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, March 22, 2000

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[English]

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

We are privileged to have members of the Forum for Young Canadians here with us today.

So welcome, ladies and gentlemen.

One of the things this subcommittee is studying is the economic relations between Canada and Europe. One of the areas that we feel we need to put some effort into is expanding our trade.

I know there has been a lot of talk about globalization. One thing that we can't forget is that right now 42% of Canada's gross domestic product is related to trade. While our largest trading partner is the United States at this point in time, as a committee of the House of Commons we are looking at how we can expand our trade.

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I welcome you here today. I hope you will enjoy our representations. It's a great pleasure that we welcome again Mr. Keyes, who is the senior VP, international, of the Canadian Chamber of Commerce. You must understand that Mr. Keyes was one of our first witnesses, but Mr. Keyes could not make his deputation at the time because the bells were ringing for some unknown reason. So Mr. Keyes has joined us again. We also have with us Mr. Randolph, who is the president of the Canadian Wine Institute.

Welcome gentlemen. Thank you for coming.

Mr. Keyes, please begin.

Mr. Robert Keyes (Senior Vice-President, International, Canadian Chamber of Commerce): Thanks very much. I appreciate being fitted in today to accommodate my schedule.

The topic the committee is looking at has many facets, and I could talk for a long time about it. There are 17 pages of text here, if I want to use it all, but I'm not going to. I just want to hit a few highlights and then perhaps we can have a discussion.

First of all, let me start with some statistical trends. In our hearing, which was aborted before, and in briefings you received from Foreign Affairs officials, you've had presentations on the trends numbers. Canadian merchandise exports to Europe have gone up some 36% from 1993 to 1998. The figures for 1999, while only available up to the end of November, show a small growth in 1999. In terms of investment, Europe is a very strong investment partner. While we hope that trade will follow investment, it's possible that at least some of that investment is made to facilitate inter-European trade rather than to increase the physical export of goods from Canada. It's really difficult to know.

We've also done some recent work on investment barriers and have looked at barriers that Canadian companies have faced around the world. I'm happy to report that the returns we received from those showed that, barrier-wise, there was really nothing that stood out in terms of Europe, and Europe is not a problem compared to various other areas of the world.

So while the real numbers show things going up, there's a problem, and the problem is a relative one. While our trade deficit with Europe is increasing, that gap continues to widen.

Similarly, the EU share of total Canadian exports has not grown, notwithstanding the fact that the EU share of exports to countries other than the U.S.A. has remained stable. So on a relative basis, it's going down on both sides.

In this good news, bad news story, is the cup half empty or is the cup half full? I'd like to think it's half full. Strong export performance by Canada has obviously been primarily driven by our trade with our NAFTA partners. Trade has grown with Europe in absolute terms and it includes more high-valued, manufactured high-tech goods than it did previously. With the advent of electronic commerce and the growth of Canadian companies in this area, it bodes well for the future.

I had a quick look at some statistics for U.S.-EU trade and EU-Australia trade and they're showing exactly the same trends as with Canada. So we're not unique in this. It boils down to Europe concentrating on its knitting and NAFTA partners concentrating on their knitting.

Perhaps the best way to tackle the subject is to very quickly look at the questions that were set out in your background paper. Let me turn first to the one dealing with Canadian visibility and activity in Europe and the notion of a Canadian business champion.

Conventional wisdom says that Canada should be more visible on the European business radar screen, but this has proved to be elusive. The committee's background paper and the Senate report last autumn talked about an “enormous information deficit” regarding the Canadian economy in the minds of European business executives.

It's rather simplistic to say that Canada is often perceived as the snowbound satellite of the U.S., with wide-open spaces, rocks, trees, and fish to offer and that's it. There are information and reality gaps about what the Canadian economy is, but I think the reality is much more complicated.

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Companies looking for foreign opportunities are sophisticated. They do their homework. There's so much information available to flow around the world that the stereotypical image shouldn't be a significant factor, even though it still is, and there shouldn't be an information deficit. If anything, these days there's an information overload. And there's also competition at work. So I think our challenge is to be heard and to compete in the range of opportunities that are available.

There are other factors that have to be brought into this equation: competition for the investor dollar, corporate structures, branch plants, product mandates, linkages, the regulatory climate, trade rules, market size. These are all factors that affect this equation.

It's also simplistic to suggest in the way the background paper does that Canadian businessmen are ill-informed about the European market. This to me implies there's a systemic failure to ensure that information is available.

My previous business experience, admittedly based on the resource sector, is that the business community is often far ahead of where government is in terms of discerning specific business opportunities. And the timeframes and the premium of information...that world is changing so rapidly...and the advent of the Internet and different communications. The information is there.

Why is our relative position in Europe slipping? The key factor is that many Canadian businesses prefer to concentrate on the North American market, pure and simple. Geographic proximity, NAFTA, strong north-south linkages—these are the reasons why our trade and investment linkage with the U.S. is so strong.

This of course leads to a dilemma. From a trade and investment policy perspective, there's a strong problem of being so dependent on the U.S. From a business perspective, the other end of this dilemma is that it's far easier to conduct business in the NAFTA context. So we have this dichotomy. We have this problem. And given a choice of growth opportunities either in North America or in Europe, companies choose North America.

There are also the perceptions, rightly or wrongly, that European markets are hard to crack, are old world, protectionist, bureaucratic, and full of barriers. Countering these views is important for both Canada and the EU governments. Otherwise, companies are going to vote with their feet and they're going to go where they perceive the best opportunities to be.

Companies have done just that. They have gone elsewhere and not to Europe, because they have encountered real barriers, not only tariff barriers. There are tariff issues and there are barriers in other forms: customs procedures, labelling, registration requirements, sanitary and phytosanitary requirements, regulatory requirements, the structure of distribution systems. There's a whole host of factors here, where in a modern trading environment there's more than ample scope for mischief on non-tariff barriers. Not only can they impede entry—and we're soon going to hear about wine—but they can also deter a company from even trying to do business in that market if their perception is that they're not going to get through...especially for smaller companies. They don't have the staying power.

So I think it would behoove your committee, as part of its study, to seek input on a very specific basis on barriers that may have discouraged companies to look further at Europe. Fixing these kinds of impediments has to be a priority, and it shouldn't have to wait for a broad-based trade agreement.

Finally, in the end countries do not trade or invest; it's businesses. It's the private sector that does the work. Government's role is to create the framework of rules, to encourage and influence trade and investment.

Governments can also play an important information role, but in the end it's the decision of the individual business to go where it perceives the opportunities to be best. That's what their shareholders want, that's what their financial advisers want, that's where they're going to get their returns. And if that's closer at home, then business shouldn't have to apologize for seizing those opportunities.

Let me turn to the issue of championing strong transatlantic trade links. Committee members may be aware of the Canada-Europe business round table, or CERT for short. CERT arose out of an initiative of several Canadian and European companies based in Brussels to promote a business-to-business dialogue on a Canada-EU basis. There have been a couple of meetings. The model has been evaluated and we're looking at trying to find business champions on both sides of the Atlantic to move the initiative forward.

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The EU Commission, the Canadian mission in Brussels, and officials in DFAIT headquarters here in Ottawa have been very supportive. But we're still trying to get the model right. We're still trying to find a way that's going to make this thing business-led and that in the end is going to make it sustainable. We have not yet identified a clear Canadian business champion, but I hope we will be able to.

I hope that whatever direction CERT takes, there's going to be a voice there for small and medium-sized companies, because that's where we have very rapid growth in the Canadian business sector, especially on the service side. CERT to date, I think, has been primarily aimed at the large companies, and getting the voice of small companies in there has proven to be difficult.

Just before I leave this issue I want to give a report to you. I was at a meeting last week with some of my European counterparts, and I said to them “Where's Canada on your radar screen?” I just want to explain the process we're going through here and the kinds of questions we're answering. I think I got several directions. Number one, we're seen as a satellite of the U.S. The U.S. gets the primary attention, and we're some sort of snowbound northern end. The U.S. may be a launching pad into Canada. They could not identify Canadian products, companies, or services that really stood out as a real must-have in the European context.

I also asked about the concentration of effort. The answer was, you guys are concentrating on NAFTA and we're concentrating on opportunities in the EU; with the expansion of the EU into eastern Europe, that's where our focus is going to be.

When I raised the notion of a broad-based trade agreement, there was very little enthusiasm. That's going to be a tough one for us to sell.

Now, these are people who are pretty well plugged into the business community, but I just share with you the kinds of answers I got because I think it does bear on the kinds of issues we're talking about.

The second question you had was with regard to geographic trade priorities. I think this is a question primarily for government officials to answer, but I'll make a brief comment. Our priority has to be the relationship with our largest trading partner. When we discussed geographic priorities within our international affairs committee and received the results of a very recent policy survey we did of our members, NAFTA-U.S. comes out a clear winner, followed by Europe, APEC, and Latin America. We know that Team Canada was rumoured to go to Europe for its next trip, but that has now been changed to China. I hope that Europe will remain on the Team Canada destination list.

With regard to your third question on the effectiveness of trade promotion, I think that's a question more for government officials than for business. I would just note that, obviously, government resources devoted to trade promotion have been paired down, and this cannot help but have an impact on presence and visibility and on the ability of our posts to act as clearing houses for information and to project opportunities for Canada.

I would just note something too. The EU has been active in trade and investment promotion in Canada, trying to stir the pot here in our country, but they have found that their efforts have only had a modest reception from the Canadian business community. For example, a recent seminar I was told about, to inform Canadian companies about the implications of the Euro, attracted only 35 companies. A seminar on doing business in Canada attracted 50 participants. So what's the message from these sorts of results? I don't think it's clear. It could be read as disinterest. It could also be read as Canadian companies that want to be in Europe know what they need to know and they're acting accordingly. It's very much a mixed picture.

As a sidebar, I would suggest too—and I've had this discussion about our visibility efforts in Japan—that our efforts at tourism promotion may well undercut efforts to educate Europe about our changing economic profile. We emphasize wide open spaces, clean water, vast landscapes, forest, wilderness, and aboriginal encounters, all of which are very popular. Is this running counter to the economic imperatives of a sophisticated culture, high technology, advanced manufacturing, and an electronic economy? How can we bring these two together so that these efforts don't perhaps—and I'm only surmising—work against each other?

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With regard to your fourth question on government-to-government mechanisms to boost trade, I think the key point here is whether or not the notion of a Canada free trade agreement has any currency. We have heard from some companies that they're examining the implications of the EU-Mexican agreement to see what the opportunities might be to get preferred access to the Mexican market. I think it's too early to know what the fallout could be, but, clearly, we need to think about our trade interests and the implications of that Mexican-EU agreement.

In a meeting in mid-December between the CERT and the two ministers of trade for Canada and Europe, Mr. Pettigrew and Mr. Lamy, I specifically asked Mr. Lamy to comment on the possibility of pursuing a Canada-EU free trade agreement. His response was not encouraging. He left the door open by noting that if a strong business case can be made for such an agreement, then the EU is going to look at it. But that case has not been made to date. He also noted that the situation between Mexico and the EU and between Canada and the EU are very different in terms of EU access to the Mexican market and using Mexico as a springboard into central and Latin America and the greater depths of the EU's relationship with Canada over Mexico. If this idea is going to go anywhere, I think it's going to have to be Canada taking the ball to Europe. We're the ones who are going to have to prove that case.

You had questions on trade irritants. I think we can leave that to discussion, along with EU enlargement.

With regard to agricultural subsidies, those are tough issues. I'm far from being an expert on agricultural subsidies.

Let me wrap up. I don't think there are any simple answers to the questions your committee is looking at. It's not possible to flick a switch and see our trade with Europe or with any other region jump dramatically. That's not the way the world works.

But we do have this troubling dichotomy. On the one hand there is the danger of continued reliance on the U.S. market and that overwhelming dependence. As a country our explicit policy objectives should be to diversify and grow the markets. On the other hand, there is a plethora of readily realizable business opportunities south of the border. The growth of the past few years demonstrates Canada's success in that, and this is going to continue to be a priority. This is what we are being told by our members.

We've negotiated good access to Europe, but there can be improvements. There are barriers and there are issues. I think if a Canada-EU agreement could lead to better access and increased trade, then let's look at it seriously. But let's not wait to improve the framework whenever and wherever we can on specific issues and commodities.

I think I'll stop there. I welcome your questions and comments.

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

Mr. Randolph, we'll take your presentation and then we'll go to questions. Mr. Randolph, please, and welcome.

Mr. Roger Randolph (President, Canadian Wine Institute): Would you like to take it now?

The Chair: Yes.

Mr. Roger Randolph: Okay. Thank you, Madam Chair.

Also, thank you to Mr. Keyes. I'm thankful that he preceded me, because I can say that I support a great deal of what he said, and he has also given me an ideal introduction to speaking about something more specific, which is the wine industry.

The balance of trade in wine between the EU and Canada is 400 to 1. We import $400 million worth of European wines and we export $1 million. It's not that we're particularly able to meet or to equalize that and export in return $400 million, but we do believe that could be somewhat more balanced than it is.

We also compete on a very unlevel playing field as a result of the agricultural subsidies Mr. Keyes was referring to, which lower prices in Europe and in Canada. Canada has fulfilled all of its WTO commitments. The EU has not, as I'll explain later on.

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I guess the final point I'd like to make on the unlevel playing field is that the EU has access to the Canadian market without an agreement, whereas we can only gain access to the EU with an agreement.

The European winemaking industry is overly regulated and tries to impose those regulations in its bilateral agreements with every country with which it tries to reach agreement. Not only does it stifle the growth of imports into the EU, but it also stifles their own growth. European wines have lost more than 20 share points in wine exports since the late 1980s, almost all of it to wine producers in the new world.

The credibility of the widely held notion that regulation is the best and only way to produce great wines was destroyed by a now famous 1976 blind tasting in Paris of French and California wines. French and California Chardonnays and Cabernet Sauvignons were tasted blind by 15 of the most influential French wine critics, who, to the consternation of their fellow countrymen, gave the nod to California in both red and white. With the sustained cries of foul, the results were replicated.

The new world, including Canada, takes a less prescriptive approach to winemaking, preferring to concentrate on marrying art with technology and innovation with consumer research. The results have been spectacular. California is now solidly part of the wine establishment. New Zealand's Sauvignon Blanc is now the standard by which all Sauvignon Blancs are measured. Australia's most famous wine, called Grange, has replaced Bordeaux's Petrus, as the world's most exotic and concentrated wine. Chile's wines are the fastest growing in international markets, with Argentina's hard on their heels. Following the collapse of apartheid, sales of South African wines are once again beginning to live up to their reputation. Winemakers from the new world are in demand everywhere, including the EU, and they have given rise to a new breed: the flying winemaker.

In Canada, the revolution in winemaking has produced a succession of gold medals and double-gold medals at the world's most prestigious wine shows. It is, however, the development of Canadian icewine that has brought Canada its greatest recognition and success. Perhaps the most prized award for wine anywhere is the Civart Trophy awarded at Vinexpo in Bordeaux every two years. It is a gold medal given to the best of all gold medal winners at the show—a super-elite of the elite, if you will. In their short history, Canadian icewines have won this award twice. On both occasions the world's wine traders attending the fair surrounded the Canadian booth not one or two deep, but six deep, wanting to taste the wine but also wanting to buy, distribute, or broker it in the EU.

One would think that as a result of this, sales of Canadian icewines would be the great success story of the industry. Well, they are elsewhere in the world, but not in the EU. In fact, not one bottle of Canadian icewine is allowed to be sold there. In spite of the fact that we and our trading partners in the EU are all members of the WTO, and in spite of the fact that Canada has fulfilled its obligations under all of the WTO agreements, namely TRIPS, sanitary and phytosanitary, most favoured nation, national treatment, and so on, the EU obstinately continues to block access of Canadian icewine on the basis of a technical definition, one which, I might add, is not met by many other sweet wines being sold in the EU. The EU position on Canadian icewine is indefensible, period, no ifs, ands or buts.

Concerning exports of other award-winning Canadian wines to the EU, Canada is on a de minimis list, meaning that we can export up to a thousand hectolitres without fulfilling the EU's wine import regime requirements. In effect, this gives the EU the power to cut off Canadian wine exports to that market virtually at will.

There are technical aspects of the EU's import regime that Canada is fundamentally opposed to on the basis that they would give the EU de facto control over Canadian winemaking practices, something we would never agree to.

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What has Canada been doing to change the situation? For the past ten years we have been inviting the EU to the negotiating table. Until now, they've refused to go any further than informal talks. This is in spite of the fact that the issue has been energized by Agriculture and Agri-Food Minister Lyle Vanclief and his EU counterpart, Franz Fischler, who told their respective negotiating teams in September of last year that they wanted to see progress in six months, i.e., March 2000. The negotiating team is meeting with its EU counterpart in Brussels on March 27 and 28, and they will be proposing a mutual recognition agreement on winemaking and labelling practices.

This mutual recognition agreement on wine is in many ways the outcome of a Canadian industry-government initiative that has resulted in the coming together of the so-called new world wine producers group, which includes Canada, Argentina, Australia, Chile, New Zealand, South Africa, the United States, and Uruguay. They have met every six months over the past two years, in each other's countries, to develop a mutual recognition agreement based on mutual trust, understanding, and an acceptance of each other's winemaking and labelling practices.

Adding insult to injury, the EU and its member states subsidize their wine industry with trade-distorting financial assistance at every stage in the wine continuum, from the vineyard to the consumer's table. We have no illusions regarding the potential success of the mutual recognition agreement we are proposing. In fact, given the EU's track record, we believe it is doomed to failure and that ultimately we will be forced to request a panel ruling on our specialty wines at the WTO.

Nevertheless, in the broader context, we do intuitively see more MRAs as potentially fertile ground for improving Canadian exports in general to the EU. Of fundamental importance to improving our trade balance with the EU, however, is the need to remedy the imbalances caused by the trade-distorting subsidies the EU provides to its agricultural industries across the board.

Thank you, Madam Chair.

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

We'll start with Mr. Marceau.

[Translation]

Do you have any questions for the witnesses?

Mr. Richard Marceau (Charlesbourg, BQ): Yes, thank you. I want to thank the witnesses for appearing. As you can see, they came to see you, not us.

Madam Chair, I'd like to start by asking the witnesses if they would kindly leave their notes with us. Perhaps the committee could have them translated for our benefit. We would appreciate that very much. Thank you.

[English]

The Chair: You can provide them to the clerk and the clerk will distribute them in both languages.

[Translation]

Mr. Richard Marceau: Thank you, Mr. Keyes and Mr. Randolph, for your very interesting presentations. I'll start with you, Mr. Keyes, because I have a number of questions for you.

[English]

Mr. Robert Keyes: The chair is looking at the clock.

[Translation]

Mr. Richard Marceau: I'll stay within the time allotted to me. We'll be nice. There is no one from the media present. You seem somewhat fatalistic, Mr. Keyes. You seem to be saying that we live right next door to the biggest and richest market in the world, that most Canadians have fairly strong economic, political and linguistic ties with the United States and that this is normal. That's life.

Are we merely wasting our time here? Shouldn't we be telling ourselves that we need to focus on the United States and if, quite incidentally, we happen to break into the European market, then so much the better. We should take full advantage of the fact that the United States are right next door. That's somewhat the impression I had. Am I wrong?

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[English]

Mr. Robert Keyes: No, I don't think you're mistaken. I don't think it's a fatalistic issue. As you say, the reality of the fact of life is that with this very large market beside us, this is where we're going to concentrate. The business community is saying to us and to government that it's here that their priority is. Rather than looking far afield for opportunities when they're dealing with economic opportunities close to home, especially for smaller companies, it's only natural that they're going to go there.

As I said in my remarks, though, from a country perspective, diversification and growth in all these other markets is highly desirable. But we can't just flick a switch and expect that trade is going to double overnight. At the end of the day, it's not countries that trade, it's businesses.

[Translation]

Mr. Richard Marceau: The committee is examining relations between Canada and the European Union and that's quite interesting. Yesterday, I read the government's response to the report of the Foreign Affairs and International Trade committee on the Americas free trade zone. It appears to me that the government has made the Americas free trade zone a much bigger priority that economic relations between Europe and Canada. Do you think government agencies should focus more on Latin America than on Europe?

[English]

Mr. Robert Keyes: That's a difficult question. As to where the priorities lie, I was part of a very successful Team Canada mission to Latin America. A lot of doors opened. There are a lot of opportunities there. It's a market that is growing very rapidly. It is going through a technological revolution, and there are tremendous opportunities in the technical field, which is why Canadian companies have been doing so well there. They are leapfrogging conventional technologies and wonderful opportunities.

The bloom has come off the rose in Asia as a result of the Asian financial crisis, but for the long haul....

I guess the point is that there are so many opportunities everywhere that, ideally, we should be everywhere. But we can't be. We have to try to focus somehow. The FTAA is being driven not only by market forces but by potential trade agreements that hopefully will produce results at the end of the day. Canada is looking now at discussions with Costa Rica and at maybe doing some sort of deal with Costa Rica. That could become a launching pad into other countries in Central America. One might ask where that should be on the list of priorities as well.

In some people's minds there is trade fatigue and there is negotiation fatigue, because we have been involved in so much everywhere and we are on the cusp, potentially, of a multilateral round at the WTO. How much can we realistically do? We have EFTA coming down the pike as well. Other than to say that we have to pay special attention to our relationship with the U.S., our largest market and trading partner, I find it very difficult to say to trade off one against the other, or to say to ignore one over the other, or to say that one should be a priority over the other.

When you look across the business community, for some companies Latin America is going to be the priority, and they're not interested in Europe. For others it's going to be Europe and it's not going to be Latin America. So I don't know that there's an easy answer to your question.

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[Translation]

Mr. Richard Marceau: In my opinion, when it comes down to trade negotiations, there is no easy answer. Do you think the introduction of the Euro has made life easier for business people?

[English]

Mr. Robert Keyes: Well, the Euro is here. The Euro has unfortunately been plagued by a weakening. I think initially the financial markets were expecting the Euro would almost become a rival to the U.S. dollar. But in fact, because of economic conditions, the Euro has continued to slide and is not yet showing any signs of significant strengthening.

Many transactions are not yet being done in Euros. They're still dealing with individual currencies.

[Translation]

Mr. Richard Marceau: Do you think it will make their lives any easier?

[English]

Mr. Robert Keyes: I think it could, but I don't think anybody quite understands yet how the relative values are going to work out from country to country within this framework called the Euro.

A very big player is still outside the Euro. Probably the third-largest traded currency in the world is the English pound. That hasn't helped the acceptability of the Euro. In principle, I think it should. It should also make comparisons from country to country in Europe far easier. It's going to create its own set of relative values there, which may well open people's eyes.

[Translation]

Mr. Richard Marceau: I suppose it's a little like the Big Mac standard that economists use.

[English]

Mr. Robert Keyes: It's the Big Mac standard, exactement.

[Translation]

Mr. Richard Marceau: Since, judging from your testimony, many business people think of Canada has a mere appendage of the United States, if new monetary arrangements were in place between the two countries, do you think it would be easier to attract investors, not only because one could argue that this a free trade zone, but also because there would be some monetary stability? We know that Canada already takes advantage of the fact that it is a party to NAFTA to attract European companies that want to set up operations in Canada in order to export, primarily to the US but also to Mexico. Would it help us at all if there was one big North American monetary zone?

[English]

Mr. Robert Keyes: The issue of a common currency has many problems associated with it, especially in political and sovereignty terms. That would be a long way down the road. The notion of making NAFTA into a real customs union is something that might offer some more advantages, rather than the monetary unit.

We have a free trade agreement with Mexico, but it is not really free trade; it's still highly managed trade. It is much freer, but there's still a variety of barriers, issues, and trade rules to go through. We're not yet, within NAFTA, on any equivalences to where Europe has gone—far from it.

The Chair: Perhaps we can stop there and come back.

Ms. Sgro.

Ms. Judy Sgro (York West, Lib.): To Mr. Keyes and Mr. Randolph, what else can we possibly do as a government to make it more competitive and open the doors? Are we being too optimistic? I go along with Mr. Marceau and think they're being pessimistic, but at the same point we have to have some realism of what the current controls are and what we could possibly be doing to encourage that trade. Is it just a question of time evolving, to open other doors?

Mr. Robert Keyes: We can go from the general to the specific, but government's role is to get the rules right, get the framework right, and create the conditions. That's not only the conditions for international trade and investment, it's also to get our conditions right here at home.

One of the other comments that was made to me by my European colleagues was, “Well, you know, the business climate and the investment climate in the U.S. are so much better than they are in Canada. You folks still have a lot of things to work out.” So we continue to be in the shadow of our neighbours to the south.

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We don't necessarily have to be pessimistic, but we have to be realistic about the many barriers that are standing in the way—a lot of little things that add up to companies being discouraged. It's not just the tariff issue. You have to think about some of these little technical things, and the kinds of things Mr. Randolph was talking about. They are real barriers, so let's concentrate on them. Let's pick them off, look at them in detail, and try to work them out. If we have to take the step of going to something like the WTO, then do so. But let's try to work these things out bilaterally.

The WTO process is the ultimate whip hand that gets complicated and expensive. Surely there are things we should be trying to do and concentrate on bilaterally to work out these barriers and chip away at this. But let's be realistic; we're not just going to flick a switch and have it happen overnight. These things take a long time and have a long gestation period.

Ms. Judy Sgro: What can we be doing to accelerate this process?

Mr. Robert Keyes: Your report could look in a detailed way at some of the issues that are standing in the way of business growth. Offer some practical suggestions and prioritize specific things the government could be looking at. Don't just stick to the generalities, but try to get down into some of the detailed things on a sectoral basis, from witnesses you're going to hear from—like this wine example.

The Chair: Mr. Randolph.

Mr. Roger Randolph: Thank you.

I agree with everything Mr. Keyes has said. We've been trying for 10 years now to get access for Canadian icewine to the EU. I think we've pretty well exhausted all of the friendly approaches, if I can put it that way. The only solution we see to the problem is going to a panel on icewine.

If I could just tell you what the icewine issue is, the technical barrier we're facing is the definition the EU gives to wine in terms of the alcohol content. The total alcohol content is the sum of the actual alcohol content plus what would result from fermenting the residual sugar in the wine. Canadian icewine exceeds that limit, but at the same time so do Sauternes, German and Austrian icewines, and Tokay from Hungary, yet none of those are prevented from being sold on the market. So that's one issue.

On another issue, the European Union, it seems to me, in terms of agriculture, is so prescriptive that it is very difficult to reach any kind of bilateral agreement with them in the traditional sense. While we have no illusions about the mutual recognition agreement, we nevertheless feel that perhaps in other agricultural areas that approach has some potential.

Ms. Judy Sgro: What is the problem on the other end? If Canada's icewine is equivalent in the same issues to that of Germany and some of the other countries, why can't we convince them to open the doors for us with Canadian icewine?

Mr. Roger Randolph: That's exactly the question we've been asking. I suppose they've managed to get derogations in order to be able to do that. But certainly, as far as the EU and Canada are concerned, they're not applying the principle of national treatment, and they're not applying the principles of the Sanitary and Phytosanitary Agreement, which says you cannot exclude access to any product unless it's a health threat or a safety threat.

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Ms. Judy Sgro: So why can't we win the argument?

Mr. Roger Randolph: The only way we're going to win it is by going to the WTO.

Ms. Judy Sgro: So?

Mr. Roger Randolph: Well, that becomes our next step—

Mr. Robert Keyes: But you don't want to take that—

Mr. Roger Randolph: —after having exhausted everything else.

Mr. Robert Keyes: Exactly.

Ms. Judy Sgro: You've exhausted everything else.

Mr. Robert Keyes: These are steps you don't want to have to take unless you absolutely have to, because then you're really down to a very polarized situation.

Most trade disputes never get as far as the WTO. They're worked out ahead of time. Accommodations are found.

Ms. Judy Sgro: With icewines, are we going to find an accommodation prior to going to WTO then?

Mr. Roger Randolph: I'm not very optimistic.

Ms. Judy Sgro: So how long do you wait before you take the next step?

Mr. Roger Randolph: Well, we'll see. We'll see what the EU's reaction is to the MRA proposal that will be made at the end of this month in Brussels. We'll wait and see their reaction to that, but I'm afraid that if it's as negative as we think it's going to be, then our next step is to move towards a panel specifically on icewine.

Mr. Robert Keyes: Maybe just to add to that, I don't want to sound really pessimistic, but look at the beef hormones issue—

The Chair: That was going to be my next question.

Mr. Robert Keyes: —where essentially, and maybe I exaggerate a little bit, Europe has said “Fine.” The panel says “You're guilty.” They say “Fine, name your price. Go ahead. Retaliate. We're not changing.” Even in the face of panel decisions, you don't always get exactly the results you want at the end of the day.

The Chair: Thank you.

Before I go back to Mr. Marceau, maybe I could just add that that was going to be my question, and what happened with the beef hormone case is that we're looking at compensation right now.

Actually, Mr. Randolph, as much as I've always like French wine, I'm tempted to boycott it forever now based on what you've said.

But what can we do?

Mr. Roger Randolph: [Inaudible—Editor]...a special deal.

The Chair: The purpose of this entire study was to see how we could expand our trade. Listening to both you and Mr. Keyes, it almost seems to be a hopeless case, that we're beating our heads against the wall trying to expand our trade with the Europeans.

Let me ask you, as a non-EU member, is there any hope that we can do anything into the eastern and central European markets? Is there anything we can do to promote trade there, so that as they perhaps eventually become members of the EU, they could have an impact on trading and we would be able to negotiate a minimum entry level as they move into the EU? What is the solution there, as opposed to abandoning it and just sticking with the Americans? I'd like to hear from both of you.

Mr. Robert Keyes: One of the sections I skipped over in my remarks was exactly this question of eastern European expansion. I think it will hold opportunities. Obviously there's going to be a larger market. The danger, though, is going to be that in some of these countries where we have preferred access, are we going to lose the access we have because it's now going to be subject to EU rules?

So in the negotiations we're going to have to be very careful to look at what the trade-offs might be, because we might end up a loser because these folks are now in the EU and some of the preferred access we've had may be jeopardized.

The Chair: Mr. Randolph.

Mr. Roger Randolph: I agree with what Mr. Keyes has said.

On icewine, icewine is very high-end, and the opportunities that would exist in the non-western countries of the EU would be very limited. In terms of efficiency and being able to spend the money on that, it just wouldn't be viable.

The Chair: But apart from the icewine, what about other wines? Is it again a matter of the proximity of the Europeans next to the eastern and central Europeans?

Mr. Roger Randolph: I think proximity has a lot to do with it. The eastern European countries are traditionally non-importers of wine. There's certainly a small niche market there, I would think, but again, what do you do with the resources you have available in order to...?

• 1630

The Chair: Do the Americans experience the same thing with the wine or is it unique to Canada?

Mr. Roger Randolph: We are a very small player in world terms. One American company would bottle in one day what we make in a year. So the scale of economies is quite different.

Again, just going back to the original point, while there would be interest in the eastern European countries to try something as exotic as a Canadian wine, I think it would be very limited. We just don't have the....

The Chair: I see my colleague, the agriculture expert, is here.

You did say that with wine, agricultural subsidies are a problem, and that seems to also be affecting our wine as opposed to everything else. How do we correct that? Do we get the export subsidies down in the next trade negotiations? Will that help our wine industry?

Mr. Roger Randolph: Absolutely that would help our wine industry. The more reduction we can achieve in those subsidies...which are not just export-related. They go all the way from the vineyard, in terms of grubbing up, to storage subsidies to distillation subsidies and warehousing subsidies. Adding all of these up, the last number I have for the EU wine subsidies is $924 million U.S.

So, yes, the more we can reduce that, the better chance we have of competing.

The Chair: Mr. Keyes.

Mr. Robert Keyes: I just wanted to respond to your comment about pessimism in regard to growing trade. Trade is growing in absolute terms; it's the relative trade numbers that are suffering. That is because of the growth in NAFTA and the growth within the EU within internal trade.

In absolute terms, though, our trade does continue to grow. With investment leading the way, hopefully this is going to translate into greater trade at the end of the time. But it does take time to grow.

[Translation]

The Chair: Mr. Marceau.

Mr. Richard Marceau: In your presentation, you made it fairly clear that the European business people with whom you had spoken were rather lukewarm to the idea of a free trade agreement with the European Union.

[English]

Mr. Robert Keyes: [Inaudible—Editor]...or at least that's what I read into it.

[Translation]

Mr. Richard Marceau: Maybe I'm missing something hee, but I fail to understand why the European Union would be interested in signing a free trade agreement with Mexico. Although its economic potential is significant, its potential as an importing nation is nowhere near that of Canada. What advantage would there be for EU countries to concluding a free trade agreement with Mexico which, unless I'm mistaken, has no such agreement with other Latin American countries, while remaining lukewarm to the idea of an agreement with Canada, a country that already has a free trade agreement in place with Chili and where the potential to sign similar agreements with other countries exists?

How do you explain that?

[English]

Mr. Robert Keyes: I think the answer lies in access for certain European markets to Central and South America through Mexico, using Mexico as a launching pad south.

That's the way I've heard it explained to me. I don't have detailed knowledge, but that's the way I've heard it explained.

[Translation]

Mr. Richard Marceau: If you, Robert Keyes, were appointed Minister of International Trade tomorrow and were confronted with the trade issue between Canada and the European Union, what would you do, as the newly appointed minister? What kind of agreement would you like to reach with the European Union to promote trade between the two parties, assuming of course you would want to conclude such an agreement?

• 1635

[English]

Mr. Robert Keyes: I guess I would have a few initiatives.

One is to clearly identify and tackle some of the manageable barriers in a very concrete and substantive way. The kinds of things we're talking about on wine: labelling requirements, distribution requirements, even such things as the way tariffs are calculated.

I was discussing this the other day with somebody in the food products industry, that their tariffs going into Europe are calculated on a CIF basis, but goods coming from Europe are on an FOB basis, which means that the dutiable value going into Europe is higher, and hence the duty is higher, than for the same goods coming to Canada. That's an imbalance. It's one very straightforward but technical issue. I think we have to get our minds around those technical issues, number one. That doesn't have to await a multilateral kind of agreement. These specific barriers should be tackled.

Number two, in terms of promotion and education, we have to continue to do what we can to communicate that this country has changed. We are no longer just a resource-based economy. We are changing rapidly. We have a wide variety of goods, but also services, to offer. We have to wave our flag and wave it well.

[Translation]

Mr. Richard Marceau: Do I have any time remaining?

The Chair: Yes.

Mr. Richard Marceau: Mr. Keyes, you alluded to the fact that not only was there a lack of information about Canada in Europe, but also that Canadian business people lacked information about Europe.

If we accept your premise that members of the business community are the ones doing business, not governments, what can a government do to promote greater awareness of the vast economic potential that the EU holds for Canadian businesses? Aside from the nice brochures, how do we get the message out to ordinary business people in major cities like Montreal and Toronto, and to small companies interested in marketing their services or products in Europe?

[English]

Mr. Robert Keyes: I think perhaps you misunderstood my remark. I was not trying to say there is a deficit of information. That's the conventional wisdom. I don't think there is an information deficit. I think there's information overload. I think Canadian businesses are taking the easiest path to grow in their business, and that's not to Europe, it's looking south.

The government does a good job in culling information, publicizing it in as best a manner they can. But you know, you can lead the horse to the water, but you can't make him drink. If anything, there's competition and too much information. It's not a deficit.

[Translation]

Mr. Richard Marceau: Fine. Thank you.

The Chair: Are there any further questions?

[English]

Are there questions?

All right, Mr. Calder.

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

Just going through some of the background here—and I apologize for being late, but there was a transport meeting too—I see we currently export $1 million to the EU and we import $350 million. There seems to be major imbalance there. One of the things they're on about is the fact that we use the product name such as champagne, port, or sherry. Isn't that a classification of the type of wine? How would you name it any other way?

The Chair: Mr. Randolph.

Mr. Roger Randolph: We've actually offered, as part of a bilateral agreement with the EU, to phase out the use of what we call the “semi-generics”, which are things like Canadian champagne, Canadian sherry, Canadian port, and so on, and to date we have not been successful in getting the EU to agree to negotiating parameters.

• 1640

Mr. Murray Calder: Okay.

They also seem to have a problem with our winemaking standards, the way we make wines over here. What problems are they citing with how we make wines? Is it the type of herbicides used out in the vineyards, or pesticides? What is it?

Mr. Roger Randolph: The EU has problems with the way virtually any country that is not an EU member makes wine. There are no practices that are used in Canada, the United States, Chile, or any country that would be a threat to human health or safety. And that is the basis on which an agreement should be reached with the EU. That is the basis on which we have not quite signed the bottom line, but we have an agreement in principle with the producing countries of the new world that we will accept and acknowledge their winemaking practices if they will accept and acknowledge our winemaking practices as being good commercial practices.

We're hoping that once that is signed, it will serve as a model for the EU.

Mr. Murray Calder: Well, obviously how we produce wines over here comes under our health standards, which I believe are the best in the world. In essence, what the EU is saying is that our health standards are not...if they're disputing our winemaking standards and saying theirs are better.

Mr. Roger Randolph: Precisely.

Mr. Murray Calder: What would be our chances at launching a dispute against them on this?

Mr. Roger Randolph: Depending on the results that come out of the meeting that's scheduled for the end of this month in Brussels, that will be our next step, in fact.

Mr. Murray Calder: Okay.

This is my last question, Madam Chair.

Internally, our winemaking industry is growing very fast. We have VQA now, and I think Ontarians are beginning to find out about the quality. We have a member of Parliament here in the House of Commons who has won awards with it. And of course, icewine and even blends of icewine are becoming very popular.

Would there be any way that we could have our liquor distribution stores—the LCBO in Ontario, for instance, which distributes—made a little more favourable for the Canadian brands over the European brands, if they're giving us a problem, without triggering a trade dispute?

Mr. Roger Randolph: We have in fact just recently approached not only the liquor board in Ontario but also the one in British Columbia with a shelving proposal. We just have to wait and see what comes out of that.

In a broader sense, the Canadian wine industry has established the objective of growing its share of market back to the 50% it had before free trade, which is now about 35%, after free trade, even though there have been a lot of improvements—the establishment of VQA and so on. We are at least getting some apparent support from both of those liquor boards to help us achieve those objectives.

Mr. Murray Calder: Okay.

Now the shelving proposal, how does that work? Are the Canadian wines at the front of the store, for impulse buying, or is there a little bit more thought put behind it? How does it work?

Mr. Roger Randolph: That's what we'd like.

Mr. Murray Calder: Okay.

The Chair: I know Mr. Keyes said at the beginning he had to leave early, so colleagues, do you have a quick question for him before he leaves?

Mr. Speller.

Mr. Bob Speller (Haldimand—Norfolk—Brant, Lib.): Actually, no, I didn't have one. I had one on wine.

The Chair: Okay. We'll let Mr. Keyes go then and we'll continue with Mr. Randolph.

Mr. Robert Keyes: If I might just say, the members will have my notes. If there are any further questions, please don't hesitate to get in touch with me, or I'm happy to come back. I just have this unfortunate scheduling conflict today that unfortunately I can't get out of. But I very much appreciate the opportunity to meet with you and discuss these issues. Good luck in the study. I look forward to the results.

• 1645

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

Mr. Robert Keyes: You're welcome.

Mr. Bob Speller: Actually, I want to talk to Mr. Keyes.

The Chair: Perhaps we can continue discussions privately. Thank you very much, colleagues, for coming. Mr. Randolph, if you'd like to make a closing—

Mr. Roger Randolph: Yes, Madam Chair. I just wanted to respond to your earlier question in a broader sense. I was looking just at the economic sense of the question in terms of the United States having much greater economies of scale. But from a political point of view, the United States reached an agreement with the EU back in the early 1980s called the wine accords. Even in spite of the wine accords, the United States still has to obtain derogations every so often for a number of its winemaking practices.

We believe the reason it has been more successful in obtaining those derogations is simply because of the constitutional makeup of the United States versus the constitutional makeup of Canada, where it's the federal government that's doing the negotiating, but it's actually the provinces wielding the stick in terms of imports, marketing and distribution, and so on. That's one of the problems we also have to face.

The Chair: Mr. Randolph, could you just explain to me what you mean by derogations?

Mr. Roger Randolph: It's a sort of special permission that has to be renewed every so often. If, for example, we were able to obtain a derogation on icewine, the derogation might read “Canada has permission to sell its icewines in the EU despite not meeting the requirements of the definition”. That would have to be renewed on a regular basis.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd (Durham, Lib.): I'm sorry I was late. I hear what you're saying about the provincial marketing aspect. This is true in a lot of other industries, and various other industries have come to the federal government and said “Look, you orchestrate this and we'll delegate a certain power back in an informal way to the federal government”, and the federal government would actually take on the role. Is that something you're proposing that would be more effective in dealing with the European Union in this area? You're saying it's divide and conquer.

Mr. Roger Randolph: Yes. I think there's probably a way of getting the EU to recognize that even though the importing and distributing power is with the provinces, there is a mechanism in place that will satisfy their requirements without....

Mr. Alex Shepherd: I guess the question is, are we our own worst enemy, with all the provinces fighting among themselves rather than taking a sort of holistic view of the thing, where the object of the exercise is to get market share in Europe?

Mr. Roger Randolph: I don't think there's too much infighting among the provinces on that particular issue, but on the other hand, I think there are some jurisdictional sensitivities that need to be addressed.

The Chair: Thank you.

Mr. Speller, did you have a question for Mr. Randolph?

Mr. Bob Speller: No, I'm fine.

The Chair: Thank you very much, Mr. Randolph. You've certainly given us some things to think about. Thank you for joining us.

Colleagues, thank you for coming. This meeting is adjourned.