UofT G8 Research Group. From Birmingham 1998 to Köln 1999. Country Report: Canada

From Birmingham 1998 to Köln 1999
Country Report

Canada

~ Canada Contents ~ Country Objectives ~

Social, Political, And Economic Overview

Since the 1998 Birmingham Summit, Canada's social, political, and economic environment has been marked by labour unrest, government cooperation with the native community, the re-election of the separatist government in Quebec, political division on the right, and sustained economic growth. Socially, labour unrest has resulted in dramatically increased strike levels in Canada. Statistics show that Canada lost 292 work days annually per 1,000 workers between 1986 and 1995, the largest number of workdays lost to strikes among any of the G7 countries. Social stability has been enhanced, however, by federal and provincial government efforts to overcome longstanding social crises in native communities through the conclusion of several significant treaties. These treaties will increase Native peoples' control over their land interests and provide them with greater access to vital resources to implement social programs. Most importantly, however, it is anticipated that these treaties will secure a more stable relationship with the rest of the country.

On the political front, Quebec's separatist Parti Québécois (PQ) was re-elected on November 30, 1998 to a second consecutive majority government despite earning 1% fewer votes than the opposition Liberal Party. Although the popular vote figures raise questions regarding the outcome of another Quebec referendum on separation, Liberal leader Jean Charest has warned that such a vote is possible in the spring of 2000.

At the federal level, uniting Canada's Progressive Conservative Party with its right-wing counterpart, the Reform Party, into a so-called United Alternative has been a hotly debated topic, garnering greater support from the latter of these two parties. Many in the Conservative Party, including newly-elected party leader and former Prime Minister, Joe Clark, oppose the union. Therefore, the possibility exists for another split vote on the right of the political spectrum, which could propel the center-right Liberal Party to a third consecutive term in office.

In the face of economic slowdown in key Asian and Latin American markets, the Canadian economy had a respectable performance in 1998 and has started 1999 on a strong note. Of particular significance has been Canada's stellar trade record. In 1998, Canadian exports grew by 7.4% to $368.9 billion, almost double what Canadian business exported in 1992. While Canada's goods and services trade surplus was lower last year totaling only $10.9 billion, due to the financial volatility in global markets, export growth shielded Canada from the worst effects of the "Asian flu"; its increased shipments to the U.S. market more than offset reduced sales to Asia and other emerging markets.

As the U.S. economy continues to flourish in 1999, trade will remain a positive element of the external environment for Canada. Strong U.S. demand for Canadian products and renewed strength in domestic spending have translated into healthy employment growth. Job creation in Canada was very strong with over 450,000 new jobs being created in 1998, the large majority being full-time and in the private sector. Strong job performance continues in 1999, with 87,000 jobs having been created in January alone. While there was a rise in the unemployment rate from 7.8% in March 1999 to 8.3% in April 1999, the jump was due to an influx of 96,000 Canadians to the job market. Even with the April increase, however, the unemployment rate is over 3% lower than it was shortly after Jean Chrétien's Liberal Party first took office in October 1993.

In its semi-annual monetary report released in May 1999, the Bank of Canada sounded upbeat about the Canadian economy, predicting two years of solid, if not spectacular, growth with inflation rising gradually but remaining below 2%. The report said that "the Canadian economy has regained momentum over the past six months." The bank has raised its forecast of growth this year to a range of 2.75% to 3.25%, and expects the economy to expand at a similar pace next year.

Canada's Priorities For The Köln Summit

Canada will have five top policy priorities at the Cologne Summit: 1) improving the stability of the international financial system; 2) gaining consensus on a diplomatic resolution to the Kosovo crisis; 3) enhancing debt relief for the least developed countries; 4) establishing a feasible structure for the upcoming round of WTO trade negotiations; and 5) reinforcing the credibility of the Nuclear Non-Proliferation Treaty.

Canada's ability to achieve these objectives are enhanced as a result of its continued economic and fiscal credibility, Prime Minister Chrétien's significant popular support at home, and Canada's continuing international presence and activism. Despite the ongoing global financial crisis, Canada achieved a multi-billion dollar budget surplus and maintained strong economic performance, evidenced by the creation of almost a half million jobs in 1998 and supported by record growth in exports. Furthermore, as of May 13, 1999, the governing Liberal Party had 57% popular support, three times more the figure of each of the remaining four parties. Finally, Canada's chances for success at the Summit will be improved by its international credibility and leadership in various international fora such as the UN Security Council and the negotiations of the Free Trade Area of the Americas, and by Chrétien's status as a senior statesmen within the G8. With Cologne being Chrétien's sixth summit (the number of summits attended surpassed only by President Clinton), Canada will have the benefit of an experienced leader and effective delegation.

1) International Financial System

Canada's top priority at the Cologne Summit will be to continue the progress on promoting stability in the international financial system. Since the 1998 Birmingham Summit, the G7 Finance Ministers and their Central Bank Governors have met at various times throughout the year to create a plan for a co-ordinated response to deal with the global financial turmoil. The creation of the Financial Stability Forum at the meeting in Bonn, Germany in February was a response to the call by Finance Minister Paul Martin last spring for a better international network of national regulators and supervisory authorities to prevent financial crises. Commenting in Bonn, Minister Martin said, "we must work together to build the kind of global financial architecture that will prevent or minimize economic crises in the future. I am encouraged by measures aimed at ensuring greater transparency and promoting effective co-operation and co-ordination among international institutions, regulatory bodies and supervisory bodies."

In Cologne, Canada will call for greater progress in the work of 'virtual institutions' such as the newly created Financial Stability Forum. On the issue of monetary exchange rate systems, Canada will push for the adoption of a "standstill provision" which would prevent rapid outflow of private sector capital during financial crises. Under the plan, governments of affected countries would restrict the movement of capital by declaring a "cooling off" period. In particular, Martin's new global lending rules would prohibit foreign financial institutions from transferring money out of countries during crises and into their home nations or third countries. Furthermore, governments would be allowed to declare a moratorium on payments of principal and interest for government bonds. Canada will also recommend greater scrutiny before loans are given, and more rational ways of dealing with unpredictable events.

With monetary and financial architecture for the global economy being high on the Germans agenda for the Cologne Summit, it is likely that Martin's standstill provision will be a topic of discussion, but whether it will receive strong endorsement in the communique remains to be seen. The standstill provision is not very popular among the G7 countries except for Britain and France, who have adopted similar type plans. The United States, however, is strongly opposed to this type of measure as it would restrict private capital flows.

2) Kosovo

Canada will seek to develop consensus on the General Principles on a Political Solution to the Kosovo Crisis, drafted by the G8 Foreign Ministers on May 6, by bridging the divergent interests that exist between Russia and its G8 partners. Yugoslav President Slobodan Milosevic has not rejected the principles but has stated that Yugoslavia must be part of the negotiations leading to a future agreement. Given Yugoslav indications that a diplomatic solution is possible, there is renewed emphasis on pressing for such a solution. Canada's Foreign Minister, Lloyd Axworthy, stated at the end of May, "frankly, right now our effort is a full-court press to go to the diplomatic side."

Although there is disagreement among the G8 countries over the deployment of ground forces, there has been consensus on the need to press for progress on the diplomatic front. Diplomatic efforts between the G8 countries has been relatively constant and will undoubtedly be a major part of the talks between the ministers and the leaders. With NATO asking for 50,000 more troops, Canada will likely push for a solution on the diplomatic front given recent indications that its military capacity has been stretched to the limit. Since Canada has remained quiet on the subject of the use of ground troops, it will have greater leverage to use as a mediator in resolving the differences between its G8 partners.

3) Debt Relief

At Cologne, Canada will seek to enhance the World Bank/IMF Heavily Indebted Poor Country (HIPC) Initiative by reducing the time it takes to qualify for debt relief from six years to three years, widening the criteria used to define a "heavily-indebted" country, expanding the number of countries defined as a HIPC, increasing funding to the World Bank's HIPC Trust Fund and/or the IMF's Enhanced Structural Adjustment Facility, and supporting the sale of 10 million ounces, or more, of IMF gold reserves to help finance expanded HIPC debt relief. To buttress multilateral debt relief efforts, Canada will also support bilateral relief by advocating the forgiveness of 100% of Paris Club debt, 100% of bilateral development assistance loans, and by suggesting that all future development assistance be provided on a grant basis rather than as loans. Enhancing debt relief is a Canadian priority. Canada has already implemented a number of these recommendations, and, as of February 28, 1999, was the only country to have actually placed money (totaling $26 million) in the HIPC Trust Fund. In late March, Prime Minster Jean Chrétien diverged from the statements made by other G8 members and declared that, "should there not be a multilateral . . . agreement to write down 100 percent of bilateral debts for LLDCs, Canada would proceed unilaterally with bilateral debt agreements."

The summit communique will likely reflect the bulk of Canada's bilateral debt relief initiatives. Although there is less consensus on the specific changes that are needed for HIPC, agreement is likely on the need to expand eligibility for HIPC debt relief and reduce the time needed to become eligible for debt relief, and on the sale of up to 10 million ounces of IMF gold reserves to finance new debt relief.

4) Multilateral Trade

Canada may use the Cologne Summit to promote its preferred structure for the upcoming trade talks at the World Trade Organization (WTO). Since exports account for 40% of Canadian gross domestic product (GDP) and for one-third of its jobs, Canada is interested in a successful round of talks that will not be compromised by being too narrow or too broad in structure. Canada's proposal adopts a middle ground between the American sector-by-sector approach, and the all-or-nothing comprehensive negotiations desired by the European Union and Japan. Canada's approach would involve discussing a wide range of topics, but as agreements are reached in individual or groups of sectors, they would be implemented in a "timely" manner (i.e., implementation would not have to wait until all sectors are successfully negotiated, as Japan and the EU would prefer).

Some reports in Canadian media suggest that a degree of consensus is building around Canada's idea. Given the apparent lack of compromise at the recent Quad Meeting in Tokyo between Canada, the EU, Japan, and the US, however, it is unlikely that the G8 will endorse any one position in Cologne. The leaders may prefer to leave the details for future negotiations amongst officials and with other WTO members.

5) Nuclear Disarmament

At the Cologne Summit, Canada will seek to reinforce the Nuclear Non-Proliferation Treaty (NPT). In April 1999, a Government policy statement asserted that "[p]romoting universal adherence to the Treaty is a Canadian priority" because that is the only way to secure the eventual "elimination of nuclear weapons entirely." According to the statement, however, "[t]he nuclear weapons tests by India and Pakistan [in May 1998 and April 1999] have called the entire nuclear disarmament and non-proliferation regime into question." Therefore, Canada will try to reinforce the NPT by seeking a G8 statement that calls on India and Pakistan to sign the NPT as non-nuclear states, refrain from future tests, and halt the development of nuclear capable missiles.

A statement to that effect has a good chance of being endorsed. A similar appeal was made at the Birmingham Summit in 1998, and the Indian and Pakistanian ballistic missile tests in April 1999, and the more recent border clashes over the disputed Kashmir territory, may give rise to the sense that a renewed appeal is needed. Increased dialogue between India and Pakistan in recent months, however, may lead to a more positive G8 statement that welcomes the greater interaction, and encourages the advancement of regional stability through the above treaties.

Nonetheless, nuclear disarmament will be a relatively minor issue at the summit, and is unlikely to receive much attention by the leaders. Therefore, if the urgency that the Canadian government feels on this issue is to be reflected in the communique, Mr. Chrétien will have to impress upon the other G8 countries the threat that the April 1999 ballistic missile tests by Pakistan and India pose to global non-proliferation and nuclear disarmament.

Prepared by Jason Krausert, Eleni Maniatis and Mike Youash, May 1999.