[asia-apec 998] The Real APEC Scandal 2/2

[Jonathan Oppenheim]

This, of course, comes as a shock to most Canadians. In the Pearson-era
foreign-policy paradigm, Indonesia would have been perceived as the needy
partner: a "developing" country in need of our patient tutelage and starved
for our economic largesse. According to the rules in force in the global
economy circa APEC '97, however, it was Indonesia, with its fast-growing
emerging market, that was the economic powerhouse, and Canada, with its
continued reliance on natural resources, that was the workhorse - which is
precisely why Canadian officials had to work so awfully hard to win
Indonesia's favour.

        In a paper published in the spring before the APEC Summit, Axworthy
wrote about "startling changes to the hierarchy of the world's leading
nations." The most startling change was the ascendancy of the Asian Tigers
- Hong Kong, Singapore, South Korea, Indonesia, Malaysia, and Thailand -
which led, in turn, to a creeping realization among Canadian Foreign
Affairs officials that as poor countries began to move up from the bottom
of the global hierarchy to the middle, previously middle-power nations like
Canada were getting pushed down. Canada's share of total global foreign
investment has slipped from 11 per cent in 1980 to 4 per cent in 1997,
mostly as a result of more investment heading for China and the Tigers. As
Axworthy writes, "These new players compete with Canada for market share
and quality investments. . . ." A 1997 Industry Canada discussion paper is
more blunt: "Canada has lost its position as one of the world's most
important host economies."

        The Chrétien government's strategy for dealing with Canada's
shrinking global market share has been to try to compete with the emerging
economies by aggressively building up trade and investment ties with them.
If Canada's portion of the global trade pie is heading south, the thinking
goes, then so too must Canada. A consensus developed in Ottawa under the
Liberals that only in the emerging markets of Latin America and Asia would
Canada hold on to its status as a middle power, finally get out from under
the thumb of the U.S., and, as Axworthy put it in March, 1997, find "the
key to tomorrow's prosperity and stability." Few countries held more
promise than Indonesia, which, according to the Department of Foreign
Affairs and International Trade (DFAIT), "has been Canada's largest and
fastest-growing export market in Southeast Asia."

        How all of this activity is meant to pave the way to Canada's new
prosperity remains slightly unclear, but the rationale is something like
this: rather than waiting for the investment dollars that used to come to
Canada and are now going to countries like Indonesia, Canadian companies
must plunge themselves into the global marketplace. Rather than competing
for investment with Indonesia - a country with a population of 203-million
- Canadian companies should turn Indonesia's size to their advantage by
selling their goods and services to the Indonesians.

        And so a fundamental realignment has taken place within the federal
government. Securing access to new markets for Canadian firms has always
been one part of Canada's international-relations policy, but over the
course of the past decade it has grown to become the central mission of the
Department of Foreign Affairs and a major concern for the Prime Minister's
Office. The "Team Canada" concept was launched by the Liberals in 1994 as a
way for the prime minister to lead the charge into new frontiers. Since the
first mission to China in 1994, Chrétien has personally led five
multi-country trade missions to Asia and Latin America. The goal of these
missions is simple enough. In the language of one Team Canada brochure:
"Positioning Canadian companies to take advantage of trade and investment
opportunities by establishing a strong presence in the world - that is what
Team Canada is all about."

        In Latin America and Russia, Team Canada missions tend to focus
more on finding opportunities for Canadian investment overseas than on
finding new markets for Canadian goods. Among the Asian Tigers, however,
where demand for consumer goods and raw materials was - until the recent
economic downturn, anyway - rising rapidly, Team Canada has focused on
pushing Canadian exports. Even the investment side of these missions was
regarded as a back-door route to increase our trade: according to André
Lemay, a DFAIT spokesman, "by establishing joint ventures in countries like
Indonesia, you are pretty sure that increased exports will follow." These
exports take the form of Canadian-made mining equipment being shipped to
Jakarta, Canadian research going into Indonesian power plants, and Canadian
chemicals being used in Indonesian factories. This is good for Canada, the
argument goes, because when our exports rise more jobs are created back
home. According to a much-quoted government statistic: "every $1-billion in
exports creates or sustains 11,000 jobs in Canada." Little wonder, then,
that a policy of increasing exports has become the centrepiece of the
Liberals' job-creation programme, with exports now playing a rapidly
growing role in the Canadian economy. In 1992, exports were the equivalent
of 28 per cent of GDP; in just six years, that figure has gone up
dramatically, to 41 per cent.

        With so much riding on the success of trade with Asia, the Canadian
government's response when Suharto threatened to shut the door before APEC
was straightforward enough: keep the door open for Team Canada. In
retrospect, the irony is that Suharto was hardly in a powerful bargaining
position. His country's currency was down 40 per cent and, as we now know,
his people were getting ready to revolt. If anything, however, Indonesia's
troubles appear to have made Canada's bargaining position more desperate.
Not only did the Chrétien government have to live up to the hype of Team
Canada, it also had a more pressing concern: the future of this country's
vulnerable and volatile natural-resource industries. For it was natural
resources that we were shipping to Indonesia in such volume - not cars, not
software, but trees and wheat.

        This fact isn't one that is trumpeted much at DFAIT. Our government
is forever having to correct people who say that Canada is a resource-based
economy, one trading in unprocessed agricultural goods and natural
resources like fish, oil, and timber. That, they will tell you, is a myth.
"In recent years, the structure of the Canadian economy has changed,"
explains the Government of Canada Web site. "Over the past quarter century,
resource exports have become a less important part of Canada's trade mix. .
. ." Today, they point out, only 36 per cent of Canada's merchandise
exports come from bundling up and shipping out what God gave us. The rest
of our exports are highly processed goods and services embedded with the
value-added of skilled labour and sexy technologies. Ours is a diversified,
knowledge-based, industrialized, advanced economy - certainly not one that
is pegged to the roller-coaster ride of commodities prices.

        And there is some truth to this claim - if, that is, you are under
the impression that Canada is nothing more than Ontario and about half of
Quebec. The shift away from natural-resource exports has been heavily
concentrated in central Canada; only 10 per cent of Ontario's exports are
from natural-resource industries. For vast stretches of the rest of this
country, however, foreign trade is still all about fish, wheat, oil, logs,
and livestock. Natural resources, including agricultural products, make up
79 per cent of Atlantic Canada's merchandise exports, 80 per cent of
Alberta's, 74 per cent of Saskatchewan's, and 77 per cent of B.C.'s. In
central Canada, most exports head for the relatively stable U.S. market; 91
per cent of Ontario's exports, mostly manufactured goods, go to the United
States. But Canada's commodity exports head to all corners of the world
market - and, in keeping with our love affair with the Tigers, a growing
proportion of them, in the mid-1990s, was going to Asia.




Afraid of being left behind, Canada charged into Asia's emerging markets
with a sheaf of wheat in one hand, a log in the other, and a pig trailing
behind - ready to trade those resources for sweatshop-produced Nikes,
computers, and VCRs. This strategy - or lack of one - placed Canada's
resource industries at the mercy of recent falling commodity prices and
sudden drops in demand. B.C.'s exports to Asia - one third of its export
market - dropped by 46 per cent between January, 1997, and January, 1998.
And it's not only B.C.'s loggers who are getting hit. When demand takes a
nose-dive in the precarious commodities industries, wheat farmers in
Saskatchewan sell their family farms; hog farmers in Manitoba shoot their
baby pigs because it's cheaper than feeding them; and rosy budget
projections in oil-rich Alberta have to be realigned. It's easy not to
notice from Toronto or Montreal, but in most of Canada the global economic
crisis has already arrived. So yes, all the Asian Tigers were in bad shape
in the run up to APEC '97 - but every indication pointed to the likelihood
that Canada was about to get dragged down with them.

        The most dramatic case is that of the prairie farmers. Governments
have cut direct subsidies to Canadian farmers by 60 per cent in the last
five years alone. The idea was that the lost revenue would be made up for
by increased exports to Asia through deals struck on Team Canada trade
missions. Canadian politicians believed so fervently in the Asian
"miracle," in other words, that they were willing literally to bet the farm
on it. Of course, we now know the ending of this story: farm incomes in
Saskatchewan fell by 72 per cent between 1997 and 1998 and income
projections for next year are even more grim. And no wonder: in 1996-1997,
Canadian farmers exported more wheat to Asia than to the rest of the world
combined.

        This reliance on natural-resources exports is the defining
characteristic of our trading relationship with Indonesia. Our two most
significant exports to Indonesia are wheat and wood pulp. Furthermore,
Ottawa has gone to great lengths to encourage Indonesia to purchase even
more Canadian wheat. On the 1996 Team Canada mission to Indonesia, a deal
was struck between the Canadian Wheat Board and the Indonesian noodle
monopoly, Indofood. The five-year letter of understanding, valued at
between $1.5-billion and $2.2-billion, made up the bulk of the trade
mission's $2.76-billion haul. "Indofood," said Manitoba Premier Gary
Filmon, "will be the largest private customer of the Wheat Board anywhere
in the world."

        The first year of the megadeal went as planned: between 1995 and
1996, Canadian wheat and durum-wheat exports to Indonesia more than
tripled, going from $101-million to $352.7-million. Then the crisis hit,
and the Indonesians were unable to keep up their end of the deal with
Canada's wheat farmers. The solution the Chrétien government came up with
speaks volumes about its desperate position in the face of an export policy
coming apart at the seams. In April, 1998, Canada delivered a $280-million
aid package to Indonesia, $250-million of which took the form of "export
credit guarantees" so that Indofood could continue to "buy" Canadian wheat.
This arrangement is in stark contrast to the strategy adopted by the
Americans, who are buying wheat directly from American farmers and
distributing it to Indonesia and other countries as food aid. Most
Indonesia watchers agree that the American model is far more likely to get
wheat into the hands of hungry Indonesians, while the Canadian model
essentially subsidizes Indofood, a company with close ties to the corrupt
Suharto empire.

        The Canadian trade-and-aid option has one major advantage, however,
and it has little to do with hungry Indonesians. By giving the money to
Indofood, the Liberals are able to issue deceptively optimistic report
cards on the state of our export-driven economy, and Chrétien doesn't need
to admit that those impressive figures from his trade mission have
evaporated into thin air. In this neat trick, wheat - even when we are
paying the Indonesians to buy it from us - is still classified as a
legitimate export, a paper shuffle which disguises the extent of the
damage. For instance, according to Industry Canada figures, between 1996
and 1998 our total exports to Indonesia dropped dramatically, from
$946-million to a projected $488-million. However, if the money we are
lending Indonesia to buy our wheat is subtracted, the real figure is down
to a hair-raising $238-million.

        Our government has been less successful in covering up the trauma
caused by an over-reliance on logging-industry exports. Once again,
Indonesia's role is significant. Though not the largest importer of
Canadian forestry products (before the crisis, Japan bought 43 per cent of
B.C.'s forestry exports), Indonesia is nonetheless an important
destination. In 1996, Canada exported $571-million in logging-related goods
to Indonesia. By 1997, however, the figure had been cut in half, to
$253-million, with further reductions projected for 1998. Like the wheat
farmers in Saskatchewan, the B.C. forestry industry is currently
experiencing its worst year in decades.

        Despite the government's attempts to gloss over it, our exports to
Asia have been driven by those very natural resources this same government
has been saying we must wean ourselves off in favour of a more diversified
trade strategy. The fact that so much of our export portfolio comes from
precarious industries like forestry and agriculture means that entire
provinces are now being broadsided by something happening on the other side
of the world.




In a global economy, no nation is fully protected from international market
turbulence, but Canada's situation contrasts sharply with that of other
industrialized countries and explains why our politicians were so meek in
the face of Suharto's threats. The main exports sent to Indonesia from
France, Japan, Germany, and the U.K., for example, were all consumer goods
and heavy machinery - none were raw resources or commodities. These goods,
while not immune to market turmoil, are certainly subject to less
volatility. Not only do the prices of manufactured items remain relatively
stable, but manufacturers are able to respond to dips in demand more deftly
than farmers.

        As APEC '97 approached, the atmosphere must have been tense in the
halls of the Department of Foreign Affairs and International Trade. Though
the full extent of Asia's impending combustion was still unknown, a
combination of the department's most aggressive policies - the growing
dependence on export revenues, the concentration of our attention on the
Pacific Rim, the over-reliance on natural resources (combined with the
dramatic cuts the government had made to farm subsidies) - were about to
decimate large sections of the Canadian economy. If, in the APEC documents,
Canadian politicians seem to be approaching Suharto's threat with a degree
of panic, that could well be because their entire trade policy was about to
blow up in their faces.

        It's a fair bet that Indonesian officials were aware of this too.
As any Third World economist knows, the best route to an unstable economy
and an unequal relationship with a foreign power is to be dependent on
natural-resource exports - particularly just a few natural-resource
exports. The United States was able to exercise tremendous political
control over Central American and Caribbean economies earlier this century
because of those countries' reliance on just one crop: sugar, say, or
coffee, or bananas. By failing to diversify our economy, and by creating an
export policy dependent on a very few natural resources, Canada handed over
to the Indonesians - as well as other trading partners - an unhealthy level
of control. As the APEC documents clearly show, when the Indonesian
officials looked at Canada, they weren't thinking about Pearson's grand
legacy at the UN, or our free-trade leadership with NAFTA. They were
looking at the trade ledger and thinking: banana republic - weak,
malleable, resource-rich, dependent.

        And as the APEC documents also show, that is how officials of the
Department of Foreign Affairs and International Trade - behind closed doors
- see Canada as well. When the anxious memos from 1997 are placed side by
side with the idealistic speeches of Lloyd Axworthy, the picture that
emerges is of a country with two foreign policies: the public one, in which
Canada is still a respected middle power, striding across the world stage
proudly and confidently; and the private one, the one expressed behind the
scenes, when the public is not expected to be watching, in which Canada is
a servile nation, dependent on the whims of foreign leaders, with little to
ship out to the world but our bountiful natural resources.

        The country being discussed in the hastily written memos gathering
dust in the APEC document room is the real Canada, stripped of all the
sentimentalism and boosterism that usually cloud any clear-headed
examination of our country's place in the world. That this is the gift of
the documents is no small irony, considering that so many of them were
introduced with the obvious purpose of further muddling the hopelessly
confused RCMP Public Complaints Commission. And yet here they are. Away
from microphones, podiums, and television cameras, our politicians and
their aides were free to express Canada's true foreign policy in all of its
scrambling desperation and banal pragmatism.

        If Canada has any hope of exerting in the future the kind of
international influence that we did during Pearson's era, surely we will do
so by reinjecting principle into our morally bankrupt foreign policy; by
developing, not abandoning, the qualities that made it strong in the past.
Poor Lloyd Axworthy is under the impression that he is already leading
Canada in these proud footsteps - that "the work we are doing today to
promote democracy, human rights and peaceful settlement of disputes is very
much in the 'Pearsonian' mould." In truth, the Pearson legacy has been
relegated to a series of lofty speeches and isolated campaigns: talking
about "human security" at the Security Council and leading the
international fight against land mines. Like his fellow anti-land-mine
crusader, Princess Diana, our Foreign Affairs minister is trying, with
heartfelt speeches, to find redemption from a lifetime of shopping: she in
designer boutiques, he on Team Canada missions with Asian dictators. The
story on offer in the APEC document room suggests that this redemption is,
regrettably, more elusive today than ever before.

Copyright Saturday Night Magazine Ltd.





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