SINT Committee Meeting

SUB-COMMITTEE ON INTERNATIONAL TRADE, TRADE DISPUTES AND INVESTMENT OF THE STANDING COMMITTEE ON FOREIGN AFFAIRS AND INTERNATIONAL TRADE

SOUS-COMITÉ DU COMMERCE, DES DIFFÉRENDS COMMERCIAUX ET DES INVESTISSEMENTS INTERNATIONAUX DU COMITÉ PERMANENT DES AFFAIRES ÉTRANGÈRES ET DU COMMERCE INTERNATIONAL

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, February 23, 2000

• 1705

[English]

The Chair (Ms. Sarmite Bulte (Parkdale—High Park, Lib.)): I'd like to call this meeting of the subcommittee on international trade, trade disputes and investments to order.

Gentlemen, thank you very much for your patience while we listened to the bells and subsequently voted.

We're delighted to have with us today Mr. Knoerr, Mr. Hamel, and Mr. Paterson to address the subcommittee.

Mr. Knoerr.

Mr. Don Knoerr (Co-Chair, Agriculture, Food and Beverage Sectoral Advisory Group on International Trade): As a bit of background, I believe I've been invited to appear in my role as co-chair of the Agriculture, Food and Beverage Sectoral Advisory Group on International Trade. I've been monitoring trade negotiations since providing trade policy advice to the Canadian Federation of Agriculture for about 14 years. I've been a member of the SAGIT since its inception, and currently serve as co-chair. I do trade policy work on a consultancy basis for the CFA and their members.

I hope the thoughts I'll express in my brief and verbally today will reflect the views of the people I work with, but I'm not speaking formally on their behalf. In the end, I have to take responsibility for the views that are there.

On just one other observation, my knowledge relates primarily to the areas of trade policy and trade rules. I would certainly encourage the subcommittee, as you explore this question of stronger economic relations with the European Union, to meet with those people who have more knowledge of the actual trade and the issues that happen when you get involved in the trade, and probe their expertise. The best I can perhaps give you is some background—an overview.

The submission I've presented includes some statistics. They're probably more for my benefit than yours, because I'm sure you'll get a more complete set of statistics from your staff. The European Union is the third-largest agricultural market for Canadian agricultural exports. In 1998, the largest by far was the United States. It took about 57% of our exports. About 9% of our exports went to Japan, and 7% of our agricultural exports went to the European Union.

The dramatic change in the decade between 1988 and 1998 was the growth in exports to the United States. Following the signing of the free trade agreement with the United States, exports to that country grew by 277%, which is a very substantial growth. But we shouldn't ignore what happened to our exports to the European Union either, because they also grew by 65% during that period of time.

Unlike trade with Japan and the United States, we actually have a net deficit in agricultural trade with the European Union, with the exception of one year in that decade. There is a table that gives a picture of the actual trade with it. You have to be careful what sort of conclusion you draw from one set of statistics, but interestingly there was an actual decline in exports to the European Union from 1988 to 1991. Since that time there's been very substantial growth. We've had an 87% growth in exports since 1991, and during that period there's been a positive trend, with our exports increasing faster than our imports.

Interestingly, the European Union itself is the net importer of agricultural products. Their statistics include more products than ours in agriculture, and there is a table that indicates some of the deficit areas, some of which correlate with some of our production efficiencies.

Exports to the European Union have played a very important role in the history of the development of agriculture in Canada. In fact, a lot of our systems and institutions were developed to improve our competitive edge against the United States in gaining access to the European market, particularly during the 1800s.

• 1710

The dominance of the U.S. market, in itself, is a good reason to endeavour to diversify our export opportunities. Simply put, there's very substantial merit in a concerted effort to explore what can be done to improve our trade with the European Union.

The probability of further expansion of the European Union as an economic unit provides additional incentive. Canada has some agricultural trade with central and eastern Europe, and some of our sectors, such as pork, believe there are further opportunities in those areas. But any agreements countries that are candidates for membership in the European Union reach with our country will be guided by the framework of what they need to do to get into the European Union. In the long run, since they will become members of the European Union, what happens between us and the union is the key to maximizing our ability to reach those markets.

There's no easy formula for increasing agricultural trade with Europe. I don't think you could get them very interested in free trade negotiations, bilateral or pluri-lateral, with Canada over agriculture. Their agricultural sector, although evolving, is still highly protected and dependent on the use of export subsidies and large spending and domestic support, and for a lot of products, on a high level of border protection for the maintenance of the domestic industry.

If for some reason there were freer trade agreements with the European Union on a regional basis, agriculture would more likely be the exception rather than the rule. But I think there is merit in it. It's useful to think about some of the problems we've had, perhaps some of the areas of common interest, and how we can build a relationship.

I've noted in my brief a few things you might want to keep in mind, as you meet with other agriculture groups and explore it. First of all, a number of our long-standing disputes with the European Union over agriculture have been due to the fact we've lost what had been historic access, as countries joined the European Union. For example, when Great Britain joined the European Union, we had been a major suppler of wheat and barley to Great Britain. Under the new agriculture regime, we lost that access into the British market. We did take the European Union to a dispute panel over it after the WTO came in place. We made some gains, but we certainly didn't get all we thought we were entitled to.

The important point is not to dredge up the past again. The European Union is continuing to expand. We have some interest in improving trade relations with countries that also may become members of it. As we go down that road, I think it's useful to remember our historic experience, try to make sure whatever new agreements we get are very secure in terms of what happens in the union, and when countries do join the union, make sure we do everything possible to protect the access we've had to the new members.

We've had a couple of disputes, particularly the one over the use of growth hormones in the production of beef, which has received a lot of attention from the European Union. Canada and the United States challenged the European Union's rule that they wouldn't import any beef that was produced with growth hormones. Canada and the United States won the panel and the appeal, but it was such a volatile issue in the European Union that they still refuse to implement it and they're prepared to pay monetary penalties in order to avoid having to do that.

I think Canada is right in its position that border measures related to health, whether it be plant, animal or human, should be based on sound science. It's going to take us some time to work through this because there is the public perception that we have to do it. There's another aspect to it that also relates to biotechnology, which I'll say a bit about. There's almost a reverse side of it because there are strong public views.

There is, to some degree, a market opportunity created for products that meet their preferences. While we try to get the trade rules we think are as sound and fair as scientifically possible, I don't think we should close our eyes to the market opportunities that exist for the niche markets, especially markets that meet the requirements. I know Canada as a government has been working on certification, so we can ship hormone-free beef into the European Union.

• 1715

In that regard, it was interesting.... I was at the Cairns Group farmers' leaders meeting last year in Argentina. South American farmers were very reluctant to be critical of the Europeans. In principle, they said sound science is the way of setting up border regulations, but when they started talking about biotech and that sort of thing, they sort of got very soft on it. The reason was that they aren't using the modern technology, and they see the nervousness in Europe about the modern new technology as creating a market opportunity for them, for their products that are produced in the old style, and they don't want to lose that corner in the European market.

All I'm saying is as we pursue those questions we should be aware that there may also be a market opportunity.

Probably biotech is the highest-profile issue in agriculture now. There's a lot of uncertainty about how we're going to deal in a changing time.

The recently concluded biosafety protocol negotiation in Montreal demonstrated two things. First of all, it demonstrated that there's a somewhat different perspective between Canada and the European Union on biotech issues. They're not completely opposed, but there's a difference. But it also demonstrated that the European Union is going to continue to be very influential in decisions that are made in that area.

There are a number of things we have to deal with domestically in the biotech area. I think it's important that we also deal with these questions internationally at the same time so that there is harmony between what we do domestically and what other countries do and the rules that other countries have, and to make sure we maximize our opportunities to access market during this changing environment. These things relate to definitions of what products come out of biotech, establishing labelling rules, or at least, if you are going to label, what the labels should say, and establishing realistic, effective, and scientifically sound procedure for determining what, if any, risks are associated with the use of modern biotechnology.

I think the key point there is it illustrates an area where we need to realize that there are some differences in perspective.

In Seattle, during the WTO ministerial, my impression was that even though there are differences in this area between Canada and the European Union, the Europeans were more comfortable with our thinking on the subject than they were with the Americans' thinking. I don't think we want to abandon any of our principles or what's important from our point of view, but I think we want to make sure we make every effort to explore common interests and develop, as much as possible, a common approach, because they are going to be influential, and in the long run it's going to be a factor in how well we can access their market.

I won't try to get into actual trade negotiations. As I said, there's a dramatic difference in how their agricultural industry is structured from ours. Canada has an agricultural negotiating mandate established by the government that has very good support in the agriculture community.

If you read that mandate and you understand what the rules in agriculture are in Europe, we're really asking Europe to make some very major changes. Those changes aren't going to happen in bilateral negotiations. Any major evolution in their agricultural policy will have to await the development of the agricultural negotiations in the WTO. But again, while we're working our way toward that, I think it's important to try to understand, to look for areas of common interest, to recognize that there always are going to be compromises no matter how well we pursue our agenda, and to keep thinking about what we can do with the European Union to ensure that when the final agreements, whatever changes do take place in the agricultural negotiations, and new access opportunities are created, we get the maximum benefit for Canadian exports going into the European Union.

In closing, I would like to thank you for the opportunity to be here, and I'd certainly be pleased to answer any questions you have. Thank you.

The Chair: Thanks you very much, Mr. Knoerr.

We'll hear all our witnesses, and then we'll open it up to questions.

• 1720

Our next speaker is Mr. Hamel, of the Asbestos Institute. Welcome.

[Translation]

Mr. Denis Hamel (Director, Asbestos Institute): I'd like to begin by thanking the committee for the opportunity to present our position on the dispute between France and the European Union over the use of chrysotile asbestos.

Let me point out at this time that the board of directors of the Asbestos Institute is made up of mining industry, union and federal and Quebec government representatives. My comments today reflect the position of the industry and by no means those of the unions or of either level of government.

Our role is to promote the safe use of chrysotile asbestos throughout the world. Much is at stake. Canada's asbestos industry accounts for nearly 1,5000 jobs in two regions of southern Quebec, namely Asbestos and Thetford Mines. Canadian exports of asbestos worth approximately $170 million are shipped annually to some sixty countries.

Chrysotile is a type of asbestos produced in Canada and exported abroad. No one in the industry denies that when used improperly, this product can be harmful. We have more than one hundred years of experience with extracting and processing asbestos fibre and we know that when used properly, the product has a number of benefits. Asbestos is used in many common products, particularly in developing countries. Our industry and the Institute emphasize first and foremost the safe use of this product to ensure its continued use.

The majority of countries in the world respect the principle of safe use. There are standards in place governing the use of asbestos, just as there are standards for over 600 products that pose a potential threat if used improperly, but which also present certain advantages when used in a controlled manner. Unfortunately, the European Union does not share this view. Ten of the fifteen EU countries have already enacted a virtual ban on chrysotile. This move has already impacted our exports: over the past decade, the value of Canadian chrysotile exports to Europe has fallen from $111 million to less than $13 million. The situation is not likely to improve, given that the Commission of the European Communities adopted an resolution last July to ban asbestos in the 15 EU member countries by January of 2005. Unfortunately, this position was taken in spite of the opposition of international agencies such as the World Health Organization and the International Labour Organization. This resolution failed to take into account the views of the scientific community or scientific studies showing that when exposure levels are low, chrysotile can be used safely. The resolution was passed without any absolute certainty that asbestos substitutes are less harmful, proof which the ILO requires. It should be noted that the EU has created a great many jobs in the asbestos substitute industry over the past decade or so.

[English]

It is generally recognized that the controversy surrounding the use of asbestos is an occupational health issue only. We have hundreds of scientific studies showing that at a low level of exposure, when you're using only chrysotile asbestos, the risk for the workers is undetectable, and also for the environment or for people using these products.

The only area where there can be a problem is where you have in place friable materials. This was widely used in North America and in Europe for insulation. The asbestos fibre was sprayed on the skeleton of buildings in order to protect them against fire. This use fortunately was banned in the 1970s but was widely used in northern countries. This product can create a problem even today if unskilled or untrained workers are using it or are working where there are these friable materials.

That led the International Labour Organisation to adopt, back in 1988, a convention on the safe use of asbestos. In this convention it is recommended that chrysotile asbestos should continue to be used as long as you have proper controls. The only prohibited application is the sprayed-on application. That's what we call controlled use.

• 1725

In Europe, however, the word “asbestos” inspires negative reactions. It's the phenomenon of panic. In France we can even call it a psychosis. What we know is that poor conditions of the past and the fact that there's a long latency period from exposure to high levels of chrysotile or any kind of asbestos for a long period of time create industrial diseases. Unfortunately, with this long latency period, it's only twenty, thirty, or sometimes forty years after the high exposure that industrial-related disease will appear. So the new cases of asbestos-related disease we discover today are not related to today's conditions but to the conditions that were going on twenty, thirty, or forty years ago.

But people generally draw more media attention by frightening populations of the possible risks, rather than explaining what safe use is about. Alarming reports of the rise of diseases in Europe linked to asbestos, combined with the fact that many, maybe hundreds of thousands, of buildings in Europe still have friable asbestos in place, have triggered intense controversy in Europe.

Public concern influenced government positions in Europe, and countries started to prohibit the use of asbestos as of 1986, starting with the countries that were no longer using chrysotile asbestos or where alternative materials were being manufactured.

Until 1996 France was the largest user of Canadian asbestos, so it was a real blow for our industry when they had a 180-degree change in their position, changing from the controlled use approach to a total ban, with just a few exceptions. This ban came into force on January 1, 1997.

Of course on scientific and health grounds, this decision doesn't make sense, but moreover, it doesn't solve the problem. In France you still have people with diseases caused by past misuse of asbestos, and you still have the same problem of in-place friable material that you have to train workers to work with.

So it's not the solution; it's just to calm public opinion. The solution is simpler, cleaner, and more effective than controlled use, where we have to train people. This appealed to the public's wish for decisive action and to the politicians' need to be seen to be doing something to remedy to the situation. In the case of France especially, it was a solution to quiet the population's reaction to successive crises, namely the way the French government managed the tainted blood issue and the beef hormone case.

We cannot accept that our industry would pay for internal political problems. This is why the Canadian chrysotile industry invited the Canadian government to initiate consultations with the World Trade Organization. The core issue of course is that the WTO is called to decide whether the French ban on chrysotile asbestos is necessary in order to achieve the objective of the protection of health and safety.

There's a convergence of opinion within the scientific community that there is no solid, scientifically validated evidence to support the allegation that the use of substitutes is safer. That's what the Europeans are saying: they banned asbestos because they have safer products to use. Even the French National Institute for Health and Medical Research recognizes there is not enough data to demonstrate that substitutes might be safer. Therefore the French ban is not rationally connected with the objective of protecting human health, because the risk of substitutes has not been addressed.

[Translation]

This is the kind of problem that we are encountering in Europe. Fewer and fewer infrastructure products call for asbestos products. Water supply pipes, sewers and most buildings are already in place. The need for asbestos products has shrunk, particularly since the European industry has turned its attention to manufacturing alternative products that are much more expensive, not necessarily as effective and generally less durable.

• 1730

The manufacturers of these products are seeking to eliminate a competitor. Asbestos products are often much more affordable and much more durable.

Risk management has given way to the precaution principle, the theory being that when in doubt, it's better to ban a product. A scientific basis for imposing the ban is no longer even necessary. It's enough for certain pressure groups to argue that asbestos should not be used, ostensibly because of the harm it can cause, or for someone to raise the spectre of an epidemic or public health problem for authorities to ban a substance or for a government to consider banning its use.

We mustn't be fooled by this: where asbestos is concerned, economics, not health, is the real issue.

For example, the European regulations which will ban the use of asbestos as of 2005 contain a clause which specifically provides for a review of these regulations in 2003, in light of study now underway on the effects of asbestos substitutes. Clearly, it will be too late by then. We cannot ask the industry to wait three years before starting the conversion process if other industries have already begun to convert to asbestos-free products. And even if, in three years' time, the evidence is in that alternative products are not any less dangerous, the objective of eliminating a dogged competitor will have been achieved.

That is our take on the European market. I don't think we're alone in thinking this way and unfortunately, the trend does not appear likely to subside. Just on the subject of mineral products, we regularly hear talk of the health risks associated with lead, copper, nickel and even aluminium, not to mention the disputes in other major sectors of Canadian industry, like those represented here this afternoon.

It's critical that we denounce this attitude, this attempt at thinly veiled protectionism.

Trade restrictions in Europe have a major impact on our industry. On the one hand, it means cutting off a major market - the European Union is a market of 300 million consumers - while on the other hand, there are concerns about the snowball effect that European regulations could have on our markets in Asia, Latin America and the Middle East. Often, countries in these regions copy European regulations because they are unable to do their own studies or because they rely on countries that generally have good environmental records.

Therefore, any regulation adopted in Europe could potentially destroy our market over the medium term.

We are banking a great deal on the ruling of the World Trade Organization. While I do not believe that this ruling will restore our access to the French or European markets, even if we win our case, quite simply because paranoia has set in, I do, however, hope that it will stop this paranoia from spreading like an oil spill.

We believe our industry must survive because perhaps a few years from now, it will be proven that asbestos substitutes or products that use fibres other than asbestos are less durable, much more expensive and maybe even more dangerous than asbestos. Therefore, we need to be ready to reclaim this market.

We are already beginning to feel the effects of France's decision. In an increasingly global marketplace, why would we bother to manufacture products containing asbestos if the EU market was completely closed to us? Obviously we are concerned about what's happening. This is a very real threat, in light of the expanding EU and the fact that a number of countries export a high volume of products to Europe. And for developing countries, this is also a concern. Asbestos products are important to them and they handle such products very well. However, through legislation, France, or rather the EU, is imposing its standards on other countries, precisely because of its market strength.

As I was saying, we are really dealing with thinly veiled protectionism. I hope that the Government of Canada will continue to fight this form of protectionism and at the same time, seek the help of developing countries which feel the effects of European regulations even more than we do.

Thank you for your attention. I will be happy to answer your questions at the appropriate time. Merci.

The Chair: Thank you very much, Mr. Hamel.

[English]

Last but not least, we have Mr. Paterson from the Canadian Advanced Technology Alliance. Welcome.

Mr. David Paterson (Government Relations Officer, Canadian Advanced Technology Alliance): Thank you, Madam Chair.

• 1735

The Canadian Advanced Technology Alliance is a high-technology industry association with over 500 members, and it represents a further 1,500 companies that belong to affiliated organizations. Most of our members are in the telecommunications and information technology industries, but we also have biotech, aerospace, and advanced manufacturing companies among our membership. The vast majority of our members are SMEs, which are, of course, the driving forces of the new economy. They're vigorous R and D performers. It's not unusual for 15% to 20% or 25% of revenues to be devoted to research and development.

We do not believe that any of our members are not exporters. Again, exports exceeding 90% of total revenues are very common in the high-tech industry. We think of multinationals as giant corporations, but in fact these SMEs are multinationals. They have operations, sales offices, and research and development facilities in multiple countries.

The high-tech companies' marketing strategies are devoted almost exclusively to exports. The successful Canadian high-tech entrepreneur treats the United States as a domestic market, for starters. The reasons are fairly obvious: it's the world's largest market; it is highly innovative and willing to try new products; it's a homogeneous market that uses a common language; and last but certainly not least, it's very close and inexpensive to visit in order to undertake your sales efforts.

Once established in the United States, high-tech companies begin to broaden their marketing horizons, and it's a fairly simple geographical strategy. Companies in the eastern half of the country—east of the Manitoba-Ontario border—focus on Europe and those in the west look at the Pacific Rim.

In terms of Europe, the initial focus is usually on countries with common languages and culture, obviously beginning with the United Kingdom and France. Effort expands to other countries once success has been achieved in the initial point of entry, the first country.

There are two primary entry strategies that the high-tech industry uses. One involves establishment of a marketing and sales office in the target country. Cognos, for example, has major sales offices in ten different countries in Europe.

The second strategy involves negotiation of a strategic alliance with an established player in the market. That is generally considered to be less expensive, allowing for more rapid penetration in multiple markets. It is therefore the most popular strategy for moving into Europe. Managing the relationships with partners can be difficult sometimes, however. Once market positions mature, it's not unusual for companies to solidify their position by acquiring their local partners. In the software industry, which I track closely, four Canadian companies bought their European distributors in 1998, and five of them did so in 1999.

Once you're firmly established, the next step is investment in local facilities, particularly on the manufacturing side. Our biggest member is Nortel, which just announced a $100-million expansion of its facilities in the U.K. On a somewhat smaller scale, Corel has a manufacturing and translation facility in Dublin, and recently opened a London sales office for the European market.

Europe presents a significant market challenge to the Canadian high-tech company. It is a much more difficult market than the United States. While the EU's gross national product is now bigger than that of the United States, it's not a single market. It is in fact fifteen markets that are united under a single trade regime, but each has its own language, customs, and business practices. Each market must be addressed individually.

At our conference a couple of years ago, Wanda Dorosz of the Quorum Group described the European markets as small, expensive, and xenophobic. They're difficult to penetrate, and doing so requires a high level of expenditure and effort. As a consequence, the cost of marketing to Europe is high. In fact, it is so complex and expensive that many European software companies follow exactly the same strategy as the Canadian ones do: they focus on the American market, not on their European neighbours. They don't begin to move into European markets until they've achieved some major successes in the States.

• 1740

CATA's objective is to promote the export competitiveness of Canada's high-tech industry in all markets. We support the objectives of your study because several of our initiatives address the same issues the subcommittee proposes to look at or is looking at.

The first is placing Canada on the European radar screen. We've done a number of things in that field, but one of our most popular services to our members is called TechnoGlobe, a website that is an online strategic partnering database. Members can post their profiles and identify the markets they're interested in and the types of relationships they are seeking in those markets. It has proven to be highly successful. In fact it's so attractive that we have licensed it to associations in a number of other countries. In Europe, those countries include The Netherlands and Sweden, which have established through linkages to our own website what we call virtual business corridors.

One of the things that is very high or very prominent on any European businessman's radar screen is taxes. They quickly pick up any taxes that stand out from the surrounding landscape. One of the problems that is commonly raised when you're discussing potential business in Canada with European companies is the fact that taxes here are much higher than they are in our neighbour to the south. I realize this all is going to be solved on Monday afternoon, but I thought I would mention it anyway.

Secondly, I must say that given the market imperatives of our membership, we support the government's current trade priorities that place the United States first on the trade agenda. The objective of the government's trade strategy is to support small businesses' efforts to penetrate export markets. The logical market for them to attack is the United States; therefore it should be in first place, in our opinion. However, we would regard Europe as the next logical objective for Canadian high-tech companies, and we would like to see Europe placed in that position on the trade agenda.

Thirdly, on the subject of trade promotion, we have worked with Industry Canada, DFAIT, and Investment Partnerships Canada to promote partnerships between Canadian and European high-tech businesses in the past. Delegations from Europe have attended our annual conferences, for example. We have sent missions to European trade shows like CeBIT. Last fall our president was part of the Canadian delegation to SMAU, which is the top Italian high-tech trade show. We regard these promotional efforts as of critical importance because of the fact that strategic alliances are the most popular way for high-tech companies to penetrate new markets.

We believe efforts must be devoted to energizing negotiations for closer EU-Canada trade relations. These efforts have not been notably successful in the past few years. We hope continued efforts in that field will lead to better results.

We agree certainly that there is a danger that existing trade irritants may be distracting trade officials. I can sympathize with the barriers that have arisen with my colleagues here today. However, it is our view that dealing with these problems must not deter us from devoting more effort to trade and investment in the new economy. European policies in areas like electronic commerce, trade in services, deregulation and privatization, and intellectual property rights are central. They're critical to the growth prospects of the EU market for Canadian high-tech businesses.

• 1745

These markets are enormous. Gardner Group has estimated that strictly in the business-to-business world, and not the business-to-consumer world, the European electronic commerce market was about $32 billion in 1999. They believe it will have grown to $2.3 trillion within five years. It's an enormous opportunity, and we believe that making sure Canadian companies have an opportunity to participate in that should be very high on the government's trade agenda.

In examining the question of the expansion of the European Union into central and eastern Europe, we think that if Canada wants to strengthen its bilateral relations with those countries prior to their entry, one of the critically important issues that must be considered is intellectual property rights. They are either non-existent or not enforced in many of the eastern European countries. Basically, for the software industry, that's an insurmountable barrier to trade. You wind up giving away your product, whether you wish to or not.

Lastly, again with sympathy for my colleagues here, we agree that the common agricultural policy is a ludicrously expensive deterrent to trade. We would hope nonetheless that this would not distract from expanding trade and investment opportunities in the new economy.

We believe the subcommittee's study of economic relations with Europe is a valuable exercise. We again urge that significant attention be given to the opportunities for trade and investment in the new economy, where Canada has demonstrated that our high-tech sector is globally competitive. We'd be pleased to assist in any way we can.

Thank you, Madam Chair.

The Chair: Thank you very much, Mr. Paterson.

I'll now open it up for questions. I have a list already, beginning with Mr. Obhrai, followed by Mr. Chrétien, Mr. Graham, and Mr. Calder.

Mr. Deepak Obhrai (Calgary East, Ref.): Thank you. Now that Bob's not here, we can talk, right? The government won't keep an eye on us.

Bill, remember what Mr. Paterson said: taxes are very high.

Mr. Bill Graham (Toronto Centre—Rosedale, Lib.): It's in my software program. Every night I go on my computer and....

Mr. Deepak Obhrai: Anyway, it's very interesting, and I have two questions, one from the high-tech end and one from the agricultural end.

Something captured my attention. I would like the high-tech people to answer, meaning Mr. Paterson. This will be on historical access, which you were talking about. We had historical access, but with the EU becoming the block that it is, I presume that historical access has been lost, as you said.

Mr. Paterson also brought up a very good point, in that you have fifteen countries that are all different. They have different business environments, cultural environments, and all these things. Countries like Britain and France find it easier to gain access to North America than within the EU.

The question for both of you—I would like your thoughts on this—would be this: Because Europe has fifteen countries, is it not better for Canada to promote more bilateral talks with individual countries in order to solidify those individual markets, those historical markets you were talking about? The danger then comes from the new countries that are in line to come in. If they go under this whole umbrella, we're going to lose the market again, the historical market, as you identified.

• 1750

Would it not be good for our trade officials and for ourselves to see if it's somehow possible within that, or to bring it to the attention of the Europeans? Why not go through sectors into countries? Why do we have to have this one European policy, which may not be suitable to a country within the fifteen countries? Is that not a way we can penetrate that market, the agricultural market?

I remember talking in Seattle with the European Union parliamentarians. Believe me, they're absolutely wide apart in agricultural policy. Some of them agree. Would you not say that?

Mr. Don Knoerr: The word you want to remember is “common”. The agriculture policy tends to be an exception to the pattern in the European Union. That's the largest single part of their collective budget. There's a historic reason for it. It was probably essential to bringing the original countries together that they have a strong, collective agriculture promise to replace the individual competitiveness and protection policies in the individual countries.

I would not say there isn't merit in dealing with the individual countries, but on agricultural policy issues, the way the European Union is structured, that is a common policy. That's a function of the commission. You have to deal with the commission if you want to deal on agriculture policy. I'll tell you frankly that my impression is that we probably have more sympathy from the commission, the collective side, for some of our concerns and the regulatory problems we're trying to sort out than we would get if we went to the individual countries.

Undoubtedly it's a very diverse market, and you're looking for market opportunities. You want to look at the different aspects of the agriculture market. In the one area of decisions related to agricultural trade rules and regulatory rules relating to agriculture, you don't have much choice; you have to deal with the European Commission because that's the way it's structured. You may find some allies, but my experience is that it's basically a government-to-government process. That means Canada and the commission are equivalent governments.

Mr. Deepak Obhrai: So we have WTO and in your case you talk about intellectual properties and all those things. If you have that, then our best route for increasing trade is through WTO.

Mr. Don Knoerr: To make formal substantial reform in agricultural policy in the European Union, I don't think there's any route but the WTO.

Let us be clear; in my opening remarks I wasn't suggesting that there wasn't value in freer trade agreements with Europe. All I was saying was that given the history of agriculture policy, not only would agriculture not be the driving force to freer trade, it would be the exception. If you want to deal in a substantial way with the agriculture rules and policies in the European Union, I think the only route to take is with the WTO.

I would say even if that's true, there's a great deal of merit in looking in a less formal way at some common interest points we have, not only with the commission but with the individual countries. We should be exploring our relationships, trying to find more constructive and positive relationships, so that when this rule-making takes place, we're in the best position to shape it in a way that's....

The average agricultural tariff of the European Union is four times as high as ours. Canada is one of the very few countries whose agricultural tariffs on average are lower than our industrial tariffs. The picture in the European Union is the total opposite. It's going to take a certain amount of time, even if there is a desire, for that to evolve. We have to keep the pressure up.

There's one thing I think we want to avoid, and I mentioned it in my brief. Because there's such a difference, it's easy to get trapped into a “we-they” mentality. In other words, they're almost the enemy and the Americans, who espouse free trade, are the friends. Well, if you try to run agricultural trade with the United States, after a while you're aren't sure who your friends are any more anyway.

• 1755

I think there are positives. I think we should emphasize it and keep the pressure up for reform. On the basic rules, you have to deal with the commission because that's the way their policy is set up.

Mr. Deepak Obhrai: And you, Mr. Paterson?

Mr. David Paterson: In the high-tech industry there are almost no trade barriers existing any longer. Where they exist at all, tariffs are trivial. There are non-tariff barriers to trade over which companies have stumbled from time to time, technical specifications for telephones and things like that, but even they have largely disappeared. There were substantial issues, which are less now, surrounding the deregulation and privatization of European PTTs, the telephone services, but progress is being made on that front.

The one area where there are still significant problems is the area of intellectual property rights. The countries within the European Union itself are fairly reasonable. Most of them have a software piracy rate below 50%. Even within the EU's current membership, there are countries where it's significantly more than that. The real problem is on the eastern boundary of the EU, where the protection is negligible or non-existent in many countries. This is an issue where the WTO, through the World Intellectual Property Organization, has created policies and regulations and treaties, which have been signed by many countries but never enforced. That's the problem.

In terms of dealing with the EU countries individually versus dealing with the EU itself, in our industry there aren't many significant issues where that strategy would have any benefit to the industry.

The Chair: Thank you.

Mr. Chrétien.

[Translation]

Mr. Jean-Guy Chrétien (Frontenac—Mégantic, BQ): Since I represent the riding of Frontenac—Mégantic, which is home to the largest deposits of chrysotile in the world, my questions will be directed to Mr. Hamel.

As I listened to you earlier, I recalled, on glancing at my notes, that on July 1, 1996, France formally announced its intention of banning virtually all asbestos imports into the country as of January 1, 1997.

I urged the Prime Minister and the then minister, Mr. Sergio Marchi, to file notice immediately with the WTO that Canada intended to challenge this decision which was not based on any serious scientific data. However, more than two years went by before Canada filed a complaint with the WTO and according to our reports, a ruling should be handed down with the next few months. Will the WTO rule for or against asbestos producers? Stay tuned.

I know that the industry is concerned about the snowball effect and you spoke about this in your presentation. Currently, ten EU member countries have imposed a virtual ban on chrysotile asbestos and on asbestos within their borders.

By the way, to my mind, there is quite a big difference between chrysotile and asbestos. Rumour has it that within the next three, four or five years, the product will be banned in all 15 EU countries.

Now for my first question: If we win our case before the WTO, and I hope that we do, I still think the EU will go forward with its plans. We would then be entitled to receive some form of compensation. If that's in fact the case, to whom would this compensation be awarded? It's a hypothetical question, of course, but you are not a politicians and I hope you will hazard a guess. Would the compensation award go to the Asbestos Institute, to asbestos producers or to the Government of Canada?

• 1800

I have a second question for the witness, but I'll wait until I've received an answer to my first one.

Mr. Denis Hamel: While I do defend the industry, I am not an expert in international trade. If we win our case at the WTO, and I hope we do as well, we are not expecting anything extraordinary to happen in terms of the European market opening up to us again. Obviously, they inflicted serious damage on the industry by demonizing all products containing either chrysotile or asbestos. They deliberately do not distinguish between the two.

However, if ever we were to win the appeals process, based on what I know about this industry, I do think we would be compensated in some way. However, I don't think the industry or any one agency helping the industry would be on the receiving end of this compensation award. I'm choosing my words carefully, because I'm not familiar with such matters, but I think the government would be the likely candidate to receive some form of compensation for the exports losses sustained.

Mr. Jean-Guy Chrétien: I am one of the people who champions the safe use of asbestos. We need more than mere words or slogans. In response to queries about this matter, the Prime Minister always talks about the safe use of this product. Once again, I'd like to invite the two levels of government and the industry to invest substantial sums of money in promoting the safe use of chrysotile asbestos.

This brings me to the subject of alternative products or substitutes. Some people tell me that certain substitutes are worse than asbestos. Furthermore, you're saying that these substitutes are more expensive and less durable. When France banned asbestos on January 1, 1997, a list of such products was drawn up. I also recall that asbestos brake linings were still permitted to be used on trucks weighing five or more tons because a safe product was required on hilly terrain, particularly in Switzerland and in the Alps. Asbestos brake linings were considered safer and more reliable for these types of vehicles. However, other vehicles were required to use asbestos-free brake linings.

I encourage you - and that's certainly your job, Mr. Hamel - to promote the safe use of asbestos. As for costs, I have no idea of the size of your budget, whether it's in the thousands or millions of dollars, for promoting the safe use of this product, but I do know that in some developing countries...for instance after a tornado struck Honduras, a substantial amount of asbestos was purchased to mix with cement for the construction of roofs and walls. In warm climates, no product is better than asbestos cement and the product presents no danger whatsoever.

Let me relate an amusing anecdote to my colleagues. When we were little, we used to go with my father, who had a truck, to collect asbestos residue to use as fill. As six- and seven-year- olds, the fun and the challenge for us was to find the longest asbestos fibres we could and to swallow them. The bravest one swallowed the longest fibres. I grew up and still live in the asbestos region and there is no danger. At least I hope there isn't. The proof is that I'm still alive and kicking.

Mr. Denis Hamel: I'd like to respond briefly to your comments. You rightly spoke about promoting the safe use of asbestos and I'm working hard on this. Clearly, this is crucial to the future of this industry.

The first step is sound regulations. Banning asbestos, as ten European countries have done and as the EU is preparing to do, doesn't resolve anything, except perhaps affect people's perception. I would say that banning this product even creates more problems.

• 1805

This ban frightens people into thinking that they mustn't touch or use this product. You would be amazed to see the type of inquiries we receive every day from consumers who do not know how to react to these alarmist reports. For example, we get people asking us such improbable questions as this: I have an iron that contains some asbestos fibres. Should I throw it out? Will it kill me?

By sound regulations I mean regulations that do not ban asbestos outright, but rather spell out which uses are safe, and which are not. The same is true of lead, gasoline and electricity. Not just anyone can install an electrical outlet. If done improperly, the outlet can be hazardous. The same holds true for asbestos.

Therefore, if countries around the world could recognize this principle, that would be an important step forward. Along with sound regulations governing the use of this product, proper training should also be provided to workers who use the product, and the public should be kept well informed. Why do people associate asbestos with danger? Why do people speak of chrysotile, and not asbestos? There is a good reason for that, namely that different fibres are collectively referred to as asbestos. Some are fairly dangerous, while others are not. Some forms such as chrysotile, can be carefully controlled and are far less dangerous.

Regarding substitutes, you are correct in saying that there are exceptions to everything, even in those countries that have banned asbestos. In determining these exceptions, the factor that comes into play is not health, but rather performance. The nuclear, aerospace and military industries throughout Europe use asbestos. Why? Not because it poses less of a danger that asbestos cement sheets, but because it's a good product for which there is no substitute.

As you know, the margin of error is very small in the case of the nuclear and military industries. Asbestos is acceptable when it comes to five ton trucks and many industrial jobs simply because there is no substitute available.

You're correct in saying that certain alternative products are considered potentially more dangerous that chrysotile. Of course, there is no solid proof of this because asbestos has been extracted and used for only the past 120 years. In the case of chrysotile, experience has shown that when used incorrectly, the product can be dangerous. Experience has also shown that if used correctly...Undoubtedly you know that hundreds of current and former asbestos workers have no health problems whatsoever because of the safety precautions in place in Quebec's asbestos mines since the 1960s.

The same applies to substitutes. The effects of their use won't really be known for ten, fifteen or twenty years. Fiberglass workers in Ontario are experiencing major health problems. When fiberglass replaced asbestos in the 1960s, people said that the product posed far less of a risk than asbestos. Workers did not wear a mask when installing the product. They inhaled some fibres, but it was thought that the product posed no threat to them. Today, we know that wasn't the case. Today, fiberglass use is regulated. Workers must wear a mask and if the environment is dusty, the area must be well ventilated. The same holds true for asbestos.

In my presentation, I mentioned 600 products that are regulated. We need these products and they mustn't be banned. We need to learn to use them properly instead of going off half-cocked and banning them outright, particularly when we know that the real issue here is trade and economic interests and a desire to protect a new market.

The Chair: Thank you very much.

Mr. Graham: Since I've never eaten asbestos, Mr. Hamel, I don't think I have any questions for you. We'll find out how to bake an asbestos cake at our next meeting.

[English]

I have two brief questions, one for Mr. Knoerr and for Mr. Paterson.

Mr. Knoerr, can you help us with wine exports to Europe? This is something that is quite troubling to those of us in Ontario. You cannot get wine into Europe. Europe sends some hundreds and hundreds of millions of dollars worth of wine into Ontario and Quebec, and our governmental agencies buy it. We don't seem to be able to persuade the European community to lift their restrictions, tariffs, or whatever barriers there are. At least that's what I'm informed by the wine industry in Ontario.

Admittedly there are limited types of wines that would be exported to Europe. It would largely be sweet wines—our high-quality wines, the late harvest types of wines. I'm told it's largely the German industry, with its Spätles and all their wines, that is trying to keep it out. I'm also told we're near an agreement on this.

Do you know anything about where we are with Europe on the wine business?

Mr. Don Knoerr: No. I would suggest you talk to Roger—I'm in a block—from the wine group, who is a member of the SAGIT. I suggest you contact him. I have some marginal knowledge on the regulatory problems. I certainly share your impression that there's something very inequitable about it. We have agreed to the rules and opened up ours, but I can't give you the details.

• 1810

The name is Roger Randolph.

The Chair: I've just been advised by the clerk that on March 22 we're going to have people from the industry.

Mr. Bill Graham: As you may know, Madam Chair, Mr. Caccia, the chair of the Canada-Europe group, will be taking a group to Europe to go to the European Parliament. We raised this with our parliamentarian colleagues in Seattle at the lunch Mr. Obhrai was at. They all sort of looked at us and said “Oh, we can't believe we would do anything like that”. We said “You are”. It's one of those crazy things.

Okay, we'll raise it with some of those people.

Mr. Don Knoerr: I would make the point I made on the earlier question: that in these agricultural areas, if you want to make progress you have to get at the commission officials, although the local wine dynamics obviously are a factor.

Mr. Bill Graham: Maybe we should just do what the French would have done. They would have lost $300 million worth of shipments in, and that would have quickly cured it, the way we dealt with automobiles about ten years ago. That's my recommendation to the LCBO, but they'll never take it up. Maybe one of these days we'll get mad enough to do it. Maybe if we put $100 million worth of German wine in the bottom of the basement for two years until they discover it, we could cure that one. Anyway, that's another discussion.

Mr. Paterson, on non-tariff barriers, it's interesting. You say there are almost no barriers to entry left—and I'm talking about the European Union at the moment, not the countries outside it. I understand, however, that the United States made an agreement with Europe in Madrid, I think it was in 1997, that addresses a lot of non-tariff barriers, particularly standards, which I thought would be of interest to your industry.

There was some discussion that we should be trying to replicate that agreement with Europe. We were unable to do so for a considerable period of time because of our frustrated relationship over the fish war we were having on the east coast. That's now gone away. Do you know, from your industry's point of view, whether pursuing those negotiations would be helpful or not?

Mr. David Paterson: It undoubtedly would, but it is not a prominent issue at the moment. These are largely telecom equipment standards. They vary from country to country. Most of the players in the industry have long since found ways to meet their requirements, as they differ from country to country. While they would like them to go away, they would like harmonization across Europe. Then they wouldn't have to build so many different types of products.

This was never something the European industry supported in the past, but the way things have gone with the explosion in telecoms in the last five years, the European industry is coming around. That will be a powerful incentive for the differences that exist at this time, to disappear.

While we may not have our own established relationship on standards with the European Union, we tend also to benefit from the agreements they negotiate with other countries. It's not a high-profile issue at the moment, but it always lurks in the background—technical standards.

Mr. Bill Graham: So we're not significantly disadvantaged vis-à-vis the U.S., because if there are chaotic standards all over the place, then the Europeans themselves have the same problem. Nobody is disadvantaged, whether you're an importer or exporter.

Mr. David Paterson: Not particularly.

Mr. Bill Graham: You're telling us that in the old days the problem was government procurement, and that's gone away because of privatization.

Mr. David Paterson: The old days that prevailed in Canada, where Northern Telecom was the supplier to Bell Telephone, in Europe each major country had a government-owned PTT, and each major country had its own indigenous supplier.

Mr. Bill Graham: Thomson.

Mr. David Paterson: Thomson, Alcatel in France, Siemens in Germany. I don't know who it was in the U.K. It's kind of faded from my memory, but each country had a combination like that. As the pace of change in technology accelerated and the PTTs were privatized, that has pretty much vanished now.

• 1815

Mr. Bill Graham: I have one last quick question.

Regarding the eastern European countries you referred to, you were in Hungary recently, and you were told that they were making big efforts to bring up their standards to European standards. Which countries would you identify? I got the impression that Poland and Hungary were moving fast along the route.

Mr. David Paterson: I believe Hungary would be ahead of the Poles, because the Hungarians have a pretty dynamic software industry of their own. They want to export their own products and services, so they have suddenly developed an intense interest in intellectual property rights. It's less the case in Poland, for example. Czechoslovakia has made good progress, but in places like Russia—well, Russia's not a candidate for membership—the situation is laughable.

Mr. Bill Graham: Thanks.

The Chair: Mr. Calder, then Mr. Shepherd.

Mr. Murray Calder (Dufferin—Peel—Wellington—Grey, Lib.): Thank you very much, Madame Chair.

Mr. Knoerr, Don, I'm vice-chair of the Standing Committee on Agriculture and Agri-food, and a farmer in my other life. One of the big concerns I have—and I want to know whether you're aware of it—is with the carry-forward clause that the Europeans negotiated in 1993 and we signed in 1994. That's a clause they're faced with. It's a sort of “use it or lose it” type of situation. They have two good years of subsidies that they've accumulated, and unless they're used by the end of this year, they're gone on December 31.

In your travels, in your discussions with them right now, what would your evaluation be? Do you think there's any chance of them using the 37.8-million-tonne wheat subsidy that they could use, and do you think there's any chance of that coming out in the international market?

Mr. Don Knoerr: Well, yes, there is a risk, and it's not.... There's no question a lot of people were surprised when they read the details of the agreement, because there was an annual limit based on a staged reduction in the amount they could spend and also the volume of product they could use export subsidies on. That's what the question is about: export subsidies. But there also was a sleeper in there saying that if they didn't use them all in one year, they could use them in the following year. The only thing is that at the end of that time, as you said, by 2000, when the implementation period is over, the specific limit there is what applies. And they have demonstrated that if they think they need it, they're quite prepared to do it.

I don't have enough information on the dynamics of the market to be able to forecast whether they will. They don't use it if they don't need to under their system. There was a period when they actually had an export tax on certain types of wheat. They have a very managed market. There was that brief period when the world price actually got higher than the domestic price, and they were managing the domestic price and the domestic supply. If they hadn't put an export tax in, they would have had product actually sucked out.

The wheat markets are not very good. I don't have to tell you that.

Mr. Murray Calder: That's right.

Mr. Don Knoerr: The only thing I will say is yesterday in the SAGIT somebody in the grain trade said the supply situation was actually getting a bit tighter on wheat, so that's minor. But no, there's nothing we can do about it. We want to be careful. The European Union is not playing games; they're exercising the legitimate rights they have.

It emphasizes two things: it's a hard job changing things; and when you think you have an agreement that's meaningful, you'd better read the small, fine print very carefully before you decide exactly what you've agreed to.

In fairness to the European Union, as far as I know they've done a good job of honouring and living within their commitments, but their weasel room is a little bigger than a lot of us thought when we first saw the agreement.

Mr. Murray Calder: My concern is that both Larry Combest and Dick Lugar have said that EEP is still on the shelf, and if they have to use it, they'll use it. That concerns me greatly.

• 1820

Mr. Don Knoerr: The interesting thing, the other side of the coin is—and I've just started looking at what the U.S. does in export promotion, food aid programs, export credit, and so on—that yes, there is a risk the U.S. is going to do that, but the U.S. is also in the process of creative invention of new domestic support programs. They seem to be....

We saw that in Seattle. The Seattle round agriculture committee put on a seminar one day with senior people from the U.S. government. One moment they were preaching the philosophy of fair and open markets, having to get rid of export subsidies and get responsible disciplines and domestic support; and it wasn't much later, in answer to a question from a U.S. farmer in the audience, that they said that if necessary, they would do what is needed to support domestic producers, regardless of the...they didn't say it, but it was regardless of the consequences to somebody else. So they had demonstrated.... Once you cross the border, it's a no-man's land. That's why we need fair, effective trade rules.

I think my observation about not getting a we-and-they mentality with the Europeans is an important one. We have substantial problems. If the European Union agreed to eliminate export subsidies, whether the U.S. really wanted to or not, there would be no question, they'd get rid of them. But in some ways, the European Union is at least honest and fairly transparent about what they're doing. They're very stubborn, and when you have to run a consensual process as they do, it's not easy to change. You know how democracies work with a federation of groups. We have a bit of that at times in Canada. But at times it's a lot easier to know where the Europeans are and what you have to deal with than with agriculture policy in the American counterpart.

It's a long haul. We have to stick together, work hard, and try to improve our relations as we go. There are no easy solutions to this one, I don't think. Hopefully we can get a good round of agriculture negotiations, but it's going to be a while now, the way it looks.

Mr. Murray Calder: Do I have one last question?

The Chair: Yes.

Mr. Murray Calder: You had referred before, Don, to the Europeans being very resistant. Yes, it stems from the Second World War, and the philosophy is “we'll never freeze or starve in the dark again”.

When we started this process back in 1993, we had 117 nations sign on. We have 135 now. We have another 35 in the corridors waiting to come in, including China and Taiwan.

GMOs are becoming a very major problem, and you've already touched on that. What would be your evaluation of the chances of us achieving international standards across the board, something similar to ISO, in health and dealing with these practices of biotechnology?

Mr. Don Knoerr: I would hope that in the long run we very definitely can, because that's the logical solution. You have to have international sound-science standards everybody can live by, otherwise you have a no-man's land and a risk that you're always going to get unjustified trade barriers. But we're a ways away. I mean, all you have to do is turn on the radio, and just ignore agriculture.

Technology is changing rapidly, and there's a lot of public uncertainty and nervousness about what the implications are. Some of it may be based on things that have nothing to do with the facts, but it's there and we're going to have to work with it.

One of the things that has become apparent in Seattle, and in the process in the last month, is that the developing countries aren't quite sure yet whether they have received a fair deal on this. They seem to think the rich countries got all the goodies out of the trade agreements, but they're having to make concessions.

That was one of the unresolved questions our Minister Pettigrew was working very hard on, and I think he was providing good leadership. But it's not clear just how we're going to work through that. One subset of that is that certainly a lot of the developing countries, because they don't have the technical expertise, are very nervous. You saw that in this recently negotiated biosafety protocol.

Canada went into Seattle—and it's part of our agriculture mandate—asking for a working group on biotechnology in the WTO, not to start out saying we're going to solve all the problems, but to establish a sound factual basis, to understand and identify the issue, and then constructively work toward resolving it.

• 1825

Actually, my impression is that we had pretty good support for the European Union for that approach. The Americans, on the other hand, wanted a quick fix. They were pushing. They were working with the.... But I think maybe it would be useful if we go back and try to find support with the European Union and other countries, to go back to this and say okay, it's going to be a while before we get a broader negotiating mandate, the agriculture negotiations are the time to get steamed up, and this might be a good time to start some sort of working group on biotechnology, because we have definitional questions, we have labelling questions. This biosafety protocol may be workable the way it's negotiated, but there's development work that has to be done on it to make sure it will work for our bulk commodities.

There are no magic solutions. All you have to do is turn on the radio in the evening. Somebody well known had been doing some stuff on the CBC a little while ago. You get a sense of some of the problems we have to deal with.

The Chair: Thank you very much.

Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): Mr. Paterson, I have a very simple, not very profound question.

Your comments seem to say that because of our proximity to the United States, the American market is the only place to be, that it's a lot easier to do that than deal with the European Union. Also, we have a multiplicity of linguistic and other barriers—real barriers—for Canadian companies to compete in that market. I wonder if that's not a sad accolade in some small way. Obviously that's maybe a statement of the way things are, but isn't it a little short-sighted on behalf of Canadian industry to sort of dismiss this obviously emerging market? Wouldn't this more logically be the time to somehow get a toehold or a foot in those markets?

Mr. David Paterson: They don't dismiss those markets, sir. What they do is.... There's a logical process to this. To a large degree, it's a question of scale. If you're a small company with a limited amount of money to spend on marketing, you're wise to spend it in the biggest, least costly market. If you can get in your car and drive to a market that has 200 million customers, aggressive customers that are very interested in buying new technology, it's logical to do that. It's more logical to do that than to get on an airplane and travel 3,000 miles to another market of the same size that is subdivided into multiple parts and is much more complicated and expensive to address.

As I said, once they're established, it makes no sense to go overseas if the biggest market in the world is right next door. That's where they all start, but once they're there and established, they're never satisfied. They're always looking for the next big opportunity. When they have a position in the United States, they look at Europe and say, okay, which of the European countries is the logical place for us to go to next? Or if they're in Vancouver, they look over at the Pacific and say, all right, do we want to go to Tokyo or do we want to go to Hong Kong next?

It's largely a question of scale. Marketing offshore, outside North America, is very expensive. When you're small and you don't have much money to put into it, it's much more efficient to concentrate on the American market. Notice that it's the American market. The smart players in this game don't pay any attention to Canada either. They pay as much attention to Canada as they pay to Hong Kong.

Mr. Alex Shepherd: Fair enough. I know some of our exporters in your industry, companies, seem to network together, like Newbridge, Nortel and so forth; they share office space in some of these areas in Europe. Is there some kind of role that governments can play there to maybe address some of the economic issues that you're talking about, to try to find some way to lower their entry costs by pooling some of their concerns?

Mr. David Paterson: There are actually European governments that would be delighted to help you do that. They are very keen to attract investment, particularly in the new organizations, particularly in the high-technology industries.

• 1830

The Netherlands has some very attractive programs, and I mentioned that Corel is in Ireland. The Irish have a nifty little program called “no corporate income tax for ten years”, which has led to the fastest-growing IT industry in the world, probably. They had no high-tech industry ten years ago, and now they are encountering shortages. They can't get trained people. There's a shortage of university graduates in Ireland now.

The role we have encouraged DFAIT to pursue, particularly in Europe, is to establish a knowledge base in the local high-tech industry that allows them to quickly identify suitable partners for Canadian companies that are looking to enter those markets. If they do that, it gives them the foot in the door that gets them started up the complex learning curve of dealing with the European market. This is where the greatest value-add can be found from Canadian government activities in Europe.

The Chair: Mr. Graham, very quickly.

Mr. Bill Graham: What's your evaluation of the balance achieved in the Montreal biosafety protocol? The desires of some people in the trade community and the desires of the agricultural community are.... You mentioned the problems we were having trying—

Mr. Don Knoerr: Yes, it's—

Mr. Bill Graham: This was obviously a very complicated issue.

Mr. Don Knoerr: These were difficult negotiations, and it's too early for me to make a totally knowledgeable judgment. My impression is that Canada did do a good job under a lot of opposition—we were in a real minority position for a while—to try to move towards rules that are realistic. It's fine to make sure you deal with any potential problems, but you need to have rules that make some common sense in terms of how a product is traded.

There's going to be a consultative and review process. My understanding is that there is some refinement to some elements of the agreement that has to take place before you really know exactly how it works. The proof of the pudding may very well be in that refinement. I think we're all going to be looking at it. My understanding, from talking to Richard Ballhorn, who is the chief negotiator there, is that there will be a public review process and a look at it before any formal decision is made on signature. I think the important part of that process probably will be identifying what we need to do in addition to make sure it's workable and practical.

Mr. Bill Graham: Thank you.

The Chair: I have one last quick question, Mr. Paterson, just to follow up on what you're saying about the role of establishing this knowledge base.

One of the things this committee also wants to examine is the role our embassies or our trade commissioners play in assisting business. Is this something that your industry takes advantage of? Is this base you're talking about something that our trade commissions and our embassies can work at? Where do you see this fitting in? Do you see an increased role for our trade commissioners overseas?

Mr. David Paterson: This is the critical role of the trade commissioners in dealing with our industry: developing a sound knowledge of the local industry and who the leading players are, for the precise purposes of assisting the small company that wants to enter that market and identifying potential partners for them. Do they need a distributor? Do they need someone to whom they can license the product because it needs to be localized and translated and all of the other issues that involve moving to a new market with another language?

I can tell you that given the boom in the high-tech industry in the last few years, some of the trade people in Europe are run right off their feet. They're overwhelmed by the number of companies that are calling on them for help. This is one of the difficult issues DFAIT has had to face in managing their resources: keeping up with the demand for partnering information and market intelligence in the fast-growing markets.

• 1835

The Chair: Thank you very much. This is very helpful. Gentlemen, thank you very much.

Colleagues, thank you.

Again, we apologize for the delay in starting.

The meeting is now adjourned.