International Trade Committee on June 7th, 2006

[The Chair, Conservative, Leon Benoit]

We are now starting our ninth meeting of this committee.

We do have our two witnesses here today--Monsieur Paquette, I'll recognize you in just a minute--and they are Peter Clark and Scott Sinclair. Scott Sinclair is from the Canadian Centre for Policy Alternatives and Peter Clark is from Grey, Clark, Shih and Associates Limited.

Peter, I've heard you speak fairly often recently.

Just before we get to your statements, Monsieur Paquette, do you have something you want to say right now?

[Pierre Paquette, Bloc, Joliette, QC]

Thank you, Mr. Chairman.

We shall hear our witnesses first, but I want to make sure that we will have enough time to discuss the two motions I have sent to the clerk as there will be a vote around 5:45.

[The Chair, Conservative, Leon Benoit]

The vote is at 5:45, bells at 5:30.

[Pierre Paquette, Bloc, Joliette, QC]

A number of us will have to leave at 5:30 and I want to make sure that we will have enough time. So I shall suggest that at 5:15--unfortunately we are already late--we go to those two motions.

[The Chair, Conservative, Leon Benoit]

If we close this session off at 25 minutes after, we should be able to deal with the issues by 25 minutes to, or something like that. Does that sound reasonable?

Mr. Julian.

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

I'd suggest we do one round of seven minutes plus the introductory statements. That would allow enough time for Mr. Paquette's motion.

[The Chair, Conservative, Leon Benoit]

So start to deal with motions at maybe 20 minutes after 5? Okay, we'll try for that. Very good.

Gentlemen, first of all, thank you both very much for coming. Do you both have opening statements? Okay, we'll go with the order on the witness list.

Mr. Sinclair, you have up to 10 minutes; shorter would be preferred. Go ahead.

[Scott Sinclair, Senior Research Fellow, Canadian Centre for Policy Alternatives]

Thank you very much, and thank you for the invitation to appear.

As you heard, this is a decisive year for the Doha negotiations. The expiry of the U.S. fast track negotiating authority in July 2007 sets an effective deadline of the end of this year, at the latest early next year, for wrapping up the talks. While the impasse over agriculture understandably attracts the most attention, services are also a major component of the Doha agenda. In the GATS negotiations, key demandeurs are still pressing for ambitious results, and I'd like to speak to you about some of the implications of that today.

If there is a breakthrough in the agricultural and NAMA negotiations this year, Canada and other countries will be under strong pressure to increase gas coverage and to agree to new rules, currently under negotiation, restricting domestic regulation. In contrast with goods, as Rob Ready alluded to, where the main barriers to international trade are border measures such as tariffs and quotas that are easy to identify and quantifiable, the obstacles to trade in services usually involve more complex issues of national, provincial, and local government regulation.

WTO rules addressing services are fairly recent, since the mid-1990s. They're still largely untested, they're broad in scope, they cover investment in addition to cross-border trade, they apply a tough test of non-discrimination, and they even restrict certain government measures that are non-discriminatory, such as you can't put limits on the number of service providers in committed sectors, and that includes monopolies, like public insurance monopolies and so on.

In my view, Canada should be very cautious about making additional GATS commitments. Canada has commitments today in just over 100 of the 160 service subsectors. Many of the remaining subsectors are among the most sensitive ones. The policy implications even of the existing commitments have not been properly debated. Furthermore, Canada should stop pressuring developing countries into making GATS commitments that many clearly are not comfortable with. That was obvious at Hong Kong. The full policy implications are not understood for them as well.

Developing countries are being pressed hard on a wide range of fronts--environmental services, postal and courier, financial, telecommunications, transportation, distribution, maritime, education, and more. The issues at stake are not mainly about opening markets. Foreign companies, including Canadian companies, already have access to these markets, in most cases, or as much access as foreign companies have, say, to the Canadian market. The issues are really about government measures and policies and the ability of governments to regulate and to shape their own economic development and to take steps to ensure that liberalization benefits their citizens.

I would say that by pressing others too hard, Canada may be even undermining its own interests, and I'll just give a quick example. We joined in one of these plurilateral requests on telecommunications. We were a co-sponsor. Among the demands in that request was that countries allow majority foreign ownership of telecommunications companies, which of course existing Canadian law does not permit. Now, to my mind, either you're applying a double standard or Canada is also a recipient of this request, what's called a deemed recipient. Even though it's sponsoring the request, it's also a recipient of the request. So in a sense, the government's negotiating position is undermining our own domestic law. This is one of the reasons I think parliamentarians need to have a careful look at some of the details of these negotiating positions.

Many Canadians are concerned about the encroachment of these services, trade treaty rules, into public services. The exemptions for public services in the GATS are highly qualified and they are untested in dispute settlement. I can go into that if you want.

There are legitimate concerns that the agreement will lock in commercialization of public services, where they occur, and make it much more difficult to expand services, or to reverse commercialization or privatization, where it occurs. There's an ebb and flow in democratic governments that has to be respected.

The federal government has pledged that it will take no commitments in health, social services, and public education--which would leave open the door to private education--during the current round. It has also, so far, resisted demands to cover audio-visual and culturally related services, pending the negotiation of an international instrument to protect cultural diversity.

To give credit where credit is due, Canada has also pledged and has not made requests of other countries in these sectors, which it would have been free to do. You could make requests even in areas where you're not prepared to make commitments, but they've taken what I think is a good position, a principled position, not to make requests in areas where they're not prepared to make commitments, with the exception of these plurilaterals, which I just referred to.

But few Canadians, and I wonder how many parliamentarians, are aware that Canada already has, in the last round, covered health insurance and automobile insurance under the GATS. Once a country schedules a commitment, the market access rule of the GATS prevents governments at all levels--provincial and federal--from operating monopolies. So the existing system of public health insurance and provincial auto insurance in four provinces was excluded. It was exempted in the 1990s. But for another province, the one I come from--Prince Edward Island--or New Brunswick or others, or if Quebec were to expand its current system, which is a mixed system, that would become a WTO-litigated issue. To me, again, this is a good example of how these treaties have overreached and are infringing on what is the proper domain of elected governments.

Another important area in the current negotiations is for new disciplines on explicitly non-discriminatory domestic regulation. These rules are under negotiation today. Right now, as we speak, there's a commitment to come up with these rules, which would discipline non-discriminatory regulation affecting standards and affecting licensing of services. That could be facilities licensing, if you want to set up a toxic waste dump. It could be professional licensing. Standards could be everything from the quality of an educational service to pipeline safety, things like that. This is very sensitive stuff.

A majority of developing countries, in a very recent development, have come out strongly against the application on the necessity test. That happened at a meeting in early May. The United States has also spoken strongly. But at that meeting, anyway, Canada was silent, and that concerns me. Again, I think there is a role for Parliament in pressing the Canadian government and Canadian negotiators to explain the issues, their position, and why they are not moving now to put an end to what could be rules that we would regret if they're developed.

In closing, because services rules are novel and deal with regulatory issues that go to the heart of democratic decision-making, I believe it's particularly important that parliamentarians, and this committee in particular, play an active role in overseeing these negotiations. I hope you will dig deeper than indisputable claims that services comprise the largest share of developed economies, that services trade is growing strongly, and that Canadian service providers need to be active in the international markets.

All that is true, but Canada and other governments still need to proceed cautiously. The new services trade treaty regime raises many questions about public services, about public interest regulation of private services, and especially in underdeveloped countries and regions, including some regions of Canada, about the role of governments in ensuring that services liberalization benefits the broader community.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Sinclair.

Mr. Clark, you have up to 10 minutes for introductory statements, and then we'll get to questions.

[Peter Clark, President, Grey, Clark, Shih and Associates Limited]

Thank you, Mr. Chairman. I think I'll make a few comments on the negotiations and then go into questions.

From time to time, I send a number of you commentaries on the state of play of the negotiations. I'd like to assure Ms. Guergis that I do believe the WTO is important, and if the reports are negative, they're just accurate reports on the state of play.

I think it's important, and I think that while we should be moving faster towards covering our own position on negotiating bilateral and regional agreements, we can't forget about the WTO. We have to put as much pressure on it as we can to try to reach a reasonable conclusion.

The negotiations about agriculture are stuck. They're also very important for us, because in the Uruguay Round we signed a bit of a blank cheque. We really didn't get paid for it, and our grains and oilseeds sectors are suffering for that now. They're suffering because the European Union and the United States have agricultural policies that are based on subsidizing their grains and oilseeds sectors so that they don't have to subsidize the livestock and other downstream sectors. Unless that sticks, we're going to be in a position where we're continuing to play catch-up, where we're going to be forced to provide emergency support to grains and oilseeds producers if we're going to keep them on the farm.

These subsidies are very important in the United States. There are 800,000 to one million farm families that depend on them. Don't expect them to go away; they're just going to put them in another box. They'll put them in the blue box and they'll put caps on the blue box, but anybody here who has farmed understands that the cap is meaningless, because you have crop rotation anyway and you have only a certain number of products that will benefit.

Decoupling is a myth. We're coming out with a paper on that within the next week or so, talking about how decoupling really is not the answer to avoid production- and trade-distorting subsidies. We have to take a very, very hard look at it, but we have to go to bat for our livestock producers, for our beef producers, for our hog producers, and get them the markets they expected they'd have before.

We were looking at a minimum 5% access. We don't have a minimum 5% access; we have two-tenths of 1% access for pork in the European Union. We don't have an awful lot more in Japan, and the systems are rigged. We have to get into those markets. If we can't sell our grain, we have to upgrade it.

The best way to upgrade it is that you put it through an animal, and you slaughter it and you export meat. If we're not on the same footing as the other people who are doing that, we're going to lose the biggest natural advantage in the world for producing agricultural products that we're sitting on top of because we're not collecting what we should be collecting. If we can't get it through negotiation, I think we're going to have to get it through challenging.

I'm not as concerned about services, because I know from discussions with the government that they're not going to put these sensitive sectors on the trading block. It has been a consistent government position.

There are always suspicions of government. I think this consultation process has been pretty transparent, and people can make their views known. That's why Mr. Sinclair is here today making his views known. He has valid concerns. I'm not as concerned about them, but his concerns are valid.

When we get into NAMA, what nobody is talking about is the 800-pound gorilla that's sitting in the room. The 800-pound gorilla is China. Nobody wants to cut their non-agricultural tariffs with China.

I just got back from China. These 40- and 60-storey skyscrapers are going up in Beijing like mushrooms. The Chinese laugh and say their national bird is the building crane. The place is booming. People are moving there to produce things. Who wants to drop their tariffs for the Chinese to take over?

If Brazil or India is negotiating with you on a tariff, the real beneficiary is probably going to be China. And tariffs you're looking to bring down in many areas, as the Chinese progress in technology, are also going to benefit the Chinese. It doesn't mean that you shouldn't do anything, but you should recognize that there are a lot of people who are happy in Geneva to see the negotiations hung up on agriculture or other issues, because in fact they don't want to move on NAMA.

There's a lot of pressure to go to more formula cuts on NAMA. It's not as big a deal for us because we've already adjusted to the United States. But when you go out there and you see countries where we're trying to get in over 20% and 30% tariffs, trying to cut them by 60%, that's a big cut for them to look at with respect to China, particularly as long as China is benefiting from the same cheap dollar that the United States is by riding on its coattails.

I think if I'm saying anything to you, it's that the WTO is not dead, but if we don't get a fair amount of movement between now and that ministerial meeting in June, effectively it is. I'm not concerned about the trade promotion authority in the United States. The trade promotion authority is only a mechanism for the United States to extract more concessions, because their administration can't carry an agreement without Congress. If the deal is worthwhile, they'll extend the TPA. If they don't like the deal, they won't pass it.

I'm happy to answer any questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Clark.

We'll go to the questioning now, and for the first round, the official opposition, Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

The Doha Round appears to be stalemated. What are the implications if it in fact fails? As the clock ticks down, is there more pressure that we may get a breakthrough? I think Mr. Sinclair made that reference--if we get a breakthrough--but if we don't, what are the implications?

[Peter Clark]

The timing is bad, with elections in a number of places, including the United States, Brazil, and Europe. It might be a better time if you waited a couple of years, but if it does crash, that's going to force people to act.

It does need reforms inside the system. You can't really negotiate with 148 countries. A different way has to be found to do it. It's all the countries with their different interests that are hanging it up, and the developing countries are really, for the first time, playing a very, very significant role. They've gone into groups. They have power. The steering group has changed. There are different interests, and they're going through growing pains. But if the thing does crash, you'd have to reinvent it very, very quickly, because we'd have chaos.

[The Chair, Conservative, Leon Benoit]

Mr. Sinclair, do you have an answer as well?

[Scott Sinclair]

I don't agree that we would have chaos. The WTO treaties would still be in effect. The dispute settlement system would continue to work.

There's a sense of the bicycle theory, that you have to keep ever expanding trade treaty rules, that if the bicycle stops, it will fall over. That dynamic is part of what has pushed trade treaty rules I think beyond their core competency, into more and more of these regulatory issues.

I'd also like to make the point that when this round was launched, whether this was genuine or cynical, it was called the Doha development agenda, as has been referred to. It was a development round. It has become basically just another market access round. I think it's true that a large majority of developing countries are very disappointed and nervous about the direction this has taken, and I think many of them would welcome a hiatus, but they are not in the driver's seat.

It is a slightly enlarged group of big players. It's no longer the Europeans and the United States. Now Brazil and India--and China is taking a quieter role--are the key players who will broker a deal that pretty much everyone else, if they get one, will have to accept.

I don't accept that a hiatus would be a disaster. It might be a blow to the stature of the WTO. It would be disappointing to negotiators. But the system will continue to function.

[John Maloney, Liberal, Welland, ON]

If there is a desire for this hiatus, is this also contributing to the lack of progress in various negotiations?

[Peter Clark]

I would have to say that having been a negotiator and having been in trade policy, you do try to keep these negotiations going, because they provide a discipline on policy-makers. They provide a discipline on domestic industry.

If you don't think we're going to have problems, you should all read Representative English's Trade Law Reform Act of 2006, which he tabled yesterday or is tabling today. That's the type of legislation we're going to see, and that's the type of legislation we don't need in Canada, because it plugs up what they call “all the holes” in the WTO. All those holes are the only things that are saving us from continuous harassment.

I think people are really not looking for the hiatus; it's just very difficult to put together a total single package right now in the political environments we're dealing with.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Maloney.

[John Maloney, Liberal, Welland, ON]

I gather from your remarks, Mr. Clark, that you think there is a linkage between lack of progress on NAMA and lack of progress on agricultural subsidies.

[Peter Clark]

It's a question of where the incentive is. There are a number of groups that have linked issues; for example, the United States and the European Union have made it quite clear they're linking what they're prepared to do on agricultural support to movement on market access and NAMA.

The reluctance to move in NAMA is largely coming from the developing countries at the present time, but overall, there's a very big concern in NAMA that when people got into this, they didn't fully appreciate the competitive pressures that would be coming from China and, to a lesser extent, from some of the new tigers in Asia and South America. But China seems to be on a lot of minds.

If you talk to the negotiators, they say it's one thing to reduce a tariff if you're dealing with Canada or Japan or even with Korea, but reducing the tariffs to deal with China, where they're paid $60 to $80 a month for 60-hour weeks, is a lot more difficult to cope with. That's why you have all of the pressure right now in the WTO, consultations on auto parts and on access to the market, and the concerns being expressed by automotive and auto parts industries around the world about improved access.

[Scott Sinclair]

Just in response to that, I think it's very clear that the United States, and particularly the Europeans, have linked movement in agriculture to movement in NAMA and services. In fact, the Europeans have called for a meeting on services exclusively by a core group of ministers to occur before more ministers come at the end of June. They've made it very clear that they want to be paid in both services and substantial reductions in industrial tariffs for the movement they're going to make in agriculture.

[John Maloney, Liberal, Welland, ON]

Canadian farmers are constantly saying that if there's a level playing field, we can compete—and they particularly target the United States. Was the U.S. offer to start a gradual reduction of tariffs smoke and mirrors or fluff, or do you think there is real substance to it, and will we get to that level playing field some day?

[Peter Clark]

We don't have any tariffs going into the United States; we're in a free trade area. The problem is the domestic support there and in Europe and other areas, which contributes to low world prices, particularly for grains and oilseeds. Until we get that sorted out, our farmers are going to be at a disadvantage, because we're price-takers. We're going to take that price; we can't make the prices. If prices are below the cost of production in Canada and you have to wait six months or nine months or 15 months to get emergency support...whereas farmers in the United States or Europe know what their direct payments are going to be and are in a much different situation. Our people can't plan; they're under continuous stress and frustration.

We have to take a different look at how to do it.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Maloney.

Monsieur Paquette, for seven minutes.

[Pierre Paquette, Bloc, Joliette, QC]

Mr. Chairman, I would like you to signal me when I shall have only two minutes left, because my friend Guy André would also like to ask a question.

Mr. Sinclair, I would like to know what are your thoughts about an issue that doesn't seem to be taken into account at the present time.

Mr. Pettigrew was been very clear when he was minister. He said that health and public education would not be open to negotiations at WTO. However, as concerns private education, he was never able to make a firm commitment. He even said that Canada was an expert in the field of education and training and that it would be nice if we could export that expertise. Considering that there are more and more private schools at least in Quebec, that our universities are mostly private and that Americans might probably be interested, should'nt we stipulate that the whole education sector should not be part of WTO negotiations towards liberalization of services?

A social economy is developing. Let us take, for instance, child care centres in Quebec. They are not private companies in the traditional meaning because they are non-profit. However, they are private inasmuch as they do not offer public services as such. They are autonomous and financed in a large part by the State, but also by users.

When we talk about public services, this sector of the social economy is not taken into account. It worries me a lot because child care services and home care services allowing functionally dependent people to stay at home, for instance, represent a market that will develop enormously in the next few years. Those sectors are not really identified as sensitive.

Have you started to reflect on those issues? Perhaps you already have a few ideas about it.