Security Concerns and Economic Developments in the Asia-Pacific Region

feat. Colin Robertson

Standing Senate Committee on Foreign Affairs and International Trade
December 4, 2013

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 p.m. to study security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.

Senator A. Raynell Andreychuk (Chair) in the chair.


The Chair: Honourable senators, we have a very tight time frame. There is a vote in the Senate, so we have one hour for presentations and questions. We will not be returning because there is another committee that is in this room.It's more efficient to take the hour. I've spoken to our panellists and they're in agreement. They're going to start with some opening statements and then we will have as much time for questions and answers as that hour gives us.

Today the Standing Senate Committee on Foreign Affairs and International Trade is continuing its study on security conditions and economic developments in the Asia-Pacific region, the implications for Canadian policy and interests in the region, and other related matters.

In this session we are very pleased to welcome Dr. John M. Curtis, Senior Fellow at both the CD Howe Institute, as well as the International Centre for Trade and Sustainable Development in Geneva.

We are also pleased to have before us Mr. Colin Robertson, Vice President of the Canadian Defence and Foreign Affairs Institute, as well as a fellow at the University of Calgary's School of Public Policy.

Both are well known to Canadians as well as to this committee and the Senate, so we welcome both of you to the committee. I'm not sure whether you've tossed that coin to determine who is starting first. Dr. Curtis, I see, has been signalled to be the first speaker.

John M. Curtis, Senior Fellow, CD Howe Institute, and International Centre for Trade and Sustainable Development (Geneva), as an individual: Thank you, Madam Chair, honourable senators. I'm delighted to be here. We didn't have to flip a coin, because I always say all public policy is fundamentally economic so, of course, that gave me first run here.

I was going to make a few comments and then would welcome, either through you a few questions if there is time, or perhaps turn to Colin and then come back if there are further questions.

I did want to basically say that we Canadians often forget that even though the Asia-Pacific region is far away from even our Pacific Coast that the Asia-Pacific has always been a very important factor in our history, starting with the competition between the Spanish, the British and the Russians on the northwest coast of this continent for over 200 years, the search for the Northwest Passage all the way from Frobisher and Champlain going up the St. Lawrence, to the issues of today in the slow opening of the Northwest Passage. This was all to do with getting to Asia in one way or the other.

There was the building of the first railway in what was then called British North America, which I learned about at school. Most of us learned, or were taught, the standard Canadian mythology that this was to tie the country together. In fact, if you look at any of the investment brochures of the period — in London primarily — it was as much to get from Britain and across the continent to the Pacific. In fact, they named the railway, as we all know, the Canadian Pacific Railway, very Pacific, even in those days, to get to those Empress ships on the West Coast in the 1890s. Empress of Japan and Empress of China were the two big ones.

Much of our immigration policy was either pro-Asian immigration or counter-Asian immigration through the latter part of the 19th century until the 20th century, up to 1923 with the Chinese Exclusion Act, the more recent apologies on the part of the government, and also finally, of course, the commercial relationship which has gone on for years.

In the era that I grew up in, the thing I remember growing up in Vancouver was the fact that the minister of the day, Alvin Hamilton — of the Progressive Conservative, John Diefenbaker government — started shipping wheat to Asia. That was the beginning of a commercial relationship that extends to this day, all the way from ``made in China'' — which is something we could discuss as to how much is from China, how much innovation goes on in this part of the world and then is assembled in China — all the way through to ``made in Vietnam,'' ``made in Bangladesh,'' and ``made in India.'' We've had a long-standing commercial relationship really dating, in the modern era, from the 1960s.

That's really the context in which I wanted to speak. I thought I would speak briefly if I may, Madam Chair, on the economic side, economic development, and then very briefly, secondly and finally, talk a bit about the Trans-Pacific Partnership, economic and trade negotiations which are under way and of which Canada is a part.

On the economics, very briefly, I remind senators that in a way the growth of Asia now economically is, according to researchers — particularly the OECD which has done all sorts of studies on this; Angus Maddison was the person at the OECD, now deceased — showing that Asia now in the world is basically where Asia was in 1800. In other words, Asia, as a whole, is restoring its place in the global economy. In other words, we're back to where we were at the beginning of the industrial revolution. That's an interesting perspective. Asia-Pacific, in that context, includes India, so we go as far west as the Indian subcontinent.

Second, with respect to economic developments, we all know that the Asia-Pacific region is growing economically more rapidly than most of the rest of the world at present. There are exceptions. A few of the African countries, interestingly, are recording economic growth numbers equivalent to some of those in Asia. But really, from the ``flying tigers,'' as we called them in the 1980s — Taiwan, Korea, South Korea, Hong Kong, Singapore — to now, the growth of Asia has been, year by year, a major story and had a major impact on all of us.

Asian growth has slowed down a bit in the last couple of years. We could talk about that either now or when there may be another occasion to get into the reasons why Asian economic growth on the whole has slowed down somewhat, but it's still, as a region, the fastest growing economic region in today's contemporary economy.

Third, most people talk about this century as possibly being the Asian century, or the Pacific century. We'll see. I think that's premature, frankly, notwithstanding the growth of the past 30 years or so. The Asia-Pacific region is largely playing catch-up. It's catching up to the rest of the world.

If you look at the causes of economic growth, the fundamental causes, they are innovation and the putting together of capital, labour and managerial skills. I would argue that, notwithstanding these growth rates that we all know about, the heart of economic growth, the essence of it, remains in the United States and to a lesser extent in Western Europe and in the other OECD countries, including our own. I think that's still the story and it will be for at least the next generation and probably two at least. Asia is not there yet. I think it's a little premature to talk about the Asian century.

That being said, there is a geopolitical, geostrategic — and I guess that's what Colin will be referring to — global shift in the world economy and in the world more generally from the Atlantic to the Pacific. So that even if one is a bit skeptical as to whether this is permanent or not, it's certainly ongoing. It's a reality that all of us, especially the younger generation, recognize as well. If you talk to younger people on the street, are they hitchhiking around Europe or are they hitchhiking around or going to China, Vietnam and Korea? Young Canadians are increasingly going to Asia. I think they get it: the shift that's going on, and they're part of it.

I think that is what I would leave with you. We can talk about the economics more if you wish later, if there is time.

I would like to turn to the Trans-Pacific Partnership negotiations currently under way. It is a little overshadowed in Canada in recent weeks because of the successful completion at the political level of the comprehensive economic and trade relationship with Europe, but this Trans-Pacific initiative is well under way.

I mention that and I find it almost ironic that this, what I would call a mega-trade deal in the making, is under way at the very same time — today, yesterday and tomorrow — as trade ministers are meeting from all around the world, including our own, the Honourable Ed Fast, in Bali, Indonesia, in Asia, on World Trade Organization matters. It's the biennial meeting currently in Indonesia with respect to the multilateral trade system, the global trade system. Again, you might have questions as to where that's headed. It's juxtaposed, the Trans-Pacific negotiations as well as the World Trade Organization.

The Trans-Pacific Partnership negotiations, including 12 countries at the moment, span both sides of the Pacific. That's interesting for a couple of reasons. One, it's in competition with — although people don't like to put it in those terms — an Asia-only trade grouping that is taking shape, which we call ASEAN Plus One, which includes China and other countries of Asia but excludes this side of the Pacific. It excludes Canada; it excludes the United States; and it excludes the other Latin America TPP participants at the moment, both Chile and Peru.

There is an ongoing competition with respect to trade agreements at the moment. The importance of the Trans- Pacific, which we joined late — we joined in 2011, whereas the original negotiations were put together in 2004 by four very small countries: Chile, Brunei, New Zealand and Singapore.

It was almost inconsequential at the beginning until the United States, after the election of the Obama administration in 2008, leading into 2009, said, ``We want to join, too,'' as part of what I would call their tilt towards Asia or their pivot towards Asia. Once the Americans got involved, then it took on importance. They got involved, as I say, partly because of the tilt towards Asia and, to be a little more skeptical or cynical, they partly got involved because if they couldn't control the whole world through the World Trade Organization, the 158 members, they had more chance of controlling the agenda and the behaviour of 12 countries in the Asia-Pacific region, including us, and that's really what has happened.

The United States is leading this trade negotiation. Japan has now joined. It joined only last year. That is shaping it a little differently. Korea announced this very week, on Monday, that they wanted to join too, and Taiwan has spoken up. The only major country not now involved in the Asia-Pacific is China.

The other factor some people put forward, and perhaps Colin will be referring to this, is this: Is this basically the American analog to the Seventh Fleet? Is this basically to contain China economically in trade terms? I don't believe that, but there is that out there.

In any case, the important thing — and the last thing I will mention just as we run over this quickly — is that this is an important negotiation partly because it's Asia-Pacific, the fastest growing region of the world, but, probably more importantly for us, it's important because this is the first major trade negotiation we've had since NAFTA with the United States, which is something that people don't focus on. Because the 12 of us are at the table, the most important thing for us is again to deal with the United States. That is our major trading partner, and it will be for as long as I'm around and probably the next generation is around. On the manufacturing side, for better or worse, we're integrated. We're negotiating with the United States and they with us in the TPP.

The other factor is that with Japan coming in, Japan is big. It will open up real possibilities for improving the economic relationship with Japan, but again we're going to have to deal with the United States, because if Japan opens up its agriculture, particularly, which is a tough one to open, to our beef and our pork, we have to work out with the Americans how much do we get into the Japanese market and how much do they get in. Again, it's a Canada-United States negotiation, although it is a multi-, plural-lateral, regional negotiation. That's really what this is all about.

The good side is that we have the opportunity of improving our agricultural exports and many of our industrial services. The downside is that, unless we are very careful, the Americans are kind of — what shall I say? They're kind of sneaking into this negotiation all the intellectual property provisions that they can't get through the world community, through the World Trade Organization or through the Anti-Counterfeiting Trade Agreement that was worked through and which was defeated within Europe, to stop online piracy — the SOPA it's called. Even the United States Congress turned down the antipiracy and the anticounterfeiting things, but the American administration, partly because of pressure from particular aspects of the United States private sector, is pushing very hard. That's the potential downside of the TPP.

Because it involves electronic commerce and because it involves intellectual property, the agreement could be a next generation agreement, but we have to be careful, as always, and take what I would argue is always a balanced position, recognizing that a trade, investment and innovation agreement is really about your domestic economic interests and how you advance those internationally in the context of what everyone else is doing.

Madam Chair, that's how I thought we might want to start the economic session.

The Chair: Thank you very much. That's extremely helpful. I already have a series of questioners. I'll turn to Mr. Robertson for his presentation before we take the questions.

Colin Robertson, Vice President and Fellow, School of Public Policy, University of Calgary, Canadian Defence and Foreign Affairs Institute: By way of background, I served in the Canadian Foreign Service for almost 33 years. Since leaving the Foreign Service, I have worked as vice-president of the Canadian Defence & Foreign Affairs Institute, a non-partisan think tank based out of Calgary that is aligned with the School of Public Policy at the University of Calgary. I should note that, next March, the school is going to host a conference on Canadian geopolitics, trade and the shaping of relationships in the Indo-Pacific with Robert Kaplan. I'm also a senior adviser to McKenna, Long and Aldridge, a Washington-based law firm, and we have Asian clients. As a volunteer, I serve with great pride as an honourary captain in the Royal Canadian Navy attached to the Strategic Communications Directorate. I am also current chair of Canada World Youth, a youth leadership program, as many of you know founded by the late Senator Jacques Hebert, and we have long had interests in Asia. This gives you a sense of where I come from, but my five observations are my own and do not represent those of any of the hats I wear.

I served as consul in Hong Kong for five years with accreditation to China. I would travel north to Gangzhou to observe the economic progress. I would take the Star Ferry, then get on the train in Kowloon and travel through the New Territories, crossing in Shenzhen. During that time, that small town literally changed from bucolic rice paddies and oxen into a thriving, ramshackle city of many millions. There was no regard for environmental and labour standards, but there was remarkable energy and a determination to get it done. Shenzhen was the wild west of the Orient. For me, it visibly illustrated the Deng Xiaoping transformative influence and his conclusion that it doesn't matter whether a cat is white or black as long as it catches mice.

I've travelled much of Asia since then, including India, Pakistan, Nepal, Japan, Taiwan, Thailand, Singapore, Malaysia, Korea, the Philippines, Australia and New Zealand, including a week 18 months ago in Tibet. I travelled on the Trans-Siberian Express through Beijing, through Mongolia and Siberia to St. Petersburg.

This leads me to my first observation. While we have a tendency to speak of Asia as an entity, it is a continent of different regions, religions, ethnicities and languages. There are democracies and there are dictatorships. Our policies need to reflect these basic facts. An Asian policy is a misnomer. One size does not fit all. If we are to effectively advance Canadian interests, we need to tailor policies by country, by region and by sector.

Everywhere in my travels I would meet people with friends and relatives in Canada. We are much envied, and this takes me to my second observation. Through ties of family, Asian Canadians give us privileged entree to Asian markets. They are our best salespersons to attract more talent to our country as either immigrants or students.

As an example, we just have to look at the composition of this committee, of the Senate and of the House of Commons to know that there are a number of members in both chambers who were born in Asia, have come to Canada and are now making a contribution to Canadian life in this very chamber.

Canada is the envy of the world when it comes to practical pluralism, and we need to do more to market this as we grow our population. We have a large and vibrant Asian community in Canada. Vancouver has often been called the most Asian city outside of Asia. We should embrace this identity and present ourselves as a Pacific country.

We have not always appreciated education as a service industry. It is Australia's fourth largest export. Our government is getting its act together after initial ambivalence, but we are playing catch-up and we are well behind the U.S.A., U.K. and Australia, where once we led. In Asian culture, the best advertisement is through family ties.

I'm frequently asked by Chinese diplomats why we do not do more with Norman Bethune. Whatever his politics, he is a Chinese hero, so why should we not draw on this advantage? Bethune, in my view, should feature more prominently in our outreach to China. Why not, for example, Bethune scholarships modelled after the successful Fulbright program?

As we reform our Foreign Service, we should also target Asian Canadians who have the practical language skills and family ties that make all the difference. Let's use our historical ties, trade ties dating back over a century through insurance, banking and shipping, as well as missionaries, teachers and doctors.

While posted in Asia, I travelled up the Khyber Pass with a Khyber rifle as the Russians were leaving Afghanistan. In Peshawar, we watched Afghan refugees play buzkashi using the traditional carcass of a headless goat. On the Afghan side, it was said they played the game with the heads of Russians.

Canadians fought in Asia during the Second World War and Korean War, and as peacekeepers in Indochina and the Kashmir. We are still in Afghanistan. While in Hong Kong, I would annually lay a wreath in Sai Wan cemetery for Sergeant John Osborn, VC, for whom they later named the Osborn Barracks in Winnipeg.

Security is still a life-and-death matter in Asia. If this is to be the Pacific century, then we need to pay close attention to what happens in North Korea and the disputed islands in the north Pacific and south and east China seas. Given China's recent declaration of an air identification zone, Canada's interests in issues of maritime law and freedom of navigation in that part of the world are as important to our long-term prosperity and security as those in our own waters.

It starts with sea power and maritime command. It is estimated that 80 per cent of global trade goes by sea. The busiest sea lanes are those in the Indo-Pacific. Shop at Canadian Tire? At any moment, a third of their inventory is at sea. The same would apply to the Hudson's Bay Company and other merchants.

The Canadian Chamber of Commerce is campaigning to get our oil and gas to tide water, and the government has just announced its economic diplomacy initiative. Both depend on getting our goods by sea across the Indo-Pacific. Half the world's shipping, with cargo valued at $5.3 trillion, passes through the South China Sea. That's more than 41,000 ships a year — more than double the number that pass through the Suez Canal and nearly triple those that pass through the Panama Canal.

Our trade and commerce depends on these sea routes being secure. All of this to support my third observation: We want to trade in Asia, but first we must exhibit our bona fides on security. If we want into the East Asia Summit and the ASEAN Defence Ministers Meeting, we need to demonstrate that we are as invested and interested in the security of the Indo-Pacific — especially the North Pacific — as we are in the North Atlantic. This means building our promised fleet, deploying our submarines, and maintaining the readiness of our expeditionary capacity.

There are a couple of other things we can do to be constructive. Ten days ago Canada hosted 50 nations at the fifth annual Halifax International Security Forum. The forum for democracies, originally those of the trans-Atlantic, it focuses on security and defence.

Apply this model on our West Coast and invite the Indo-Pacific nations to our Pacific coast and focus attention on trade and security. If it did nothing more than provide a forum to untangle the facts about the disputed islands — a track-two approach — it would have done good work. As Churchill observed, ``to jaw-jaw is better than to war-war.''

Let's not forget that our engagement across the Pacific starts on this side of the Pacific with the Pacific Alliance and, if they're interested, the United States. This would also underline our commitment to the Trans-Pacific Partnership negotiations that Dr. Curtis has just spoken about.

On North Korea, our policy of controlled engagement is counterproductive and needs to be revised if we are to be helpful to regional security. Introduced in 2010, it limits discussions with the North Koreans to issues of regional security concerns, human rights and consular issues. This effectively means no engagement with the North, because they don't want to talk to us about these. This does not help our friends in South Korea. The Kim Jong-un regime is bad, mad and dangerous, but this is all the more reason why we should be engaged.

This leads to my fourth observation. It also means being there. We can't achieve our economic diplomacy goals without an active, official Canadian presence. Unlike the West, a government presence in Asia is a big deal. This means opening more consulates, especially in China and India, and don't forget Indonesia.

This means having ministers and the Prime Minister lead trade delegations of Canadian business. This is how business is done. For decades, partly a reflection of minority governments and austerity, we were out of the game. Just because Jean Chrétien, a Liberal, pioneered Team Canada missions of premiers and CEOs doesn't mean that Stephen Harper, a Conservative, shouldn't do the same. Promoting Canadian trade is not about politics; it's about putting bread on the table.

Jim Prentice has observed Chinese investment into Canada has slowed. We need to make it clear that we welcome Chinese investment. At the same time, we should work with our like-minded partners — the U.S., Australia and New Zealand — through the Trans-Pacific Partnership to come up with a code of conduct for state-owned enterprise investment and make clear the rules of the road. Governor General Johnston recently made a visit to China and met with President Xi Jinping. Encourage Prime Minister Harper to do the same and make it a regular practice. The Australians do.

Let's put into force our foreign investment promotion and protection agreement. The Chinese see us as a potential bridge to the West, especially the United States. It is up to us to build the bridge and profit from the relationship. Remember Deng Xiaoping's observation on white and black cats: It doesn't matter as long as it catches the mice.

A final recommendation: Our policy must have a democracy angle; it's who we are as a people. Mongolia, Thailand, Indonesia, Malaysia and Hong Kong are all middle-income countries possesses nascent democratic institutions. We should engage with them, not just government to government and student to student, but party to party.

In conclusion, we can trade successfully in Asia and the Indo-Pacific, but we need to make commensurate contribution to its regional security. To protect and enhance our interests and build partnerships, we need to be a credible player, respected by all, friends and foes alike. This requires long-term strategic engagement in the region with the necessary dedicated assets to make it happen, and being there frequently and often.

Start by making full use of the people-to-people relationships we enjoy thanks to our shared history and ties of family; actively contribute to the development of democratic institutions; and never forget the power of the maple leaf in close, continuing engagement in support of Canadian interests.

Thank you, Madam Chair.

The Chair: Thank you. Both presentations have elicited a lot of questions. We have approximately half an hour.

Senator Downe: Thank you, chair. My question is for Dr. Curtis. You talked about the new economic associations that are being formed in the Pacific region, and I'm just wondering where that leaves the traditional groups we have been a part of, such as the Asia-Pacific Economic Council, APEC. Are they still as important?

Mr. Curtis: I'd have to say, regretfully, not quite as important. I, myself, was the chair of both the APEC's trade committee and then APEC's economic committee in the 1990s. APEC fumbled the Asian crisis of 1997-98. It still exists and does good work, so I wouldn't want to have you underestimate it — or it sounds as if I underestimate the importance of it.

However the trade side of it has been rather overtaken by these other regional initiatives, both the larger ones — the Trans-Pacific — and some of the smaller ones. Mr. Robertson referred to ASEAN Plus One. That's where most of the action is at the moment. That doesn't mean that broader arrangements will disappear.

The real competition is between whether trade, economic and investment arrangements should be made within Asia alone or across the Pacific? That's really the issue at the moment. APEC covers both, but it's not entirely clear that the Chinese, the Singaporeans and particularly Malaysians wouldn't necessarily be equally comfortable with an Asia-alone agreements.

Although Mr. Robertson has referred to them very positively, our friends the Australians — they always say they would like to have the Canadians and Americans there — wouldn't mind being considered Asian and having the big guys across the Pacific in the way.

There are always stories within stories, if I can put it in those terms, senator.

Senator Downe: Thank you. That's actually my next question. You mentioned we were late becoming involved in the Trans-Pacific Partnership, but there seems to be a push from a number of these groups not to have us involved at all — not to have Canada and, by extension, not to have the United States. We see in South America and Central America, for instance, a push to remove the north. How strong is that, and is it growing in the region?

Mr. Curtis: I think at the end of the day, it is not. I think often some of the diplomatic people in some of these countries, some of the media — there's always a bit of latent anti-Americanism, to which we can relate in this country as well. At the end of the day, most non-Asians, if I can put it in those terms, really want the Americans involved still.

As I said in a different context, when it comes to innovation, quality, entrepreneurship and venture capital, which all of these countries draw on in different ways, the United States is where it's still at, and to some extent ourselves and Europe.

I don't take it too seriously. I think this is: Should there be a line down the middle of the Pacific? That one isn't sorted out yet. The Chinese, never mind the Australians, could play both sides of the street as well. They have a smaller deal going with Korea and Japan. We know the political context of that, as well. The ASEAN Plus One involves the Chinese. They're very careful. They watch.

It's not quite clear how this will all sort itself out yet.

I think in our case, however, because we're so integrated with the United States for all sorts of reasons — good and not so good — we've got to take every advantage of making sure, senator, that our preferences in the United States, which we negotiated 25 years ago in the original Canada-United States agreement, to the extent we can preserve them, are maintained.

Senator Downe: Chair, I know others have questions. I have one quick final one for Colin.

Mr. Robertson, on your point four and five, as you know, Canada spends over $1 billion on international assistance in the region. Would you see our money better spent, if you had a choice, allocated towards a larger presence: embassies, government offices, trade offices? Or, to your point number five about having a democracy, is the money better spent in reinforcing a strong public service, judiciary and institutions within these fragile democracies already in the region?

Mr. Robertson: Senator, I think you can do both. You have to be there to have effect but, at the same time, working through institutions on the democracy front. I think it is probably more effective for us and for it to be seen as Canadian. I'll give you an example.

When I was in Hong Kong, we brought over the former commissioner of the Northwest Territories. We brought over the Chief Electoral Officer. We brought over a whole series of practical experts in how you run elections and how you run a democracy. That was extremely well received and still does us good in Hong Kong. We couldn't have done that if we didn't have that presence on the ground.

We worked with the local Chinese; we worked with the government of Hong Kong. They were happy that we brought these people over, and we were simply there to try and help support the growth of representative and democratic institutions. We weren't selling them a particular brand of democracy, but saying this is what it was about. But we couldn't have done that if we didn't have the people on the ground.

Senator Downe: Thank you.


Senator Fortin-Duplessis: Welcome to you both. My first question goes to Mr. Curtis. Since you have dedicated a good part of your career to the areas of economics and trade, do you think that Canada should focus on certain countries in particular or that it should put more emphasis on the multilateral organizations of the Asia-Pacific region?

That is my first question. I have another one to follow.

Mr. Curtis: If you do not mind, I will answer in English; I am a Vancouver boy.


That's a very good question. I would not concentrate on particular countries, largely because international trade and investment and knowledge exchange generally is done in bits and pieces around the world, and it's not country based. It's largely firm based, depending on the capital needed, the technology needed, what companies are involved either in the United States, Canada or Europe and involved in Asian matters, and it doesn't really matter what country they're in.

The standard example I often use when I'm discussing this with students is a child's teddy bear at Toys ``R'' Us or whatever other store, perhaps Rona. There are 15 different countries involved in putting a teddy bear together. Some of the design can be done in Canada, for example, or the United States. The fur can come from another country, the fake fur. The motions this bear might make come from a third country; the eyes can come from another country; and it's all put together probably in China. So, it looks as if we're trading with China, because that's how Statistics Canada will write it down, as an import from China. In fact, probably only about 5 per cent of the teddy bear is made in China, although it looks to be 100 per cent.

The point I would make to you is that we should not concentrate. We should look at where we're strong, what our consumers need and deal with whatever country, whatever firm suits our national interest.


Senator Fortin-Duplessis: You just said that, in trading relationships, we have to adopt, or go along with, the policies of different countries. Does that mean we have to turn a blind eye to corruption or defective infrastructures if we want to continue to do business with those countries? Because last week, it was announced that, from now on, we had to focus on business and trade.


Mr. Curtis: I would interpret the commercial exchange, international trade, investment and technology as encompassing literally everything, including even the organization of business and the behaviour of business. And that includes infrastructure, tax policy, human rights policy, labour policy and a health and safety regime.

``Trade,'' I think, is an expansive term and everything, every particular aspect of public policy is involved in international trade. If I may, I would refer to it, Senator Fortin-Duplessis, as an imperial subject, international trade, because it touches everything.

Senator D. Smith: To relieve you, I won't muse about my early trip to China when Mao was living —

The Chair: Thank you. We have very little time.

Senator D. Smith: — or Chrétien, or Team Canada, or even visiting Colin when he was consul.

But I'd really like both of your thoughts on what I regard as a litmus paper issue, and it's this disputed island issue. I mean, you've seen the videos; they're rocks. It's hard to make a case that it's a strategic defence thing. They really don't have a strong legal case, and it strikes me that this is really a muscle thing. It's an ego thing. It's kind of a statement, ``Look, we're a world power,'' and one of two. They passed Japan two years ago as the second strongest economy in the world, and they will pass the U.S., maybe not in my lifetime but within a couple decades, I'm sure.

I'm just wondering how both of you interpret this sort of muscle statement that's got to put their neighbours off a bit, but is there some benefit to this? How do you interpret this very aggressive disputed island claim?

Mr. Curtis: This is yours, Colin. I'll only make one point. Depends which islands one is talking about. I'll assume it's the ones in the East China Sea, not the south.

Senator D. Smith: Yes.

Mr. Curtis: If one looks at history, my understanding is historically those were Chinese islands, as was Tibet, but in the last hundred or so years they've been Japanese islands from the treaty. I'm not sure that history should dominate everything; it causes all sorts of troubles in other parts of the world, as we all know. But at least it's important to understand where China is coming from, not that it's excusable. If one at least looks at the history and tried to figure out if there is any basis of these territorial claims. Really, it's Colin's point.

Maybe I can make a final comment. I always say the Chinese and the Americans basically deserve each other.

Mr. Robertson: Senator, I would say that the history is disputed but, from a Canadian perspective, in the late 1980s and early 1990s we had something called the North Pacific dialogue. We were trying to be useful on this very subject with China and Japan. Joe Clark was Foreign Minister and Brian Mulroney was the Prime Minister. It was actually a useful initiative which we called track two, which I know this committee has heard about from other witnesses. I think that could be something useful that Canada could do.

I was recently at the Japanese ambassador's residence and they had over one of their scholars who was here to basically give us the Japanese perspective on those disputed islands.

Senator D. Smith: Make their case on it.

Mr. Robertson: He had a different perspective than that which John just outlined as to who owned what. But I asked him specifically, I said, ``Could we be helpful?'' And he said yes, the whole idea of a track two, of just getting the facts out. That's what I was talking about in my statement. This is dispute. Better they should be talking.

Senator D. Smith: What do you think is driving it?

Mr. Robertson: Partly, the new leadership in China has got to somehow try and — there has been for a long time an active nationalist movement. You just read some of the blogs translated from the Chinese. It would disturb you to read how anti-Japanese it is. I have witnessed this when I was in Hong Kong since then. Trying to contain that, they have to let a bit of the steam out and that's part of what we're seeing.

There are also those forces within China, because remember we have thosewho aren't happy to see the direction the new leadership is taking, which they see as perhaps too western inclined. So, from our perspective, it's important that this not get out of hand. The danger would be the kind of incident we saw in 2001 when an American plane knocked down a Chinese jet that got too close. Fortunately, at the time George W. Bush kept that thing from getting out of hand. You want to avoid this thing becoming more than it is.

I should share this with you. I was in Stanford January this year and met with Frank Fukuyama, the great political philosopher, and he said to me the one area of the world he really worried about, I asked him looking forward, was exactly what we are witnessing right now. He said he thought this could be the new Sarajevo. Don't forget, as I observed to the committee, in many ways China today is analogous to where Germany was in the last century, a growing economic power. We didn't handle Germany very well in the first half of the last century. We've got to be sure that we handle China much better this century because the stakes are much higher and the weaponry that we can employ are much more devastating.

Senator Johnson: Mr. Robertson, can I ask you something very important? I know how much work you do with the United States. Can you tell us what the short- and long-term implications for Canada's profile are in this region and these regions, with its November 2013 agreement with the United States on Asia-Pacific defence policy cooperation?

Mr. Robertson: We have managed the North Atlantic through NATO. We don't have anything similar in the Pacific and the United States, through its pivot, is starting to create a brace of agreements. They have some going back; they have a certain number of defence agreements already in place with some of the nations there, but the United States is determined it will put 60 per cent of its navy in the Indo-Pacific. They are trying to create a network, a kind of de facto alliance, which is similar to what has secured the sea lanes and kept trade flowing in the Atlantic for the last half century. It is in everybody's interests, including those of the Chinese, to ensure that those sea lanes are secure and, if this kind of an agreement can help manage that, that's a good thing.

Senator Johnson: Do you have a comment on that? I have a question for you, Mr. Curtis. What is your assessment of the Canada-China FIPA Foreign Investment Promotion and Protection Agreement? Was it a good deal for us and do you have concerns?

Mr. Curtis: On balance, to the extent I've looked at it carefully, I think it's fine. This is a regulatory instrument. It's not comprehensive, but none of our investment arrangements with anyone are totally comprehensive. I think more certainty and predictability in any economic relationship is better than less.

Senator Housakos: I'll try to be brief. Without a doubt, in the last couple of decades, trade between Canada and Asia-Pacific has been growing exponentially, in large part us shipping out natural resources to Asia-Pacific and, of course, receiving back finished goods. However, if you look at the same period of time as we've continued to exchange growth with our two main trading partners, the United States and the EU, two sectors that have also grown in large part have been our technological sector and our service sector. Those two sectors have grown in leaps and bounds with our trade with the United States and with the EU.

I would like your perspective in terms of those two sectors, vis-à-vis how they have been going in the last decade or so in the Far East, in the Asia-Pacific areas. What are the impediments, if there have been any, and what are the prospects for increased technological sector trade and service sector trade between Canada and Asia-Pacific?

Mr. Curtis: A lot of what has been going on is what we call the global value chains, and there has been much more trade in services and in technology than the statistics show. Partly it's because it's done through larger multinational companies — sometimes based in Europe, sometimes based in the United States and sometimes based here — who are trading bits and pieces. It is not direct Canada-Indonesia trade, for example, which is easy to measure because it's rocks and logs, but a lot of this goes on through global value chains.

Second, in terms of financial services, in particular, and other business services, the trade is quite vibrant. We've done really quite well. The problem is, it's very hard to measure a service, so to some extent what looks to be not great in fact is much better than we think and than the statistics show.

We certainly have work to do, there's no question, but if you look at Manulife, for example, if I may use a firm identification, it does very well in parts of Asia. Sun Life as well. Our banks haven't been as active. I think they were perhaps more active in Hong Kong years ago. There is all sorts of potential but, if I can summarize, in Canada's balance of service trade in terms of business services, commercial services, we run a surplus worldwide, including in Asia. It's just that we look at everything else. We look at tourism, we look at transport, we look at other services and say we're in bad shape. In terms of the things you were asking about, specific high technology quality services, we're running a surplus, so we're doing all right. It could be better, but we're doing all right, especially in the area that Mr. Robertson had mentioned, which is education. We should do much better. We just have to pretend; when there is snow on the ground, we have to colour it green so people aren't quite as worried about the Canadian winter.

Even that, our universities individually in communities are either bringing students here or setting up shop — both secondary education, as we're doing in Korea, or university — in fact developing or being partners of campuses in parts of the Asia-Pacific.

It's not great, but we're not as bad as we think we are.

Mr. Robertson: Obviously, this reinforces again the importance of having the agreements in place. What we're basically asking Asia to do is to sign up for trade architecture that we designed in the west. From our perspective, that's a good thing, the fact that China and India and other nations are doing so, which would take me to answer the FIPA question.

Yes, I think we should put into force the FIPA and continue to move forward, because that's one way to create openings for Canadian companies so they can trade with greater assurance and dealing with problems, intellectual property theft and things like that; but, at the same time, bringing Asia into how the West does business certainly works to our mutual advantage.

The Chair: I have three other questioners. I'm going to ask that the questions be put and perhaps both panellists can respond.

Senator Dawson: You are early in our process in the development of this study. Mr. Robertson, you mentioned Team Canada. I'm a big fan of Team Canada. I think it was a very good approach.

Mr. Curtis, you mentioned that we can't actually target different countries. We have to start focusing. Excluding China and India, if we were to have a Team Canada approach, what would be your target? I understand the question of transport, security and the Maritimes, but what are the countries that we should be targeting in our study?

Mr. Robertson: In my view, it's obviously the big ones.

The Chair: Let's ask the questions first, and then you can reflect on the answers together.

Senator Ataullahjan: Thank you. I had many questions, but I think I'll stick to the shortest one.

You mentioned that Canada needs to make contributions to security. What are you talking about specifically? Current involvement in Afghanistan, where we're there as teachers and trainers? Or are you looking at something more?

I enjoyed your references to Peshawar, Buzkashi and Khyber Pass. You know only the brave and the crazy go through that area now!

Senator Oh: Basically, I would like to make one point. Mr. Curtis, you mentioned about the disputed island that belongs to China, but back in history, the island was under China's control for a long time, since day one. In fact, when World War II was over, China had a civil war going on. The Chinese side was in a mess. They had no one to receive anything after the war, and the island was to be returned to China.

In fact, a few years ago, China was asked to defer the disputed island to the international court. But for the last 10 years, the new Japanese regime, which is more military style, started disputing the island. The dispute has escalated until today where so far, internationally, no other country has sided with Japan on the disputed island.

The Chair: I'll start with you, Mr. Robertson, to answer any of those questions or to make comments, and then I'll turn to Dr. Curtis.

Mr. Robertson: Senator Dawson, on Team Canada, I think it really does work, particularly because of the importance of having your political leadership be seen visibly to open the doors for business. This is how Asia works. It's not how the West works, but it's how Asia works, so that's another reason why expanding our diplomatic presence is a very good thing because the flag really does make a difference.

Again, this is not a partisan statement. Prime Minister Chrétien understood this, as did Prime Minister Mulroney and Prime Minister Trudeau. The Team Canada approach, in my observation, was the most effective approach because it involved our political leadership at various levels. The federal level, obviously led by the Prime Minister, makes a huge difference. The premiers do this already. The premiers have made several trips in the last few years to effect, particularly from Western Canada. I think that is something we want to encourage.

You asked about the countries. Obviously, the countries with the biggest market potential are China, India and Indonesia, but this is where I would endorse and take a hard look at the fine print in the government's new market survey, which they have just announced. They have actually broken things down aggregately: Here are the markets we want to look at. This is a very good thing. Forget about the politics of this economic diplomacy; we actually now have a blueprint of how to approach countries where we can make a difference. It was done by the hard work of people in the field and at home.

Again, I think there should be a Team Canada mission led by the Prime Minister every year involving premiers. It would be a very good thing.

On security, I think building our fleet is the biggest thing we can do, because that's the coin of the realm in terms of security. Being out there, it's a big ocean, and we do have to protect those sea lanes. The Americans have already signaled with sequester and budget cuts that they are looking to the allies to play up, and the Asians have told us that if we want to play, they want to see us contributing to that broader security. I would align to that, because Canada can do this extremely well. Both the Asians and the Americans have told me this.

If we were to hold the kind of track two Pacific dialogue we hosted in the late 1980s, early 1990s — and I used the Halifax International Security Forum as an example because it's a splendid example of a Canadian model that works extremely well. I would apply it, take it to the West Coast and discuss the kinds of issues we are talking about — the disputed islands and the rest — but I would make it about a balance of trade and security, and I would obviously include countries that are not currently democracies.

Mr. Curtis: We're waiting for the bells. If I may address Senator Oh, that's exactly what I was saying; the Chinese claims go way back. It was only from the war of 1895 when there was a change of ownership, at least for a longer period, in the last century or so. It's not entirely clear.

With respect to the question that was asked earlier, there is competition within China. We find that even in state enterprises; they increasingly compete with each other. There are different sources of competition within the country, and I assume this is one group exercising a bit of muscle with the new government in place.

Senator Dawson, I think I heard you say ``excluding China.''

Senator Dawson: Because the committee has been to China, and we have studied India, and not minimizing their importance, but —

Mr. Curtis: There are the bells. I would put Indonesia as number one. It's huge. There are almost 200 million people, and it's the core of ASEAN. ASEAN is based there. I would spend a lot of time there — never mind the smaller countries of Malaysia — and others, I think Korea, which is one reason I think we have to see the TPP through, because I think that's part of the ticket into these countries.

I go back to Mr. Robertson's point. It's important that one be at the table, at every table possible, and be sure of one's national interests, which are based on our economic objectives, I would argue primarily.

The Chair: I would like to thank the senators and, in particular, our panel, Mr. Robertson and Dr. Curtis. You've hit the button at 5:15, and we are obliged now to stop our committee meeting.

As you can see from the interest, I'm sure that you will be invited back for our usual time as we get into our study. We're going to narrow our study to certain issues. You've focused us very well today and I thank you for that. I look forward to our continued exchange.

Senators, we are adjourned until tomorrow morning.

(The committee adjourned.)

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