EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, March 6, 1997

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[English]

The Chairman: We have six distinguished guests this morning. We have Mrs. Van Loon, of course, whom we know very well, from the Canadian Steel Producers Association. Mr. Rivard and Mr. Leduc are from the Dairy Farmers of Canada. Mr. Kinnear is here before us from the Canadian Federation of Agriculture. We have with us from the Canadian Labour Congress senior economist Mr. Jackson. From the Canadian Foundation of the Americas - FOCAL - is Mr. Klepak. Professor Sigler is not here at the moment.

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We will begin. We'll use our usual procedure; we will take presentations in the order in which they are on the order paper. I'd ask you if you could keep it between five and ten minutes; that way we'll have more time for questions, since there are so many of you and there are some important questions which I know will arise during your evidence.

Perhaps we could start with Madam Van Loon and then work down the list.

Ms Jean Van Loon (President, Canadian Steel Producers Association): Good morning.

[Translation]

Thank you for inviting me to appear before you this morning, ladies and gentlemen.

[English]

It's a welcome opportunity to be able to make some positive suggestions instead of reacting with criticism to the things that are on the table.

The Chairman: You say it's critical, Mrs. Van Loon? I always thought they were most objective and helpful remarks.

Ms Van Loon: The most important challenge on the trade side for our industry is to try to make the image of free trade in North America correspond with the reality, or rather to make the reality catch up to the image. We'd appreciate any help you or the government can give us at any time in raising the awareness of U.S. decision-makers and opinion leaders as to why, at least in our industry, it doesn't make sense to have anti-dumping and other barriers within the NAFTA area. It prevents both parties from achieving the full benefits of rationalization within the North American market.

I'd like to take my time this morning to go through some of the business reasons behind that position. Basically, the reality is that Canadian steel trade with the U.S. is unlike Canadian steel trade with anybody else. We have virtually the same customer base, which is rationalized on a North American basis.

If you look at the automotive industry, that's the clearest picture, but you also have service centres, appliance manufacturers, and the packaging industry. Even if you look at industries like construction on oil and gas, if they're not necessarily rationalized on a North American basis they tend to be regional industries where north-south trading patterns make sense. That pattern was accentuated with the FTA and NAFTA so that in some cases you have paving companies that used to supply a given company having to shift to the U.S. instead of Canada in order to continue supplying that company.

The typical shipping pattern for the wide manufacturing base is just-in-time small truckload shipments under a contract. That's very different from the kind of steel trading you have with offshore suppliers. Out of that kind of relationship you have a couple of distinctive features that emerge. The first is that Canada and the U.S. are by far each other's largest steel trading partner. The second is that you have over 500,000 export and import transactions a year in steel. That's over 1,400 a day.

What barriers occur in this unique trading environment? The anti-dumping issue is the biggest barrier. Given the way the industry is organized, normal business practices can result in technical findings of dumping just because the product crosses the border. For example, if you're dealing with quality problems, usually what happens if a steel company has shipped something to a manufacturer and there's a quality problem is they adjust the price. The manufacturer disposes of the steel on a secondary market and the steel company makes up the difference.

If you do that with an export, you're dumping. If you're preparing steel for an automotive die trial, you prepare a specific batch of steel and you send it down. Under the technical requirements of dumping definitions you have to amortize all your overhead under that one little batch, so if you sell it at any kind of a reasonable price you're dumping. What companies have to do, then, is give it and bring it back. So a number of normal business practices get caught up in the technicalities of dumping.

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The volume of steel transactions means that for the NAFTA partners, the normal processes of investigation are more burdensome than for anybody else. If you have a smaller number of large shipload transactions, you don't have nearly as much reporting to do as you would if you had thousands of truckload shipments.

Our preferred approach to dealing with this is to try to get both sides to recognize that this doesn't make sense any more and that we should be working together to tackle the real sources of destabilization in the market, which are from offshore. As people around this table know, we haven't been too successful in achieving that yet.

Anti-dumping is not the only barrier that remains within the NAFTA area. We also have ``Buy America'' policies and customs procedures. I think people around the table are probably familiar with the Buy America requirements, which effectively exclude Canadian steel from a whole host of major construction projects. Customs procedures, you may not be so familiar with, but they are enforced in such an aggressive manner on the U.S. side that they're almost an instrument of protection in themselves.

For example, one of our companies last year had a truck seized and held at the border - it was a just-in-time shipment - because the size of the print that said ``Made in Canada'' on the bar code was one-eighth of an inch smaller than the size of print on the shipping tag that said the customer's name. So to not put the customer at a disadvantage, our member had to pay a fine equal to 10% of the value of the shipment and then protest later to get the truck released. That was last August. There's still no response to the protest.

In another example, a Canadian company was shipping cut-to-length steel. The customs people were cutting two inches off the end for testing.

These are the kinds of barriers that remain. We will continue to work with our counterparts in the U.S., and anyone else in the U.S. we can get to listen to us, to try to build a recognition that, really, we have common problems in the trade area, the steel industries on both sides.

For example, the recent surge of imports from Russia and the Ukraine results from having a whole bunch of steel companies that are not used to dealing with the private market, have lost their big defence market domestically, and are desperate for foreign currency. We're working with our U.S. and Mexican counterparts to try to develop a common set of proposals we can put to the three governments so we can be working hand in hand to deal with our common problems.

We'll also be working with our counterparts to try to identify together what would be some of the conditions we would like to see set for the accession of China and Russia to the WTO.

So the help we would appreciate from the government, given our perspective, would be if it emphasized in government-to-government contracts the importance of removing remaining barriers to trade within NAFTA and provided support and encouragement to common initiatives among the steel industries in the three countries.

Merci,

The Chairman: Thank you very much.

Monsieur Rivard.

[Translation]

Mr. Claude Rivard (President, Fédération des producteurs de lait du Québec, Dairy Farmers of Canada): Thank you, Mr. Chairman. Members of the committee, thank you for inviting the Dairy Farmers of Canada to attend this morning and present their views on trade irritants between Canada and the United States. As is the case in many other sectors of the Canadian agricultural industry, the dairy industry is the subject of repeated attacks from the U.S.

As you know, the dairy industry has just emerged from a trade dispute with the U.S. before the NAFTA Special Panel. In July 1995, the U.S. Foreign Trade representative officially contested the implementation of negotiated tariff equivalents, and asked that an arbitration panel be formed to determine if tariffs implemented in 1995 pursuant to the World Trade Organization General Agreement contravened the North American Free Trade Agreement.

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On December 2, 1996, the Dairy Farmers of Canada and the Canadian Government were very pleased to receive the final and unanimous decision of the Special Panel, made up of five members, including two from the U.S. It declared that the tariffs applied by Canada to products subject to supply management comply with NAFTA provisions. This was a first under Chapter 20, which was being tested in this case.

After 18 months of sustained efforts on the part of Canadian government and the dairy industry, we believed, for a very short time only, that the U.S. would cease harassing Canada and its dairy industry. However, the U.S. is still not satisfied with its access to the Canadian Dairy products market. Scarcely a few hours after the Panel issued its decision, the U.S. was expressing its disappointment and, in a joint statement. U.S. Secretary of Agriculture, Mr. Glickman, and U.S. Trade Representative, Ms Barshefsky, were promising that the U.S. would take the necessary measures, while respecting its trade laws, to eliminate the tariffs.

I would remind you that the goal of tariff equivalent implementation is to provide a level of protection equivalent to the non-tariff barriers they replaced, i.e. import quotas in our case. The Americans want unlimited access to the Canadian market. It must be well understood that within the access commitment negotiated at the GATT, Canada's tariffs on dairy products coming from the U.S. will be reduced to zero in 1998, as provided for in NAFTA.

However, the U.S. is still not satisfied, and continues to spread falsehoods about the special category system. On Monday, February 24, 1997, a Canadian Press article again quoted U.S. trade representative Ms Barshefsky as saying that the U.S. administration could file an official complaint over the Canadian methods of setting milk or egg prices, a complaint that would in all likelihood cite underhanded reduction measures and price fixing applied to those commodities in Canada.

Mr. Chairman, it is essential that the Canadian dairy industry combat these allegations made by the U.S. and not give in to their threats. Special categories are an extension of the system of price classification based on the various markets supply. Canada has been using this approach for many years. It is nothing new.

Dairy farmers supply several markets and prices on those markets are representative of what consumers are prepared to pay. Category 5 pricing gives farmers a means to be competitive with substitute products, for example, margarine. Furthermore, contrary to Ms Barshefsky's statements, this pricing system targets not only export markets, but the domestic market as well. In short, it indeed appears that our competitors are setting the stage to contest our national system of special categories, and it is becoming increasingly likely that this dispute will erupt this year. We hear from our sources in the United States that the case is being prepared at the moment.

The Dairy Farmers of Canada have worked closely with government representatives to develop and implement the special category system. Moreover, those representatives have confirmed to us that the system fully complies with the WTO provisions. We appreciate the efforts made by the government in the fight before the NAFTA Special Panel, but those efforts will prove useless if we do not continue to defend ourselves forcefully.

While Canadian dairy producers have been developing the tools to become more competitive in the new market environment, the U.S. has maintained existing support programs. The 1996 U.S. Farm Bill clearly indicates that the American government has no intention to withdraw from export subsidy programs. The Dairy Export Incentive Program will be maintained until 2001 and the U.S. will continue to invest the maximum amount of dollars allowed under the GATT. In Canada, export subsidy programs in the dairy industry have been eliminated. Furthermore, the direct payment has been reduced by 30% in the last two years and will be eliminated over the next five years, as set out in Mr. Martin's latest budget.

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Mr. Chairman, our industry cannot compete on an equal footing with an American industry that continues to receive significant assistance from its treasury.

There are numerous trade irritants between Canada and the U.S. While they fight to increase their access to the Canadian market, they are keeping in place a series of measures to protect their markets. As you may remember, in 1993, a special group created pursuant to Chapter 18 of the Canada/U.S. Free Trade Agreement at Canada's request, found that the U.S. had cancelled out and compromised the advantages that Canada could reasonably expect to gain from the FTA by closing the Puerto Rican market to UHT milk from Quebec, even while negotiations were being held on the issue of equivalence. The closing of the Puerto Rican market to UHT milk, a market in which we have been active for 20 years, resulted in considerable revenue losses to the Quebec and Canadian dairy industry. At the time, it was estimated that the Beauce region alone, which produces this type of milk, lost $8 million to the United States.

UHT milk imports were prohibited because the milk was not produced in compliance with the U.S. Pasteurized Milk Order (PMO). Like Canada, the U.S. imposed tariff restrictions on their dairy product imports, thus complying with the WTO regulations.

Like the steel industry representatives I will give you an example. The agreement provides for the dairy and the dairy barn to be separated by waterproof walls. This standard has been standard practice in Canada for a long time, and we demand a reciprocity. When our inspectors went to Puerto Rico to see whether equivalent practices were being followed, they found that they were quite simply no walls between the dairy and the dairy barn. That is ridiculous. Thus, under false pretences, an attempt was being made to deny us access to the United States. The U.S. was not implementing this practice.

In addition, they are maintaining several technical barriers to dairy product imports. It should be noted that in order to be exported to the U.S., Canadian dairy products must comply with various legislation and regulations, such as the U.S. Federal Import Milk Act and U.S. milk marketing regulations. In order to comply with this rule, their inspectors had to come and inspect our network or our products ahead of time, both our plants and our farms. In the case of milk for Puerto Rico alone, we had to establish a network of some 175 farms in the Beauce region that had already been inspected and reinspected by American inspectors. We made no such demand before accepting certain dairy products from the U.S.

The 1996 Directory of trade barriers maintained by the U.S. states that:

The application of U.S. technical restrictions on the import of yogurt presents problems for Canadian exporters. Following ambiguous and sometimes contradictory interpretations of the regulations adopted pursuant to the United States Federal Import Milk Act, and the regulation on category A pasteurized milk, several Canadian companies have not been able to obtain the necessary authorization to distribute their yogurt in the United States.

The U.S. also required distribution network permits, even between states, and they are very restrictive.

In conclusion, Mr. Chairman, it is important that the Canadian government continue to support the Canadian dairy industry and its system of managed supply. Canada has a unique structure for managing its dairy sector, while respecting its trade commitments. Our system is being repeatedly attacked by the U.S., the champions of free trade, but who are, in fact, very protectionist. Mr. Chairman, we believe that the U.S. is unjustifiably using the dispute resolution mechanism included in the trade agreements to promote their position on trade with a view of the next round of WTO multilateral negotiations. This attitude is, in the medium term, detrimental to the development of healthy trade relations. Thank you.

The Chairman: Thank you very much, Mr. Rivard. We will come back to you later for questions.

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[English]

Mr. Kinnear, did you wish to add anything?

Mr. Don Kinnear (Trade Policy Representative and Past President, Canadian Federation of Agriculture): Thank you, Mr. Chairman. If I may, I want to introduce Denis Desrosiers from Chicken Farmers of Canada and Gordon Pugh from Prairie Pools. They'll be able to help me answer questions if the members have any.

You have a written copy of our submission in both languages. I'll try to summarize it and respect your timeframe. Our focus has been on the meeting between our Prime Minister and the U.S. President. We don't expect that's going to get into a lot of nitty-gritty details. We've tried to talk mainly about the major concerns we have and the kind of messages that should be conveyed. We have four situations we want to talk about briefly to illustrate the types of problems we have, and we have four basic points that we would suggest might be useful for the Prime Minister to make.

There are appended notes from our members given to us while the brief was being prepared, and also a copy of our trade statement, which was passed at our last annual meeting.

Looking at some of the specifics, the tariff rate quota situation with the U.S. has already been referred to. The U.S. challenge of Canada's tariff rate quota had little or no legal merit. Had the U.S. been willing to accept the ruling of the panel and drop the issue, we might have been able to write off the frustration and cost of going through this lengthy process as the price of establishing a stable trade agreement, but that's not the case. The Americans aren't willing to accept the facts. They say they're going to find some other way to get at us, and it's become bullying tactics.

The situation in the U.S. and political pressure on the government are aggravated by the fact that they don't seem to be telling their private sector groups the facts about the agreements. American groups fully expected that the U.S. would win hands down in the case; they don't understand the rights and obligations.

We've had disputes in the grain sector, considerable problems. The clear intent of CUSTA was to eliminate any restrictions in the movement of grain either way. At the time the agreement was implemented the U.S. had no restrictions, but they still had some rights under the WTO to exercise their section 22 in that area. Canada did have restrictions. Canada agreed to eliminate those and there was a formula determining when that should happen. Canada has lived up to its obligations.

When Canadian exports of wheat to the U.S. increased, the U.S. threatened to impose restrictions on Canadian exports and there was lengthy consultation. After this consultation, Canada reluctantly agreed to a one-year limitation on Canadian exports while a commission looked at the situation. Those limitations are gone. Because of the WTO commitments the U.S. no longer has any legal basis for imposing restrictions on Canadian exports, but once again they're beginning to express concern and they want to consult with us and do something about this.

The exports is not the only part of our grain system that's under attack. They've constantly attacked our Canadian Wheat Board system since we entered into negotiations, and this has gone on since the agreements have been finalized. This is occurring despite the fact that they can't demonstrate or verify anything the wheat board is doing that actually is causing problems. They haven't been able to demonstrate any way in which the wheat board's actions violate any of our commitments in either bilateral or international trade agreements, because it isn't true.

Here again, the situation is compounded by apparent lack of understanding of the U.S.'s rights and obligations under their trade agreement.

Regarding sugar, I have already talked to some members of your committee in our presentation on the SIMA legislation. Here the U.S. has retained substantial rights in the WTO agreement and they aren't modified significantly by NAFTA. The U.S. used those rights to close off an export market we had to a high degree for sugar and products containing sugar during last year.

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The U.S. has made significant increases in their exports of sugar to Canada. They have the continuing right, because of what we think is a bad fluke in NAFTA, to use their re-export program for refined sugar. Under NAFTA they are obliged - or were obliged - to discontinue the use of their re-export program for sugar-containing products as of the beginning of last year. In fact, they have not done that. It's a matter that Canada is going to have to try to address in a more formal way.

It's a situation where the U.S. thinks they can have their cake and eat it too. They're quite prepared to exercise their rights and put limitations, when they have those rights, if it's in their interests. But if they don't think it's in their interests, they aren't willing to honour the spirit of the agreement. They should have respected our historic level of access when they imposed those quotas. They did not. They aren't willing, apparently, to respect their specific obligations on the agreement, because they haven't eliminated the use of their re-export program on sugar.

Horticulture is a very diverse sector with a lot of small groups, but it's probably a good example of the little things that can drive you crazy. Jean Van Loon referred to some of them, although to them, I'm sure, they're not little. It relates to regulations, standards and procedures at the border.

The problems of horticultural exporters aren't as dramatic, perhaps, or as apparent as what's happening in relation to TRQs or grain, but the effects are just as severe. It's compounded by the fact that the horticultural exporters are dealing with very highly perishable products. Any delay is a major problem.

When you're dealing with small sectoral groups, just the cost of resisting U.S. action, whether it be trade remedy or other procedures, may be prohibitive for the groups to deal with. It illustrates that if you want to think about what's necessary to make the agreements work, you have to deal with the little details as well as the big question.

Before I get to our basic message I have one more observation about the climate in the U.S. I think it's fair to say that Canadian farm leaders in general have a good understanding of our rights and obligations under trade agreements. We don't always agree with them, but at least we try to understand what we're committed to in Canada. It gets frustrating at times, but we have a relatively open and honest dialogue with our government. We try not to ease the pain of the reality by accepting illusions. It isn't constructive.

This doesn't appear to be the climate in the United States. I think the basic point is that successful implementation of a new trading relationship requires more than technical things and adherence to regulations. It requires some education so that the countries understand what they're doing and are willing to make the process work.

There are four basic messages, Mr. Chair, that we believe should be conveyed to the U.S.

One, CUSTA and NAFTA have improved trading opportunities for both countries. It's in the interests of both countries to act in a manner that will ensure the long-term success of the agreements.

Two, an essential ingredient for that success is acceptance and compliance with the existing provisions and commitments of NAFTA. Ad hoc horse-trading will not resolve problems. Canada will not relinquish rights related to one sector in order to reduce conflicts over trade in another sector. Future amendments or additions may be useful, but first we must have confidence that the U.S. will respect their existing commitments.

Three, both governments must take steps to ensure that their domestic interest groups understand the rights and obligations under NAFTA. The potential for conflicts is greatly increased if there is misinformation or misunderstanding regarding what can or can't be done under the agreement. There may be some joint processes that could facilitate understanding. Prairie Pools made some reference to that.

Finally, the commitment to harmonize procedures, standards and regulations is an important part of NAFTA. Both governments should maximize their efforts in this area.

Thank you, Mr. Chairman.

The Chairman: Thank you very much, Mr. Kinnear.

Mr. Jackson, sir.

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Mr. Andrew Jackson (Senior Economist, Canadian Labour Congress): Thank you very much for the opportunity to appear here today. I want to give a somewhat broader view of the impact of the Canada-U.S. trade agreements on working people, and one recommendation that flows out of that.

I certainly don't have time to speak to it, but I would draw members' attention to a major report the CLC did recently on impacts of economic integration on workers in Canada, the U.S. and Mexico. We received support from Human Resources Development Canada to do this report. Certainly, the Canadian chapter gives quite an extended overview of impacts of the FTA and the costs and benefits of that. I'd be pleased to send copies of that to members.

I want to speak briefly to a short presentation I did last weekend in Dallas. It was actually the first seminar organized by the Commission for Labour Cooperation, set up by the NAFTA side deal on labour to look at the whole issue of productivity and wages. I think that was an important event. As I say, it was really the first event organized directly by the commission itself, which is a new institution that's beginning to seek a role.

To recap very briefly, if we go back to the arguments for the free trade agreement, the basic argument was that economic integration would lead to increased trade both ways. That would lead to restructuring and specialization on both sides of the trading relationship. That in turn would lead to higher productivity in the affected sector, which would in turn feed through into higher incomes. That would result in an expanded market and new jobs being created. I think that's the essential basis of the win-win outcomes.

Our basic argument was always that this model had some underlying assumptions that were not particularly well founded, to say the least, such as full employment on both sides of the border and mobility of capital flows.

Really, our basic argument on both the FTA and NAFTA was that with competitive pressures, and given significant differences in labour standards and trade union organization on both sides of the border, there was a very real threat of downward harmonization and downward pressure on wages in Canada as well as prospects for job losses.

I want to flag what came out of the seminar in Dallas. There were presentations there by a number of academics. Daniel Treflen, from the University of Toronto, was the major Canadian academic involved. What we've seen - and this is quite striking in both the U.S. and Canada, and Mexico, for that matter - is that the first part of that scenario really has been true. As these agreements have been implemented we have seen very significant increases in two-way trade and very significant productivity increases in the most-affected sectors.

As a subtext to that, I would say that part of this productivity increase does translate into job losses. What we haven't seen - and this is true of the U.S., Canada and Mexico - is that those productivity increases have not flowed through into real wage increases for workers, even in the affected sectors.

I draw your attention to the graph on page 5. It looks at the relationship between wages and productivity in manufacturing in Canada over a very long period, back to the early 1960s. There's more detail in the text.

I think what you observe there is that from the late 1980s there has been a significant pick-up in productivity growth in the Canadian manufacturing sector, which I think in significant part you can attribute to the free trade agreement. You'll notice, though, that the real wage has barely picked up. In other words, we've had significant growth in productivity but very limited growth in wages as a result.

Professor Treflen, who was at the same seminar, went into this issue as well. He drew a picture where industries in Canada that had high tariff protection before the agreement by and large restructured with very significant job losses. Many quite simply went out of business.

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He found a great deal of the impacts of the agreement were on industries that had some level of tariff protection before but not a very high level. He found in those industries very significant productivity gains, efficiency gains, and some job losses. He calculates 130,000 lost jobs from the FTA itself through to 1996, separating out other factors. As well, as I said, workers in those sectors where there have been productivity gains have in fact seen their real wages stagnate and fall.

To put it bluntly, from the point of view of working people, the losers were the ones who lost their jobs and the winners are the ones who have kept their jobs but haven't seen any benefits on the wage side, which is not a particularly comforting outcome, to say the least.

I would add - and I think this is an interesting development - that when you look at the productivity and wage data there certainly is evidence of significant pick-up in productivity growth in Canada under the agreement. What is also unclear and somewhat disturbing is that there still remains a very significant gap between productivity growth in the U.S. and in Canada.

Just to throw one number at you, between 1992 and 1995 - this is U.S. Bureau of Labour Statistics data - productivity, meaning output per hour, in the manufacturing sector went up by 11.9% in the U.S. compared with 7.2% in Canada. So 7.2% for us was a relatively good performance compared with the early 1980s and previously, but it still fell short of the U.S. Real wages in both Canada and the U.S. fell by 0.5%, again over that same period.

I guess one conclusion that could and should be drawn from that set of figures, and I think is worth underlining, is that the very strong export growth we have seen into the U.S. in recent years, which obviously has lain behind much of the growth in our economy, has in fact been based on the depreciation of the dollar from the level it was at in the late 1980s. To this point, it's very unclear, to say the least, whether the free trade agreement has closed that productivity growth gap between Canada and the U.S. So that's disturbing.

What I'd like to tease out of that is that I think to a large extent, although I certainly wouldn't say to an absolute extent, this process of integration is irreversible. If we look to the steel industry it would be extremely problematic to in any sense return to more production for the domestic market, rolling back exports. I think we could and should consider certain changes to the agreement, but this high level of integration that's being driven by trade is there to stay.

In that context, the numbers I'm pointing to do suggest - and I think this is especially the case when you bring Mexico into the equation - that there is, as we have always argued, a very significant problem caused by the fact that we have rapid economic integration on the real economy side but very different levels of underlying labour standards still in the three countries. The unionization rate in Canada in the private sector and in manufacturing is approximately double that in the U.S. I would argue that our labour laws, while we have problems with them in many respects in and many provinces, are much more supportive of collective bargaining than are U.S. laws, particularly in U.S. right-to-work states.

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There's a whole set of issues with Mexico involving respect for basic labour rights. Employment standards in the U.S. generally remain significantly below those in Canada. I think what we have seen is that as this works itself out, it does result in a significant increase in the bargaining power of employers vis-à-vis workers. That shows up in this wide and growing gap between wages and productivity.

We do have a side deal in place around labour standards under the NAFTA agreements. I guess in many ways that's beginning to develop some institutional presence. What I would say is that it's certainly our position that this side deal remains weak and ineffective. It's essentially premised on making sure that each country observes and lives up to its own domestic laws, but what the side agreement does not do is specify that each country should live up to a commonly agreed upon set of labour rights and standards.

Certainly when it came to the inclusion of Chile in NAFTA, it was our very strong view that with Chile it would have been possible to have gone significantly beyond the existing side deal in that direction. We reached an agreement between ourselves and the trade union movements in Chile on the importance of doing that. This certainly isn't an issue of protectionism for Canadian workers where workers in other countries don't share that.

What I want to put on the table is that the side deal exists but it's subject to change. From our point of view, when it comes to discussions with the United States on strengthening the side agreements and moving strongly in the direction of really specified mutual obligations to observe labour rights, a core set of labour standards as articulated in the core standards of the International Labour Organization should be on the table and should be very much part of the continuing trade policy agenda.

The Chairman: Thank you very much, Mr. Jackson. That was a very thoughtful presentation.

The next speaker is Mr. Klepak from FOCAL.

[Translation]

Mr. Hal Klepak (Director of Security and Governance programs, Canadian Foundation for the Americas): Thank you, Mr. Chairman.

[English]

I suppose my subject should begin with something like ``And now for something entirely different''. I will be talking about the geopolitics of the Canadian relationship with the Americas and hoping to make some sense as a sequence to what has already been said.

I must say that I'm a little reminded of Mr. Gandhi's famous interview with the.AAC as I listen to everyone and then imagine what I might say to add. When one talks about Latin America, it's a very wide business and it has many ramifications. The differences between Honduras and Argentina are really quite remarkable. When Gandhi was asked by a correspondent for the.AAC in 1947 what he thought about western civilization, he is reported to have replied, ``I think it would be an excellent idea.''. Sometimes I think our expression ``Latin America'' is rather like that. It would be an excellent thing to think that it's all one spot, but in fact it doesn't help us very much because it is very much not one.

I've been asked to speak about geopolitics, and it's always rather fun to do so to a Canadian audience because as most of you know, we have sometimes been told we're in a Polish situation or even worse in this rather odd geographical situation in which we find ourselves, not particularly favourable in historic terms.

In the context of my remarks, I would like to remind us first, Mr. Chairman, that in fact we've been remarkably good at dealing with this poor geopolitical situation. Geopoliticians say that what they do is talk about the one thing that's constant in politics, and that's geography. Leaving the Netherlands aside, I suppose that's quite true. Geography doesn't change very much, although obviously it changes more in our century than it has in many others. I think it's useful in these very changing times to keep a view of geography to the fore.

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My own view is that the political side of geopolitics, which is what we're really talking about here and what I think the speakers before me have emphasized not necessarily explicitly but certainly implicitly, is asymmetries. We live in a continent and a hemisphere of remarkable and dramatic asymmetries. Asymmetries are always difficult to get around, and perhaps similarities of size are as important as any other similarities one can have in life.

Of course, we have had great allies in dealing with the asymmetries of our own situation, our relations with the United States, this giant neighbour. We have historically had the French fact and francophonie and the particular context, which has acted as a bulwark to any possibility of excess assimilation, if I can call it that. We've also had the British fact, which was acting as a very powerful counterpoise to the asymmetries I'm referring to.

We've had policies since 1867 which until quite recently aimed very much at avoiding Mr. Pearson's famous fear of a pale copy developing north of the border of what was in the south. That is all to the good, of course, and all of these have been reinforced by an absolute adoration of things multilateral. When you're small and there's someone very big close by, it's awfully nice to find a lot of other little equivalents or similarities to come along and help you out.

If I may, I'd like to switch to French for a few moments.

[Translation]

The problem at the moment is that there are some absolutely tremendous changes under way as regards the asymmetries of powers. On the one hand, there has been a revolution in the relations we have built with the United States. We have abandoned the third option put forward by a number of successive governments, because it has become impossible. Even though almost everyone in Canada agreed in the 1970s, we abandoned the idea of a third option, that of distancing ourselves further from the United States. That was praiseworthy and something we could strive for, but in the 1980s we recognized that it was a dream, that it simply was no longer possible. Obviously, if we had this view in the 1980s it is even more striking in the 1990s, when we talk about a world completely dominated by the United States in a number of regards. If the world is dominated by the United States, logically, North America or even America generally is dominated by this country.

As a number of observers have pointed out, Mexico and Canada combined produce a little less than 11% of the NAFTA total gross product. So how can Canada deal with the United States in negotiations? It is rather difficult to find a strong position.

As Thucydide said 2500 years ago, in dealing between large and small states, the large fish decide what happens, and the small fish suffer the consequences of their decisions. I don't think there is anything special about that. Clearly, in the current context, all the states in North and South America without exception are trying to react and to find their own space, given the situation.

Curiously, our tradition of multilateralism is winning many supporters in the hemisphere. I think it is based on something quite logical. I will now switch back to English, if I may.

[English]

Of course, that logical sequence of thought would lead us to something called a rules-based system. I know everyone around this table hears about this until they're quite tired, but I think it's absolutely natural that small states should look to rules. Large states can depend on whim because they have the capability of making their whims count, but smaller states have great difficulty with this simply because they are small.

In the Americas, I think - and I'm coming to the question of the Prime Minister's meeting - what has been striking about the post-Cold-War world is that to some extent Canada has found itself very lucky. That is, the evolution of United States policy has meant that, rather to our surprise, our traditional disagreements with the United States on many issues in the Americas have become reduced - disagreements on the subjects of democracy, civil-military relations, human rights, the role of an inter-American system, etc.

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The United States is much more in line with our thoughts of a number of years ago now that they have the luxury of having a Cold War behind them. I think we disagree with the United States less and share more and see more of a reflection of our shared values now than we had been able to do in the past, and this is very comfortable.

On the other hand, there are of course a number of disagreements. On the subject of the Prime Minister's meeting, I think it's important that we remember that elements like Helms-Burton are really extremely unhelpful and send a dreadful message of what the thinking in Washington is about the kind of Americas hemisphere we want, and of course the kind of international system we want. I hope it will be possible to make it so that Helms-Burton is not just Canada, and I'm sure that will be on the table. It's not really about Cuba. It's about a legal system we can all work in and where the small can find a place and retain some degree of independence.

I hope it will be possible also to say that in the Americas we have been very useful to the Americans, if I may put it like that, and that even very close to Cuba, in Haiti, the Canadian role has been, if not essential, very close to it.

In terms of American domestic political issues regarding immigration, etc., Canada has done - or the Canadian forces have done, in my view - an absolutely splendid job of getting an extremely difficult situation under wraps for some time at least. We'll see what kind of results we have in the long run. Although one could find many examples in the Americas, I hope those two emphasize the fact that we can all work together and do really rather well as long as we keep in mind that rules-based orders are really not so bad after all.

It is troubling that NAFTA has been stalled. I think the message that leaves when one adds issues likes Helms-Burton is a very negative and unfortunate one.

I would conclude my remarks by suggesting that I think unilateralism is the enemy. Whether it's on the trade side or whether it's on so many other sides, it's the instinct to act by oneself. If one is large, that isn't surprising. Of course, it seems to be much more efficient and much more rapid and clear-cut and indeed probably even wins votes on occasion.

Unilateralism expresses something. Unfortunately, American speeches are at the moment absolutely chock-a-block with references to the need to act multilaterally and to get the team together to deal with problems. Phrases like ``Common problems must be addressed with common solutions'' are part and parcel of the Washington monologue at the moment. The reality is that of course that doesn't necessarily convert from drugs across the board to human rights or democracy, crime, international crime, or, needless to say, economic issues of integration and the rest. This is very unfortunate because it leads to doubts about the reality of the desire in Washington to see this.

I think extra-territoriality and Helms-Burton are clearly symptoms of this. High-handedness, more generally, seems to me to me to be a symptom of this, but I think the actual disease is unilateralism and should be seen as that. One should point out that in fact if everybody does get together on drugs, it is remarkably more efficient than it is to have one state simply stating things. The same thing occurs on crime, economy, and the rest.

Of course, as good cynics you will no doubt respond that yes, we've said this to them before. I think there's no doubt that's the case and it would be a very good criticism of what I've just said. I simply hope that if we keep hammering away at it in this absolutely essential moment where issues of unilateralism are on so many tables in Washington, we can somehow keep ringing the bell that there are prices to be paid for unilateralism and that they are probably higher for the United States than the prices of a little more cooperation on the multilateral level.

Thank you very much, Mr. Chairman.

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The Chairman: Thank you, Mr. Klepak.

Professor Sigler isn't here, so we'll go right into questions. Before we do I'd just like to say something to Mr. Klepak about FOCAL. You invite us to your conferences and we appreciate those invitations. Speaking for myself, I'm sorry I can't go to more of them. They're very helpful and I'm glad you're able to be with us today. We appreciate it. Keep the invitations coming anyway.

Mr. Paré.

[Translation]

Mr. Paré (Louis-Hébert): Albert Jacquard said that reason of the strongest is the law of the market place. Several centuries ago, Mr. de La Fontaine said that the reason of the strongest is always the best. This morning it seems to me that we are hearing exactly those views.

My comment will be very hypothetical, because I will be undoing history. That is not always an easy task. If we had known that the GATT negotiations would result in the creation of the TWO, would we have signed the NAFTA?

Second, is it possible that the United States are trying to use NAFTA to avoid the effects of the GATT agreement?

Third, since we know that the reason of the strongest is always the best, would it not have been to Canada's advantage to sign bilateral agreements with all the American states except the United States?

[English]

The Chairman: It reminds of the adage that great powers to do what they can and small powers do what they must. Mr. Paré has thrown out quite a challenge. Who would like to pick it up first?

Mr. Jackson. Is this going to be an economist answer or a political answer?

Mr. Jackson: Basically, what struck me in listening to my colleagues was that it sort of jibes with my basic perception. I think the underlying reality is that what was really supposed to come out of the free trade agreement was protection from U.S. protectionism. It was supposed to be a rule-based system that would place us on the same playing field in the American market. The obvious message that comes out of all the sectors is that, to say the least, that result is extremely problematic. When the U.S. chooses to manage trade in its own interests and subject to domestic pressures, they continue to do so.

I would certainly agree with the observation that those actions by the U.S. probably are best curbed in a multilateral rather than a bilateral context. We said that small states' interests are best served in those wider fora.

The other observation I'd make is that in some respects, many of which I certainly don't like, NAFTA was something of a prototype for the GATT-WTO agreement. Seen from a certain perspective, the U.S. managed to get a lot of what it wanted, like intellectual property rights, for example, or the patent drug issue. In NAFTA first and then in the WTO it was....

To some extent, I think from the U.S. point of view they like the smaller agreements because they create precedents for the larger ones. A current example of that is the multilateral investment agreement that's being negotiated through the OECD, I think very much with the intent of trying to get an agreement with a small group of countries to create a precedent for getting it in the WTO.

The Chairman: Mr. Kinnear.

Mr. Kinnear: I'll try to be brief. I've never asked this question of the members I represent, but I would make some observations.

We think the WTO is essential to a country like Canada and it has to be the foundation for our trade policy. NAFTA is not a substitute for the WTO or vice versa; it's designed to accomplish something somewhat different. I don't think our government would ever have thought that if you had one you didn't have to have the other. I suspect my members would have that view now also.

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The idea of having bilateral agreements with everybody but your largest single trading partner isn't very attractive at all. Certain things should be done in the WTO. It's the only forum where we have the leverage to address it, admittedly. There's no time to go into those details.

To the extent it's possible, it's better to deal with a larger, more multilateral group, but we now have bilaterals, or limited regional agreements, because that's the only forum where we can do certain things. You have to do it in balance but you can't not do one thing because you're doing something else.

The Chairman: Right.

Ms Van Loon, tell us where the steel industry would be if we just had the WTO and not NAFTA. Would you or wouldn't you be just as far ahead? I think that's Mr. Paré's question.

Ms Van Loon: I would like to reinforce the point Don Kinnear made that like it or not, the U.S. is our biggest trading partner. Given the nature of our industry, that relationship for geographic reasons will continue to be the most important one. So for us it's valuable to have that bilateral or trilateral forum where you can discuss things in more depth and maybe take steps a little ahead of where you can in the multilateral forum.

Yes, I think there were some improvements in the trade remedies area made in the multilateral forum that probably couldn't have been made in the NAFTA forum. But even so, here and there some agreements struck in NAFTA are very helpful, and are not available through WTO. For example, some improvement in product marking requirements was gained under NAFTA. It's no longer essential to destroy your product to meet the marking requirements.

There's still a way to go, but there is some merit in having a different forum for your closest trading partner.

The Chairman: Monsieur Rivard.

[Translation]

Mr. Rivard: The question is very broad. I would say that Canada had no choice but to sign the agreements. We can look at the situation from a different vantage point. Under NAFTA, with its dispute settlement panels, the Americans are for once bound a little more than they were by other panels in the past. We need look only at the recent examples in the area of hogs and dairy products. The Americans are bound by the fact that there are arbitrators on the panel. For example, there were two Americans on the NAFTA panel on dairy products, and unanimously... Politically, our approach may be strengthened when the agreements are positive for us or when the panels make favourable decisions.

The other interesting fact is that in various sectors, including ours, when we entered into bilateral agreements, whether with Mexico, Chile or Israel, we reintroduced the provisions contained in the bilateral agreements with the Americans. I don't know whether this is positive for all sectors, but it may be for ours. When we negotiated practices with the Americans, they were reintroduced in the agreements with the other countries. When such provisions are favourable for our sectors, that is an advantage.

Mr. Klepak: Under the fourth Republic in France it was said that where there were five Frenchmen, there were six political parties. Later, it was said that five economists would have six different opinions.

I don't know whether I have anything to add to the comments made by the other panellists, but I do think that protectionism is the key factor. We were in a situation in which this was such a huge danger that something absolutely had to be done. As to what was going to happen in the GATT case, that is another matter. The range of choices opened to Canada at the time was rather limited. The timing was important.

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I fully agree that there are some good sides to the trade agreements. We should not always forget about the bilateral aspect either. There are situations in which the fact that Canada is seen differently from the rest of the Americas plays in our favour in Washington.

I would be very displeased or even frightened if Canada were to be transferred to the Americas division in the US State Department. We are seen as a European country. We are part of the European division for historic, cultural and other reasons. If we were transferred to the Americas' division, that would reflect a change in the American approach that would not be necessarily favourable to us. The United States see Latin American countries very differently from us. I think therefore that the bilateral side can be helpful. My only concern is that, increasingly, the Americans want NAFTA to have a political and even military aspect, and this could have a harmful impact on our independence. I think we have to be on our guard in this area, as are the Mexicans.

[English]

The Chairman: Just so that we clearly understand, your position is that currently in the U.S. State Department we fall within their European desk, or the director general system, if I can put it that way, rather than the American system.

In your view, if we were ever to be put in the America section, because of the historical notion in the United States of the way in which they have considered relations with Latin American states, the officials there might inherit some bad habits, going back to the famous Monroe doctrine. We might suddenly find the Monroe doctrine applying not only in Helms-Burton terms but also in other terms.

Does that summarize your view?

Mr. Klepak: That's certainly the way I would view it. I don't think there's a desperate rush in the state department to make the changes, and I'm very pleased that it should be that way. So in those areas the bilateral has served us well, at least compared with how it's served others in this hemisphere.

The Chairman: I want to move to our other questioners, but you might tell us sometime how they have a coherent view of the NAFTA if they have Mexico in the Latin American section.

Mr. Mills.

Mr. Mills (Red Deer): I guess that follows on to the question I thought of when Mr. Klepak made some of his comments.

I'd like to know what you think is the future of the OAS. Obviously the Americans are quite happy with the organization as long as they're the centre of the hub, but they probably won't be very happy if it becomes one of 33 equal states. I wonder if you see that changing, and how that might relate to trade.

As well, you said there was a price to be paid for unilateralism. I wonder what you see as the price that will be paid.

Mr. Klepak: A tall order. I'll do my best.

Joel Sokolsky, a colleague at Queen's, across the river from the Royal Military College, where I teach some of the time, says the American view of multilateralism is that it exists so that when there's a problem, you round up the posse under their leadership and go after this unfortunate and unpleasant person who has broken the peace or disagreed with you. The Canadian and Latin American perspective of multilateralism is that you use it as a way of tying down the sheriff from getting excessively excited and also defining himself what the criminal act is and how the criminal should be treated. I think that's probably not inaccurate on many scores in the OAS.

The United States' perception since the pan-American union - a century and eight years now - has been that's this is what it's there for, as a means to round up the posse. The other members of this potential posse have seen it as a way of tying down the sheriff.

I think we have tended to be among the Latin Americans in this. As the OAS becomes more active, including the trade area, because the Miami summit specifically gave - and Canada was active in pushing this - to the OAS the role of developing the future frameworks and ideas about how to proceed, needless to say it's been somewhat rancorous at moments since late 1994. Of course, Washington wishes to use those asymmetries to good effect, and 32 other people out there in the hall can make quite a significant block in opposition. I think it will still be playing out for some while.

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In terms of what I meant by ``price'', perhaps I can use the example of drugs. The United States has for all sorts of reasons taken stands on the drug situation and made circumstances of certification, decertification and all the long litany of issues seem to be active, seemingly making progress from a domestic perspective. In fact, of course, these very much unilateral policies have had the tendency to simply stop cooperation from the southern partners. There is, yes, we have to go to the meetings, and, yes, we have to make the right noises, but in terms of real collaboration in dealing with the problem there's been very little progress.

My own view is that effectively having brought people on board earlier on, one might actually have got a good deal more collaboration at the multilateral level. We're not going to get rid of drugs easily. I'm not suggesting that. But I think we could have made more progress than we have been able to in the confrontational arrangements that have been the mark of the last 15 years. I think that plays out in other fields as well.

That's the price I meant.

The Chairman: Mr. Penson.

Mr. Penson (Peace River): Mr. Klepak, you talked about the importance of having a rules-based order in the United States, such as NAFTA and the World Trade Organization. But aren't they in fact just paying lip service to a lot of this?

We've seen that in order to try to get access to the American market for our softwood lumber we've had to accept something less than what we're entitled to, export caps, which really flies in the face of free trade.

Again, on Helms-Burton, they're saying they're going to boycott that process. I guess I'm kind of cynical, but it seems to me an argument could be made that suggests that they're just using that forum to further their own ends, and they have no intent of complying with international rules when it doesn't suit them.

I wonder if you could comment on that.

Mr. Klepak: I think cynicism at my age is almost anchored by now, and I probably have a good deal of good feelings about what you've just said.

I don't think we want to go too far, though, with a sort of thèse de complot. I really think there are major elements within the American system within the State Department - and sometimes, rather oddly, within the Pentagon - that realize the advantages of a cooperative scheme of things and understand very well that one can't act entirely independently in the world, that things like the Persian Gulf War and other really quite amazing successes are so extraordinary because one has actually been able to get people on board.

I'm not sure everyone goes out in this way. Probably, though, domestic politics being what it is in the United States, in the struggle among the different interests in Washington that kind of thinking you're referring to eventually takes over and silences what we might consider more sound and cooler heads, and we get some of this remarkable behaviour.

But I don't think every key interest group in the United States is completely blind to the advantages. I just think sometimes on major issues it tends to seem that way, which sort of depresses us. Any rules-based order - and I think this was referred to a couple times - that has some ability to come to a bargaining arrangement and to some kind of arbitration and some kind of judgmental structures seem to me better than a free-for-all.

I hope nothing I have said would suggest that I'm against those things. I think they're very necessary. But we mustn't expect that they'll solve everything.

Mr. Penson: You've also suggested that the United States has moved a long way in the last while. I'm wondering, though, if Canada hasn't moved quite a way towards their values or thinking, which makes it almost appear as though we're on the same track, but they've moved.

I'm thinking of our reduction in tariffs. Our policy used to be more self-contained, and put up tariff walls. We've certainly done a pretty big shift ourselves. It seems to me we've made the major move, not them.

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Mr. Klepak: Yes, I think there are elements of that. I think one can see a real sea change in Canada. This is not the same country it was ten years ago by any stretch of the imagination, and your example is a good one.

I suppose what I was really referring to was the idea that if you take the Cold War years or the years before that, you had a highly interventionist U.S. government that was perfectly prepared to sacrifice human rights, democracy, and things like that to the larger goal of containing communism and of smashing reform - and never mind rebellion - in the hemisphere, really. Needless to say, Canada would find itself in a dramatically different position when looking at the same problem - as we saw over Central America, as we saw over Cuba, as we saw over Grenada and so many other issues.

So I suppose I was a little bit more focused on the political point, but I think your view on the economic side is pretty bang-on.

The Chairman: Thank you.

[Translation]

Would you like to add something, Mr. Rivard?

Mr. Rivard: Yes, I would have one comment. The last question referred to shifts. It is true that Canada's policy is evolving, but I will give you an example where we need to be careful in our sector.

Under the WTO rules, it was agreed that all countries would be given minimum tariff-free access. When the agreement was signed, access was given to Canada in our sector on the basis of Canadian consumption, which, in 1996 was 4.28, whereas the figure in the US was 1.86. By the end of the period, in the year 2000, Canada should be at 4.71, while the US should be at 2.17. So we are moving much more quickly than the Americans. Perhaps got on the track too quickly; perhaps we need to adjust our cruising speed. Otherwise, we are providing access to our market, without getting reciprocity. Thank you.

[English]

The Chairman: Madam Bakopanos.

Mrs. Bakopanos (Saint-Denis): Thank you, Mr. Chairman.

I don't know where to begin. I found the outlook from our witnesses to generally be very pessimistic. That's what I'd say from the perspective of someone who knows nothing about agriculture, except when it comes to having an egg a day. I want to continue to be fed by made-in-Canada products.

My question is to Mr. Kinnear. If there is no respect from the U.S. for its obligations and its responsibilities towards Canada, why are you promoting that we set up other structures? In other words, you mention in your written brief that you would support a bilateral, cross-border commission or early warning system. I mean, if they're not going to respect what is already there, why do you want to set up other structures?

That is my first question; I have two more, Mr. Chairman.

The Chairman: Don't get into the problem of the chicken and the egg and which came first. This committee has a lot of trouble with that problem.

Some hon. members: Oh, oh!

Mr. Kinnear: The problem is that everything is relative. If you read our brief, we didn't say that it's a bad relationship. Your focus is on -

Mrs. Bakopanos: I said it's pessimistic, I didn't say it was bad.

Mr. Kinnear: No, it's not a pessimistic one. I just think it's realistic. If you look at the trade stats in agriculture with the United States - and it's even more dramatic when you factor in 1996, which we have not yet done in our office - our exports to the United States grew by over 250% from 1988 to 1995, while U.S. exports grew by about 85%. Now, they start at a larger base, so it's a bigger number than the percentages.

We chronically had a trade deficit in agriculture products with the United States. We've turned the corner on that; we've had an increasing trade surplus with the United States. So if you look at it in terms of a gross point of view, something is obviously working. If you look at the balance of trade, the Americans are doing something in conformity with the agreement, because we've been able to tap.

The thing we note is that some problems are growing pains. Whether you like it or not, you go through those. We're more worried about things that show chronic attitudes or fundamental attitudes that are counter-productive to the process.

To the point that Canada has to have a rules-based system, we also make the observation that although we will always lobby for new changes to agreements and things in Canada's interests, we have to make sure people are basically willing to do it.

The specific you're talking about is the idea that we want better understanding. There are some examples in which producer groups get together, or the governments cooperate in a process despite the political climate in the United States. When enough information gets out there, it begins to counteract some of the U.S. political tendencies. What Prairie Pools said is that there may be some joint processes we can run in the grain sector, and it could counteract some of that misinformation.

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The misinformation creates almost a self-perpetuating process. Government responds to political pressure. People are frustrated by change. If the government isn't honest with its people in saying it will do something for them because the other guys are wrong, this tends to intensify the pressure. The government then has to respond, and it just goes on and on. But if you can get some facts in there, we may not like it and we'll vent our frustration, but there are more people saying that we have to live with that so we'll look for something else that is constructive.

It's not good or bad, it's probably a necessary relationship. It has worked fairly well economically for Canada. We are a smaller country, so we have to do everything possible to get the right kinds of attitudes and acceptances of the rules in order to make it work even better as we go.

The Chairman: I think Mr. Pugh just wanted to quickly add something.

Mr. Gordon Pugh (Manager, National Affairs, Prairie Pools Inc.): Yes, it's just a corollary to that, just a brief general point.

By definition, when you focus on irritants, you of course tend to hear negatives. By definition, ``irritant'' is a negative.

I think I want to make the point for our industry, which is the western Canadian grain industry. We're selling $9 billion worth of product to the United States. They're selling about $8.5 billion of product to us. There has been phenomenal growth, and it has been a phenomenally successful relationship. I think the irritants that occur are irritants that you would find in any realm of business. They will crop up and have to be resolved.

On the specific issue of a cross-border commission, that recommendation actually came out of a commission or committee that Minister Goodale and his American counterpart established in 1995. The proposal was that a committee of Canadian and U.S. individuals be established to sound early warnings on problems, and perhaps even recommend some ways by which the problems might be dealt with before they become political issues. We fully endorse that notion.

Mrs. Bakopanos: Thank you.

My second question is to Mr. Jackson, and it concerns the labour issue. Should Canada be negotiating harder in terms of the types of agreements we are signing? How could we achieve this if, according to you, there exists no mechanism in some of the other countries in order to assure that there will be respect for, let's say, child labour? In some of the countries there are no rules for child labour. Canada took a very definite, hard stand in terms of child labour standards, most recently in Amsterdam. How successful are we really going to be? I know that's a very large question.

Mr. Jackson: From our perspective, let me just start by saying that we were extremely disappointed that at the WTO ministerial there wasn't progress around developing a social clause for the World Trade Organization. As people probably know, our position - that of the international labour movement - has been that signatories to the World Trade Organization should agree to abide by a core set of labour rights and standards as defined in the key conventions of the International Labour Organisation. Basically you'd then have a procedure in place by which, if one felt that those rights were not being observed, it would be adjudicated by the ILO, which does have the capacity on the ground and does do that every day. What the ILO lacks is any procedure for enforcement.

This issue isn't going to go away. All the media coverage of the WTO ministerial was very much a key part of it. Certainly the U.S. and France were supportive. We were disappointed by the position of the Canadian government, but, at least as I understand it, there's some support for continuing discussion around the issue, which at least is healthy.

How that relates to the NAFTA side deal is open to question. What we were really saying around the Chile talks would be that you could see what one did, either within the hemisphere or through NAFTA, as a stepping stone to what we want to see internationally.

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You would think on the face of it, if the U.S. is pushing for a social clause in the WTO.... I must confess I have a certain degree of cynicism regarding how actively they'd be pushing it if it were ever truly a practical possibility. Given that the U.S. is formally in support of that position, why should we not agree in our hemispheric relations and the continental relations to abide by that?

In terms of practical blockages, whether right-to-work laws would stand up to ILO scrutiny under a freedom of association provision is very much in question. Frankly, when it came to negotiating the side deal with NAFTA, I think the blockage in the U.S. was precisely that they didn't want any international tribunal standing in judgment over U.S. labour law.

Clearly the political context for pushing that is incredibly difficult. Certainly for the Republicans, part of the blockage to bringing Chile into NAFTA is that they don't want to extend the side deal either. At minimum I think this set of issues really needs to be pursued in discussions with our partners.

When it comes to the free trade agreement for the Americas and negotiations around that, we'd argue very strongly that this set of issues needs to be part of the discussions around that process. We need working parties around labour rights and standards as we do on other issues. Actually, I believe there have been some indications of support for that from some of the South American countries, Brazil in particular.

Our basic plea is just for the Canadian government to really push forward discussion around these issues internationally, and in the long run I think we are moving in this direction. The issue isn't going to go away. Somehow we're going to have to deal seriously with labour rights issues and environmental issues through international structures, and the sooner we get there the better.

The Chairman: Thanks, Mr. Jackson. I'd just like to say for your information that Mr. Sauvageau, Mr. Penson, and myself were all at the meeting with the United States congressmen at the WTO in Singapore, and I think it was pretty clear there that on the social clause and the labour standard there was an obvious political division between the members of their congressional delegation. That certainly was part of the Chile situation as well. I think you're dead on on that one.

Mr. Sauvageau.

[Translation]

Mr. Sauvageau (Terrebonne): My first question is for the dairy producers. In your brief, you state:

On December 2nd, the Dairy Farmers of Canada and the Canadian government were very pleased to receive note the final and unanimous decision of the NAFTA Special Panel.

You also said that two Americans sat on that panel. Further on in your brief you state:

But this does not always satisfy the US which continues to spread falsehoods about...

Earlier, in response to a question, you stated you were satisfied that at least there are such multilateral panels that include American and Canadian partners, which meant that decisions were somewhat more coherent.

All this preamble is to tell you that officials of the Department of International Trade have given us the impression that the decisions were virtually always, if not always, respected, or that they were greeted enthusiastically by the Americans who responded to panel decisions. Since you refer to this in your brief and you raised it elsewhere as well, I would ask you first of all if you believe that the US complies with the decisions of NAFTA or WTO panels.

Mr. Rivard, you mentioned one group that intended to go again before a panel again to represent US in an effort to challenges you. Can you explain how they will try to circumvent the NAFTA panel decision to attack you from that side?

Mr. Rivard: The reason we welcomed these respected panels is that over the last few years, in many sectors, including agriculture, pork, dairy and fisheries, we won on those panels.

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There is no doubt that they also respect these panels. At least, we now have some reference points whereas in the past, when the Americans arrived with a unilateral position - Porto Rico is a good example - they would present a decision and tell us that it's case close for Canada since we were hindering trade and not observing certain standards. We were completely excluded from those markets.

Now, thanks to the dispute resolution mechanisms, which impose reference points, there are fewer delays. In that sense, in the dairy sector among others, under article 20, this was the first time these panels were used, and they were faster. We are therefore not necessarily out of the market on that front.

I would say that compliance is important. Unless I'm mistaken, they came at us again in the pork and softwood lumber sectors. I think there is a change in the trend or approach of the Canadian government; we feel more firmly that we are in a good position to hold talks and try to settle disputes that may arise. We know that the Americans are experts at this. Perhaps we should use these tactics more often and prepare our defence with counterattacks, which is the Americans' specialty.

What was your second question?

Mr. Sauvageau: I'm sorry, I was distracted.

Mr. Rivard: To become compatible under the GATT, we had adopted a certain way of doing things in the past. Canada enjoys a good level of exports, historically about 5 to 6%. Following the opening of the GATT and the free-trade agreement, certain products, including frozen pizza, were less well protected at the border. The Canadian government, the advisors of the Department of International Trade, together with us, looked at how we could adapt without having a transfer of funds between processors and direct subsidies paid to the industry for exports. We therefore adopted a differential pricing system from coast to coast for certain products that were subject to greater competition or faced higher risks.

Mr. Sauvageau: Perhaps my question wasn't clear. You said that following the decision of the American panel, a US group had been set up to again challenges that decision.

Mr. Rivard: I'm getting to that. According to the information we have at our disposal, that's the point on which they intend to attack us. According to their interpretation, we have a different pricing system for export and for sales within Canada.

This is nothing new to us. Previously, we had perhaps eight to ten prices, depending on the provinces. For example, fluid milk was sold at a certain price, milk used to make yogurt was set at another price and butter powder, which is the residue, is sold at a lower price. These prices were previously in effect, but since there is no more transfer of funds between processors, milk is sold throughout Canada at the same price for certain specific markets; it's an arrangement agreed upon by the producers and the provinces. According to the information we had and that we still have, we think we are in line. There is no more transfer of funds, but billing is standard throughout Canada. Our processors have access to the same raw material at prices that are similar.

Of course, the US is looking for ways to challenge our practice based on the approach that we have adopted. The EU is establishing an equivalent system, called double pricing. Some countries also use that pricing policy and the US is implementing a similar program in its export policy. They are trying to play it both ways. Indirectly, they are also trying to use similar tactics.

According to the Department of Foreign Affairs, the Canadian Dairy Commission and the legal opinion of the federal government's litigation department, we were right, and in fact we acted upon their recommendation. But we see an attack coming and we think that it will be in the coming year.

It's a bit like the case of pork. They argued that employees were entitled to unemployment insurance and medicare in certain provinces. They said that these were subsidies that created trade distortion.

Mr. Sauvageau: Fine, thank you.

The Chairman: I wish to give each of you five minutes. I therefore give the floor to Mr. Dupuy, Mr. Penson and then Mr. Bergeron.

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[English]

Mr. Dupuy (Laval West): I think I can be brief in putting my question. It will be addressed to Mr. Klepak to begin with. It concerns the enlargement of NAFTA, which, according to a school of thought, would be a positive move for Canada, because rather than being caught in a bilateral relationship with the United States, as we were originally, we see this relationship becoming increasingly multilateral. And we've heard your sentiments about multilateralism, which I share.

But I have heard quite a different viewpoint, one I would like to test with you, and that is this one: it's a fatal mistake to try to enlarge NAFTA, simply because each time enlargement takes place a new agreement has to come before the Congress of the United States and the Congress of the United States will not fail to add riders or to make it more restrictive. And bearing in mind that the heart of the agreement, at least for many years to come, will be the Canada-United States relationship, we run the risk of having the good aspects of the original NAFTA gradually restrained and diluted into a wider trade agreement.

What do you think of this second argument?

Mr. Klepak: I think it has considerable merit, although as a non-economist I'm a little concerned that since I'm facing real economists here perhaps I shouldn't be the person answering this question. I think one does need to come down from the theoretical to the practical. Within each of these expansions one can imagine a dilution occurring that may not necessarily be in the interests of Canada. As everyone here knows, on many issues we are not in agreement with Mexico and we find ourselves very frequently siding with the Americans on issues within the trilateral arrangement.

In and of itself there may be value to having a lot of people around the table, but there may be specific losses on the economic side that may have effects, perhaps even on the social and cultural levels.

One can, though, go too far. Perhaps the question will be taken out of our hands, because what most Latin American countries are doing - and I suppose the Commonwealth Caribbean could be included - is reacting to the situation as it's currently developing within the very legislature you were referring to. They're saying ``What we need is more muscle. International relations is about weight. If we haven't got the weight, we're not going to count, so we need to get our own houses in order and come to the negotiating table with NAFTA with strength.''

Therefore, the MERCOSUR in particular, and to some extent the CARICOM, the Central American arrangements and the Andean pact arrangements, are all aiming and saying ``We can see what happened with Chile and with Mexico. What we want is to get bigger and we want to show that we are a success story. We don't want to be there with hat in hand.''

And the way for them to do that is to get organized, to have their own progress first, and then go and talk to Washington and to the other capitals within NAFTA from a strong position.

Really, as partners, they want very much to deal from a position of success, rather than being willing to do so because of political or other factors. That seems to be the dominant trend.

My suspicion is that that issue of the dilution will not remain with us very long because we'll be facing a much larger bloc the next time.

Mr. Dupuy: In that context, of course, we've taken the initiative of negotiating a bilateral agreement with Chile, which may or may not be subsumed into NAFTA when Chile joins NAFTA. I presume it eventually will be.

Is that a good strategy? Do you think Canada would be well advised to have similar initiatives with other Latin American countries before they engage in negotiation with the other members for NAFTA membership?

Mr. Klepak: This is a very personal view, but I do not think the expansion of this to a large number of other states - or even to a small number of other states - would be particularly useful, for the reasons you were pointing out a couple of moments ago.

However, I do feel that the specific case of Chile was different. Again, I suppose it had something to do with timing. There was a moment when what one was saying, given the Congress in the United States, was ``Thank you very much, the dream is over.'' That message was being sent very forcefully to an inter-American community that was still finding its feet after the dreadful decade of the 1980s and having grave concerns about the possibilities of sustaining itself in the current world, which is even more dog-eat-dog than in the past.

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So I certainly think it was important for a developed country, and a major country - in Latin America we're considered a major country - to take that extra step politically and say this is not a process which is dead, this is a process which has its own life, which has its own values, and Canada is going to take that extra step, which doesn't have massive impacts. Canadian-Chilean trade has not suddenly transformed us or anything, but it is important to have had that example of saying this is still something in which Canada has confidence and in which Chile has confidence, and it can be done north-south in a real way, and it should not be closed out. The option of closing it out would have been very negative at that time.

It would be very complicated now, though, to go to other states that had not already been in the process and propose to start doing these little deals. It would be quite counter-productive.

The Chairman: Mr. Penson.

Mr. Penson: Mr. Jackson, I would like to pick up on the issue you've raised about labour standards. At the WTO in Singapore, as you know, there was quite a bit of discussion about the need for labour standards, but it was my view that a lot of the developing countries were suspicious of the motive involved and they were concerned that it may not just be the core standards you talked about; this could be the thin edge of the wedge to act as a trade barrier to limit their ability to grow and take advantage of trading opportunities with lower-priced labour, for example. I'm just wondering how you see it proceeding; if we don't see support coming from developing countries, how you see that being advanced.

Mr. Jackson: I think your observation is correct. There clearly was a lot of opposition to the proposal on the part of developing countries, particularly in Asia. There is an important caveat to that. The trade union movements in most of those countries were in support of the clause. It's not that there necessarily is unanimity at home around the issue.

About the disguised protectionism issue, I think what's really important to recognize about the trade union proposal is to entrench in the WTO not really a common set of labour standards but a set of labour rights and the ability of workers to form trade unions and enter into collective bargaining relationships - trade unions that are independent of the state. There's nothing about establishing an effective trade union movement that says the wage level in Taiwan or Korea or whatever should rise to any particular level. What we're saying is that negotiating process could and should take place as in collective bargaining here, where the results of collective bargaining are very much determined by market realities and it takes two sides to come to an agreement.

The real impact of a social clause within the World Trade Organization.... I think it would have rather little impact on the relative competitiveness of countries such as Canada vis-à-vis, say, Mexico. There might be some impact. The really crucial impact would come if you look at a country such as Malaysia or even Thailand vis-à-vis a country such as Vietnam, which is coming into the system. For the newly industrializing countries themselves there really is a sort of trapdoor below the wages at which they are operating. A lot of the new investment now is moving from Thailand into Vietnam, even Burma, where you're looking at very labour-intensive, very low wage-based industries. There really is no floor.

What a social clause would do would be to set some sort of floor for countries at relatively similar standards of development and create some floor in terms of ability to advance from what would be a very very low basis of labour standards by our standards; really, to establish that ``level playing field'', to use the jargon.

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Mr. Penson: One other thing. You made a comment that the side deals we negotiated on labour standards in NAFTA really weren't that strong and they permit individual countries to apply their own law. On the other side of it you were saying, and maybe I misunderstood - you could clarify it - it would be seen by the United States to be a limiting factor; it would be one reason the United States would not sign a NAFTA type of deal with Chile, because they would have to give them the same side deal on labour. I don't see the consistency there. If it's not committing them to anything except applying their own labour standards, what is the problem?

Mr. Jackson: That's an interesting question.

The fundamental point was in our view what should be in labour agreements is a commitment to observe.... We would agree on a common set of principles and rights and you would have some independent adjudication procedure. Basically, as you said, in the NAFTA side deal the only really binding commitment is to enforce one's own labour laws. As to why the Republicans in the U.S. Congress would find that unacceptable vis-à-vis extending NAFTA is a question best put to them. I guess they just don't like the words ``labour side deal''. In effect the impact of that on the U.S. is very limited.

It is interesting to observe that one of the cases that have been brought under the side agreement was brought by Mexico against the U.S. There is a modest level at which the side agreement...and certainly proponents would argue it can be used to publicize what would be seen as restrictions on freedom of association and these other issues. There's certainly an ability under the side deal to raise questions and have answers. It's very weak, in that the only thing that's really binding is to respect national laws, but it does create some opportunities. Perhaps that's what they are responding to.

The Chairman: Thank you.

[Translation]

Mr. Bergeron.

Mr. Bergeron (Verchères): I would like to get back briefly to Mr. Sauvageau's question. We know that even when the US succeeds or loses on a panel under NAFTA, they always try to prove they are right and to win. Our friends in the steel industry are well aware that the Americans instituted a number of mechanisms in their own laws that allow them to interfere a great deal in the affairs of foreign importers, particularly Canadian importers operating on American territory. There are all kinds of mechanisms that were put in place to be as disruptive as possible, which means that Canada has tended to buy off peace by negotiating a sectorial accord that gives Canadian exporters less than what they would have been entitled to under the provisions of NAFTA or the FTA. That was the case for durum wheat and softwood lumber.

Here is the question I would like to put to you. Are you afraid that Canada would attempt to buy peace in the case of quota farm products, notably in the case of dairy products?

Mr. Rivard: That's an interesting question and here is the chronology. Eighteen months ago, they attacked us under the tariff that had been imposed following the GATT agreement. Midway through the talks, they told us it may be possible to have an out of court settlement and reminded us that in 1988, we had lost before an ice cream yogurt panel. They suggested we come to an agreement even if it implied that 15% of the industry should have been more open than provided for under the GATT rule and even the Free Trade Agreement.

For once, I think we should praise the way we did things. We gave notice to the Canadian government that we should not negotiate and that if we had rights, they should be observed. I think that worked very well.

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The same scenario could apply. To date, we've had no indication that they will try this again, but they're looking for an excuse to try to challenge us and find ways to broaden access. It's in that sense that we have to be careful.

Although I don't work in the lumber sector, I think that that's exactly what happened for softwood lumber. Afterwards, we were stuck with the problem. To maintain minimum access over there, our export quotas to the United States were restricted. The example of lumber is very realistic and that caused a number of problems in the industry throughout Canada. Once again, if we have rights, I'm firmly convinced that we must spend all our energy in having them respected in our agreements, as the Americans do. Up until now, I've had no indication that they will act, but I can presume what their strategy is.

The Chairman: Isn't there a difference between the lumber issue and the dairy issue? According to the agreement, the Americans had the right to amend their domestic laws, which they did, while in this case, they don't have the right to amend any aspect of their domestic laws. It's not exactly the same thing. We don't have the same fear.

Mr. Rivard: I'm not saying the same fear, but I am saying that Canada made an arrangement concerning lumber. I'm far from being an expert in that field, but the fundamental principle behind that is that we find a way to try to present our cause. When you go before a tribunal, you're never sure about the judgment that will be handed down. Even when the NAFTA panel was struck in the dairy sector, we weren't sure. We wondered whether we should minimize the risks. We took a chance and we won. We thought that we were within our rights. That is where there are significant risks.

The Chairman: Thank you very much.

[English]

I would have loved to ask you this. If you were an American panel, sitting here before us, would you have told us there were as many trade irritants in what Canadians do? I think that's something this committee has to look at. After all, if the pot's black and the kettle.... I suspect if we had a group of Americans here they would say you guys do this, you cheat on some things, you chopped our steel in half when it was coming up across the border, you have that goofy dumping duty you apply to this or that. This might be interesting for us to hear, because after all, if down there we're producing the same atmosphere of misapprehension and frustration about the way the agreement works, clearly that's going to be reflected in the nature of the relationship. But I leave that for another day.

I want to thank you all very much for coming.

Before the committee adjourns, I would like to draw the attention of committee members to a few quite important issues.

Minister Eggleton has asked to come before the committee to discuss international business development. It's probably always a good idea to bring ministers before the committee. Would March 13 be acceptable if we were to do that? Minister Boudria would also like to come before the committee to talk about matters. We might try to work him in on the same day. Would that be acceptable?

The Minister of Foreign Affairs of Algeria is in Ottawa on Monday, 17 March. This is St. Patrick's Day. This is very important. I would like to have just one of our informal meetings, because I know many members are not here.

[Translation]

The Minister of Foreign Affairs of Algeria will be visiting Canada. It's a country with numerous interests.

[English]

There's a suggestion that we might have Madam Menchu, who is a Nobel Prize winner, come before us in June if we're still sitting. I'll give you further announcements about that. She's from Guatemala.

The next question is most important: main estimates. Would the members of the committee wish to repeat what we have done in the past, which is go for an in camera briefing at Foreign Affairs for half a day and try to get as much information as we can on the main estimates? In that case we propose setting aside Tuesday, April 8, for the group of us to go over to Foreign Affairs and get a full briefing about the estimates, the way we've had in the past.

[Translation]

Mr. Sauvageau: That would be a good idea. However, every time they come to see us, they answer even more evasively than the ministers.

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The Chairman: In my opinion, a half day at the department has always produced more positive results than a public hearing here.

Mr. Bergeron: Mr. Chairman, hadn't we agreed on a procedure to give our subcommittees a mandate to undertake exhaustive examinations of some specific areas of spending by the department, after which we would have the necessary material to invite ministers and departmental officials to the committee and undertake a number of exchanges with them based on a study, an initial examination? When we have to talk about figures in general, we always end up in very superficial discussions.

The Chairman: The point here is to attend a one day briefing session that they're providing for us. I think that that's the preliminary step and after that we would proceed as you suggested.

Mr. Bergeron: All right.

[English]

The Chairman: The third thing, then, is NATO enlargement, and Minister Axworthy will come before the committee.

[Translation]

Mr. Bergeron: When will the Subcommittee on Agenda and Procedure be meeting?

[English]

The Chairman: Could I just finish this?

Minister Axworthy will appear before the committee on March 20 in a joint meeting of Senate members and our committee, which he requested.

Also, the Canadian Institute for International Peace and Security is prepared to appear and to bring Professor Gartner, who is a European specialist in this area. It might be useful to take advantage of this. He's from Salzburg, Austria. We can examine whether it would be useful to include him and ask him some of these questions. Mr. Bergeron and I have discussed this issue of NATO expansion and how we are going to come to grips with who the appropriate candidates might be. If we don't ever talk to anybody....

On the other hand, I think all of us agree that we couldn't possibly have representatives from all twelve countries that have expressed an interest in becoming members of NATO come before this committee. We don't have the time to sift through that sort of process. So this might be an opportunity to catch a knowledgeable European on his way through town and perhaps get the benefit of his views.

Mr. Penson: Mr. Chair, I suggest that we might also ask our ambassador to NATO if he could make arrangements to come here. That could be helpful.

The Chairman: Okay. That's right, because we'll have to pronounce on this issue fairly quickly.

Finally,

[Translation]

Mr. Bergeron was asking when we will hold the meeting of our subcommittee that we missed last time. Could we hold it after the meeting of Tuesday March 11th at 11:30 a.m.? Agreed?

Thank you everyone.

The meeting is adjourned.

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