentation—though I hate these kinds of words—of Canada abroad, and a more holistic presentation of information back to us, including service to our customers.